Boston Scientific and the Road to Ruin
The company came to dominate the so-called interventional cardiology device market, a multibillion-dollar sector comprising various types of stents and catheters. Boston Scientific advanced medicine and, arguably, humanity by bringing lifesaving medical devices to market. It also became an investment portfolio darling, and made its founders billionaires. In 1997, an article in Medical Economics summed it up this way: “What could go wrong with such a success story?”
Plenty, as it would turn out. The company’s phenomenal growth led to some spectacular problems — arrogance, avarice, and treachery among executives and the rank and file alike — which became so embedded in the culture of Boston Scientific that even now, nearly two decades later, the company is still unspooling its infected threads. (Despite repeated requests, Boston Scientific officials declined to comment for this story. Ray Elliott would answer only limited questions.)
THERE ARE TWO CASES that best illustrate all that has gone wrong with Boston Scientific.
The first began in 1995, and involved an Israeli war hero and his wife. Kobi and Judith Richter owned a company called Medinol, which held a patent for a stent — a small metal-mesh tube that, after being threaded to the heart, expands to prop open clogged arteries.
At the time, Johnson & Johnson had just released the first coronary stent on the U.S. market — and Boston Scientific and Johnson & Johnson were far from friendly. The two behemoths had a tendency, as one former Boston Scientific executive put it, “of buying companies out from each other’s noses.” Their competition became ferocious, which may have had something to do with the fact that J&J had at one point tried to acquire Boston Scientific — which did not go over well in Natick. In working with Medinol, then, Boston Scientific may have seen not just a good business deal, but also a chance to stick it to J&J by getting in on its stent action.
Medinol and Boston Scientific drew up a contract under which the Richters’ company would make its metal-mesh stents, called Nir stents, and Boston would market them. But the arrangement proved troublesome. The Richters were difficult to deal with — they missed deadlines and kept asking for more money, according to a suit filed by Boston Scientific. (The Richters denied these claims.) So Boston Scientific looked for a way around Medinol. Pete Nicholas and his CFO, Larry Best, ordered the construction of a top-secret manufacturing facility in Ireland called Project Independence. They also created a shell company, which carried the pseudonym BBD (as in Bringing a Better Deal). According to allegations in a lawsuit filed years later by the Richters, the purpose of the secret facility and shell company was to steal Medinol’s stent design so that Boston Scientific could manufacture them on its own and either cut Medinol out of the deal entirely or depress the company’s value to the point where Boston Scientific could acquire it at a fire-sale price.
By the time of the Richters’ lawsuit, Pete Nicholas had himself taken a seat on the board and named Jim Tobin as Boston Scientific’s new CEO. The Richters claimed in court documents that Tobin had told them that his colleagues were “crooks” and that he was “ashamed to be working for such a dishonest company.”