If Boston Scientific (NYSE: BSX) were to break up its cardiac rhythm management business into a cardiac unit and an interventional cardiology unit as Reuters reported, the move will spell the recognition that an integrated sales force could not bring about lowered selling costs without an accompanying loss in revenue.
That is the opinion of Morgan Stanley analyst David Lewis, who wrote in an investor note Wednesday that the reported break up “is an important strategic change that could improve growth, though it may reduce SG&A (Selling, General and Administrative) [expenses] leverage.”
If Boston Scientific were to go down this path, it basically unravels and reverses the strategy that former CEO Ray Elliott implemented when he combined the cardiac rhythm business, consisting of pacemakers, defibrillators and other cardiac products, with the interventional cardiology business, that includes Boston Scientific’s catheter and stent systems.
On Feb. 10, 2010, when he announced the changes Elliott said:
“The actions we are announcing today will provide the organizational structure and leadership needed to execute our strategic plan and fulfill the enormous promise of this company,” said Ray Elliott, president and chief executive officer of Boston Scientific. “They are aimed at driving innovation, accelerating profitable growth and increasing both accountability and shareholder value. Above all else, they will help us better serve our customers and their patients.”
Lewis believes that the move did not bear fruit as expected because Boston Scientific’s competitors did not similarly integrate their selling operation.
Boston Scientific’s “Cardio integration has helped drive leverage, but it may have also contributed to recent share loss and growth deceleration, particularly because competitors have not been as aggressive in integrating sales channels,” Lewis said in his research note. “Considering the importance of driving a growth acceleration with Cameron Health (S-ICD), Atritech (LAA) and Sadra (percutaneous valve) product launches,Boston may be realizing independent divisions are necessary to execute on the pipeline.”
Cameron Health’s S-ICD product that the company acquired earlier this year, is something Boston Scientific executives have high hopes for. LAA refers to the left atrial appendage closure device – the Watchman – that Boston acquired by buying Atritech and Lotus Valve system is the percutaneous valve replacement technology Boston Scientific obtained when it acquired Sadra Medical.
Separately, Reuters reported, the company is also planning additional layoffs.
[Photo Credit: Freedigitalphotos user Idea go]
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By Arundhati Parmar
Arundhati Parmar is the Medical Devices Reporter at MedCity News. She has covered medical technology since 2008 and specialized in business journalism since 2001. Parmar has three degrees from three continents - a Bachelor of Arts in English from Jadavpur University, Kolkata, India; a Masters in English Literature from the University of Sydney, Australia and a Masters in Journalism from Northwestern University in Chicago. She has sworn never to enter a classroom again.More posts by Author
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