Medical Device Daily
"Boston Scientific needs a defibrillator" (SeekingAlpha.com). "The Toyota of the medical industry" (Wall Street Journal blog). "Boston Scientific cut to sell by Goldman Sachs" (MarketWatch.com). "Analysts bemoan lack of information" (WSJ blog). "Boston Scientific downgraded . . ." (TheStreet.com)"
This is just a taste of the headlines reflecting fallout a day after what could be one of the biggest medical device recalls ever. Boston Scientific (Natick, Massachusetts) on Monday stopped shipment and is retrieving field inventory of all its implantable cardioverter defibrillators (ICDs) and cardiac resynchronization therapy defibrillators (CRT-Ds).
The fact that the company hasn't supplied sufficient details about the recall was reflected in responses to questions from Medical Device Daily:
MDD: How many defibrillators were ready to be shipped, but held and how many are being recalled?
Paul Donovan, Boston Scientific spokesman: "I don't have a number, but it is all products manufactured since March 2009."
MDD: What kind of manufacturing changes were made and when?
Donovan: "The changes were made in March and April 2009. We're not saying what kind."
MDD: What were those changes made in response to?
Donovan: "We're not saying."
Donovan did say that no patients have ever been in danger related to implantation of devices from product families including: Cognis, Confient, Livian, Prizm, Renewal, Teligen and Vitality.
When asked why Boston Scientific didn't submit the changes to FDA at the start, Donovan said, "In the first case, our regulatory affairs department did not recognize the need to file a PMA supplement. In the second, the FDA filing was incomplete."
RBC Capital Markets Healthcare Analyst Glenn Novarro downgraded Boston Scientific to "sector perform" (an above average risk) from "outperform" and dropped his price target to $7.50 from $9 due to the ICD sales suspension, which he said will impact about 15% of BSX's total sales.
The company's 2008 annual report, the latest available, indicated that 2008 ICD sales were $1.7 billion with total sales a little over $8 billion.
Novarro reported that the impact on the company's reputation will be long lasting. In predicting at least a three-month hiatus in ICD sales, he said that could translate to a $52 million reduction in the company's sales. In total, Novarro lowered his full-year 2010 Boston Sci sales forecast by $621 million.
"While there are still many positives for Boston Scientific, such as restructuring, asset sales, and strong endosurgery and neuromodulation growth, with both the stent and ICD businesses under pressure, the near term EPS outlook will now be even more challenging. With limited near term earnings visibility, we can no longer recommend the shares," Novarro wrote.
Goldman Sachs and several other firms followed suit. Wells Fargo Analyst Larry Biegelsen shared his thoughts with MDD:
"We had a chance to speak with Boston Scientific management and physicians following BSX's announcement," Biegelsen wrote in an e-mail to MDD. "The company told us that the two manufacturing process changes that were made without notifying the FDA were not due to problems with the devices and that the company discovered the problem at the end of last week. At this time, the company does not believe this will affect its ICD sales outside the U.S. It's unclear how BSX will compensate and retain its sales reps while it's off the market. Physicians with whom we spoke were very concerned about this issue despite the administrative nature of the sales suspension."
The FDA learned of the recall on Sunday, Dick Thompson, an FDA spokesman, told MDD, adding that the agency will immediately begin to investigate the root cause.
On Monday, the company's shares hit a 52-week low, dropping 16.45% at midday to $6.31. Trading volume remained heavy at more than 135 million shares by late afternoon Tuesday, less than the 244 million shares that traded on Monday, but still well above average daily trading volume of 25 million. The stock crept back up to close at $7.09. on Tuesday.
Monday's news comes just over two weeks after Boston Science negotiated a plea deal on behalf of Guidant a company plagued with product liability problems it acquired for $27.2 billion in 2006 which was criminally charged with concealing information from the FDA regarding catastrophic failures in some of its ICDs. The specific charges include submission of false and misleading reports to the FDA, and failure and refusal to report medical device corrections (MDD, Feb. 26, 2010). Last month it reported a series of management changes and restructuring initiatives designed to strengthen the company and position it for long-term success. The company reported a 4Q09 loss of $1.1 billion, and said it would lay off as many as 1,300 employees, roughly 10% of its total staff (MDD, Feb. 12, 2010).
As Boston Scientific works through this latest complication, industry analysts and commentators seem worried about the overall impact to the company's reputation, especially considering its history of troubles. Here's a sample of that concern, one that went so far as to call Boston Scientific a "doomed" company:
"Might Boston Scientific be a bad news buy?," MotleyFool.com contributor Brian Orelli, PhD, wrote on Tuesday. "Maybe. As of this morning, there's been a small pop as investors realize they might have overreacted to the news. But why bother with doomed companies when there's so many well run companies like Johnson & Johnson (New Brunswick, New Jersey) and Procter & Gamble (Cincinnati) available to choose from?"
Lynn Yoffee; 770-361-4789