An unusual airing of a dispute between fierce rivals broke into the open Thursday during a two-and-one-half-hour conference call with financial analysts.
Boston Scientifics’ new CEO, Ray Elliott, blasted Little Canada-based St. Jude Medical for hiring several of its former sales personnel who were dismissed last year for “repeatedly breach(ing) our Health Care Professional Code of Conduct.” Saying St. Jude moved “to quickly hire many of our departed staff,” Elliott predicted that Boston Scientific could lose as much as $100 million in revenue as a result.
Elliot raised the dispute while discussing Boston Scientifics’ year-end results, including $180 million to $200 million in restructuring charges, a major corporate reorganization and up to 1,300 job cuts.
While the company did not break out where the job cuts will occur, the Pioneer Press reported one analyst’s prediction of as many as 500 cuts among the more than 5,000 employees locally as the company consolidates its Arden Hills and Maple Grove operations.
Hiring dismissed sales reps sparks reaction
The spat with St. Jude Medical reflects white-hot competition in a cooling multi-billion dollar market for CRM (cardiac rhythm management) devices from pacemakers to implantable defibrillators. CRM market growth exploded a decade ago with the introduction of implantable defibrillators, but product safety and quality issues originally starting with Guidant Corp., caused growth to slow. Elliot now predicts the overall CRM market to be growing only 3 to 4 percent a year.
Late last year, the Massachusetts-based medical device manufacturer announced a $22 million settlement with the U.S. Department of Justice to resolve allegations that its Guidant Corp. subsidiary “used post-market studies as vehicles to pay kickbacks to induce physicians to implant Guidant pacemakers and defibrillators.”
The alleged practices occurred before Boston Scientifics’ acquisition of Guidant in 2006. In settling the claim, Boston Scientific made no admission of wrongdoing.
The dismissed sales representatives and managers were from the former Guidant division, the company said. Elliott refused to provide details on the number dismissed or the exact violations but said the dismissals were not a result of the Justice Department settlement but, rather, from an “internal investigation.”
As he discussed the St. Jude hiring, Elliott predicted that the dismissed employees may entice former colleagues to join them, resulting in a potentially large revenue loss for Boston Scientific.
“So-called greener pastures may allow for a more relaxed viewpoint” on marketing practices, Elliot told the analysts. “The problem with pastures are you have to be careful where you step. By taking these chances, market share gains may be created, but these gains can be expensive and might haunt one far into the future,” he said.
“In the short haul, we will, for certain, lose sales,” he continued. “But I believe in the long haul we will be held in high regard by those that count … Others may not be so fortunate.”
St. Jude Medical responded in an email to MinnPost:
“Our industry-leading number of new product introductions and an intense focus on quality in the design and manufacture of our products has continued to attract employees from our competitors over the past few years. Now is no different. As with all of our employees and with any new hire into St. Jude Medical, we expect compliance with rigorous standards related to interactions with health care professionals.”
“In terms of actual numbers, by our count, over the past few months a total of four individuals that Boston Scientific let go joined St. Jude Medical. Two of these individuals were CRM sales reps. The remarks from this morning strike us a little bit like a bitter spouse after a bad divorce. You don’t want him but you can’t stand the new wife.”
Boston Scientific restructuring to focus on growth
Elliott, who joined the company as president and CEO last July, said the reorganization moves are designed to reduce management layers and non-sales headcount, centralize research and development and reduce costs as the company focuses on future growth platforms. He also predicted the company will sell off one or more businesses sometime this year as it looks for strategic acquisitions.
Describing 2010 as a rebuilding year, Elliott said the restructuring and reorganization activity will extend for 24 months. Comparing the company to “a big ship … and you don’t turn it around in one or two quarters,” he also said that the company is focused on growing revenue in the high single digits and earnings in double digits.
In discussing the year, Elliot described a litany of issues the company has faced. Boston Scientific recently settled several longstanding patent disputes, has experienced product delays and product recalls, as well as pricing pressure, particularly in its cardiac business. Elliott also questioned the accuracy and fairness of two recent negative product reviews in scientific journals.
In its fourth-quarter financial results, Boston Scientific reported sales of $2.079 billion, and a net loss of $1.075 billion, or 71 cents per share, including $1.499 billion pre-tax to settle longstanding patent disputes with Johnson & Johnson.
Boston Scientific stock fell nearly 10 percent Thursday to close at $7.47, down 82 cents in regular session trading. It was up 3 cents in after-hours trading.
