Change of CEO gives a boost to shares of Boston Scientific

Imagine being the long-standing chief executive of a Fortune 500 company and seeing your company's stock surge 5 percent when you announce your retirement.

Yikes.

That's what happened last month when Boston Scientific Corp. announced the retirement of Jim Tobin, CEO for the past decade. Ray Elliott, former CEO of the orthopedic device maker Zimmer Holdings Inc. and a member of Boston Scientific's board from 2007 until earlier this year, was named his successor.

On Tuesday, he'll lead his first earnings conference call as chief of the Natick, Mass.-based medical technology company.

"It's better that it went up 5 percent than down 5 percent," Elliott joked in an interview.

The news obviously came as a surprise to Wall Street, but the 64-year-old Tobin's retirement was not entirely unexpected. In fact, the company says it has been engaged in succession planning since November.

Long-term Boston Scientific investors -- not to mention the company's 5,000 Twin Cities-area employees -- have endured quite a ride for the past four years.

But Tobin has methodically worked to right the ship, and the company's stock has quietly rebounded, increasing 31 percent so far this year. It closed at $10.04 on Friday.

It's not as if Elliott, 59, is an unknown quantity to Wall Street.

Known for his sales and marketing acumen, the native of Canada has served in executive positions at Zimmer, including CEO, for 10 years. All told, he has 35 years of experience in the med-tech sector.

Leerink Swann analyst Rick Wise said in an investor note that Elliott guided Zimmer through its public offering in 2001 and emerged as "a significant med-tech player. ... While he left Zimmer under somewhat uncertain circumstances and his legacy seems mixed, his overall contributions to the company are hard to question."

Contemplating the company's relationship with the investment community, Elliott said, "I'll probably be more present than perhaps than Jim was. ... I like going [to Wall Street] with a value proposition. Why should you put lots of our common stock in your portfolio? If I can't tell that story, then why should we expect people to do that?"

The immediate prospect of major acquisitions seems dim, according to Tim Nelson, an analyst with F.A.F. Advisors. "He doesn't have a lot of money, and he has to pay down debt," Nelson said.

For the time being, Elliott still has to clean up lingering issues with the FDA, which slapped the company in 2006 with a "warning letter" for quality issues, mostly involving sloppy record-keeping. It's unclear when the FDA might lift the letter, but Elliott says most of the work is done.

Another uncertainty is the specter of health care reform. Elliott predicts that reform, whatever it entails, won't seriously affect the sector in the next year or so. But he believes that companies such as Boston Scientific need to better explain to legislators and the public how medical devices save lives. And if reimbursement is seriously cut back, then research and development will be curtailed, to the detriment of patients, he said.