James Tobin, the CEO of Boston Scientific (NYSE:BSX) is likely to find himself in front of the shareholder firing squad in 2008.  In early 2004 this stock was above $40 and had enjoyed an incredible stock performance from the beginning of 2001 to early 2004.  But that was then.  Shares sit under $13.00 today, and every little rally seems to be reversed by bad news.  If you pull up a chart you’ll see a pattern of what looks like a long downward staircase. Tobin has has been with BSX since 1999, and he served as Biogen’s (NASDAQ: BIIB) President & CEO from 1997 to 1999. 

With a Harvard M.B.A., Tobin is probably not at all incompetent and we openly admit that there was a period of time that the company flourished.   But the current path is not working at all and all of the problems have happened under his tenure and under his guidance.

Co-founder and Chairman Peter Nicholas (Jr.) needs to step back in and get new blood in to run the day to day operations.  He has been chairman since 1995 and served as CEO from 1979 to 1999, so he could even perhaps step in as interim-CEO until a replacement is found.  Nicolas is only a few years older than Tobin.

• Things haven’t gotten any better since the 2006 closure of the Guidant buyout, and if memory serves correctly that was valued around $27 Billion (stock and debt) at the time and Boston Scientific’s market cap is currently just under $20 Billion.  Johnson & Johnson (NYSE:JNJ) is probably extremely glad they didn’t buy that after they lost the bidding for it.
• Boston Scientific is in the position that now it has to keep reviewing units and operations for possible sale, which has been ongoing.
• Back in July it reportedly settled its pending federal lawsuits against the company alleging harm from faulty defibrillators and pacemakers for $195 million, so maybe there can be at least some good news occasionally.
• But its stent business has been under fire from more and more reports showing that stents aren’t as safe as originally believed.  Stent sales have suffered industry-wide.  But now Abbott (NYSE:ABT) is nipping its heels with its own new Xience stent, and many reports have discussed how Xience is superior to BSX’s Taxus stent.
• Recently it posted losses after its acquisition and divestiture charges, and unfortunately its GAAP EPS forecast looks like we are set to expect yet another quarterly loss on a GAAP basis.
• Even the Wall Street analysts have all thrown in the towel on BSX.  The average target is down to about $16.00 and you have to stretch to find any real positive recent analyst calls besides Lehman maintaining an Outperform rating, but their target is only $16.00 too.

We ran a break-up value analysis before certain changes have been made inside the company, and we are reviewing what value can be derived ahead for our Special Situation Investing Newsletter subscribers.

If the company stays on its current path, we might even get to begin featuring Boston Scientific stock for our STOCKS UNDER $10 LETTER.  Yep, things seem to be that bad there.

GUIDELINES FOR CEO’s THAT NEED TO GO

Jon C. Ogg
December 7, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.

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