Boston Scientific A Bummer Dave Marino-Nachison (TMF Braden)
September 15, 1999
News that medical devices maker Boston Scientific (NYSE: BSX) was set to reintroduce its original Rotablator system to the market on a limited basis later this month didn't help the company's shares today, as the stock lost some 20% of its market value.
Boston Scientific lost a sizable chunk of its market value in early August when news broke that the company was recalling a newer version of the Rotablator; it had accounted for $60 million in first-half sales. Now the company is sending an older version of the system back to market as a stopgap measure, saying it will file with the FDA to get the upgrade back to customers within 30 days.
For a closer, Foolish take on the product and the recall, click here.
So why the big dip? Boston Scientific already said in August that it expected a considerable hit to earnings because of the recalls -- second-half earnings, the company said, was expected to end up at around $1.01 per share, disappointing the market's projections.
Today's slide was probably driven instead by news that softness in its very profitable core stent (a tool used to expand arteries for use in cardiovascular surgery) business means third-quarter revenues are expected to come in below its own previous estimates.
Boston Scientific said Q3 revenues are seen at around $690 million; that's still 20% above last year, but the company was looking for $725 million. Sales rose 21% between Q3 of 1998 and 1997. (Companies have been known, it must be said, to miss even their restated estimates, so investors should be wary even when their companies are thoughtful enough to warn.) There wasn't additional earnings guidance.
In a business where customers are quick to jump on technological advances -- and the competition between Boston Scientific, Medtronic (NYSE: MDT), and Guidant (NYSE: GDT) is as cutthroat as a pirates' poker game -- Boston Scientific hasn't endeared itself to investors. By releasing products then recalling them, the company eliminated any advantage and tied up resources that could otherwise have been devoted to product development with patchup work.
Last October, the company called back its Nir on Ranger with Sox stent because of leaks in the balloon used to deploy it. A newer Medtronic product is now quickly sniping market share. Following today's news, a large chunk of Boston Scientific's stock price recovery since last fall has been erased, particularly relative to Medtronic and Guidant.
So what you've got is a company that has, over the past year, shown an unfortunate penchant for bungling opportunities in a market that punishes such mistakes. Overestimating results, particularly in times of difficulty, isn't so hot either. It's not a very heartening theme for investors.
Boston Scientific Web Page
Boston Scientific Message Board
News World, 8/6/99, "Boston Scientific Blowup"