Boston Scientific cutting up to 600 jobs, most in Arden Hills

Pacemaker
The Guidant Contak Renewal TR cardiac resynchronization therapy pacemaker for the treatment of heart failure. Boston Scientific acquired Guidant in 2006.
Photo courtesy of Boston Scientific

The cuts will come primarily at the former Guidant's cardiac rhythm management (CRM) operations in Arden Hills. Boston Scientific acquired Guidant last year in a $27 billion deal.

Currently, Boston Scientific has about 3,300 employees in Arden Hills and another 3,300 split between Maple Grove and Plymouth.

Boston Scientific spokesman Paul Donovan says the company plans to be more selective in its research, sticking to efforts with a greater chance of paying off soon.

"Research and development in our CRM group wasn't focused on the right number of realistic projects. What we're trying to do here is shift from less productive projects to more productive ones and trying to deliver the kinds of products that best meet the needs of physicians and their patients," Donovan says.

Boston Scientific's cardiac rhythm management business has two main products: pacemakers and implantable defibrillators. Defribrillators are wired to the heart to deliver electrical shocks if it stops beating normally. The market for the devices totals about $6 billion a year worldwide.

This is a fairly strong medtech community. I'm optimistic a lot of these people will find work in some of the other companies.

Sales of defibrillators have been lagging last year's pace, even though they have perked up lately. And their future growth is expected to fall far short of the double-digit growth rates they enjoyed in past years.

Piper Jaffray analyst Thom Gunderson says slowing defibrillator sales were a big factor in the Arden Hills cuts. But Gunderson says the job cuts were also driven by the $10 billion in debt Boston Scientific took on to acquire Guidant.

"You've borrowed money. Your revenues are not as great as you thought they would be. What is your only answer if you have to keep paying off the bank on your loan? You have to cut expenses. And at a place like Boston Scientific out in Arden Hills, a lot of their expenses will be in the workforce. So, the workforce has to be trimmed down," Gunderson says.

Boston Scientific said Monday that it expects fourth quarter defibrillator sales will hit $356 million -- a 13 percent increase over the third quarter.

But Gunderson says Wall Street still doesn't expect the company to see anywhere near the growth it once had in the business.

"The forecast for 2007 is to have maybe 7 percent to 10 percent growth. Well, that's a far cry from 20 percent growth," he says.

Other analysts agree. David Heupel, an analyst with Thrivent Financial for Lutherans says the job cuts are a sign Boston Scientific has given up on the growth rates the business enjoyed in the past.

"They're acknowledging the fact this is not a business that is an automatic teens grower anymore. We're starting to see some stabilization. But for a business not growing to that extent, well, you've got to manage that infrastructure," Heupel says.

Big Layoffs in Minnesota's medical device industry are rare. According to state statistics, Medical Equipment and Supplies Manufacturing has been the fastest growing industry in Minnesota. Over the four years ending last August, the sector added jobs at a rate nearly six times the state average.

Heupel expects many of the people losing their jobs at Boston Scientific will be welcome at places like Medtronic, St. Jude Medical and other medtech firms in the Twin Cities.

"This is a fairly strong medtech community. I'm optimistic a lot of these people will find work in some of the other companies, the large established players or maybe some of the emerging companies that are in the process of getting to market or in the early stages of developing markets," Heupel says.

The job cuts at Boston Scientific will take effect in the first three months of this year. Boston Scientific says affected employees will be eligible for severance pay and help finding new jobs.

The layoffs were disclosed on the heels of major announcements by Minnesota-based rivals Medtronic and Saint Jude Medical. Medtronic is planning to expand its presence in the defibrillator market.

Saint Jude says its defibrillator sales are rising and the company expects to beat Wall Street earnings expectations.

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