07.24.12
12. Boston Scientific Corp.
$7.6 Billion
KEY EXECUTIVES:
William H. (Hank) Kucheman, CEO
Michael F. Mahoney, President
Jeffrey D. Capello, Exec. VP & Chief Financial Officer
Joseph M. Fitzgerald, Sr. VP & President, Cardiac Rhythm Management
Maulik Nanavaty, Sr. VP & President, Neuromodulation
David A. Pierce, Sr. VP & President, Endoscopy
Michael P. Phalen, Exec. VP & President, MedSurg
Supratim Bose, Exec. VP & President, Asia-Pacific
J. Michael Onuscheck, Sr. VP & President, Europe, the Middle East and Africa
Brian R. Burns, Exec. VP, Global Quality, Medical Safety and Regulatory Affairs
Kenneth J. Pucel, Exec. VP, Global Operations and Technology
NO. OF EMPLOYEES: 24,000
GLOBAL HEADQUARTERS: Natick, Mass.
Boston Scientific Corp. executives may have experienced a bit of déjà vu last year as they embarked upon the next phase of the company’s protracted odyssey toward long-term financial stability.
Not long after entering that new chapter of corporate governance, history began repeating itself: There was the high-profile retirement, the lucrative sale of a non-strategic business, the market debuts of several new stents, and a restructuring aimed at reducing costs and increasing overall efficiency. The developments were eerily reminiscent of 2008, when the Natick, Mass.-based firm bid farewell to President and CEO Jim Tobin, streamlined operations through layoffs, sold five non-strategic businesses and unleashed a torrent of new stents to the market, among them the Taxus Liberté and Taxus Express Atom paclitaxel-eluting stent systems.
The science-fiction-like time loop that recycled these incidents in 2011 replaced Tobin with CEO J. Raymond Elliott, who retired from the firm on Dec. 31 after serving less than two years in the position. He was replaced by Michael F. Mahoney, former worldwide chairman of Johnson & Johnson’s medical device business (he currently is president and will officially assume the duties of CEO in November).
The time loop also substituted Promus Element stents for the Taxus devices, and sacrificed the company’s neurovascular business unit for future prosperity’s sake.
Despite such superficial discrepancies, however, (and the sandwiching of a crushing recession between the two time periods), the time loop kept Boston Scientific’s 2011 earnings mostly in line with its 2008 financial performance.
Last year’s net sales, for example, fell 2 percent to $7.6 billion while gross profit tumbled 4.7 percent to $4.96 billion. While they were not precise matches to the 4 percent sales slip and corresponding 7.2 percent decrease in gross profit that occurred four years ago, the numbers nevertheless similarly trend downward.
In spite of its overall losses in net sales and profit, the company reported some notable gains in several of its business units during fiscal 2011 (year ended Dec. 31). Neuromodulation sales rose 11 percent to $336 million, and Endoscopy product sales jumped 10 percent to $1.18 billion.
Executives attributed the increase in U.S. nueromodulation sales (which comprised the bulk of product revenue, at $317 million) primarily to higher procedure volumes and positive momentum from product launches. In the second quarter of 2011, the company received CE Mark approval of the Clik Anchor for its Precision Plus SCS (Spinal Cord Stimulation) System, a device for chronic pain relief that features multiple independent current control. The design gives each electrode contact on the lead its own, dedicated power source, allowing clinicians to precisely target pain by moving the electric field between simultaneously active contacts.
During the fourth quarter of 2011, the U.S. Food and Drug Administration (FDA) approved Boston Scientific’s Infinion 16 Percutaneous Lead for its Precision Plus SCS System. Infinion offers double the number of contacts and is designed to “offer more coverage of the spinal cord for the management of chronic pain,” a condition that afflicts more than 75 million U.S. residents, data from the American Pain Foundation show. Researchers claim that tens of thousands of chronic pain patients successfully have managed their pain through SCS systems.
