Perhaps the management team at Boston Scientific (NYSE: BSX ) has been reading our Living Below Your Means discussion board, because taking cost-cutting to the extreme seems to be its mantra for 2008.
The company is shooting for 18%-20% growth in earnings per share, bolstered by just 3%-5% revenue growth. Granted, it does have a smaller base to work from, since non-GAAP EPS for the first three quarters of 2007 (arrived at by excluding acquisition charges and amortization expense) was 33% lower than the same period a year prior. But it's going to take some serious cost-cutting to reach that goal.
The medical-device maker is becoming leaner not only by selling off or planning to sell some of its non-core businesses -- auditory, cardiac surgery, vascular surgery, venous access, and fluid management -- but also by reducing internal headcount. Put together, that's about 4,300 employees off the books.
On the revenue-growth side, I think 2008 will be the year that drug-eluting stents make a comeback. At this week's JPMorgan Healthcare Conference, Paul LaViolette, Boston Scientific's COO, presented clear evidence that drug-eluting stents have fewer mortality incidents than their bare-metal, drug-free cousins do. Yes, there were outliers -- the ones that grabbed headlines in 2006 -- but the trend does suggest a 21% relative risk reduction for mortality two years after the stents are in place.
The bad news is that, along with the returning market, Boston Scientific will probably see increased U.S. competition from Medtronic's (NYSE: MDT ) Endeavor and Abbott Laboratories' (NYSE: ABT ) XIENCE in 2008. It had been holding market share fairly steady against its only U.S. competitor, Johnson & Johnson's (NYSE: JNJ ) Cypher.
It's not all bad for Boston Scientific, though. In the deal that sent XIENCE to Abbott, Boston Scientific retained the right to sell the stent, which it will call Promus. It won't make as much off each sale, since Abbot gets some of the profits, but with an experienced sales force, Boston Scientific might do OK even in the face of increased competition.
The medical-device maker's other major business, cardiac rhythm management, has also hit a soft patch with worries over competitors' recalls weighing down the market. Having taken care of its own recall issues and gained European marketing approval for its LIVIAN defibrillator, with U.S. approval probable, Boston Scientific should be able to compete with St. Jude Medical (NYSE: STJ ) . That company just announced better-than-expected revenue growth at the JPMorgan Healthcare Conference.
Last year certainly wasn't the best for Boston Scientific, but if it can lower expenses and roll with the punches on the revenue side, 2008 sure looks to be better.
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