(Updates with closing stock price in the 14th paragraph.)
Oct. 24 (Bloomberg) -- Boston Scientific Corp., the second- biggest maker of heart-rhythm aids, plans to eliminate as many as 1,500 more positions as the medical-device industry struggles with shrinking markets and development costs.
The job cuts, slated to take place through 2015, should reduce operating expenses before taxes by $150 million to $200 million, Natick, Massachusetts-based Boston Scientific said in a statement today. The move is part of the company’s plan to boost operating income margins to 25 percent from 19 percent now, Chief Executive Officer Mike Mahoney said.
Boston Scientific’s cutbacks build on a 2011 program, which was expanded in January. The move is in line with efforts by competitors including industry leader Medtronic Inc. in response to years of weakened demand and pressure to lower prices for some of their biggest products.
“It’s indicative of an industry in transition,” Boston Scientific Chief Financial Officer Jeffrey Capello on a conference call. “There is so much change going on, and organizations have to adapt.”
The cuts in the device industry mirror those occurring among drugmakers including Merck & Co. and Teva Pharmaceutical Industries Ltd. Merck, based in Whitehouse Station, said earlier this month it would fire 8,500 workers, bringing its total job cuts to about 16,000, while Petach Tikva, Israel-based Teva this month announced plans to trim about 5,000 positions.
Pharmaceutical companies are responding to the expiration of patents on many of their largest drugs, while device makers deal with falling demand amid questions about their products’ safety and overuse, and pressure from government buyers and hospitals.
Boston Scientific said third-quarter sales grew 4 percent, excluding the effect of foreign currency exchange rates and divested units, with revenue from defibrillators rising in the U.S. for the first time since the second quarter of 2011. It forecasts growth of 2 percent to 4 percent in the final quarter of the year, and more if it closes on the acquisition of C.R. Bard Inc.’s electrophysiology unit.
“Prior to the second quarter, Boston Scientific hadn’t grown the company in 16 quarters,” Mahoney said in a telephone interview. “We’re still early in our turnaround, but we are pleased,” he said. “We believe we grew faster than our competitors in most of the markets that we serve.”
The company has been on a buying spree, acquiring new technology for clearing blocked arteries, guiding doctors during heart procedures and treating hypertension.
“Boston Scientific continues to successfully execute on its turnaround story by not only delivering its second consecutive quarter of organic sales growth for the first time since mid-2009, but also driving positive leverage in gross margins,” said Danielle Antalffy, an analyst at Leerink Swann & Co. in New York.
Boston Scientific had an estimated 24,000 employees at the end of 2012, according to data compiled by Bloomberg. Medtronic, based in Minneapolis, in 2011 announced plans to cut as many as 2,000 jobs.
Earnings excluding one-time items for 2013 will be 69 to 71 cents a share, Boston Scientific said, raising by 2 cents the bottom end of its previous forecast. The savings from the restructuring, which will involve closing some manufacturing plants and shrinking unit operations, will be invested in areas such as research efforts for new products, Capello said.
Capello plans on stepping down as CFO at the end of the year, to be replaced by Daniel Brennan, the current corporate controller, Boston Scientific also said today. Capello said he is looking for broader management experience and is leaving the company in a good position with “a lot of momentum.”
Boston Scientific fell 6.1 percent to $11.54 at 4:01 p.m. New York time. The shares have doubled since the start of the year.
Capello’s resignation is probably being seen as a psychological negative for the stock since he steered the company’s turnaround for the past several years, said Glenn Novarro, an analyst with RBC Capital Markets in New York, in a note to clients.
The device-maker’s third-quarter loss shrank to $5 million, or less than a penny a share, from $664 million, or 48 cents, a year earlier when it took at $809 million goodwill charge for its cardiac rhythm management unit.
Investors have embraced Boston Scientific since Mike Mahoney took charge of the company’s turnaround effort as chief executive officer almost one year ago, more than doubling the share price during his tenure.
The company will take pretax charges of $175 million to $225 million to implement the program, including a $30 million charge in the fourth quarter of 2013.
--Editors: Angela Zimm, Bruce Rule