UPDATE: Boston Scientific 1Q Loss Widens; Outlook Reduced

Boston Scientific Corp.'s (BSX) first-quarter loss widened on a steep write-down related to its U.S. heart-rhythm business, which endured a month-long halt in defibrillator sales that caused the company to slice its full-year guidance.

The Natick, Mass., company temporarily stopped U.S. defibrillator sales in mid-March, affecting the tail end of the first quarter, because it neglected to file paperwork with the Food and Drug Administration covering some manufacturing changes. Those changes were approved a month later and Boston Scientific's most important defibrillators are back on sale, but the question has been what the lasting impact will be.

Boston Scientific provided some context Monday by lowering its projected full-year sales guidance by $500 million, below Wall Street forecasts. Meantime, its U.S. defibrillator sales fell 21% to $312 million in the first quarter, missing the midpoint of a range the company had projected by $64 million.

Shares slipped in after-hours trading and were recently down 3.7% at $6.80.

The impact of the sales halt plus an outlook for slower market growth caused Boston Scientific to take the $1.8 billion write-down of goodwill associated with the domestic heart-rhythm business. It bought this business by acquiring Guidant Corp. four years ago for about $27 billion.

The products at issue, known as implantable cardioverter defibrillators, or ICDs, provide shocks when needed to treat potentially deadly rhythm problems.

"They're looking at weaker ICD sales as they come back into the market in the U.S.," said Jan Wald, an analyst at Noble Financial.

He thinks Boston Scientific can dodge lasting damage because it was sidelined by paperwork issues rather than actual product problems. But it was easy for doctors to switch to devices from rivals Medtronic Inc. (MDT) and St. Jude Medical Inc. (STJ) during the outage, and other analysts expect Boston Scientific will permanently cede roughly four or five points of U.S. market share.

The company posted a first-quarter loss of $1.59 billion, or $1.05 a share, compared with a year-earlier loss of $13 million, or a penny a share. The latest results included the write-down, among other items, while year-earlier results included $302 million, or about 20 cents in charges.

The company said the write-down has no impact on debt covenants, which have been getting some scrutiny on Wall Street lately due to Boston Scientific's reduced sales and some big payment obligations due next year.

Net sales declined 2.5% to $1.96 billion. Excluding currency translation and sales from divested businesses, sales were down 6%.

Results missed Boston Scientific's targets, which it set before the ICD issue popped up.

Overall ICD sales declined 12% to $390 million, but international sales grew 9% to $144, suggesting the domestic issues haven't spilled over into overseas markets. Boston Scientific recently disclosed yet more paperwork lapses it must clear with the FDA to get older defibrillators back, but this is more a lingering regulatory issue than a threat to sales, since the most widely used products are back.

The company disclosed on Monday that Fredericus Colen, who had been in charge of the heart-rhythm business but was promoted in February to the role of chief technology officer, is retiring effective June 30 for family reasons.

In Boston Scientific's other closely watched market, for drug-coated stent scaffolds for heart arteries, sales sank 8.5% to $407 million. This business is under pressure from tough competition and sliding product prices. Still, sales landed in the middle of the company's projected range.

For the full year, the company is now forecasting a loss 88 cents to $1 per share due in part to the $1.8 billion impairment charge for the U.S. heart-rhythm business. Excluding items, it projects earnings of 50 cents to 60 cents per share, down 12 cents from the February forecast.

It forecast second-quarter results that range from a loss of 3 cents a share to earnings of 2 cents a share, or adjusted earnings of 6 cents to 10 cents per share. It sees sales in the quarter ranging between $1.83 billion and $1.93 billion.

Analysts anticipated 8 cents and higher sales of $2 billion.

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

(John Kell contributed to this article.)

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