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Boston Scientific turns the corner

Mike Mahoney launched Boston Scientific’s strategic push at a gathering of stock analysts in New York early last year.

Jonathan Wiggs/Globe Staff

Mike Mahoney launched Boston Scientific’s strategic push at a gathering of stock analysts in New York early last year.

NATICK — After years of stagnating, its sales moribund and stock slinking along in single digits, there are new signs of life at the medical device maker Boston Scientific Corp.

The company, once a high-flier on Wall Street and a pioneer in medical technology, spent much of the past eight years digesting its $27.3 billion purchase in 2006 of rival Guidant Corp. But last year, a new chief executive unveiled a strategy that stressed moving into faster-growing businesses and markets.

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And it seems to be working.

To the surprise of many investors and market watchers, Boston Scientific’s revenues are growing again, and its share price has more than doubled.

“They’ve finally turned the corner,” said Danielle Antalffy, an analyst for the Boston health care investment firm Leerink Swann, who noted the modest 2 percent growth Boston Scientific recorded last year was a welcome sign. “It happened faster than I thought it would. For a long time, this turnaround was very much a pipe dream.”

Mike Mahoney, a 49-year-old recruited from the life-sciences giant Johnson & Johnson, took Boston Scientific’s top job in November 2012 and launched the strategic push at a gathering of stock analysts in New York early last year. He is a chief executive in constant motion — displaying the kind of energy that embodies a company finally moving forward again, on multiple fronts.

Not least among the moves is Boston Scientific’s planned relocation of its corporate headquarters in June from an office park off Route 9 to a state-of-the-art structure under construction in Marlborough.

Boston Scientific is also back in a buying mood after years of being criticized for overpaying in the Guidant deal. Its recent purchases include Rhythmia Medical Inc., a privately held Burlington company that makes mapping software used in electrophysiology procedures. Those include catheter ablations, which remove faulty pathways from the hearts of patients prone to atrial flutter or fibrillation. Late last year, Boston Scientific moved about 40 of Rhythmia’s research and business employees to its first outpost in Cambridge, near Fresh Pond, where Mahoney said it “will be easier to recruit 25-year-old software engineers.”

The company also spent about $850 million on research and development in 2013, about 12 percent of annual sales. It is moving ahead with a pipeline of new devices and technology that seeks to differentiate Boston Scientific from competitors ranging from Johnson & Johnson and Medtronic Inc. to Covidien PLC and St. Jude Medical Inc.

That work has been gaining industry recognition. Last fall, a subcutaneous heart defibrillator approved in 2012 to simplify implantation by leaving heart and blood vessels untouched won a prestigious Prix Galien Award for the best medical technology product.

Next up is an anticipated decision by the Food and Drug Administration this spring on the company’s experimental Watchman device, which is designed to prevent blood clots and strokes in patients with irregular heartbeats. Boston Scientific researchers are also working on the Lotus Valve System, an aortic valve replacement device with catheter delivery technology.

All of these products are in niches that are expected to outpace the broader medical equipment market as health insurers in the United States and government payers in Europe squeeze device makers’ profit margins.

At the same time, Boston Scientific has been strengthening its foothold in expanding economies such as China, India, Russia, and Brazil. Sales in those markets rose 27 percent last year, boosting total international sales to 47 percent.

“We’re deploying more resources in the faster-growing regions and the faster-growing markets,” Mahoney said. “We have a lot to do. We’re not satisfied with 2 percent sales growth.”

In fact, Boston Scientific increased its sales faster than the overall market last year in five of its seven business segments, gaining share in competitive areas such as endoscopy, urology, and women’s health.

The company also bought back about $500 million worth of its stock, which closed Monday at $12.98 a share on the New York Stock Exchange, up from just over $5 a share in the fall of 2012. Mahoney has projected Boston Scientific’s revenue will increase 3 to 5 percent this year and accelerate further in subsequent years.

But the company still faces formidable hurdles, including thousands of lawsuits in the United States and Canada charging that the company’s transvaginal mesh — used to fix a common gynecologic condition called pelvic organ prolapse — caused injuries.

Boston Scientific is contesting the suits, which have also been lodged against several other companies that market similar products.

While all major device makers are engaged in product litigation, Boston Scientific’s estimated liability — the projected costs of settlements, damages, and defense — climbed to $607 million at the end of 2013, from $491 million a year earlier. (Guidant’s products were the cause of a lot of that liability for years, though that is diminishing.)

“It’s something we track carefully,” Mahoney said of the legal expenses.

Like its competitors, Boston Scientific has had to adjust the sales pitch it makes to hospitals and doctors that buy medical gear. Changing government policy has forced health care providers to be increasingly cost-conscious. “You really have to prove the economic savings as well as the effectiveness of your medical devices today,” Mahoney said.

Over the past four years, the company has set in motion cost-cutting moves aimed at shutting down excess plant capacity worldwide and eliminating thousands of jobs. But even as it has done that, Boston Scientific has opened and expanded businesses elsewhere. It now has about 23,000 workers, including just under 2,000 in Massachusetts.

Mahoney is predicting “flat to slight growth” for the company’s overall operations here, largely because more rapidly growing businesses, such as endoscopy and women’s health, are based in Marlborough.

Boston Scientific has been moving corporate employees in stages from the aging Natick offices to the newer campus in Marlborough, and expects to have more than 1,500 there by this summer. The rest work at a distribution center in Quincy.

Worldwide, the company’s expansion into new businesses and markets appears to be on track. In the past, said Leerink’s Antalffy, such action was often promised but seldom delivered.

“They talked and talked, but never seemed to grow,” she said. “Now the question is whether they can accelerate.”

Robert Weisman can be reached at robert.weisman@globe.com. Follow him on Twitter @GlobeRobW.
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