Heavy Job Cuts Seen at Boston Scientific

Boston Scientific Corp., the Natick medical device maker, is preparing to slash thousands of jobs to cope with slumping sales, analysts say. Wall Street analysts who follow the company predict Boston Scientific will cut between 7 and 12 percent of its worldwide workforce of 28,000 employees, or roughly 2,000 to 3,400 people, in addition to the 500 to 600 jobs it eliminated earlier this year. The company has 2,400 employees in Massachusetts, mostly in Natick, Marlborough, and Quincy, but it is unclear how many would be affected. Boston Scientific, the second-largest life sciences company in the state, with a market value of $22.4 billion, said in July that it plans to disclose additional job cuts by year’s end, but has not said how many people will be affected or the date it will announce the cuts. One analyst said it could come as early as this week. “We will be reducing our expenses and head count to bring them in line with our revenue,” Bos ton Scientific spokesman Paul Donovan said yesterday. “These reductions will be part of our ongoing efforts to restore profitable growth, increase shareholder value, and strengthen Boston Scientific for the future.” Layoffs of the magnitude forecast by the analysts would be among the largest in Boston Scientific’s 28-year history – the latest fallout from its recent financial woes. Since early 2005, Boston Scientific has struggled with weak sales in its two key product lines, drug-coated stents and defibrillators; crushing debt from its $27 billion acquisition of Guidant Corp.; and a tangle of litigation and warning letters from the Food and Drug Administration, blocking it from introducing some new products. Boston Scientific’s stock has fallen about 40 percent since the beginning of 2006, when the Guidant acquisition was unveiled. “The company is still working through issues that surfaced about two years ago,” said Jan David Wald, an analyst with Stanford Group Co. in Houston. “They have to work through those issues before they can consider themselves healthy again.” Wald said he thought the cuts would affect about 7 percent of Boston Scientific’s overall workforce, though it would probably hit the company’s ailing stent business harder. The market for drug-coated stents, metal tubes that are used to prop open arteries, has shriveled since medical studies raised questions about their safety and benefits. Boston Scientific’s drug-coated stent sales fell 32 percent in the second quarter, to $437 million. In addition, the company soon could face more competition. An FDA panel recommended last week that the agency approve a competing product from Medtronic Inc. Boston Scientific and Johnson & Johnson are currently the only companies permitted to sell drug-coated stents in the United States. Boston Scientific’s other main business, acquired from Guidant, also has struggled. The market for implantable defibrillators, which help regulate the heart, has been hurt by a series of recalls by Guidant and rival Medtronic, including one by Medtronic announced yesterday – making some doctors think twice about recommending them. In the second quarter, Boston Scientific said, defibrillator sales fell 1 percent. But Wald said Boston Scientific does not want to cut the Guidant business too deeply, because executives believe it eventually will start growing significantly again. Last month, in a research report, analysts for Wachovia Capital Markets LLC said they also expect Boston Scientific to cut 7 percent of its workforce, producing $325 million a year in savings by 2009. But the report also said Boston Scientific executives had hinted publicly they might cut as much as 10 to 12 percent of the workforce, to save more than $500 million a year. “We think there is a greater than 50 percent chance the cuts exceed our current expectations,” the report said. To be sure, estimates from analysts are just that. Analysts generally make forecasts about a company’s financial performance based on publicly available financial documents, as well as interviews with company insiders, customers, competitors, and consultants. Still, both levels of cuts would have drawbacks. While a larger round of layoffs could help boost profits and the company’s stock price in the short run, Wachovia warned it also could give rivals an opportunity to chip away at Boston Scientific’s market share and help recruit some of Boston Scientific’s key employees Boston Scientific has 37 manufacturing, distribution, and technology centers around the globe, including five manufacturing facilities in Ireland. About 7,000 workers, or nearly one-quarter of the company’s employees, work in Minnesota, where both its stent and cardiac rhythm management businesses are based. Corporate headquarters in Natick employs nearly 1,000 people, and the distribution center in Quincy has 500 employees. The endosurgery unit, in Marlborough, which makes products for minimally invasive surgery such as gall-bladder removal, employs about 1,000 workers. Boston Scientific is expected to report lackluster growth when it releases third-quarter financial results Friday. Analysts expect $2.06 billion in revenue, up just 1 percent from a year earlier, and a profit of $112 million, although that could be wiped out by a large restructuring charge to account for the layoffs. Meanwhile, Boston Scientific has said it plans to sell most if its investment portfolio to help pare down its $8 billion in debt. Two weeks ago, the company sold its 13.3 percent stake in the medical device maker Cyberonics Inc. for $48.6 million. To raise additional cash, Boston Scientific also said last summer that it is considering selling its cardiac surgery, vascular surgery, and fluid management businesses, which analysts expect to fetch $500 million to $600 million. As of August, the company said it was in the early stages of talks with several potential buyers for the fluid management unit, formerly known as North American Medical Instruments Corp. SOURCE: Boston Globe