NATICK — When the Food and Drug Administration last month approved the first defibrillator that can be implanted under the skin instead of connecting directly into the heart, it made available an advanced and less invasive treatment for US patients at risk of sudden cardiac death.
The decision also gave a boost to Boston Scientific Corp. in its quest to build a more competitive product line. The company has been jockeying with rivals such as Medronic Inc. and St. Jude Medical Inc. in a cardiac rhythm management market weakened by commodity products and discounted pricing.
“We haven’t had a really differentiated portfolio compared to our competitors,” Boston Scientific chief executive Hank Kucheman said in an interview at the company’s headquarters here. “This is a conscious part of our strategy to strengthen the franchise.”
Boston Scientific has struggled for years with myriad challenges stemming from its ill-fated $28.5 billion purchase of Indiana medical device maker Guidant Corp. in 2006. Now the Natick company is mounting a new effort — with new top management — to increase market share in its core businesses, expand globally, and restore the luster of its early decades as a medical device pioneer. Its stock, which traded above $44 a share in 2004, has since declined dramatically; it was $5.57 at the close of trading Friday.
The push comes as Boston Scientific and its rivals seek to reposition themselves for an industry in transition. Hospitals and doctors are focused increasingly on keeping costs down, while commercial health insurers and government payers are reimbursing generously only for devices that can save the health care system money by keeping patients out of the hospital.
“Companies that are developing products now, and are preparing to launch products, are going to have to make a direct connection between their new device and how they can save money by reducing hospital stays or cutting labor costs by collecting and analyzing data,” said Thomas J. Sommer, president of the Massachusetts Medical Device Industry Council.
For device makers, that will mean a new approach to doing business. While device makers have long marketed to medical specialists,purchasing decisions are shifting to “value analysis committees” at larger hospital systems and integrated health care groups known as accountable care organizations. At the AdvaMed 2012 annual convention in Boston earlier this month, Boston Consulting Group released a report contending that the device industry’s old business model is unsustainable.
“In the past,” Kucheman said, “the recipe for success with devices was safety, effectiveness, and acute performance. Now you have to add cost effectiveness and comparative performance. You have to prove that you can lower the overall cost of health care and the cost to society.”
Boston Scientific’s product line expansion is attempting to do just that.
In addition to the newly approved subcutaneous heart defibrillator, called the S-ICD, which seeks to simplify implantation by leaving the heart and blood vessels untouched, the company is developing, testing, and rolling out a half dozen other products it calls “key growth drivers.”
They range from a drug-eluting stent to unblock coronary arteries to an aortic valve system that prevents the need for surgery in patients with leaky heart valves. Last week, the company began enrolling patients in a clinical trial to test its new valve technology, called the Lotus Valve System, at sites in Australia, England, France, and Germany.
While some of these products are moving through Boston Scientific’s in-house pipeline — it invested $895 million in research and development last year — the company is also in a buying mood once again, looking for companies less pricey than Guidant that can bring new products and technologies to its portfolio. In a March deal worth up to $1.3 billion, it picked up the S-ICD defibrillator, which targets a worldwide market estimated at $7 billion annually, through a buyout of Cameron Health Inc., a privately held company in San Clemente, Calif.
“We’re funding innovations that offer very clear and tangible benefits to the patients,” said Ken Stein, chief medical officer for Boston Scientific’s cardiac rhythm management business.
Over the past two weeks, the company — with about 24,000 employees worldwide, including 2,000 in Massachusetts — notched two more acquisitions. It agreed to pay $90 million upfront and make additional milestone payments of up to $175 million for Rhythmia Medical Inc., a Burlington developer of mapping and navigation software used in cardiac procedures. It also agreed to buy BridgePoint Medical Inc., a Minneapolis company that’s developed a catheter-based system to treat a coronary disease, for an undisclosed price.
Analysts say Boston Scientific has made progress in its turnaround efforts, including the moves to broaden its business base and settlements of multiple patent lawsuits and government investigations, many focused on products that came with Guidant. But they say revenue continues to be hurt by tightening reimbursements, something that will probably intensify in Boston Scientific’s core markets of cardiac and endoscopy devices.
“With Boston Scientific not likely to return to top-line sales growth until the 2014 timeframe . . . shares could trade in a tight range until management delivers several consecutive quarters of consistent top-line growth,” Danielle Antalffy, a medical supplies and devices analyst for Boston health care investment firm Leerink Swann, wrote in an Oct. 1 note to investors.
Kucheman and Boston Scientific’s president, Mike Mahoney, are aiming for substantial earnings increases over the next five years. The company issues its next quarterly earnings report Thursday.
Mahoney, a former Johnson & Johnson executive who joined Boston Scientific last October, will take over as chief executive on Nov. 1, part of a transition plan outlined a year ago. A noncompete clause in his Johnson & Johnson contract prevented him from heading a rival company for a year after he departed. Kucheman is talking to the Boston Scientific board about his future role with the company, which has yet to be announced.
“We agree 98 percent of the time,” Kucheman said of himself and Mahoney. “The 2 percent we disagree, I get to win right now. But starting Nov. 1, he gets to win.”