Boston Scientific Corp. (NYSE:BSX) CEO Ray Elliott said the embattled medical device maker has finally begun to turn the corner, telling analysts on a conference call that its on track to achieve double-digit earnings growth in the near term.
"The Boston Scientific turnaround has begun to show its face," Elliott proclaimed. "The heavy lifting will be done by the end of the year. BSC will be back stronger than ever."
That confidence seemed to play on Wall Street, where BSX shares were up 4.5 percent to about $7.40 just before 10 a.m. today. Boston Scientific announced a first-quarter profit of $20 million after the market closed yesterday, posting $1.93 billion in sales and reversing a $1.6 billion loss on $1.96 billion in sales during Q1 2010.
The results included a $723 million estimated goodwill impairment charge associated with its U.S. CRM business unit during the quarter. CFO Jeff Capello told analysts today that the downgrade was based on Boston Scientific’s dim assessment of the U.S. CRM market. Forecasting declining sales in the mid-single digits over the short term and flat sales farther along, Capello said increased pricing pressure, weakening procedure volumes and the one-two punch of a Journal of the American Medical Assn. study and a U.S. Justice Dept. probe were all contributing factors.
"As we reviewed the comparables data for the fourth quarter, and looked at the rate of implants, we saw a softening," Capello said. "It’s really kind of a temporary blip over the next couple of years."
That’s in contrast to the prevailing view at one of BSX’s main CRM competitors, St. Jude Medical Inc. (NYSE:STJ). CEO Daniel Starks told analysts that the JAMA study had little effect on his company’s ICD sales.
“When you look closely at the percent of the available population that is potentially impacted by the JAMA article, it amounted to just a very small percent of the total opportunity and really was not material on a total global basis when we look at the anticipated growth rate of the global CRM market,” Starks said.
The study reviewed 111,707 defibrillator implants and showed that 22.5 percent of patients fell short of medical guidelines required to receive the $25,000 devices. Although the review didn’t discern why doctors weren’t sticking to guidelines, author Dr. Sana M. Al-Khatib told the New York Times that physicians’ lack of knowledge and awareness of the guidelines were the likely culprits. The report sparked fears among some cardiac device makers that renewed scrutiny could have a chilling effect on sales.
That’s apparently not the case, according to St. Jude officials. The St. Paul, Minn.-based company reported a 9 percent bump in ICD sales during the first three months of 2011, to $762 million.
For its part, Boston Scientific seems content to ride its drug-eluting stent portfolio. Elliott, Capello and CRV president Hank Kucheman all stressed the coming market appearance of BSX’s next-generation Element DES platform, which uses a platinum-chromium stent and two drugs, its workhorse paclitaxel for the Taxus line and everolimus for the Promus line. The Promus Element is slated to hit the market in mid-2012, they said.
"Our DES business is extremely strong, stronger than we expected," Capello noted. "We think the Promus Element is on or ahead of schedule."