Medical Device Daily

It took a while for Boston Scientific (Natick, Massachusetts) to go to the chopping block following its purchase of Guidant (Indianapolis) last year, but the chopping is now to begin.

Reductions and consolidations are almost always inevitable following a big acquisition — and this one at $27 billion was very big — and Boston Scientific late Monday issued a statement detailing what it called a plan to reallocate its cardiac rhythm management (CRM) research and development resources (meaning the former Guidant).

The purpose, the statement said, is “to increase innovation, productivity and competitiveness, and to enhance the company’s ability to deliver new products to physicians and their patients.”

The plan will result in cutting 500 to 600 from the CRM workforce this quarter. Boston Scientific said that the positions to be eliminated are in R&D and “a number of other functions,” though those functions were not detailed.

It said that most of the job cuts will occur at the company’s CRM facility in Arden Hills, Minnesota. Boston Scientific currently employs about 29,000 people worldwide.

The identification of the positions to be cut will be made “in the coming weeks,” the company said, with this process to be completed by mid-February.

In its statement, the company said that the employees to be released will be offered severance packages, outplacement services, counseling and other assistance.

“We will treat departing employees with fairness and respect, and we will provide them assistance to ease the transition to another job,” said Tobin, president/CEO of Boston Scientific.

The plan is expected to result in after-tax costs of about $70 million, which include change-in-control payments related to last year’s acquisition of Guidant.

The plan, it said, “is designed to regain market share and builds on the initiative begun last year to restore trust and confidence in the company’s CRM Group. It is also designed to position the Company to grow its share of the CRM market in the future.” Additionally, it said the plan’s focus is “on a more selective number of research and development projects that best meet the needs of physicians and their patients.”

Tobin said that the plan “will shift resources from less productive projects to more productive ones, reinvigorating our product pipeline and driving top-line growth. It is designed to increase the productivity of our research and development so we can deliver more and better products.

“This is a different approach that will require us to be more selective, more disciplined and more focused,” he said. “This plan — coupled with strengthened sales and marketing execution — will better align our resources to take advantage of the substantial opportunities in the CRM space. Above all, it will allow us to better serve physicians and patients with an improved flow of new products.”

Late last year at the Piper Jaffray Healthcare Conference in New York, Tobin issued a blistering critique of the Guidant operations, saying that the unit had “an abundance of good people” but that they “had developed some bad habits” (MDD, Dec. 1, 2006).

He said that efforts to change these habits had included reengineering of the unit’s product development processes and testing, and establishing tougher release criteria for products leaving its plants.

The savings made from the reorganization and staff reductions will be reinvested in the CRM Group, Boston Scientific said, “to create a strong, competitive pipeline that will help grow revenue, which — combined with expense controls — should lead to increased profitability.

It said this reinvestment will include new positions in the R&D function “where there are currently shortages of critical skills.”

With the announcement, the company also released preliminary CRM net sales for 4Q06 of about $489 million, a 10% increase over 3Q06 net sales of $446 million.

“We were pleased with our sequential quarterly sales increase, and we believe the CRM market is starting to resume its growth,” said Tobin. “Fourth quarter sales of implantable cardioverter defibrillators were approximately $356 million — a 13% increase over the third quarter — which indicates a strengthening of our number two position in the ICD market.”

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