Boston Scientific Beats Street Expectations, Buys Back Shares, and Eyes China Expansion

7/28/11Follow @arleneweintraub

Today Natick, MA-based Boston Scientific (NYSE: BSX) announced second-quarter sales of $1.975 billion and earnings excluding special items of $0.17 a share, which beat analyst expectations by nearly a dime. Sales of its neuromodulation devices were up 16 percent, and the company reported sales increases in many of its product lines. It also said the recent introduction of its new drug-eluting stent, Ion, has gone well. To cap it all off, Boston Scientific announced its intention to repurchase $1 billion of its common shares—a classic sign of optimism, and a common tactic companies use to boost their stock price.

But much of the focus on the earnings call with analysts was on news the company announced yesterday: It’s greatly expanding its presence in China. Boston Scientific said it would invest $150 million in China over the next five years, and it expects to expand its employee base there from 200 to 1,200 as it builds out a fully staffed manufacturing presence. The company also intends to invest in R&D, with the goal of developing innovative devices designed for the China healthcare system.

Boston Scientific’s outgoing CEO Ray Elliott said during the call that the China expansion would help bring the company’s products into a market that’s still largely untapped when it comes to less-invasive cardiac devices such as stents. What’s more, Elliott said, “Longer term, the products we develop in China may ultimately reach other markets.”

During the question-and-answer session with analysts, Morgan Stanley analyst David Lewis asked what the return on investment might be with the China program, and how the initiative differed from previous emerging-market strategies the company had initiated. “It’s additive,” responded Boston Scientific chief financial officer Jeffrey Capello. “We enjoy over 20 percent growth in India and China, and we see it as a situation in which we’re just getting started.” He noted that the buildout would take four to five years, but that investors could start seeing an upside from the initiative as early as next year.

In the shorter term, Boston Scientific expects to capitalize on a surprise announcement from stent rival Johnson & Johnson. On June 16, J&J (NYSE: JNJ) announced it would exit the stent business that it’s credited for creating, and it will stop marketing its flagship drug-coated Cypher stent by the end of the year in the face of declining sales. “It’s a rare opportunity, and frankly a rare gift,” Elliott said during today’s analyst call. Some analysts predict Boston Scientific will grab … Next Page »

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