Boston Scientific Corp. (NYSE:BSX) could look to sell of a business unit to make up for a projected $470 million shortfall stemming from the shutdown of its defibrillator operation, according to analysts.
Wells Fargo Securities analyst Larry Biegelsen is projecting a $469 million loss in defibrillator sales over the next two years for the Natick, Mass.-based medical device maker — as St. Jude Medical Inc. (NYSE:STJ) and Medtronic Inc. (NYSE:MDT) pick up market share from their stalled competitor — according to the Boston Globe, citing a report from Bloomberg News. Biegelsen previously estimated that the halt is costing Boston Scientific $5 million a day.
Other analysts told the Reuters news service that BSX could look to sell off its pain management (also called neuromodulation) or neurovascular intervention businesses to cover the losses. Citibank analyst Matthew Dodds said the neuromodulation business alone could fetch up to $1.6 billion, most likely from Johnson & Johnson (NYSE:JNJ) or Abbott (NYSE:ABT). Dodds pegged the neurovascular intervention business as worth up to $1 billion if sold.
But another analyst said BoSci might need only to stand pat to weather the storm.
“Selling the neuromodulation business would get the highest multiple, and it’s not particularly profitable for Boston [Scientific], so it makes sense if they want to raise money quickly,” Gabelli Health and Wellness Trust Mutual Fund portfolio manager Jeff Jonas told Reuters. “But they don’t absolutely need to do anything.”
BSX CEO Ray Elliott took the reins last year with promises to expand the company’s reach into other markets, citing women’s health as a possible target, so contraction is likely not high on his list. But Boston Scientific is carrying a huge debt load, with about $2.7 billion due in 2011, and billions due in legal settlements over stent patent infringement lawsuits and a kickbacks scandal involving its ill-fated 2006 acquisition of Guidant Corp.’s defibrillator business.
“It’s probably not his first choice,” Tim Nelson, an analyst with FAF Advisors, said of a potential unit sale. “This ICD recall issue could be the catalyst that would force him to consider such a draconian move. The longer this goes on, the higher the probability he’ll have to do something to improve liquidity.”
Boston Scientific was expected to refinance some of its debt this quarter, “but the recall has put that on ice,” Dodds said.
“Ray is like a good coach with a bad team,” he said. “You can only coach the players you have. Ray likes a challenge and this is a challenge, though it’s probably a tougher challenge than he realized.”