Friday, May 04, 2007

BSX's Big Bite

Medical device VCs have been waiting patiently for Boston Scientific to fully digest the $27 billion combo meal that was Guidant, so it could resume investing and acquiring their portfolio companies at a meaningful pace. Unfortunately for those investors (and those investors' LPs), they will likely need to wait even longer than they’d anticipated.

The Natick, Mass-based medical giant made a few significant announcements this week that will surely gum up the works. First, it said it was bidding adieu to CFO Larry Best, who managed the company’s corporate venturing program. Best is retiring to become a “private investor” (which will create another interesting storyline to follow). He’ll be replaced by Sam R. Leno, the outgoing finance chief at orthopedics leader Zimmer Holdings.

A day later COO Paul LaViolette told the crowd at the Morgan Stanley Health Care Conference that BSCI is undertaking an extensive “efficiency improvement program,” and is considering selling off some of its non-core businesses.

The Wall Street Journal first reported on the comments, and’s Health Blog correctly identifies stents and implantable defibrillator businesses as the most likely core businesses that won't be for sale. The $10.8 billion acquisition of Biomet by a syndicate of private equity investors shows there will be some interested buyers. No doubt, hedge funds and well heeled VCs will also be browsing the Boston Scientific store.

The implementation of the "efficienty improvement program" (or perhaps EIP for short) plus the potential sale of spare parts suggests that Boston Scientific's absorption of Guidant might not be going as smoothly as indicated by CEO Jim Tobin. But the company clearly has a plan to build on its sizable cardiovascular business. It's just that plans take time, so VCs hoping to see a step up in BSX's investing and buying will just have to wait.

No comments: