Expense cuts boost Boston Scientific profit to $322 million

Cost cuts have helped Boston Scientific Corp. rebound from two consecutive quarterly losses, but the medical device maker's drug-coated heart stent business continues to struggle.

The Natick, Mass.-based company said after markets closed Monday it earned net income of $322 million, or 21 cents per share, in the first quarter, compared with a profit of $120 million, or 8 cents per share, in the same period a year ago.

Net sales fell to $2.05 billion from $2.09 billion a year earlier, in part due to recent sales of five of Boston Scientific's businesses.

The profit in the January-March period followed a loss of $458 million in last year's fourth quarter and a $272 million loss in the third quarter — results attributed in part to a $27 billion acquisition of Guidant Corp. in 2006 that sharply increased Boston Scientific's debt.

The return to profitability came after Boston Scientific shed some of its business lines and announced plans in October to cut 2,300 jobs, or 8 percent of its work force.

More than half of those cuts have now been completed, and executives told analysts on a conference call Tuesday that the company has reduced net debt by $1.7 billion from a year ago, to $5.8 billion.

"Earnings benefited from ongoing expense management," said Jim Tobin, Boston Scientific's president and chief executive officer.

But Boston Scientific continues to be hurt by softness in its stent and implanted defibrillator markets, which account for nearly half of company sales and more than half of profits, Citigroup analyst Matthew Dodds said.

The first-quarter results "reinforce management's focus on cost-cutting and debt reduction, but fundamentals remain depressed," Dodds said in a research note.

In morning trading, shares of Boston Scientific fell a penny to $13.02.

The latest quarter's profit was clouded by one-time charges and tax gains from the asset sales and job cuts. The biggest were a $114 million after-tax gain from asset sales and $143 million in after-tax amortization expense. Excluding such items, Boston Scientific's profit was $357 million, or 24 cents per share.

Boston Scientific expects to post a second-quarter profit of 14 cents to 19 cents per share — excluding one-time items — on sales of $1.95 billion to $2.075 billion. Analysts expected a profit of 12 cents per share on sales of $2.02 billion.

Sales of Boston Scientific's drug-coated stents fell nearly 9 percent to $428 million in the latest quarter from $468 million.

Use of drug-coated stents to prop coronary arteries open after plaque-clearing surgery has declined amid research data questioning the devices' safety and effectiveness compared with older, bare-metal versions, although some more recent studies have called those findings into question. Safety concerns have reduced the number of stent procedures amid growing competition from new players in the drug-coated stent market, including Medtronic Inc.'s Endeavor stent, which won U.S. approval in February.

Paul LaViolette, Boston Scientific's chief operating officer, said Medtronic's stent captured about 8 percent of the U.S. drug-coated stent market in the first quarter, with Boston Scientific's Taxus holding a 52 percent share, and the remainder held by Cypher, a product of Johnson & Johnson's Cordis Corp. unit.

The stent market "is now exhibiting clear evidence of recovery, and we are performing well against new competition," LaViolette said.

Sales of implanted defibrillators rose 3 percent in the latest quarter to $411 million from $398 million.