STJ ST. Jude Medical, Inc.

Leading medical devices player, Boston Scientific Corporation (BSX) announced that its President and CEO, Ray Elliott, will retire on December 31, 2011.

The company is already witnessing several challenges as its core businesses consisting of stents and defibrillators are witnessing significant pricing pressure and loss of market share. In this scenario, the sudden announcement of CEO’s retirement resulted in 9% decline in Boston Scientific’s shares yesterday.

The Board has created a special CEO search committee and Ray Elliott himself would look for his replacement, being a member of the committee. During the tenure of Ray Elliott (since July 2009), Boston Scientific achieved several milestones in the business. These include adopting Priority Growth Initiatives to address critical and unmet future patient needs, creation of robust pipeline and focusing on merging markets.

Moreover, the company was able to reduce its debt burden, improve liquidity and generate robust free cash flow of more than $1.2 billion annually.

One of the major issues concerning Zimmer at present is its CRM business which is yet to recover from the ship hold and associated product removal actions of last year. Consequently, the company’s market share got affected against its competitors, Medtronic (MDT) and St Jude Medical (STJ).

Its biggest segment, Cardiovascular, is also recording lower sales due to continued competition and pricing pressure. Economic uncertainty is taking a toll on procedure volume, thereby impacting the company.

The search for a CEO is also a paramount concern for Boston Scientific’s competitor, Medtronic. Its CEO, Bill Hawkins, had announced in December his intention of retiring at the end of fiscal 2011. However, recently, it was announced that he would continue as CEO till early fiscal 2012 as the search for his replacement continues.

While Boston Scientific made significant achievements under the leadership of Ray Elliott, there are various issues yet to be resolved. As a result, the new CEO will have a daunting task ahead. Moreover, uncertainty remains regarding the strategy he would be adopting to turnaround the company.

We have a Neutral recommendation on Boston Scientific.

 
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