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Biotech / Medical : Boston Scientific (BSX) Any Comments???
BSX 95.37-0.7%Dec 31 3:59 PM EST
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To: Jacob Snyder who wrote (697)10/27/1999 9:13:00 AM
From: Lighthouse  Read Replies (1) of 798
 
3rd Quarter Thoughts (all IMHO - Bias and stupidity included):

1) Gross margin higher than expected. Company is finally realizing some benefit to consolidation, quality control and management attention to the matter. Tobin and Co. get high marks from me on this front.

2) Working capital management significantly better than year end 98! A/R down materially to under 60 days, inventory down nicely (although I would like to see the inventory turns get up to 4)- both while sales are up. Tobin and CO. get very high marks on this one from me.

3) $62 million Inventory write down - Continues to show that the relationship with Medinol is difficult. Communication between the parties does not appear to be ideal and the lag time between what the sales force sees (SciMed) and Medinol can produce/engineer is a real competetive disadvantage vis-a-vis MDT and GDT. Things HAVE to improve here . . . . . buyout of Medinol or more phone calls???????

4) Management confirms that stent pipeline is not strong enough to maintain today's market share in Q4 and 1st half 2000. Management had given the analysts a heads up on this one last week. Hopefully market share will stabilize around 25% for next year. Any further slip to the right is bad news because stents have a disproportionate impact on the p/l. Pray that Gold stents are received kindly and that SOX does not deflate again. We do not want an AVE melt down scenario here.

5) R&D is too low. This number will have to climb. Even assuming that you "count" Medinol's R&D in the calculation, BSX is simply not spending enough on R&D. I expect this number to increase going forward. Tobin & Co. probably realize they are skimping, but wanted to right the ship before spending. IMHO they are low by about $30-$40 Million a year.

6) Short term debt down - Good - Long term debt down as well - very good. I would no longer call BSX's balance sheet a mess. In fact this is a pretty good looking b/s. Cash generation is strong, especially from freeing up free cash from the working capital line, and the LT debt is very manageable. I am sure that the people who bought in at $40 this Summer are not happy, but that offering was perfectly timed. High score to Tobin & Co.

7) Pipeline - What pipeline? Very little on the horizon that would constitute a BIG market. Visibilty on this front would help people generate the goodwill/greed to raise the forward p/e above from where it is now.

Comments/Attacks/Flames all welcome. I am merely sharing some of my thoughts in order to generate some useful debate on this subject.
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