PulseCheck: Boston Scientific Needs a Defibrillator
Boston Scientific (BSX) fell the most in 17 months on Monday after the company’s announcement it had stopped shipment and is retrieving inventory of all of implantable cardioverter defibrillators and cardiac resynchronization therapy defibrillators in the US.
The latest bad news is Goldman Sachs’ decision to place BSX on its Conviction Sell list. Goldman previously had the company at Neutral.
Goldman said the devices accounted for about a fifth of the company’s profit, and that the impact will not just be lost sales as brand loyalty from physicians will be impacted, MarketWatch reported.
Also downgrading BSX since the announcement, according to StreetInsider.: RBC Capital (Sector Outperform), Craig Hallum (Accumulate), Summer Street (Neutral) and JP Morgan (Neutral).
Deutsche Bank analyst Tao Levy had already downgraded shares of Boston Scientific to hold from buy according to a February 11th note, saying that he expects the company to rebuild during 2010 (Comtex Smartrend).
Monday’s announcement was the latest in a string of problems for Boston Scientific’s defibrillator business, which was acquired through the 2006 buyout of Guidant for a hefty $27 billion price tag, Investor.com reports.
That same year the company received a rare companywide warning letter from the FDA, which temporarily halted approval of all new products. Over the next two years the company issued multiple safety recalls on its devices.
Morgan Stanley analyst David Lewis said Monday’s announcement “will weaken quality perception of a company that was on the brink of recovery.”
“We believe this latest ‘implantable cardiac defibrillator’ action could have tremendous negative impact to Boston Scientific’s business both from an acute and longer-term perspective, with St. Jude Medical (STJ) and Medtronic (MDT) both benefiting,” wrote Bernstein Research analyst Derrick Sung.
Lawrence Neibor, an analyst at Robert W. Baird & Co., predicts the lost revenue from the recall will decrease Boston Scientific’s 2010 earnings per share by 14 cents. The average EPS estimate of 23 analysts for full-year earnings is 45 cents, according to Thomson Reuters, portfolio.com reports.
The voluntary action is related to the identification of two instances where manufacturing changes were not properly submitted to the FDA for approval. Moody’s is hopeful that “in contrast to safety-related recall actions, this may be a less complex matter to resolve.
If this matter remains unresolved for an extended period of time, it could have a material effect on cash flows at a time when Boston Scientific’s liquidity is already strained by anticipated litigation payouts and upcoming debt maturities. – Diana Lee, Moody’s
The Reformed Broker Joshua M. Brown points out that unless they have bailed out in the last 45 days, several hedge funds stand to suffer losses: David Einhorn (Greenlight Capital), John Paulson (Paulson & Co) John Burbank (Passport Capital), David Gallo (Valinor Management) all held significant and/or newly established positions in the company as of the latest SEC filings.
24/7 Wall Street’s Doug McIntyre notes that Boston Scientific’s problems go beyond the defibrillator issue. “Just last month, Boston Scientific settled a patent dispute with Johnson & Johnson (JNJ) which cost BSX $1.7 billion. Boston Scientific had about $1.4 billion at the end of last year, but that is on top of the $6 billion in debt which is choking the company to death. Late last year, BSX settle another set of claims over stent patents, this with J&J again. The cost to resolve that was $700 million. So, Boston Scientific is very low on cash. ”
“New medical studies indicate that drugs are as effective at preventing heart attacks or death as stents are. There is also emerging evidence that drug-coated stents can produce clots when they are in patients for several years. Abbott (ABT) and Medtronic (MDT) have picked up market share in the stent business over the last two years.”
Boston Scientific did get one piece of good news Monday: Reuters reports positive results from trials of its new Perseus stent. The Perseus trial has drawn investor attention because it provides a first look at what is expected to become the backbone the company’s coronary stent franchise.
Positive results, said RBC Capital Markets medical device analyst Glenn Novarro, could help stabilize Boston Scientific’s Taxus stent franchise and pave the way for a mid-2011 launch for the Taxus Element in the United States.
In a separate study Medtronic’s drug-coated heart stent Endeavor had more deaths and complications than Johnson & Johnson’s rival device to prop open clogged arteries, Bloomberg reported.
Still, not everyone is down on BSX: the Wall Street Journal reports that contrarians have been active in the options market.
Boston Scientific Corporation Q4 2009 Earnings Conference Call Transcript
See Alacra Pulse for latest analyst comment on Boston Scientific.
You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
August 23rd, 2010 at 10:45 am
[...] Things are going from bad to worse at Boston Scientific Corp (NYSE: BSX): according to Wall Street Journal the company is under investigation by the Securities and Exchange Commission and the Department of Justice over its recent recall of heart defibrillators. (See our recent Pulse Check on Boston Scientific here.) [...]