07.22.14
$7.14 Billion
Key Executives:
Michael F. Mahoney, President & CEO
Daniel J. Brennan, Exec. VP & Chief Financial Officer
Joseph M. Fitzgerald, Sr. VP & President, Rhythm Management
Maulik Nanavaty, Sr. VP & President, Neuromodulation
David A. Pierce, Sr. VP & President, Endoscopy
Michael P. Phalen, Exec. VP & President, MedSurg
Jeff Mirviss, Sr. VP & President, Peripheral Interventions
Kevin J. Ballinger, Sr. VP & President, Interventional Cardiology
Karen Prange, Sr. VP & President, Urology & Women’s Health
Jean Fitterer Lance, Sr. VP & Chief Compliance Officer
Kenneth J. Pucel, Exec. VP, Global Operations, Quality and Technology
Global Headquarters: Marlborough, Mass.
No. of Employees: 23,000
After several years of sluggish sales and legal wrangling (patent cases, U.S. government litigation and patient lawsuits), Boston Scientific has been working to reverse its fortunes. Toward the end of its 2013 fiscal year (ended Dec. 31), the company went through a self-described period of restructuring—its third in two years. Results from the company’s third quarter seemed to suggest that the efforts worked. The end of the year seemed to bring with it improved performance and, dare Boston Scientific officials say it, a possible turnaround, exceeding Wall Street’s expectations.
“I am pleased with our results for the quarter and our return to operational revenue growth for the full year 2013,” said Mike Mahoney, president and CEO. “This marks our third consecutive quarter of accelerated operational revenue growth and we look forward to continued improvement of our annual sales and earnings performance in 2014.”
In 2013, the company reorganized its business units into three reporting segments: MedSurg, which consists of endoscopy, neuromodulation, and urology and women’s health businesses; Rhythm Management, which consists of cardiac rhythm management and electrophysiology (EP) businesses; and Cardiovascular, which includes the firm’s interventional cardiology and peripheral interventions businesses.
Across all three segments in FY13, the company achieved full-year sales of $7.14 billion, representing 2 percent operational revenue growth and 1 percent revenue decline on a reported basis. The company recorded full-year adjusted earnings per share of 73 cents, compared to 66 cents in 2012, and reported a GAAP loss of 9 cents per share, compared to a GAAP loss of $2.89 per share in the prior year period.
Morgan Stanley analyst David Lewis told investors at the beginning of 2014 that things were looking up for Boston Scientific based on the strength of the company’s product pipeline and its “numerous opportunities” to expand margins.
“Over the past several years, the company has targeted investments across several markets to accelerate growth and drive leverage,” Lewis said. “We believe better recognition of this strategy will drive future outperformance even after a robust 2013 as accelerating sales and earnings growth drive improving financial performance over the next several years.”
According to Lewis, the company’s strengths are its revenue growth, “solid” stock price performance and “compelling growth” in net income.
“However, as a counter to these strengths, we find that the company’s cash flow from its operations has been weak overall,” he noted.
News of the improved numbers at the end of FY13 also came with the announcement of 1,100 to 1,500 job cuts worldwide—part of the restructuring plan noted above—along with the company’s ongoing plant network optimization strategy, continued focus on driving operational efficiencies and ongoing business and commercial model changes.
The company previously cut 1,000 jobs in 2011 and another 900 to 1,000 positions in early 2013. The third round of layoffs was thought to be a cost-cutting tactic to speed up the company’s improving performance, saving $150 to $200 million in operating costs. In October of FY13, Boston Scientific’s chief financial officer, Jeffrey Capello, announced his resignation. The position was filled by Daniel Brennan, senior vice president and controller, who is credited with helping steer Boston Scientific over the bumps of the last five years.
Also toward the end of the 2013 fiscal year, the company began its transition from its former headquarters in Natick, Mass., to a new facility 14 miles west to the town of Marlborough.
Sectors by the Numbers
Sales for the firm’s Cardiovascular sector fell 6 percent to $2.79 billion. Within that corporate silo, interventional cardiology product sales dropped 8 percent to just shy of $2 billion, while peripheral intervention products sales were up 2 percent to $789 million. The haul for Rhythm Management business was sales of $2.04 billion, down 1 percent. Within the business segment, sales of cardiac rhythm management devices yielded $1.89 billion, a drop of about 1 percent, and sales of electrophysiology products were up 5 percent to $155 million. Boston Scientific’s MedSurg business grew sales by 7 percent to reach $2.26 billion. Under the MedSurg umbrella, endoscopy product sales rose 4 percent to $1.3 billion; neuromodulation devices were the company’s big winner with a 23 percent sales increase to $453 million; and urology and women’s health products eked out minor gains of 1 percent growth to reach $505 million.
