Boston Scientific Reports Quarterly Loss, Plans Job Cuts

By JIM McCARTNEY, Pioneer Press, St. Paul, Minn.

Oct. 15–Boston Scientific reported its first quarterly loss in more than four years Friday, and the fast-growing company also plans some job cutbacks, but apparently none will affect Minnesota.

A $750 million legal settlement and a decline in U.S. sales of its top product, the Taxus drug-coated stent made in Minnesota, led to the third-quarter loss, according to the Natick, Mass.-based medical device firm.

Most job cuts — the number of which was not specified — will come out of Boston Scientific’s Japan operations and some human-resource functions that will be “outsourced,” the company said. Officials would not talk publicly about U.S. job cuts, but they doubted there would be an impact at its stent division headquarters in Maple Grove or its plant in Plymouth.

The state of Minnesota has received no warnings of any impending layoffs, said Kit Borgman, a spokeswoman for the Minnesota Department of Employment and Economic Development. Such a notice is required if the company were to lay off more than 50 employees. The company’s Minnesota work force of more than 3,500 employees has more than doubled in the past decade.

Sales of Taxus heart stents, the company’s top product, dropped 6 percent to $601 million in the third quarter because of a 20 percent decline in U.S. sales, which account for two-thirds of Boston Scientific’s stent market. Stents, which are tiny mesh tubes that doctors use to keep open arteries that have been cleared of blockages, accounted for 42 percent of revenue last year.

Taxus sales declined because of archrival Johnson & Johnson’s aggressive marketing campaign for its Cypher stent, which attacked the safety of Taxus in citing several studies published in the spring, said Thomas Gunderson, an analyst at Piper Jaffray Cos. in Minneapolis.

Boston Scientific’s share of the U.S. market has slipped to 55 percent compared with 45 percent for New Jersey-based Johnson & Johnson. Boston Scientific started the year with a 60 percent share of the market.

“That (smaller market share) was expected,” Gunderson said. “What wasn’t expected is that the overall market is smaller than anticipated.”

The drug-coated stent market appears to be a victim of its own success, Gunderson said. About 10 to 15 percent of the bare metal stent market came from repeat procedures in patients whose blood vessels had closed again. But the drug-coated version is more effective in keeping arteries from re-closing. In fact, while the anticipated repeat procedure rate for drug-coated stents is 5 percent to 6 percent, the actual rate is closer to 1 percent to 2 percent, he said.

In a marketing strategy aimed at recapturing sales, Boston Scientific said Thursday it will replace its Taxus stents in the U.S. at no charge if the device fails to keep a blood vessel open in its first year.

Also, at a major stent industry conference starting Sunday in Washington, D.C., Boston Scientific is expected to release studies easing safety concerns, Gunderson said. But even convincing evidence may take awhile to work its way into stronger sales, and competitors are expected to use clinical studies to tout their stents, he said.

“We will see more battles of the data,” Gunderson said.

Shares of Boston Scientific fell Friday 44 cents to $23.86.

Boston Scientific’s third-quarter loss of $269 million, or 33 cents a share, compares with a profit a year earlier of $258 million, or 30 cents a share. Sales rose 2 percent to $1.51 billion.

Much of the loss was because of Boston Scientific’s agreement to pay $750 million to Jerusalem-based Medinol Ltd. to settle a dispute over an unfulfilled contract to jointly make stents. The after-tax cost of the agreement in the quarter was $598 million, the company said. Boston Scientific had set up a secret factory in Ireland and duplicated the Medinol technology to dissolve its partnership with Medinol, according to court papers.

Excluding the legal settlement and other one-time charges, Boston Scientific said third-quarter earnings were 42 cents a share, 2 cents under the average estimate of 44 cents in a survey of 30 analysts by Thomson Financial.

Bloomberg News contributed to this story.

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