Boston Scientific's Murky Prognosis

The medical device outfit finds it "difficult" to offer sales outlooks for its key products throughout 2007

Boston Scientific (BSX) is still struggling to recover from falling sales. The medical device maker on Feb. 1 announced a weaker fourth quarter profit and didn't even dare forecast what happens in late 2007.

Boston Scientific reported fourth quarter net income of $277 million, or 19 cents per share, which included net special credits (after-tax) of $127 million (9 cents per share), down from $334 million, or 40 cents per share, in the year-earlier quarter.

Boston Scientific has come under fire recently because it makes stents, which are metal objects used to keep arteries open even after illness has made them collapse. Some of them, like Boston's blockbuster product Taxus, come coated with medication intended to fight off the threat of reclogging. But concerns flared up earlier this year that drug-coated stents might increase the risk of blood clots.

Meanwhile Boston Scientific shelled out $27 billion for Guidant Corp. in a deal that closed April 21. Guidant makes implantable cardioverter defibrillators (ICDs), which monitor heartbeats and can shock a racing heart back to normal. But an embarrassing string of quality-related recalls hit that market too last year (see BusinessWeek, 10/9/06, "Boston Scientific's Double Bypass").

Now such sales amounted to 30% of Boston's total during 2006, compared to 41% in 2005. "Forecasting the rate of growth in the cardiac rhythm management market and the drug-eluting stent market will be difficult, given the events and volatility in both markets during 2006," the company said in a press release Feb. 1.

The first three months of 2007 are closer. During that period Boston Scientific thinks it will have between $2.0 billion and $2.1 billion in sales, on adjusted earnings per share that range between 15 cents and 21 cents per share. That compares to net sales of $2.065 billion on 20 cents per share during the quarter ended Dec. 31.

"The past year was a transforming one for Boston Scientific and its vision for the future," CEO Jim Tobin said in a press release. "As we look forward, we are confident the growth story at Boston Scientific will continue."

Investors, who had been warned about falling Taxus sales in Boston Scientific's preliminary estimates Jan. 10, sold the stock 0.5% to $18.36 in early afternoon trading on the New York Stock Exchange Feb. 1.

"Although we believe market conditions in the cardiac rhythm management industry began to stabilize in recent months, visibility here remains low and we think BSX will continue to be challenged to generate significant sales growth in '07," Standard & Poor's equity analyst Robert Gold said in a research note. (S&P, like is owned by The McGraw-Hill Companies.) Gold expects the company to keep its profits up in spite of falling sales next year - but that's assuming Boston makes "sizable workforce reductions."

And that's one evident fallout from the recent sales trauma. Boston Scientific already said in January that it plans to cut 500 to 600 employees in the first quarter of 2007.