For the company overall, on a consolidated GAAP basis, net loss for the full year 2013 was $121 million, or 9 cents per share, which included goodwill and other intangible asset impairment charges, acquisition and divestiture-, restructuring- and litigation-related charges, discrete tax items and amortization and debt extinguishment expenses, of $1.1 billion (after-tax) or 82 cents per share. Adjusted net income for the full year 2013, excluding these net charges, was $991 million, or 73 cents per share. By comparison, on a consolidated GAAP basis, net loss for the full year 2012 was $4.1 billion, or $2.89 per share. Adjusted net income for the full year 2012, was $933 million, or 66 cents per share.
In a move to increase market share, Boston Scientific acquired the electrophysiology business of Murray Hill, N.J.-based C. R. Bard for $275 million in cash. Bard’s EP business, based in Lowell, Mass., had nearly $111 million in sales in 2012. Boston Scientific merged the unit with own rhythm management business, which is best known for making pacemakers and implantable defibrillators. According to company officials, there is a $2.5 billion worldwide market for electrophysiology that is growing 10 percent annually. Analysts seemed to agree. In a note to investors, Kevin Strange, an analyst for Wells Fargo, wrote that the acquisition would give Boston Scientific 11 percent market share and move up in the global electrophysiology market from fourth to third position.
“We expect [Bard’s] strong portfolio of diagnostic catheters to be complementary to [Boston Scientific’s] portfolio of therapeutic catheters, and geographically, [Bard] has a strong presence outside the U.S., whereas [Boston Scientific] has a stronger presence in the U.S, which we expect to also be complementary,” Strange wrote. “Overall, we think the acquisition is strategically sound and consistent with [Boston Scientific’s] stated desire to reinvigorate their EP business.”
New Product OKs
Given Boston Scientific’s varied product categories, new product rollouts, study results and technology milestones are frequent throughout the year, and FY2013 was no exception. Here are a few notable new tech highlights:
Tapping into the sleeping giant that is China’s medical device market, Boston Scientific opened a China branch of its Institute for Advancing Science (IAS) as well as a new Innovation Center in Shanghai. The company expects to foster local talent while sustainably developing innovative technologies uniquely suited to the China market.
“China is key to our ongoing global expansion, and we believe that initiatives such as the IAS and Innovation Center will help us to continue adapting to the unique demands of the China market,” Mahoney said.
The IAS offers Chinese medical practitioners training in clinical practice and multidisciplinary programs in interventional cardiology, cardiac rhythm management and electrophysiology, endoscopy, peripheral interventions, and urology and women’s health.
Boston Scientific established its China headquarters in Shanghai in 1997 and now has branches and R&D centers in Beijing, Shanghai and Guangzhou. Other IAS locations include France, Germany, Japan and the United States.
A total of 47 percent of the company’s sales in 2013 were generated overseas (10 percent in Japan and 37 percent in other markets).
In 2013, Boston Scientific’s sales in Brazil, Russia, India and China grew on a constant currency basis by nearly 30 percent and in our total emerging markets by 20 percent.
At the end of fiscal year, the company had six international manufacturing facilities, including three in Ireland, two in Costa Rica and one in Puerto Rico. Approximately 57 percent of products sold worldwide during 2013 were manufactured at these facilities.
Key Executives:
Michael F. Mahoney, President & CEO
Daniel J. Brennan, Exec. VP & Chief Financial Officer
Joseph M. Fitzgerald, Sr. VP & President, Rhythm Management
Maulik Nanavaty, Sr. VP & President, Neuromodulation
David A. Pierce, Sr. VP & President, Endoscopy
Michael P. Phalen, Exec. VP & President, MedSurg
Jeff Mirviss, Sr. VP & President, Peripheral Interventions
Kevin J. Ballinger, Sr. VP & President, Interventional Cardiology
Karen Prange, Sr. VP & President, Urology & Women’s Health
Jean Fitterer Lance, Sr. VP & Chief Compliance Officer
Kenneth J. Pucel, Exec. VP, Global Operations, Quality and Technology
Global Headquarters: Marlborough, Mass.
