Boston Scientific and the Road to Ruin
How greed, incompetence, and arrogance brought the world’s leading medical device company to its knees.
Elliott came in with plenty of swagger. He was the new boss in town, he told his executives on numerous occasions. He took public shots at his competitors. He improved Boston Scientific’s long-term prospects by acquiring one company that was developing an aortic valve device, and another that had already come up with a device for asthma. The turnaround at Boston Scientific had begun, he
announced at every opportunity.
He also made it clear that he wouldn’t put up with any nonsense from his employees. During a call with analysts last year, he announced that he had “exited” from the company a few sales reps who “repeatedly breached our healthcare professional code of conduct.” Some of those people wound up getting hired by St. Jude Medical, a medical device competitor. Elliott knew what tends to happen when sales reps switch companies: Their accounts go with them. But it was the principle that mattered, he told investors. Boston Scientific could easily lose $100 million in sales by canning the reps, but, “We are going to run the company properly, and if we’re a somewhat smaller company short term or long term, so be it.”
Elliott also shelled out a total of $2.4 billion to settle 17 patent infringement lawsuits with Johnson & Johnson. To help pay down Boston Scientific’s $6 billion in debt, Elliott shed the company’s neurovascular division. He also laid off more than 1,000 workers.
But doing the right thing didn’t end up doing Elliott much good. Boston Scientific’s sales and share price continued to fall. The executive eventually admitted to analysts that the mess he’d found after taking over was greater than he had anticipated. Last year, for example, the firm lost $300 million in sales when it was forced to hold shipment of some defibrillators because it had failed to file paperwork with the FDA — an amateur blunder that Morningstar analyst Debbie Wang says never should have occurred at a major medical device maker. It not only cost Boston Scientific money and slowed its climb out of the hole, but it also indicated that the company was still having operational difficulties. “Sometimes I feel like the right hand doesn’t know what the left hand is doing at Boston,” Wang says. Elliott says that the paperwork issue was part of a “bad system we’ve since corrected.”