Michael F. Mahoney, President & CEO
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
Jeff Mirvis, Sr. VP & President, Peripheral Interventions
Karen Prange, Sr. VP & President, Urology & Women’s Health
Brian R. Burns, Exec. VP, Global Quality, Medical Safety and Regulatory Affairs
Jean Fitterer Lance, Sr. VP & Chief Compliance Officer
No of Employees: 24,000
Global Headquarters: Natick, Mass.
Fiscal 2012 was a mixed bag of positives and negatives for medical device giant Boston Scientific (BSX). Throughout the year, the company continued efforts to reshape and restructure—streamlining the organization to develop new technologies, find new opportunities and seize novel markets to replace the shrinking sectors in which the company has led. While overall sales were down compared with 2011, 2012 saw key acquisitions to shore up traditional technology sectors and to expand into new markets.
For example, cardiac rhythm management (CRM) devices have been the Natick, Mass.-based firm’s “bread and butter” technology.
CRM, once the golden goose for industry giants such as Boston Scientific Corp., St. Jude Medical Inc. and Medtronic Inc., is a shadow of its former self. Demand and sales have slowed significantly. And, according to industry analysts, it’s not likely to improve. Millennium Research Group analysts say the global CRM market is too crowded and will post flat growth through 2016.
For fiscal 2012 (ended Dec. 31) the company posted sales of $7.25 billion, down from $7.62 billion in 2011. The company posted a loss of $4.07 billion, compared with $441 million the year before. On a sector-by-sector basis, the company’s hardest-hit divisions were Interventional Cardiology ($2.18 billion, down 13 percent) and Cardiac Rhythm Management ($1.91 billion, down 9 percent). The divisions that posted gains were Endoscopy ($1.25 billion, up 5 percent), Peripheral Interventions ($774 million, up 6 percent) and Neuromodulation ($367 million, up 9 percent). Urology/Women’s Health and Electrophysiology both experiences flat sales compared with 2011, earning $500 million and $147 million, respectively. By product category, sales of defibrillator systems (down 9.2 percent) and stent technology (down 15.9 percent) were hit the hardest.
One of the markets many CRM-dependent companies have looked toward is renal denervation. The technology is designed to relieve drug-resistant hypertension by ablating the renal artery using radiofrequency energy to disrupt the renal sympathetic nerves whose hyperactivity leads to uncontrolled high blood pressure. To help give it a leg up in a potential multi-billion-dollar market, Boston Scientific purchased privately held Vessix Vascular in November. The Laguna Hills, Calif.-based firm developed a catheter-based renal denervation system. Boston Scientific leadership has identified this market as “an important part” of the company’s growth strategy. Despite the widespread availability of anti-hypertensive medications, the blood pressure of many patients remains high and uncontrolled. At the time of purchase, the Vessix Vascular V2 renal denervation system had received CE mark in Europe and TGA approval in Australia. It is still not yet approved in the United States.
Vessix became part of Boston Scientific’s Peripheral Interventions division, which includes products that treat vascular system blockages in areas such as the carotid and renal arteries and the lower extremities. Terms of the deal called for an upfront payment of $125 million, plus additional clinical- and sales-based milestones aggregating a maximum of $300 million during the period between 2013 and 2017.
The company also was aggressive in pursuing other key market-expanding acquisitions in 2012.
In October, the company inked a deal for Rhythmia Medical Inc., a medical device company with a focus in arrhythmia, as it seeks to expand in the fast-growing electrophysiology market. Burlington, Mass.-based Rhythmia Medical developed mapping and navigation solutions for cardiac catheter ablations and other electrophysiology procedures, including atrial fibrillation and atrial flutter. Atrial fibrillation is a disorder that disrupts the ability of the heart to beat regularly and pump blood efficiently. Catheter ablation enabled by 3-D mapping and navigation commonly is used to treat heart-rhythm disorders, including atrial flutter and atrial fibrillation. Rhythmia received $90 million when the transaction closed, plus an additional $175 million in contingent payments based on regulatory, commercial and sales-based milestones through 2017.
