Boston Scientific’s CEO Eyes Innovation to Fuel Growth

Boston Scientific Corp. (BSX)’s Michael Mahoney, who took the helm yesterday as chief executive officer, says innovation and smooth integration of recent acquisitions will return the company to growth next year.

The Natick, Massachusetts-based maker of heart devices has been on a buying spree. Last quarter, it purchased BridgePoint Medical Inc. for its product to treat totally blocked arteries and Rhythmia Medical Inc., which makes equipment to guide doctors during heart procedures. It’s also branching out with treatments for asthma, minimally invasive heart valve repair and novel defibrillators.

Analysts are betting against Mahoney’s goal of revenue growth in 2013, which would be the first increase since 2009. The company, which posted revenue of $7.6 billion in 2011, may generate $7.3 billion this year and $7.2 billion in 2013, according to the average estimates of 20 analysts compiled by Bloomberg. The forecasts don’t daunt Mahoney.

“We’ve had declining growth each quarter in 2012. We clearly want to turn that around in 2013,” he said in a telephone interview, without giving a specific sales target. “We’re absolutely a turn-around story.”

Folding the new products and companies into Boston Scientific will be a key challenge as the company has struggled with acquisitions in the past, Jason McGorman, an analyst with Bloomberg Industries, said in a telephone interview. It has recently written down costs linked to the purchases of Guidant Corp. and Sadra Medical, he said.

Acquisition Risks

“It’s always a little dangerous when you have assets you didn’t develop internally,” McGorman said. “It’s hard to gauge what will be a risk in the future. You have seen the history with those acquisitions and the write downs. That is what makes people nervous.”

Boston Scientific has had recent success getting novel products, including new types of stents used to open blocked arteries and defibrillators to shock irregular heartbeats, to the market.

The Synergy stent, which is coated with a drug and polymer that dissolves within three months to allow the artery to heal, was approved yesterday in Europe. The U.S. approved its S-ICD, a defibrillator that doesn’t require leads to be attached to the heart, five weeks ago. Boston Scientific bought the defibrillator technology in June.

Mahoney is aware of the danger of overextending the company. Still, he’s unwilling to rule out additional acquisitions, joint ventures or investments in smaller companies developing cutting-edge technologies.

‘Drive Value’

“We’ll always look at acquisitions that will drive value for us and fit in with our strategic plan,” he said, acknowledging that integration can take a lot of time. “It’s important that we don’t stack up too many acquisitions that pull on the same resources” within the company.

Boston Scientific has a number of restructuring efforts under way in manufacturing and research and development, Mahoney said. It’s also in the process of changing its business operations to have a more global outlook, while fine-tuning the U.S. sales model to directly target hospital and supply chain executives in addition to doctors who implant the company’s growing portfolio of new products, he said.

While numerous medical technology companies have blamed lackluster results on the sluggish global economy, Mahoney says Boston Scientific’s recent restructuring and investments give it control of its own fate.

Overseas Markets

“It will certainly be easier once the economy turns around, but we can return to growth with the plans we have in place,” Mahoney said. “We improved our gross margins last quarter despite the sales decline. You also have to look at where you can grow,” he said, highlighting international markets including India and Brazil.

The company’s shares have declined 5.6 percent since Mahoney arrived at Boston Scientific on Oct. 17. Formerly the worldwide chairman of Johnson & Johnson (JNJ)’s medical device and diagnostic group, Mahoney served as Boston Scientific’s president for a year while he fulfilled his post-employment obligations to New Brunswick, New Jersey-based J&J.

Boston Scientific fell less than 1 percent to $5.20 at the close of New York trading.

“It’s been a tough ride,” McGorman said. “They have made a lot of progress, but it’s been a long time coming.”

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

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

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