Blaming changes in the cardiac rhythm management (CRM) market and recent "disruptions" in the credit and equity markets, Boston Scientific (Natick, Massachusetts) said it had to write down the value of its 2006 purchase of cardiac rhythm management company Guidant. The $2.7 billion write-down led to a substantial fourth-quarter loss for the company.
After the markets closed Wednesday, the company reported a net loss for the fourth quarter of $2.43 billion, or $1.62 a share, on $2 billion in sales. This compares to a net loss of $458 million, or 31 cents a share, on sales of $2.15 billion a year ago.
Still, the company's shares climbed in trading Thursday, as investors were apparently impressed with performance of Boston Scientific's drug-eluting stent (DES) sales, which accounted for about 47% of the U.S. DES market, according to an Associated Press report.
The $2.7 billion goodwill write-down is a non-cash charge that has no impact on Boston Scientific's debt covenants, and the amount of the charge is subject to finalization during the first quarter of 2009, the company noted.
In January 2006 Boston Scientific won a nearly two-month-long bidding war with Johnson & Johnson (New Brunswick, New Jersey) to buy troubled CRM firm Guidant for $27.2 billion (Medical Device Daily, Jan. 26, 2006) and the deal was finalized that April (MDD, April 21, 2006).
"This write-down in no way diminishes our confidence in our CRM business," Jim Tobin, president/CEO of Boston Scientific, said in a company statement. "CRM is growing, it is taking market share, and it will be a key driver of the company's sales and earnings growth going forward."
Excluding the write-down charge, as well as costs from layoffs, lawsuits and sales of some divisions, Boston Scientific said it would have earned $320 million, or 21 cents a share, in the fourth quarter.
Net sales for full-year 2008 were $8.05 billion, which included sales from divested businesses of $69 million, as compared to net sales of $8.357 billion in 2007, which included sales from divested businesses of $553 million, Boston Scientific reported.
The company reported a net loss for the full year of $2.07 billion, or $1.38 a share, compared with a net loss of $494 million, or 33 cents a share, for 2007.
"At this time last year I said that success in CRM in 2008 would depend largely on our ability to leverage our quality improvement, execute on our product launches, and lead with our latitude strategy," Tobin told listeners during a Thursday morning conference call. "I'm pleased to be able to say we achieved all of these goals and we begin 2009 with our CRM business in a much stronger position."
In July the FDA approved Abbott Laboratories' (Abbott Park, Illinois) Xience V everolimus-eluting coronary stent for coronary artery disease, making it the second of the 2.0 family of drug-eluting stents to win marketing approval in the U.S. (MDD, July 7, 2008).
Despite the increased competition, approval of Xience also was good news for Boston Scientific, which will share profits from the device. Guidant had been developing the stent and when Boston Scientific acquired the company, it had to divest the stent to Abbott, but it retained the right to sell the same device as the Promus under a private-label arrangement.
Boston Scientific said it increased its share of the U.S. DES market to 49% by the end of the quarter, with 25% of the sales coming from Promus and 24% from the Taxus stent system.
CFO Sam Leno told listeners during Thursday's call that 2008 was a year of transition in the DES business, with two new competitors emerging on the scene in the U.S., including Abbott with the Xience stent and Medtronic (Minneapolis) with the Endeavor, and the shifting of over 25 market share points from Taxus to Promus.
"So the bad news is that we had an adverse mix of Promus and Taxus compared to our expectations of a year ago, but the good news is that we have more total U.S. market share than anyone outside of Boston Scientific ever expected," Leno said.
The company received more good news in September when it received FDA approval to market its Taxus Express2 Atom paclitaxel-eluting coronary stent system, specifically designed for treating small coronary vessels (MDD, Sept. 26, 2008).
Also on Wednesday, Boston Scientific reported winning regulatory approval to market its Taxus Liberté DES in Japan.
"During the quarter, we continued to gain share in our cardiac rhythm management and drug-eluting stent businesses, driven by the approval and successful launch of important new products," Tobin said. "Throughout the year, we made progress in critical areas across the company and positioned ourselves well for the future. We've transformed quality, revitalized our pipeline, streamlined the organization, strengthened our financial fundamentals and diversified our product portfolio. We will build on this solid foundation in 2009 and beyond."
Boston Scientific has been taking some heat lately as a result of its founders selling off $484 million in shares to repay loans after other assets were frozen by the Lehman Brothers bankruptcy, according to a recent Bloomberg report.
Peter Nicholas, the company's chairman and founding CEO, and John Abele, a director and co-founder, have sold almost half their stake, or 4.2% of company stock, since Oct. 7, according to regulatory filings. The sell-off contributed to a 23% decline in Boston Scientific shares over that time, Bloomberg reported.
According to that report, the sales helped pay off loans secured with company stock when Lehman's Sept. 15 bankruptcy kept the men from tapping other assets. The report noted that after the founders sold 30.8 million shares Oct. 8 to Oct. 10, a company statement said the majority of trading was over, however the duo went on to sell an additional 32.3 million shares since then.
Apparently, the selling was out of Nicholas' and Abele's hands. Bloomberg reported that Leno told a Dec. 2 conference of investors that their loan terms allowed lenders to dump shares automatically, and Lehman's asset-freezing implosion left no alternatives, he said.