Medical Device Daily

NEW YORK — Forget the cornucopia of Power Points. Don’t detail recent or future financials. Don’t dwell on past successes or a robust pipeline of emerging products. Focus on what your listeners are aching to know.

These obviously were the instructions given to Jim Tobin — which he probably gave to himself — in his presentation to a large roomful of rather interested attendees at this year’s Piper Jaffray Healthcare Conference.

It didn’t take much cogitation for Tobin, CFO of Boston Scientific (Natick, Massachusetts), to know what his audience wanted to hear or the questions they would ask:

What’s up with Guidant? — now Boston Scientific’s cardiac rhythm management (CRM) unit.

With all its problems, why did you acquire it?

Did you pay too much for it?

And what can we expect going forward?

Tobin stated up front that he would spend 75% of his presentation time on Guidant, but then gave it about 99% of that time. And about 75% of that 99% was an undisguised negative critique of the former Guidant.

But importantly, Tobin emphasized that Boston Scientific knew what it was getting into when it won the bidding war vs. Johnson & Johnson (New Brunswick, New Jersey) to buy Guidant.

“We did due diligence,” he said. “We knew that Guidant’s [sector] share was down and was likely to go down further. Their problems with stents were well publicized. We knew they didn’t have their last recall.”

But he said that for Boston Scientific the purchase was “truly transformational in the biggest sense.”

That transformation was necessary, he said, based on Boston Scientific’s previous focus on less-invasive and interventional technologies and the need to expand beyond these — even beyond the stent sector, which he described as volatile (and will likely to become more so with new criticisms of drug-eluting stents). And he acknowledged that at one time, in the stent sector, it “looked like the wheels were coming off.”

Bluntly, he posed the main case: Boston Scientific was either “going to buy or going to be bought.”

He said that the “core rationale” for the buy was “new CRM growth and diversification” so that the company didn’t have all its eggs in the single basket of stents.

But Boston Scientific hadn’t just bought a company with a new set of products, it had acquired a culture and people attuned to that culture, he noted.

There is “an abundance of good people” at Guidant but “good people that had developed some bad habits,” he said.

And he assured attendees that “we have turned the corner in addressing the issue at Guidant ... . Here, today, we are where we thought we would be in 12 to 18 months on working on this set of issues.” And he said the company would “begin to grow again, if it hasn’t already.”

The turn-around efforts he described consisted of reengineering Guidant’s product development and testing, moving key departments more closely together, and providing more advocacy for its sales people, its physician customers and its patient customers.

On the product side, he said he assessed the company’s “structural problems” and he found a pattern of thinking that “there was always time to do it over, not do it right.”

In contrast, he said there is now a “different release criteria for product leaving the plant; we hold product a lot longer before anything leaves the door. There are not many rejects, but we want to find out before they ship.” And there is “more testing to make sure it’s built the way it’s supposed to be built.”

He said the difference is now “between what a good testing plan looks like and what had been done in the past.”

This approach, Tobin added, “takes time, but he called it “the long pole in the tent.”

Among other efforts he described — in the process, clearly indicating that these things had not been done well at the old Guidant — included:

• Making sure that product parts from vendors were properly verified — and quoting Ronald Regan as saying “Trust, but verify.”

• “Taking money out of research and putting it into development — saying “We don’t need 200 rocking horses” but rather “20 well-focused, targeted projects.” Here, he also said that Guidant had “hot-shot engineers, wonderful product designs,” but too often these were “tossed over the transform — good luck to you and the Red Sox,” a clear reference to a talented bunch of (mostly and long-time) losers.

• “We moved project planning out of marketing into product development ... If you put that function into development function, marketing people have to be sharper. They have to think much more clearly to convince engineers that they should do X instead of Y.”

• Other movement of departments was made to get Guidant out of a “silos” approach. Tobin said that he often had to introduce “Guidant people to Guidant people, rather than Guidant people to Boston Scientific people.” Additionally, he said there was not enough focus on Guidant as a global enterprise. “People say [we’re global], but how do they behave?” He said that international thinking at Guidant had been “too much of an after-thought — we’ll get there when we get there.”

“None of this is rocket science,” Tobin said, but he noted that it all added up to a “major cultural shift.”

“The hardest part is to get people to realize that they really have problems. [Guidant people said] ‘just fix communication and everything else will be great.’ But I said, if you didn’t have a problem, you wouldn’t have to communicate.”

He added, “After the third recall, people started to get it, and there was an attitudinal change ... Once we had this thing going, we basically said let’s just hunker down and do it, and that’s what we’ve been doing the last five-and one half of the seven months.”

He also promised to “never put our sales force in the position again to ever have to apologize for a product. We abused them by basically the way we approached this thing.”

But it was perhaps midway through his presentation that he offered the most important statement of all: “Unless you think we’re completely crazy, you’ve got to believe we can do this.”