Devices & Diagnostics

Boston Scientific Corp. continues to struggle in jump-starting growth

After listening to the two-hour, patience-testing, mind-numbing, butt-hurting endurance test otherwise known as Boston Scientific Corp. (NYSE: BSX) earnings conference call, two things immediately came to mind. One: I never want to do that again. Two: the medical device giant, based in Natick, Massachusetts but with major operations in Minnesota, continues to struggle in igniting […]

After listening to the two-hour, patience-testing, mind-numbing, butt-hurting endurance test otherwise known as Boston Scientific Corp. (NYSE: BSX) earnings conference call, two things immediately came to mind.

One: I never want to do that again. Two: the medical device giant, based in Natick, Massachusetts but with major operations in Minnesota, continues to struggle in igniting some sort of sales spark.

Of course, one has to wonder if the company really needed two hours to say that. But in many ways, the conference call reflected the state of BSX these days: a complicated, confusing mesh of uneven to poorly performing businesses, legal woes, FDA run-ins and vague turnaround promises.

So it says something that the best thing CEO Ray Elliott can say about the quarter — the company managed to recover faster than expected from the temporary shutdown of its implantable cardioverter defibrillator (ICD) business, a FDA paperwork snafu that by some accounts cost BSX nearly $5 million in lost sales a day.

Lest I dump on BSX too much, the company is working hard to streamline its operations and introduce new products to the market. The problem is, none of this is really showing up on the earnings sheet, especially for faster growing markets beyond ICDs and pacemakers.

Take peripheral vascular, blood vessel disorders below the waist. BSX has put a high priority on turning around a unit competing in a market that’s growing anywhere from high single digits to 12 percent a year compared to zero to 2 percent for heart diseases. Under rising star Joe Fitzgerald, the unit has built dedicated sales and engineering teams to develop and sell a slew of new products.

However, sales for that unit fell 4 percent in the quarter compared to a 1 percent gain in the first quarter. Not exactly the direction BSX wants to go. Neurovascular, or blood vessel disorders in the brain, didn’t do much better: a 6 percent drop in the quarter versus a decline of 5 percent in the first three months of the year.

In the conference call, Elliott blamed pricing pressure, stiff competition and delays in product launches. The first two are out of BSX’s control, but not the third.

“We’re not happy with our sales performance,” he said. “We must do a better job executing to our sales plans. … We have been struggling for quite a while.”

At the same time, Elliott blames the media for not giving BSX enough credit for its product pipeline as other competitors receive.

“We’re not in the [position] to communicate the pipeline is as strong as it is,” he said.

Maybe. But Medtronic Inc. (NYSE: MDT) in Fridley, Minnesota and St. Jude Medical Inc. (NYSE: STJ) in Little Canada, Minnesota don’t carry nearly a fraction of the baggage weighing down BSX.

Elliott said he expects the company to “get to market types of growth” in the second half of the year, especially as BSX’s new products, 30 alone this year from the recently combined cardiac rhythm management/cardiovascular group, fully hit the market.

“We got the products,” said chief financial officer Jeff Capello. “We got the sales people. We’ll have to see how that plays out in the back half of the year.”

As the year progresses, the stakes get a little higher. The company is setting relatively high expectations for the remaining six months of 2010. BSX needs to show investors something, or risk explaining how it went wrong in another long and tedious conference call.