Big Changes Planned For Boston Scientific
It's been a busy past few days at Boston Scientific.
In the last week, the company has announced:
• A five-year, $150 million investment in China, including the construction of new manufacturing and research facilities with plans to hire up to 1,000 workers in the country.
• A $225 million to $275 million restructuring that will include reducing its domestic and international workforce by between 1,200 and 1,500 jobs by 2013.
• A $1 billion stock buyback.
Meanwhile, the Natick-based company reported that its second-quarter profits were up 48 percent year-over-year to $146 million.
Analysts who track the company are largely praising the moves, saying that the Chinese investment sets Boston Scientific up for growth in an expanding market, while the restructuring is a right-sizing that reflects the firm's place in the medical device market.
"They need to cut costs and they need to find new revenues," said Jeff Jonas, an analyst with New York-based Gabelli & Co. Inc.
Looking East
Attempting to tap into the Chinese market is a particularly savvy move for Boston Scientific, according to Glenn Novarro of RBC Capital Markets in New York, who also tracks the company.
"That's one of the underpenetrated markets in the world for medical devices," he said.
Significantly ramping up operations and sales in China has its risks, however. China a reputation for being lax on intellectual property rights, so manufacturing and selling a product in China could open it up to competitors making knock-offs.
However, Novarro noted that Boston Scientific will set up its own R&D and manufacturing operations, as opposed to relying on a third-party in China. By keeping the manufacturing in house, the company's IP may be better protected, he said.
The move to Asian markets is important for the company because the North American and European markets that Boston Scientific competes in are maturing, according to Novarro.
The company's top products, including implantable cardio defibrillators, stents and pacemakers, have not seen the double-digit growth they did in years past.
Some of these markets have experienced product recalls, which can raise safety concerns and impact sales. Plus, there are more companies entering the market, leading to increased competition.
The company has also prepaid $750 million in outstanding term loan borrowings, reducing its gross debt to $4.2 billion.
That comes on the heels of two rating agencies upgrading the company's credit rankings to investment status.
Fitch Ratings, the New York-based credit rating agency, raised its grade on the company to BBB- with a stable outlook. While BBB is the lowest investment-grade rating based on its scale of 10 levels, it still represented an upgrade.
Moody's Investors Service recently raised the company's Ba1 rating outlook to positive from stable.
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