Boston Scientific Sees New Devices Boosting Profit Margins

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Boston Scientific Corp.’s cost-cutting plans and new devices it can make more efficiently will bolster operating profit margins beyond the 25 percent goal for 2017, Chief Executive Officer Mike Mahoney said.

The maker of defibrillators and stents plans to boost adjusted operating margins by an additional 0.5 to 1 percentage point a year in 2018 and 2019, Mahoney announced at an investor day in New York. After expanding sales in 2014 for the first time in five years, Boston Scientific is aiming for revenue gains of 3 percent to 5 percent this year, excluding acquisitions, and as much as 6 percent in 2016, he said.

“We are really showing confidence in our long-term financial outlook with mid-single digit growth for the company and differentiated margin expansion,” Mahoney said in the interview. “We are growing faster than our peers in most of our businesses and we have the No. 1 or No. 2 spot in five out of seven businesses.”

Boston Scientific, with headquarters in Marlborough, Massachusetts, and sales predominantly in the U.S., is expanding abroad after moving manufacturing to locations like China to lower costs. The company intends to get 15 percent of revenue from emerging markets by 2017, up from 10 percent last year. It’s also moving its product mix toward faster-growing items including devices to prevent erratic heart rates and stroke, from more stable products such as heart stents.

Shares of Boston Scientific fell 1.6 percent to $17.54. The company suspended share repurchases for at least a year as it places a priority on debt repayment and acquisitions.

Many of the products Boston Scientific will introduce this year come with lower costs and improved engineering, Mahoney said. The company will produce an updated version of its S-ICD defibrillator, which restores electrical activity in the heart without the direct attachment of troublesome wires. It recently won approval for Watchman, a device to close off a section of the heart where blood can pool to form deadly clots.

Patient Backlog

“There is a backlog of patients, but we want to make sure it gets rolled out appropriately with the right training and monitoring,” Mahoney said. The Watchman will be available over the next four months after training is done at 50 sites that participated in studies, he said.

The company said it’s working on a stent, used to prop open clogged arteries, that will fully dissolve over time. It would compete with Abbott Laboratories’ Absorb product. Boston Scientific’s Synergy stent, with a drug coating that dissipates, is expected to reach the U.S. this year, after generating one-fourth of the company’s European stent sales.

The company is also enrolling patients in a study of the Vessix Renal Denervation System, designed to lower blood pressure by quieting the nerves that contribute to hypertension. Work on Vessix and similar devices slowed after a study by Medtronic Plc last year failed to find a benefit.

‘Silent Killer’

The Boston Scientific trial will treat people with either the device or a sham procedure. They will all be weaned from blood pressure medication to see if the technique was effective. The results of the small study will determine whether the company moves ahead with a full-blown trial needed to win U.S. regulatory approval, Mahoney said.

“We’re excited about giving it a shot,” he said. “Hypertension is a silent killer for patients.”

The adjusted operating margin goal of 25 percent by 2017 compares with 20.2 percent recorded in 2014, and a forecast for 22 percent to 22.5 percent this year, according to Boston Scientific’s presentation at the investors meeting.

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