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Stumbles plague Boston Scientific

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Just last month, the company issued an earnings guidance that fell well below expectations. 

Shortly before that, Boston Scientific had to make big payment to a competitor over patent disputes. 

Older problems, like a product recall in 2007, and an FDA warning letter over its quality assurance practices have thwarted growth. 

And then there's the massive debt Boston Scientific is shouldering from its expensive purchase of Guidant Corp. a few years ago.

Given the pattern of trouble, the latest news of Boston Scientific's documentation slip-up elicited this reaction from analysts.

"A big groan. Because I think it just underscores that this company has a lot of operational problems, and it almost seems like it can't get its arms around the issues that it has, and that's a little scary ," said Morningstar analyst Debbie Wang.

Wang expects the error will cost Boston Scientific four months worth of sales of implantable cardioverter defibrillators, or ICDs, stopwatch-sized devices that are surgically implanted to correct rhythm problems in abnormally beating hearts. Boston Scientific says the defibrillators bring in nearly $5 million a day. 

Wang says Boston Scientific's failure to get approval of manufacturing changes on the devices casts the management team in a low light.

"It's almost like the right hand doesn't know what the left hand is doing," Wang said. "You know, it's very routine for these companies ... they make a small change to the manufacturing process, it's routine, they know they have to document it and then validate it and then seek the FDA's clearance on these things, so it just seems like this is totally a rookie mistake."

Boston Scientific couldn't be reached for comment. In a statement, CEO Ray Elliot said, "We are acting voluntarily and expeditiously to resolve this situation, and we have seen no evidence of any risk to patient safety."

The company is not recommending that patients with such devices have them removed.

As word of Boston Scientific's news circulated yesterday, it did not appear to cause alarm at the Minneapolis Heart Institute.

"This is not disruptive," said senior cariologist Robert Hauser.

Hauser wasn't sure if any surgery plans would have to be changed in the short term to accommodate Boston Scientific's moratorium on use of their implantable defibrillators. He said if the hold continued for a long time, it cause problems, but he doubts that will happen.

"I'd be surprised if this lasted for a long period of time. Most things like this get resolved fairly quickly, particularly when it has the potential for impacting patient care," Hauser said. "But it all depends on the nature of the problem, and precisely what regulatory process has to be followed. So it's impossible to know."

Hauser said the issue does not rattle his confidence in Boston Scientific's products, and while they're unavailable, Hauser said he and his colleagues will rely on a large inventory of products from Medtronic and St. Jude Medical, both based in Minnesota. 

Tim Nelson, who follows health care stocks for FAF Advisors in Minneapolis, said Boston Scientific has close to 30 percent of the implantable defibrillator market. Nelson said the company will lose most of that in the short term to Medtronic and St. Jude. And, he said, the losses could become more painful if Boston Scientific fails to keep a fast-growing business segment -- replacement devices. 

"Generally you replace ICDs, when their batteries run out, with the same brand. That share is hard to move. Here you have an opportunity to get at that replacement share," Nelson said.

Meanwhile, Nelson says he isn't changing his estimation of Boston Scientific.

"I had already had it rated pretty low, it can't go any lower. I wouldn't own the stock until some of its longer issues are resolved," Nelson said. 

Investors seemed to share that view, sending Boston Scientific shares down as much as 19 percent yesterday. The stock rebounded a bit and closed down 13 percent at $6.80 a share.