The increase in 2011 Endoscopy sales—aided by a $39 million boost from favorable foreign exchange rates—came primarily from robust sales of stents. Growth drivers included the WallFlex product line, particularly the WallFlex Biliary RX Fully Covered Stent, which received CE Mark approval in late 2010 for the treatment of benign biliary structures. The WallFlex Biliary RX Stent is constructed of braided, Platinol (platinum-cored Nitinol) wire and features three key attributes: radial force to help maintain duct patency and resist migration; flexibility to aid in conforming to tortuous anatomies; and full-length radiopacity to enhance stent visibility under fluoroscopy.
The company’s Advanix Biliary Plastic Stent System and the Expect Endoscopic Ultrasound Aspiration Needle, which debuted in the United States and in certain international markets in the second quarter of 2011, also helped improve overall Endoscopy sales last year. Higher sales of hemostasis devices contributed as well, thanks to continued adoption and utilization of the Resolution Clip Device, an endoscopic mechanical clip designed to treat gastrointestinal bleeding.
Peripheral Interventions (PI) and Urology/Women’s Health products proved popular last year too, respectively earning $731 million, a 9 percent spike compared with 2010, and $498 million, a 4 percent hike over the previous year. Main sales drivers included the Epic self-expanding nitinol stent system in certain international markets and the Carotid WALLSTENT stent system in Japan. The Epic system—approved by the FDA in May 2012—helps open blocked arteries in patients with iliac artery stenosis, a form of peripheral vascular disease characterized by severe leg pain from insufficient blood flow. The Carotid WALLSTENT device is a self-expanding stent with a closed-cell design to provide increased scaffolding for improved lesion coverage and a smooth inner lumen. It features a highly flexible, low-profile stent delivery system that moves easily through difficult anatomy, according to Boston Scientific.
The company’s core PI franchise gained market share last year through the introductions of its next-generation Mustang percutaneous transluminal angioplasty (PTA) balloon, the Charger PTA Balloon Catheter (launched in December) and the Coyote balloon catheter, an ultra-low profile balloon dilatation device designed for various peripheral angioplasty procedures. New products also spurred growth in Boston Scientific’s interventional oncology franchise; specific standouts were the Renegade Hi-Flo Fathom microcatheter and guidewire system (used to treat uterine fibroids and liver cancer) and the Interlock-35 Fibered IDC Occlusion System for peripheral embolization, a device containing a 0.035-inch detachable coil with an interlocking connection between the coil and delivery wire. The Interlock system improves placement control as well as the ability to advance, retract and reposition the coil before final deployment in a blood vessel.
A “softness” in elective procedures and controversy over the safety of vaginal mesh implants negatively impacted sales of Women’s Health products in 2011. The vaginal mesh brouhaha—quietly brewing for months—finally boiled over in July after an FDA report discovered a fivefold increase in deaths, injuries or malfunctions from vaginal mesh devices that treat pelvic organ prolapse and stress urinary incontinence. Less than six months later, in January 2012, the FDA announced it would require manufacturers to conduct studies of surgical mesh implants due to safety and efficacy concerns. The federal agency also said it was considering reclassifying the devices from moderate-risk (Class II) to highest risk (Class III), which would require clinical data to be submitted for approval.
Still, the company managed to partially offset lower-than-expected sales with increased market share and robust growth of its Genesys Hydro Therm-Ablator system, a next-generation device designed to ablate the endometrial lining of the uterus in pre-menopausal women with menorrhagia (vaginal bleeding). The Genesys HTA System features a smaller and lighter console, simplified setup requirements and an enhanced graphic user interface.
Electrophysiology device sales remained flat last year, earning $147 million, while Interventional Cardiology—which includes proceeds from stents, balloon catheters, rotational atherectomy systems, guide wires, guide catheters, embolic protection devices and diagnostic catheters used in percutaneous transluminal coronary angioplasty procedures—fell 4 percent to $2.4 billion. Cardiac Rhythm Management sales were down as well, slipping from $2.1 billion in 2010 to $2.08 billion last year, encumbered by sluggish sales of both pacemaker systems and implantable cardioverter defibrillator (ICD) systems. Pacemaker revenue decreased 2 percent to $569 million and ICD system sales declined 5 percent to $1.5 billion. Boston Scientific bigwigs blamed the losses on pricing pressures, federal investigations into ICD implant practices at hospitals, the expansion of Medicare recovery audits, and a study that questioned the device’s evidence-based guidelines.