No. of Employees: 23,000
After several years of sluggish sales and legal wrangling (patent cases, U.S. government litigation and patient lawsuits), Boston Scientific has been working to reverse its fortunes. Toward the end of its 2013 fiscal year (ended Dec. 31), the company went through a self-described period of restructuring—its third in two years. Results from the company’s third quarter seemed to suggest that the efforts worked. The end of the year seemed to bring with it improved performance and, dare Boston Scientific officials say it, a possible turnaround, exceeding Wall Street’s expectations.
“I am pleased with our results for the quarter and our return to operational revenue growth for the full year 2013,” said Mike Mahoney, president and CEO. “This marks our third consecutive quarter of accelerated operational revenue growth and we look forward to continued improvement of our annual sales and earnings performance in 2014.”
In 2013, the company reorganized its business units into three reporting segments: MedSurg, which consists of endoscopy, neuromodulation, and urology and women’s health businesses; Rhythm Management, which consists of cardiac rhythm management and electrophysiology (EP) businesses; and Cardiovascular, which includes the firm’s interventional cardiology and peripheral interventions businesses.
Across all three segments in FY13, the company achieved full-year sales of $7.14 billion, representing 2 percent operational revenue growth and 1 percent revenue decline on a reported basis. The company recorded full-year adjusted earnings per share of 73 cents, compared to 66 cents in 2012, and reported a GAAP loss of 9 cents per share, compared to a GAAP loss of $2.89 per share in the prior year period.
Morgan Stanley analyst David Lewis told investors at the beginning of 2014 that things were looking up for Boston Scientific based on the strength of the company’s product pipeline and its “numerous opportunities” to expand margins.
“Over the past several years, the company has targeted investments across several markets to accelerate growth and drive leverage,” Lewis said. “We believe better recognition of this strategy will drive future outperformance even after a robust 2013 as accelerating sales and earnings growth drive improving financial performance over the next several years.”
According to Lewis, the company’s strengths are its revenue growth, “solid” stock price performance and “compelling growth” in net income.
“However, as a counter to these strengths, we find that the company’s cash flow from its operations has been weak overall,” he noted.
News of the improved numbers at the end of FY13 also came with the announcement of 1,100 to 1,500 job cuts worldwide—part of the restructuring plan noted above—along with the company’s ongoing plant network optimization strategy, continued focus on driving operational efficiencies and ongoing business and commercial model changes.
The company previously cut 1,000 jobs in 2011 and another 900 to 1,000 positions in early 2013. The third round of layoffs was thought to be a cost-cutting tactic to speed up the company’s improving performance, saving $150 to $200 million in operating costs. In October of FY13, Boston Scientific’s chief financial officer, Jeffrey Capello, announced his resignation. The position was filled by Daniel Brennan, senior vice president and controller, who is credited with helping steer Boston Scientific over the bumps of the last five years.
Also toward the end of the 2013 fiscal year, the company began its transition from its former headquarters in Natick, Mass., to a new facility 14 miles west to the town of Marlborough.
Sectors by the Numbers
Sales for the firm’s Cardiovascular sector fell 6 percent to $2.79 billion. Within that corporate silo, interventional cardiology product sales dropped 8 percent to just shy of $2 billion, while peripheral intervention products sales were up 2 percent to $789 million. The haul for Rhythm Management business was sales of $2.04 billion, down 1 percent. Within the business segment, sales of cardiac rhythm management devices yielded $1.89 billion, a drop of about 1 percent, and sales of electrophysiology products were up 5 percent to $155 million. Boston Scientific’s MedSurg business grew sales by 7 percent to reach $2.26 billion. Under the MedSurg umbrella, endoscopy product sales rose 4 percent to $1.3 billion; neuromodulation devices were the company’s big winner with a 23 percent sales increase to $453 million; and urology and women’s health products eked out minor gains of 1 percent growth to reach $505 million.
For the company overall, on a consolidated GAAP basis, net loss for the full year 2013 was $121 million, or 9 cents per share, which included goodwill and other intangible asset impairment charges, acquisition and divestiture-, restructuring- and litigation-related charges, discrete tax items and amortization and debt extinguishment expenses, of $1.1 billion (after-tax) or 82 cents per share. Adjusted net income for the full year 2013, excluding these net charges, was $991 million, or 73 cents per share. By comparison, on a consolidated GAAP basis, net loss for the full year 2012 was $4.1 billion, or $2.89 per share. Adjusted net income for the full year 2012, was $933 million, or 66 cents per share.
