Boston Scientific Disciplines Some Heart-Rhythm Staffers

Boston Scientific (BSX) said Thursday that it cut some sales staff and managers from its heart-rhythm device business for disciplinary reasons, and that revenue could suffer this year as a result.

Company executives declined to disclose the number of staffers let go or the precise reasons why, although Chief Executive Ray Elliott said there had been repeated breaches of the company's health-care professional code of conduct. He discussed the matter on Boston Scientific's fourth-quarter call.

Sales representatives in the competitive $11 billion heart-rhythm market can take business with them to rivals, and indeed, Elliott said St. Jude Medical Inc. (STJ) "has chosen to quickly hire many of our departed staff."

St. Jude refuted that characterization. Angela Craig, vice president of corporate relations, said the company in recent months hired workers let go by Boston Scientific, only two of whom were heart-rhythm sales representatives.

Boston Scientific estimated this issue, plus an advisory related to a small number of defibrillator issues that sparked product changes, could hurt this year's heart-rhythm business sales by up to $100 million. The whole business, which includes pacemakers and defibrillators, posted 2009 sales of $2.56 billion.

Shares of Boston Scientific dropped Thursday and were recently down 9.7% to $7.49, pressured by what analysts said was weak guidance for 2010.

Elliott defended Boston Scientific's disciplinary moves even if sales are hurt. "We are going to run the company properly, and if we're a somewhat smaller company short term or long term, so be it," he said.

He also took offense to the rival company's actions. "We didn't like the response of St. Jude medical to the disciplinary actions we took during December," Elliott said during the call.

"So-called greener pastures may allow for a more relaxed viewpoint" on relationships with health-care professionals, Elliott added, yet "the problem with pastures are you have to be careful where you step."

Craig said St. Jude expects all its employees to comply with rigorous standards related to interactions with health-care professionals. "The remarks from this morning strike us a little bit like a bitter spouse after a bad divorce," she said.

The disciplinary moves drew a lot of analyst attention on Boston Scientific's call. The medical-devices industry has been ramping up disclosures regarding relationships with surgeons amid government investigations into the matter in recent years.

The orthopedics sector--including Zimmer Holdings Inc. (ZMH), which Elliott led for a decade--reached a deal with the Department of Justice in 2007 to resolve an investigation into whether companies were using surgeon payments to curry favor.

Elliott said Boston Scientific could lose more sales staffer in the heart-rhythm business this year, but not because of ongoing disciplinary issues. Instead, some employees may choose to join friends at other companies, he said.

He said these moves were done under the company's own power and not because of any outside pressure. "There's a line in the sand and it's binary," Elliott said, regarding conduct requirements for workers.

Regarding the risk of Boston Scientific luring some government disciplinary actions, Elliott said he's more interested in whether workers are behaving properly.

On the device issue, Boston Scientific is working to strengthen the bond between the plastic cap and metal case on its popular "Cognis" and "Teligen" defibrillators after finding isolated evidence of weakened bonds on devices implanted under chest muscles.

The vast majority are placed just under the skin, and while an article in the medical journal HeartRhythm cited a problem with one such implant, Boston Scientific blasted back in a release Wednesday and again on Thursday's call.

The journal "was completely out of line to publish this article prematurely," and without Boston Scientific's analysis, Elliott said. The company said a weakened header bond was not related to abnormal device actions in this case. Instead, wires to the heart made by another company may be at issue, the company indicated.

-By Jon Kamp, Dow Jones Newswires; 617-654-6728; jon.kamp@dowjones.com

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