The company tried offsetting the shortfall in ICD revenue with the fourth-quarter market releases of the Incepta, Energen and Punctua line of next-generation defibrillators but the losses by that time most likely were irreversible.
Interventional Cardiology sales tumbled 4 percent due to pricing pressures, procedural volume reductions and market share declines in the company’sintravascular ultrasound imaging systems. A stagnant stent market certainly didn’t help either.
For the second consecutive year, sales of Boston Scientific’s drug-eluting and bare metal stents declined. In fiscal 2011, drug-eluting stent sales totaled $1.5 billion, a 1.8 percent decrease compared with the $1.53 billion the company reported in 2010. Bare metal stents fell 16.5 percent, going from $133 million in 2010 to $111 million last year, according to the 2011 annual report. The declines have become more pronounced since 2009, when drug-eluting stents earned $1.7 billion for the company and their bare-metal counterparts garnered $171 million. Executives attributed the losses to market size contraction, lower average selling prices and a reduction in procedural volume but noted the company’s share of the U.S. drug-eluting stent market climbed to 48 percent from 46 percent in 2010.
That market share gain came mostly from the second-quarter domestic launch of Boston Scientific’s third-generation Taxus Element stent system, a product hailed as the “strongest, most flexible and most visible thin-strut coronary stent” on the market. The Taxus stent comprised less than one-third of the company’s total drug-eluting stent sales, generating $420 million last year.
Other second-quarter stent launches included the Ion Paclitaxel-Eluting Platinum Chromium Coronary Stent System and the Omega Platinum Chromium Bare-Metal Coronary Stent System—devices that incorporate platinum chromium alloy made specifically for stenting purposes.
About a month before the year ended, Boston Scientific debuted its next-generation Promus Element stent system, another platinum chromium device. The Promus stent has less recoil, higher radial strength and employs an advanced low-profile delivery system that features a dual-layer balloon and Bi-Segment inner lumen catheter designed to facilitate precise delivery across challenging lesions.
“Our goal with these launches is to continue to further strengthen our worldwide market positions which, in my view, is growing in accordance in an era where economic buyers have increasing influence and purchasers are considering fewer vendors,” CEO William H. (Hank) Kucheman told analysts in February during a conference call discussion of Boston Scientific’s 2011 earnings. “We have built our pipeline, and we are building commercial capabilities in emerging markets. We are achieving key milestones relating to our cost reduction opportunities and our Priority Growth Initiatives, and we have improved our financial situation so that we now have added flexibility to balance investments in new markets and growth technologies, along with returned capital to shareholders.”
One of the ways Boston Scientific achieved its self-imposed Priority Growth milestones was through acquisition. The company gained a bevy of new devices and technologies through M&A last year, including an aortic stenosis treatment system from Sadra Medical; a wireless cardioverter defibrillator from Cameron Health Inc.; neuromodulation technologies for deep brain stimulation therapy from Intelect Medical Inc.; a left atrial appendage closure device from Atritech Inc.; and two technologies for treating peripheral chronic total occlusions (one originated with S.I. Therapies Ltd. In Israel while the other was developed by Sunnyvale, Calif.-based ReVascular Therapeutics Inc.).
Other avenues to long-term growth were paved last year through a workforce reduction program that is expected to save the company $275 million, and the $1.5 billion sale of its neurovascular unit to Stryker Corp. Boston Scientific planned to use half of the $1.2 billion in after-tax proceeds to retire debt and the rest for acquisitions. The company currently is engaged in a two-year restructuring plan that likely will include more moves to rebalance a portfolio which relies heavily on growth-challenged heart devices.
Boston Scientific entered the neurovascular sector in 1997 with the purchase of Fremont, Calif.-based Target Therapeutics. The business, which stayed in Fremont, employed about 1,150 people and generated revenue of $343 million in 2010.
Overall sales for the global neurovascular market are rising between 9 percent and 10 percent but Boston Scientific has not taken advantage of that potential in recent years. Its neurovascular sales declined 3 percent to $348 million in 2010 and slipped further in the third quarter, to 7 percent.
