Editorial
Stented growth
To be a fly on the wall in the office of Jim Tobin, head of Natick's beleaguered Boston Scientific, would no doubt be an interesting - if not a harrowing - experience at the moment.
With a recent downgrade of its credit rating to junk status by both Standard & Poor's and Fitch Ratings, it's clear that the company - a hallmark of the state's biotechnology sector - has some tough decisions ahead.
Junk status is like a Scarlet Letter in the financial world that can cause a company to spiral out of control.
With a junk rating - and further downgrades on the horizon - it will become increasingly difficult for Boston Scientific to borrow money to pay down its debt load, which totals a whopping $7.4 billion.
And if the junk rating weren't enough to cause Tobin a few more gray hairs, the company also recently announced that it was finally giving up on a troubled deal to acquire California-based Advanced Bionics. Boston Scientific said it had cut its losses on the deal, selling control of the majority of Advanced Bionics for about $150 million. The deal cut off future financial liabilities for Boston Scientific, so it was spun by the company as good news.
But unfortunately, any money saved through the settlement isn't nearly enough to do the job of paying back that debt load.
A large portion of Boston Scientific's debt is tied to its acquisition last year of Guidant for $27 billion. Both Fitch and S&P's most recent ratings came on the heels of an announcement from Boston Scientific that it would not pursue a spin-off of its endosurgergy business. The potential sale - which could have raised as much as $1 billion - was proposed as a way to bring needed cash into the company and help stave off the overwhelming debt.
With all this bad news comes the worry for the nearly 2,200 Massachusetts employees of Boston Scientific that their jobs are most definitely on the line.
The company has said it is developing "an expense and headcount restructuring plan," which is the polite way of saying it will be laying people off because its costs are way higher than its revenues.
As of the deadline for this publication, the company hadn't made any announcements about how it will proceed, but it has said news of layoffs would be made public in the next quarter.
All this bad news has us scratching our heads. How did a company that has been such a Massachusetts success story end up in such a bad way, with its stock teetering around $13 a share?
Did Boston Scientific's executives suffer from the "eyes are larger than the stomach" syndrome when they shelled out billions in a bidding war with Johnson & Johnson for Guidant? Have they failed to sufficiently diversify their portfolio to make up for the 32 percent drop in demand for their drug-coated stents?
More than likely it's a combination of both those factors, as well as others. But whatever the cause, people will be losing their jobs because of the company's sorry current state.
Which raises the question as to other ways the company might save some dough rather than cutting staff levels.
Most substantially, the company could reconsider its decision to abandon an IPO for its endosurgery unit or at the very least be more candid as to why it's not more seriously looking to bolster its cash position via that sale.
While Tobin has said that "the benefits of retaining the endosurgery group clearly outweigh those offered by the sale," it isn't clear exactly why that is. And isn't selling off part ownership in a business unit more desirable than delivering pink slips?
We think so.
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