BSX also acquired BridgePoint Medical Inc., a privately held company based in Minneapolis, Minn., that develops catheter-based interventional cardiology technology for access to and treatment of chronic total occlusions (CTOs). The BridgePoint Medical CTO system—comprising the CrossBoss CTO Crossing Catheter and the Stingray CTO Re-Entry System—is designed to navigate highly diseased (occluded) coronary arteries and restore healthy blood flow. The system has received both U.S. Food and Drug Administration (FDA) clearance and the CE mark, and currently is the only crossing/re-entry system cleared in the United States for use in coronary CTOs. CTOs are defined as arteries that have been occluded for three months or more, though usually there is no real way to tell how long the occlusion has existed. These occlusions prevent blood circulation to critical areas of the heart. CTO devices are designed to permit endovascular treatment in cases that otherwise might require a patient to undergo invasive intervention such as coronary artery bypass surgery. Financial terms of the transaction were not disclosed.
March brought the purchase of Cameron Health Inc., which, according to leadership at both companies, has developed the world’s first and only commercially available subcutaneous implantable cardioverter defibrillator. Unlike traditional implantable cardioverter defibrillators (ICDs) that require thin, insulated wires (leads) to pass through the venous system and into the heart, Cameron’s system—called the S-ICD— sits just below the skin and leaves the heart and blood vessels untouched. The technology has the potential, BSX executives hope, to expand the reach of ICD therapy, offering physicians and patients—though it’s not suited to all patients—a new alternative to traditional ICDs while strengthening Boston Scientific’s arrhythmia management portfolio.
The agreement called for an upfront payment of $150 million, another possible $150 million payment upon FDA approval of the S-ICD System (which occurred in September 2012), plus up to an additional $1.05 billion of potential payments upon achievement of specific revenue-based milestones over a six-year period following FDA approval. The S-ICD System also received CE mark in Europe.
Rick Wise, an analyst for Boston, Mass.-based firm Leerink Swann, categorized the purchase as a positive move for Boston Scientific, with the potential to transform the longer-term outlook for BSX’s “lagging” CRM business. Wise also was bullish on some of the company’s other technology moves.
“Over the last two years, BSX has been building a portfolio of compelling and differentiated early stage technologies—including the Asthmatx/Alair bronchial thermoplasty system, the Sadra/Lotus transcatheter valve, the Watchman LAA closure device, and now Cameron Health’s ICD technology,” Wise wrote. “By mid-decade, these technologies could help transform BSX’s portfolio, in our view, driving significant top-line growth and leveraging BSX’s—by then—more efficient cost structure. Though near-term cardiology market conditions remain challenging, to us, BSX’s turnaround remains substantially under way.”
Part of the turnaround requires more reorganization. As 2013 began, in an effort to recover from declining results, and ostensibly also to combat the new medical device excise tax, the company is expanding a restructuring program that originated in 2011. Of course, “restructuring” most often is code for “layoffs,” and Boston Scientific will cut 900 to 1,000 jobs this year bringing the total number of jobs cut since 2011 to approximately 2,200. According to the company, the measure is expected to reduce gross annual pre-tax operating expenses by an incremental $100 million to $115 million exiting 2013.
This year also continues the company’s appetite for strategic acquisitions. In July, the company bought the electrophysiology (EP) business of Murray Hill, N.J.-based C. R. Bard for $275 million in cash. The purchase will expand BSX’s role in treating abnormal heartbeats. Bard’s EP business had nearly $111 million in sales last year. The unit employs about 180 people worldwide. The Bard division, based in Lowell, Mass., manufactures medical equipment, catheters and accessories. Boston Scientific will merge the Bard unit with its own rhythm management business, one of three global reporting units created under a restructuring announced in January. Its rhythm management business is best known for making pacemakers and implantable defibrillators. The other two segments are cardiovascular and medical surgery.
The acquisition is part of Boston Scientific’s effort to shore up its rhythm management business, where sales dropped 5 percent in the first quarter. 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 it 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.”
Also in the way of reorganization—though more of a physical kind—Boston Scientific will be selling its Natick headquarters and moving to Marlborough, Mass., where the company already has a facility, the company announced late in 2012. The move will take place in phases, the first of which began this spring. All workers will relocate by mid-summer of 2014, when construction of an additional building on the Marlborough site is expected to be complete. The move is expected to bring about 800 jobs to Marlborough. Natick-based MathWorks will purchase the 500,000-square-foot Natick facility, and the financial details of that transaction were not disclosed.
“A new global headquarters in Marlborough will more effectively support our long-term strategic plans,” said CEO Mike Mahoney. “Consolidating our Natick and Marlborough facilities is expected to foster greater collaboration and efficiency, benefitting our employees, our customers, and, ultimately, the patients they treat.”
The consolidation is expected to generate cost savings, according to the company, but it did not put a dollar figure on the savings.
Boston Scientific reported a first-quarter 2013 loss of $354 million on revenue of $1.8 billion.