In a move to increase market share, Boston Scientific acquired the electrophysiology business of Murray Hill, N.J.-based C. R. Bard for $275 million in cash. Bard’s EP business, based in Lowell, Mass., had nearly $111 million in sales in 2012. Boston Scientific merged the unit with own rhythm management business, which is best known for making pacemakers and implantable defibrillators. According to company officials, there is a $2.5 billion worldwide market for electrophysiology that is growing 10 percent annually. Analysts seemed to agree. In a note to investors, Kevin Strange, an analyst for Wells Fargo, wrote that the acquisition would give Boston Scientific 11 percent market share and move up in the global electrophysiology market from fourth to third position.
“We expect [Bard’s] strong portfolio of diagnostic catheters to be complementary to [Boston Scientific’s] portfolio of therapeutic catheters, and geographically, [Bard] has a strong presence outside the U.S., whereas [Boston Scientific] has a stronger presence in the U.S, which we expect to also be complementary,” Strange wrote. “Overall, we think the acquisition is strategically sound and consistent with [Boston Scientific’s] stated desire to reinvigorate their EP business.”
New Product OKs
Given Boston Scientific’s varied product categories, new product rollouts, study results and technology milestones are frequent throughout the year, and FY2013 was no exception. Here are a few notable new tech highlights:
- In the first quarter of 2013, the company received CE mark approval in Europe for the Promus Premier everolimus-eluting platinum chromium coronary stent system. U.S. Food and Drug Administration (FDA) approval followed in the fourth quarter. The device is designed to improve drug-eluting stent performance in treating patients with coronary artery disease, featuring a unique customized platinum chromium alloy stent architecture and an enhanced stent delivery system.
- The company also received CE mark for its X4 line of quadripolar cardiac resynchronization therapy defibrillator (CRT-D) systems, including the Autogen X4, Dynagen X4, and Inogen X4 CRT-Ds, a suite of Acuity X4 quadripolar left ventricle leads and the Acuity PRO lead delivery system. The small, implantable devices are used to treat heart failure and sudden cardiac arrest.
- The FDA’s Circulatory System Devices Panel of the Medical Devices Advisory Committee voted 13-1 to recommend the company’s Watchman left atrial appendage closure device for approval. The device is used to treat atrial fibrillation. Agency approval is expected this year. The device received CE mark in Europe in 2005.
- Further bolstering its portfolio of peripheral embolization technologies, Boston Scientific received FDA clearance and CE mark approval for its Direxion Torqueable Microcatheter. Peripheral embolization is a technique used primarily by interventional radiologists to treat liver cancer, uterine fibroids and other challenging conditions. It involves deliberately blocking a blood vessel to prevent blood flow to an area of the body, which can effectively shrink a tumor or block an aneurysm.
- In November, CE mark was granted for the Vercise deep-brain stimulation (DBS) system for the treatment of intractable primary and secondary dystonia, a neurological movement disorder characterized by involuntary muscle contractions. Earlier in the year, CE mark also was issued for the Guide DBS system, which the company claims is world’s first DBS visualization system—providing clinicians with 3-D visualization information that simulates stimulation output, which may reduce programming time and enable more precise targeting of therapy. Using Guide DBS, physicians are able to visualize the relative position of lead location and utilize stimulation field models within the brain. Guide and Vercise can be used in combination.
- October brought another CE mark, this time for the Lotus valve system, the company’s entry into the highly competitive transcatheter aortic valve replacement (commonly referred to as TAVR) market. This device is designed for patients with severe aortic stenosis at high risk for traditional open-heart surgical valve replacement. The company also is pursuing FDA approval.
- Also in October, the company kicked off a key clinical trial expected to serve as the foundation for global regulatory approvals of the Innova drug-eluting stent system. The trial, dubbed Majestic, is designed to evaluate the safety and performance of the first Boston Scientific peripheral drug-eluting stent system. The Innova system is designed to restore blood flow in arteries above the knee, specifically the superficial femoral artery and proximal popliteal artery. The stent features a unique drug-polymer combination, intended to facilitate optimal release of the drug and prevent restenosis (narrowing) of the vessel. “The complex anatomy of the superficial femoral artery above the knee and the dynamic forces created by flexion of the knee create a challenging environment for implants like stents, leading to the potential risk of stent fracture and higher rates of restenosis,” said Professor Stefan Muller-Hulsbeck, M.D., Ph.D., deputy chairman Vascular Center Diako Flensburg and head of the Department of Diagnostic and Interventional Radiology/Neuroradiology, Academic Hospitals Flensburg, Germany. Innova DES consists of a paclitaxel-coated, nitinol, self-expanding stent loaded on an advanced, low-profile delivery system. The innovative stent architecture features a closed-cell design at each end of the stent for more consistent deployment, and an open-cell design along the stent body for improved flexibility and fracture resistance. Deployment accuracy is facilitated by a tri-axial catheter shaft designed to provide added support and placement accuracy.
