Boston Scientific's "Challenging" Quarter

Boston Scientific (NYSE: BSX  ) fixed its paperwork problem with the Food and Drug Administration earlier this month, but the resulting recall took its toll on first-quarter profits nonetheless. The company's president and CEO, Ray Elliott, dubbed this a "challenging" quarter. Yeah, I'd call that an understatement.

The inability to sell some versions of its heart defibrillators for a couple of weeks cost the company $72 million in revenue last quarter. It'll cut into second-quarter revenue as well, because Boston Scientific didn't get an OK from the FDA to start selling the products again until the middle of this month. As a result, the company reduced its revenue guidance by $500 million.

But the long-term effect should have investors truly worried. Will doctors trust the company after its mistake? Sure, this wasn't a quality issue. But if a company can't file the proper paperwork with the FDA, will doctors feel confident implanting its devices in patients? Taking the things out isn't very easy, you know.

All told, Boston Scientific says it lost 8 percentage points of market share to rivals St. Jude Medical (NYSE: STJ  ) and Medtronic (NYSE: MDT  ) last quarter, and it expects to lose another four points in the second quarter. The company expects to pare that 12-point loss in market share down to just five points by year end, but that's just optimism, as far as I can tell.

While the company is wooing back electrophysiologists, what will happen to its other major segment, drug-eluting stents? Sales of the tiny mesh devices were down 9% in the first quarter, and down 12% on a constant currency basis. Sales could slip further if Medtronic, Abbott Labs (NYSE: ABT  ) , and Johnson & Johnson (NYSE: JNJ  ) decide to make a push in the segment while management is distracted.

Might Boston Scientific be a bad-news buy? Sure, the company could turn things around, and shareholders and management could live happily ever after. But, sometimes past performance does indicate future returns. Until management demonstrates a track record of success, I'm staying far away.

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Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool owns shares of and has written puts on Medtronic. The Fool's disclosure policy is a good value, especially considering its free price.


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  • Report this Comment On April 27, 2010, at 3:36 PM, Superdrol wrote:

    If you pulled up a 5 year graph, Boston Scientific's chart resembles a ski slope downward.

  • Report this Comment On April 27, 2010, at 9:35 PM, weiwentg wrote:

    I consider most of the major medical device makers to have wide moats due to major regulatory barriers to entry. Boston Sci is the only wide-moat stock I would not buy even if I got it cheap - I think this management team has proven that it only knows how to squander opportunities and destroy value.

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