Boston Scientific Corp. is ramping up sales of medical devices made in Minnesota and elsewhere, but a decision to halt sales and write down the inventory of a next-generation device to prevent strokes is keeping company earnings in check.
The med-tech company, which employs about 7,300 people in the Twin Cities, raised its financial outlook for the year on Thursday and reported companywide revenue that exceeded analyst expectations. That stemmed partly from Boston Scientific’s migration to newer products in fast-growing niches, like the Synergy stent, which cuts the rate of blood vessel reclosures using a one-of-a-kind “bioabsorbable” coating.
But the sales growth was offset in the most recent quarter by several one-time hits, including a decision to stop sales and write down the cost of any remaining inventory of a new anti-stroke device called the Watchman FLX.
Chief Executive Mike Mahoney said the original Watchman device, invented in Minnesota as an alternative to taking blood-thinning drugs for life, remains on sale and is associated with high rates of successful outcomes.
But the new Watchman FLX “wasn’t ready for prime time. So we basically aren’t going to launch it, and we’re going to go back and look at some improvements, enhancements to it, before we bring it to market,” Mahoney said.
Mahoney said the overall performance of the FLX just “wasn’t what we wanted.” Reuters reported in April that the company had seen higher-than-expected rates of embolisms associated with the FLX, which prompted the halt in sales.
The FLX had been available only in a handful of European nations under a limited release. But while sales projections aren’t impacted by the sales halt, Boston Scientific had been building up inventory of FLX devices that had to be written off once the decision was made to nix the device.
Another “inventory charge” in the quarter happened because of strong demand for Boston Scientific’s newly cleared MRI-safe pacemakers, cutting into sales for its existing models that are not rated for use with magnetic resonance imaging (MRI) scanners.
“When you launch new products, sometimes you have to write off some older products. And the write-off of some of the older products was more than we anticipated in the quarter,” Mahoney said, adding that the one-time impacts aren’t expected to affect gross margins in the second half of the year.
Boston Scientific reported a $207-million loss for the quarter, or 15 cents a share, compared with net income of $102 million, or 8 cents a share, for the same period a year ago.
Removing the effects of asset-impairment charges, restructuring costs, litigation, and acquisition-related net credits — the company’s adjusted net income climbed 27 percent from year ago levels, to $373 million. Adjusted earnings per share of 27 cents was in line with analysts’ estimates.
Boston Scientific’s sales during the quarter ended in June increased to $2.13 billion. That was 16 percent better than the same quarter last year after adjusting for swings in currency since the year-ago period.
Analysts had been expecting an increase during the quarter, but the final result was better than anticipated.
In Boston Scientific’s largest division, sales of interventional and peripheral cardiology devices like stents for blood vessels around the heart and in the legs grew by 13 percent to $837 million.
Sales of heart-rhythm devices like pacemaker and defibrillators grew 4 percent to $477 million.
Several analysts on Thursday called it a “strong” sales quarter for the company. “We believe investors will view this quarter as a strongly supportive datapoint and would expect shares to outperform today,” analysts with Leerink Partners wrote Thursday.
Shares in Boston Scientific closed nearly 3 percent higher Thursday, ending the day at $24.34.
Looking ahead, the company increased its forecast full-year revenue to at least $8.27 billion, an upward adjustment representing growth of at least 11 percent on an operational basis. The company is now projecting adjusted net earnings of at least $1.07 per share for the year, a penny above the prior estimate.
In a legal update during the earnings call, company officials announced they are near settlements with roughly 19,000 women who have sued the company over injuries allegedly caused by pelvic mesh products for prolapse and urinary incontinence.
Executives also noted that earlier this month Boston Scientific reached an agreement with the Internal Revenue Service to resolve disputed taxes over overseas transfer pricing dating back to 2001. The company agreed to pay $275 million to resolve demands for back taxes of more than $1 billion.