- In August, the FDA approved the company’s IntellaTip MiFi XP catheter and cleared the Zurpaz 8.5F steerable sheath. The products joined the company’s growing portfolio of electrophysiology tools designed to redefine ablation technology. Catheter ablation, a procedure in which localized electrical energy is delivered into the heart tissue and is aimed at restoring the continuous normal rhythm, has become a first-line treatment approach for patients with certain kinds of irregular heartbeats.
- The FDA granted 510(k) clearance of the Rhythmia mapping system, a next-generation 3-D mapping and navigation solution for use in cardiac catheter ablations and other electrophysiology procedures to diagnose or treat a variety of conditions in which the heart beats abnormally. Cardiac mapping has become a standard tool for the diagnosis and treatment of arrhythmias. Current mapping systems require a manual, labor intensive process to create maps, making tradeoffs between accuracy and speed. Current systems also offer limited indication of therapy success. Rhythmia is designed to intelligently automate map creation, increasing the speed and improving the density of mapping compared to existing systems. CE mark was granted earlier in the year.
- The company received FDA 510(k) clearance and CE mark for the Guidezilla guide extension catheter, which is designed to make complex percutaneous coronary intervention procedures easier by more efficiently delivering interventional devices, including balloons and stents, in situations where extra backup support is needed.
- Boston Scientific launched a new family of pacemakers in Europe that monitor respiration, adjust pacing accordingly, and support insight into the patient’s overall heart failure status. The new line comprises the Inliven cardiac resynchronization therapy pacemaker (CRT-P) that synchronizes the heart chambers, and the Vitalio and Formio pacing systems. Pacing systems are designed to treat bradycardia, a condition in which the heart beats too slowly, depriving the body of sufficient oxygen, whereas CRT-P systems are designed to treat heart failure patients. Inliven, Vitalio and Formio received the CE Mark. Vitalio and Formio also are approved in the United States.
- In April, Boston Scientific acquired the fiXate Tissue Band and launched the product in the United States. The fiXate Tissue Band is a suturing device designed for quick and simple placement of a suture to help secure a spinal cord stimulator lead or pain pump catheter. The product was purchased from Anulex Technologies, Inc. Designed to manage chronic pain, spinal cord stimulators deliver electrical pulses from an implantable pulse generator to leads with stimulating contacts in order to mask pain signals traveling to the brain. More than 100 million Americans suffer from chronic pain, according to the Institute of Medicine.
Tapping into the sleeping giant that is China’s medical device market, Boston Scientific opened a China branch of its Institute for Advancing Science (IAS) as well as a new Innovation Center in Shanghai. The company expects to foster local talent while sustainably developing innovative technologies uniquely suited to the China market.
“China is key to our ongoing global expansion, and we believe that initiatives such as the IAS and Innovation Center will help us to continue adapting to the unique demands of the China market,” Mahoney said.
The IAS offers Chinese medical practitioners training in clinical practice and multidisciplinary programs in interventional cardiology, cardiac rhythm management and electrophysiology, endoscopy, peripheral interventions, and urology and women’s health.
Boston Scientific established its China headquarters in Shanghai in 1997 and now has branches and R&D centers in Beijing, Shanghai and Guangzhou. Other IAS locations include France, Germany, Japan and the United States.
A total of 47 percent of the company’s sales in 2013 were generated overseas (10 percent in Japan and 37 percent in other markets).
In 2013, Boston Scientific’s sales in Brazil, Russia, India and China grew on a constant currency basis by nearly 30 percent and in our total emerging markets by 20 percent.
At the end of fiscal year, the company had six international manufacturing facilities, including three in Ireland, two in Costa Rica and one in Puerto Rico. Approximately 57 percent of products sold worldwide during 2013 were manufactured at these facilities.