Stents Drive Boston Scientific Earnings

Updated from 3:08 p.m. EST

Boston Scientific(BSX Quote) on Tuesday reported fourth-quarter sales and earnings that narrowly beat Wall Street estimates, thanks to the strong growth of the company's drug-coated arterial stents, and also offered in-line 2005 guidance.

The Natick, Mass.-based medical device company earned $419 million, or 49 cents a share, on revenue of $1.6 billion, excluding special charges, for the three months ended Dec. 31. The consensus of analysts polled by Thomson First Call predicted a profit of $416.8 million, or 48 cents, on revenue of $1.56 billion.

The quarterly net income represented a 197% increase over the $141 million in net income, or 17 cents a share, for the same period in 2003, excluding special items. Quarterly sales were 70% higher than the $939 million during the same period in 2003.

On a GAAP basis, the company earned $297 million, or 35 cents a share, for the fourth quarter, which included special charges of $122 million.

One noncash charge of $60 million was related to stock options. Another charge of $61 million was related to taxes on about $1 billion in earnings from foreign operations that the company will repatriate this year, thanks to a law signed by President Bush in October. The law allows companies to repatriate earnings from foreign subsidiaries at a tax rate of 5.25% rather than the usual 35% corporate tax rate.

Many drug and device companies, including Boston Scientific's rival in drug-coated stents, Johnson & Johnson(JNJ Quote), are taking advantage of the tax holiday. J&J makes the Cypher drug-coated stent; Boston Scientific's stent is called Taxus.

Looking ahead, Boston Scientific predicted 2005 EPS of $2.00 to $2.20 compared with the consensus forecast of $2.17. Revenue is seen at $6.44 billion to $6.73 billion, vs. the consensus estimate of $6.58 billion. The revenue estimate includes a prediction of worldwide drug-coated stent sales of $2.7 billion to $3.0 billion.

The company also provided financial goals for 2006 and 2007. As in the case of the earnings estimates for 2005, the following earnings estimates exclude one-time items as well as the impact of the new accounting rules for employee stock options that go into effect July 1, 2005.

Revenue in 2006 is forecast at $6.9 billion to $7.5 billion, including worldwide drug-coated stent sales between $2.7 billion and $3.2 billion, with EPS of $2.17 to $2.50 a share.

For 2007, the company expects revenue of $7.7 billion to $8.9 billion, including worldwide drug-coated stent sales of between $2.8 billion and $3.4 billion. Net income is seen at $2.43 per share to $3.01 per share. "A lot of things have to go right," said Larry Best, the chief financial officer, who said acquisitions could be part of the company's growth strategy in the next three years. "These are our goals."

Boston Scientific's predictions for 2005 and goals for the following two years drove the stock up $1.04, or 3.1%, to $34.10.

Stent Update

Speaking of stents, Boston Scientific said its worldwide coronary stent business produced sales of $730 million during the fourth quarter, up 374% from the same period in 2003. The company makes drug-coated stents and uncoated stents, which are wire mesh tubes inserted into arteries to improve the flow of blood after plaque has been removed from the vessels. Most of Boston Scientific's stents are drug-coated, which means they periodically release a chemical into the vessels and do a better job of reducing the rate of arterial reclogging vs. uncoated, or bare metal, stents.