Boston Scientific Names J&J’s Mahoney President With Plan to Make Him CEO

Boston Scientific Corp. (BSX) named Michael Mahoney of Johnson & Johnson (JNJ) its next chief executive officer as the world’s second-largest maker of implantable heart devices seeks to expand its product line and return to profitability.

Mahoney, 46, will join Boston Scientific Oct. 17 as president and will be elevated to CEO in November 2012, the device maker said yesterday in a statement. Hank Kucheman, currently executive vice president, will serve as interim chief executive officer until Mahoney fulfills his post-employment obligations to New Brunswick, New Jersey-based J&J. Boston Scientific CEO Ray Elliott, who said in May he would leave by year’s end, will step down when Mahoney becomes president.

Mahoney will be charged with reinvigorating sales at Natick, Massachusetts-based Boston Scientific, which has posted a net annual loss every year since 2006. Revenue from its devices to regulate the heart and prop open clogged arteries has declined as researchers questioned their safety. The company is cutting 1,200 to 1,400 jobs, about 5 percent of its workforce, to reduce costs as much as $275 million.

“Mike Mahoney brings some fresh blood, an outstanding background and a wealth of experience,” Rick Wise, an analyst at Leerink Swann in New York, said in a note to clients. “Mahoney has a long track record of experience at some of the world’s premier health-care companies” and “was also clearly among J&J’s up and coming next generation of leaders.”

Unusual Transition

Boston Scientific rose 20 cents, or 3.2 percent, to $6.46 at 4:01 p.m. in New York Stock Exchange composite trading. The shares declined 35 percent between July 13, 2009, when Elliott became CEO, and today.

The “unusual transition,” agreed to by both companies may renew speculation that J&J could seek to acquire Boston Scientific, said Larry Biegelsen, an analyst with Wells Fargo Securities in New York, in a note to investors. J&J said earlier this year it would stop selling drug-coated stents used to prop open clogged arteries, a market led by Boston Scientific.

“It strikes us as a friendly agreement between two companies that have been fierce rivals over recent years and have litigated against each other extensively in the stent space,” Biegelsen said.

Boston Scientific has sought to diversify its product line during Elliott’s tenure by acquiring five companies for an average disclosed price of $136.6 million, according to Bloomberg data.

Recent Acquisitions

The deals included the purchases of Asthmatx Inc., a maker of devices to treat severe asthma; Sadra Medical Inc., which produces artificial heart valves; and Atritech Inc., a maker of heart devices used to stop blood clots from triggering strokes in people with irregular heartbeats.

The company’s recent success in litigation and controlling its debt means there will be more available cash flowing into the business, Chief Financial Officer Jeff Capello said today at the Morgan Stanley Global Healthcare Conference. The money will be used for a $1 billion share repurchase program and additional acquisitions to increase sales, he said.

“The beauty of it is, we’ll have the capacity to build both at the same time,” he said. “I would look at least for the foreseeable future to see a good balance between share repurchase and bolt-on acquisitions.”

Elliott’s Strategy

The acquisitions are part of a five-year strategy Elliott announced to focus on new growth areas, increase sales efforts in emerging markets such as China and reduce operating expenses. Mahoney said he will stick with Elliott’s approach, known as the Power strategy.

The device maker forecast profit of 64 cents to 70 cents a share for the full year during its second-quarter earnings conference call. Elliott, who took the helm of Boston Scientific in July 2009, said his turnaround plan was exceeding expectations. Medtronic Inc. (MDT) of Minneapolis is the leading maker of pacemakers and defibrillators.

Mahoney was appointed worldwide chairman of J&J’s medical device and diagnostics group in January. He earlier led the company’s DePuy unit, which manufactures orthopedic and neurological devices. DePuy, the biggest seller of artificial hips, announced a recall of 93,000 hip implants in August 2010 because of higher than expected rates of repeat surgeries needed by patients.

‘Intensely Passionate’

“He is intensely passionate about innovation and people, and creates and encourages a team environment that results in superior performance,” Pete Nicholas, chairman and co-founder of Boston Scientific, said of Mahoney in the statement. “This, combined with Mike’s significant international experience made him the best choice for this critical role.”

Kucheman will be appointed to Boston Scientific’s board of directors as interim chief executive. After Mahoney takes the helm of the company, Kucheman will take a senior advisory role.

Mahoney was president and chief executive officer of Global Healthcare Exchange, which connects hospitals, manufacturers and distributors, from 2001 to 2006. He started in the industry at General Electric Medical Systems. He has a degree in finance from the University of Iowa and a master’s of business administration from Wake Forest University in North Carolina.

“J&J’s medical device business is the world’s largest so this is somewhat of a coup for BSX,” Biegelsen, of Wells Fargo, wrote. “We view Mr. Mahoney as a solid choice for the job given his impressive resume.”

To contact the reporters on this story: Michelle Fay Cortez in Minneapolis at mcortez@bloomberg.net; Molly Peterson in Washington at mpeterson9@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net

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