Boston Scientific and the Road to Ruin
IT’S STILL NOT ENTIRELY CLEAR why Ray Elliott resigned, but the move has raised the question of whether more bad news awaits. One Wall Street analyst says it’s hard to believe the company’s portrayal of the CEO’s departure as nothing more than the normal course of business. “It sounds hollow,” the analyst says.
Not all of the speculation has to do with Boston Scientific’s past. The same analyst points out that when Elliott announced his resignation from Zimmer Holdings, that move, too, was cast in rosy hues: He was going home after a job well done. Within months, however, the orthopedic industry was rocked after Zimmer and a few other companies settled a Department of Justice investigation into kickbacks allegedly paid to doctors.
Elliott says he left on his 10th anniversary of running Zimmer and that he had no idea about the DOJ investigation when he made his decision to resign. As to Boston Scientific, he says investors shouldn’t anticipate more bad news, since none is coming.
But internal problems are not the only challenges Boston Scientific faces. The world in which it operates has changed. Patient advocates, government investigators, and concerned doctors have made the public aware of some of the industry’s shadier practices. The kickbacks scandal at Guidant resulted in Boston Scientific agreeing last year to post on its website the payments it makes to physicians. And device failures and quality-control issues at Boston Scientific, and at other companies like Medtronic, have led to increasing calls for the FDA to tighten the approval process, which has slowed the pace at which new products get to market.
What’s more, it’s become evident that some medical devices have been overutilized. An academic study in 2007 found that doctors were grossly overusing stents, one of Boston Scientific’s core products. That report sent stent sales spiraling. Then, this past January, another study suggested that cardioverter defibrillators — Boston Scientific’s other core product — were also being overutilized by doctors. The Department of Justice is investigating why this might be. Defibrillator sales, too, are now down.