$7.6 Billion
KEY EXECUTIVES:
William H. (Hank) Kucheman, CEO
Michael F. Mahoney, President
Jeffrey D. Capello, Exec. VP & Chief Financial Officer
Joseph M. Fitzgerald, Sr. VP & President, Cardiac Rhythm Management
Maulik Nanavaty, Sr. VP & President, Neuromodulation
David A. Pierce, Sr. VP & President, Endoscopy
Michael P. Phalen, Exec. VP & President, MedSurg
Supratim Bose, Exec. VP & President, Asia-Pacific
J. Michael Onuscheck, Sr. VP & President, Europe, the Middle East and Africa
Brian R. Burns, Exec. VP, Global Quality, Medical Safety and Regulatory Affairs
Kenneth J. Pucel, Exec. VP, Global Operations and Technology
NO. OF EMPLOYEES: 24,000
GLOBAL HEADQUARTERS: Natick, Mass.
Boston Scientific Corp. executives may have experienced a bit of déjà vu last year as they embarked upon the next phase of the company’s protracted odyssey toward long-term financial stability.
Not long after entering that new chapter of corporate governance, history began repeating itself: There was the high-profile retirement, the lucrative sale of a non-strategic business, the market debuts of several new stents, and a restructuring aimed at reducing costs and increasing overall efficiency. The developments were eerily reminiscent of 2008, when the Natick, Mass.-based firm bid farewell to President and CEO Jim Tobin, streamlined operations through layoffs, sold five non-strategic businesses and unleashed a torrent of new stents to the market, among them the Taxus Liberté and Taxus Express Atom paclitaxel-eluting stent systems.
The science-fiction-like time loop that recycled these incidents in 2011 replaced Tobin with CEO J. Raymond Elliott, who retired from the firm on Dec. 31 after serving less than two years in the position. He was replaced by Michael F. Mahoney, former worldwide chairman of Johnson & Johnson’s medical device business (he currently is president and will officially assume the duties of CEO in November).
The time loop also substituted Promus Element stents for the Taxus devices, and sacrificed the company’s neurovascular business unit for future prosperity’s sake.
Despite such superficial discrepancies, however, (and the sandwiching of a crushing recession between the two time periods), the time loop kept Boston Scientific’s 2011 earnings mostly in line with its 2008 financial performance.
Last year’s net sales, for example, fell 2 percent to $7.6 billion while gross profit tumbled 4.7 percent to $4.96 billion. While they were not precise matches to the 4 percent sales slip and corresponding 7.2 percent decrease in gross profit that occurred four years ago, the numbers nevertheless similarly trend downward.
In spite of its overall losses in net sales and profit, the company reported some notable gains in several of its business units during fiscal 2011 (year ended Dec. 31). Neuromodulation sales rose 11 percent to $336 million, and Endoscopy product sales jumped 10 percent to $1.18 billion.
Executives attributed the increase in U.S. nueromodulation sales (which comprised the bulk of product revenue, at $317 million) primarily to higher procedure volumes and positive momentum from product launches. In the second quarter of 2011, the company received CE Mark approval of the Clik Anchor for its Precision Plus SCS (Spinal Cord Stimulation) System, a device for chronic pain relief that features multiple independent current control. The design gives each electrode contact on the lead its own, dedicated power source, allowing clinicians to precisely target pain by moving the electric field between simultaneously active contacts.
During the fourth quarter of 2011, the U.S. Food and Drug Administration (FDA) approved Boston Scientific’s Infinion 16 Percutaneous Lead for its Precision Plus SCS System. Infinion offers double the number of contacts and is designed to “offer more coverage of the spinal cord for the management of chronic pain,” a condition that afflicts more than 75 million U.S. residents, data from the American Pain Foundation show. Researchers claim that tens of thousands of chronic pain patients successfully have managed their pain through SCS systems.
The increase in 2011 Endoscopy sales—aided by a $39 million boost from favorable foreign exchange rates—came primarily from robust sales of stents. Growth drivers included the WallFlex product line, particularly the WallFlex Biliary RX Fully Covered Stent, which received CE Mark approval in late 2010 for the treatment of benign biliary structures. The WallFlex Biliary RX Stent is constructed of braided, Platinol (platinum-cored Nitinol) wire and features three key attributes: radial force to help maintain duct patency and resist migration; flexibility to aid in conforming to tortuous anatomies; and full-length radiopacity to enhance stent visibility under fluoroscopy.
The company’s Advanix Biliary Plastic Stent System and the Expect Endoscopic Ultrasound Aspiration Needle, which debuted in the United States and in certain international markets in the second quarter of 2011, also helped improve overall Endoscopy sales last year. Higher sales of hemostasis devices contributed as well, thanks to continued adoption and utilization of the Resolution Clip Device, an endoscopic mechanical clip designed to treat gastrointestinal bleeding.
Peripheral Interventions (PI) and Urology/Women’s Health products proved popular last year too, respectively earning $731 million, a 9 percent spike compared with 2010, and $498 million, a 4 percent hike over the previous year. Main sales drivers included the Epic self-expanding nitinol stent system in certain international markets and the Carotid WALLSTENT stent system in Japan. The Epic system—approved by the FDA in May 2012—helps open blocked arteries in patients with iliac artery stenosis, a form of peripheral vascular disease characterized by severe leg pain from insufficient blood flow. The Carotid WALLSTENT device is a self-expanding stent with a closed-cell design to provide increased scaffolding for improved lesion coverage and a smooth inner lumen. It features a highly flexible, low-profile stent delivery system that moves easily through difficult anatomy, according to Boston Scientific.
The company’s core PI franchise gained market share last year through the introductions of its next-generation Mustang percutaneous transluminal angioplasty (PTA) balloon, the Charger PTA Balloon Catheter (launched in December) and the Coyote balloon catheter, an ultra-low profile balloon dilatation device designed for various peripheral angioplasty procedures. New products also spurred growth in Boston Scientific’s interventional oncology franchise; specific standouts were the Renegade Hi-Flo Fathom microcatheter and guidewire system (used to treat uterine fibroids and liver cancer) and the Interlock-35 Fibered IDC Occlusion System for peripheral embolization, a device containing a 0.035-inch detachable coil with an interlocking connection between the coil and delivery wire. The Interlock system improves placement control as well as the ability to advance, retract and reposition the coil before final deployment in a blood vessel.
A “softness” in elective procedures and controversy over the safety of vaginal mesh implants negatively impacted sales of Women’s Health products in 2011. The vaginal mesh brouhaha—quietly brewing for months—finally boiled over in July after an FDA report discovered a fivefold increase in deaths, injuries or malfunctions from vaginal mesh devices that treat pelvic organ prolapse and stress urinary incontinence. Less than six months later, in January 2012, the FDA announced it would require manufacturers to conduct studies of surgical mesh implants due to safety and efficacy concerns. The federal agency also said it was considering reclassifying the devices from moderate-risk (Class II) to highest risk (Class III), which would require clinical data to be submitted for approval.
Still, the company managed to partially offset lower-than-expected sales with increased market share and robust growth of its Genesys Hydro Therm-Ablator system, a next-generation device designed to ablate the endometrial lining of the uterus in pre-menopausal women with menorrhagia (vaginal bleeding). The Genesys HTA System features a smaller and lighter console, simplified setup requirements and an enhanced graphic user interface.
Electrophysiology device sales remained flat last year, earning $147 million, while Interventional Cardiology—which includes proceeds from stents, balloon catheters, rotational atherectomy systems, guide wires, guide catheters, embolic protection devices and diagnostic catheters used in percutaneous transluminal coronary angioplasty procedures—fell 4 percent to $2.4 billion. Cardiac Rhythm Management sales were down as well, slipping from $2.1 billion in 2010 to $2.08 billion last year, encumbered by sluggish sales of both pacemaker systems and implantable cardioverter defibrillator (ICD) systems. Pacemaker revenue decreased 2 percent to $569 million and ICD system sales declined 5 percent to $1.5 billion. Boston Scientific bigwigs blamed the losses on pricing pressures, federal investigations into ICD implant practices at hospitals, the expansion of Medicare recovery audits, and a study that questioned the device’s evidence-based guidelines.
The company tried offsetting the shortfall in ICD revenue with the fourth-quarter market releases of the Incepta, Energen and Punctua line of next-generation defibrillators but the losses by that time most likely were irreversible.
Interventional Cardiology sales tumbled 4 percent due to pricing pressures, procedural volume reductions and market share declines in the company’sintravascular ultrasound imaging systems. A stagnant stent market certainly didn’t help either.
For the second consecutive year, sales of Boston Scientific’s drug-eluting and bare metal stents declined. In fiscal 2011, drug-eluting stent sales totaled $1.5 billion, a 1.8 percent decrease compared with the $1.53 billion the company reported in 2010. Bare metal stents fell 16.5 percent, going from $133 million in 2010 to $111 million last year, according to the 2011 annual report. The declines have become more pronounced since 2009, when drug-eluting stents earned $1.7 billion for the company and their bare-metal counterparts garnered $171 million. Executives attributed the losses to market size contraction, lower average selling prices and a reduction in procedural volume but noted the company’s share of the U.S. drug-eluting stent market climbed to 48 percent from 46 percent in 2010.
That market share gain came mostly from the second-quarter domestic launch of Boston Scientific’s third-generation Taxus Element stent system, a product hailed as the “strongest, most flexible and most visible thin-strut coronary stent” on the market. The Taxus stent comprised less than one-third of the company’s total drug-eluting stent sales, generating $420 million last year.
Other second-quarter stent launches included the Ion Paclitaxel-Eluting Platinum Chromium Coronary Stent System and the Omega Platinum Chromium Bare-Metal Coronary Stent System—devices that incorporate platinum chromium alloy made specifically for stenting purposes.
About a month before the year ended, Boston Scientific debuted its next-generation Promus Element stent system, another platinum chromium device. The Promus stent has less recoil, higher radial strength and employs an advanced low-profile delivery system that features a dual-layer balloon and Bi-Segment inner lumen catheter designed to facilitate precise delivery across challenging lesions.
“Our goal with these launches is to continue to further strengthen our worldwide market positions which, in my view, is growing in accordance in an era where economic buyers have increasing influence and purchasers are considering fewer vendors,” CEO William H. (Hank) Kucheman told analysts in February during a conference call discussion of Boston Scientific’s 2011 earnings. “We have built our pipeline, and we are building commercial capabilities in emerging markets. We are achieving key milestones relating to our cost reduction opportunities and our Priority Growth Initiatives, and we have improved our financial situation so that we now have added flexibility to balance investments in new markets and growth technologies, along with returned capital to shareholders.”
One of the ways Boston Scientific achieved its self-imposed Priority Growth milestones was through acquisition. The company gained a bevy of new devices and technologies through M&A last year, including an aortic stenosis treatment system from Sadra Medical; a wireless cardioverter defibrillator from Cameron Health Inc.; neuromodulation technologies for deep brain stimulation therapy from Intelect Medical Inc.; a left atrial appendage closure device from Atritech Inc.; and two technologies for treating peripheral chronic total occlusions (one originated with S.I. Therapies Ltd. In Israel while the other was developed by Sunnyvale, Calif.-based ReVascular Therapeutics Inc.).
Other avenues to long-term growth were paved last year through a workforce reduction program that is expected to save the company $275 million, and the $1.5 billion sale of its neurovascular unit to Stryker Corp. Boston Scientific planned to use half of the $1.2 billion in after-tax proceeds to retire debt and the rest for acquisitions. The company currently is engaged in a two-year restructuring plan that likely will include more moves to rebalance a portfolio which relies heavily on growth-challenged heart devices.
Boston Scientific entered the neurovascular sector in 1997 with the purchase of Fremont, Calif.-based Target Therapeutics. The business, which stayed in Fremont, employed about 1,150 people and generated revenue of $343 million in 2010.
Overall sales for the global neurovascular market are rising between 9 percent and 10 percent but Boston Scientific has not taken advantage of that potential in recent years. Its neurovascular sales declined 3 percent to $348 million in 2010 and slipped further in the third quarter, to 7 percent.
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