Tally up the decade
Jim Tobin says 10 years is long enough to run a company. It certainly should be enough time to decide what kind of job he did.
Tobin, 64, announced his intention to step down as chief executive at Boston Scientific Corp. just two weeks ago, and today is his last day in the top job at the Natick medical device company. Tobin’s decade as CEO encompassed two extraordinary events: the development of Boston Scientific’s intensely-followed drug-coated stent for cardiac patients and the company’s disastrous 2006 acquisition of Guidant Corp.
The official company assessment: Attaboy! Boston Scientific highlights the company’s business expansion and introduction of new products that help patients around the world over the past 10 years. It points to a more diversified business and a pipeline filled with new products on the way. “Jim led Boston Scientific through a period of tremendous growth and diversification that transformed the company,’’ chairman Pete Nicholas said at the time of Tobin’s retirement news.
Another take: Boston Scientific shares are worth about half the value they commanded when Tobin joined the company in March 1999. How do you explain that away?
To be more specific, Boston Scientific shares lost 52 percent of their value from the start of the Tobin era through last week. That was a wild decade for the entire stock market, but the broad Standard & Poor’s 500 index lost less than 18 percent over the same period.
More interesting, Boston Scientific’s stock performed terribly compared with its medical device competitors. I tracked a group of peer companies identified by Boston Scientific’s executive compensation consultants over the same period, and the comparisons were ugly.
Among those 10 companies, three didn’t have long enough track records as public stocks to qualify. Every one of the remaining seven stocks gained ground on a total return basis during the Tobin era, and the worst of that group, Medtronic Inc., advanced 6 percent. Four of the seven at least doubled in value, and the best of the bunch, St. Jude Medical Inc., soared 528 percent.
Boston Scientific was an aggressive company with a potential new blockbuster when it hired Tobin. Its new stent, coated with drugs to prevent reclogging of arteries propped open by the tiny metal device, looked to be a huge winner if it cleared a lot of hurdles. The company had technical problems to solve. It had legal issues and manufacturing challenges. The price of all that induced sticker shock.
Boston Scientific overcame those challenges under Tobin’s leadership, and its new stent quickly dominated the market. The company’s stock hit a peak above $45 per share, nearly triple its value when Tobin had walked in the door.
But the stent boom faded fast. Doctors started to question the superiority claims and safety profile of the new stents. Sales slumped, and Boston Scientific looked hard for a new way to diversify, setting its sights on Guidant.
A bidding war with Johnson & Johnson ensued and Boston Scientific lost by winning. It agreed to pay a crazy price, $27.5 billion, in a deal Fortune magazine later dubbed the second-worst business merger of all time, after Time Warner’s purchase of AOL.
Recalls and lawsuits plagued Guidant’s defibrillators after the sale of the company. Government regulators also sent a rare warning to Boston Scientific about poor quality control. All of it was very bad for business.
But the worst thing about the Guidant purchase was the price. Boston Scientific’s entire enterprise value today adds up to about $21 billion. That’s billions less than the amount it spent to buy Guidant alone.
Tobin may not have been the only one at fault. Larry Best, the company’s chief financial officer and aggressive deal man, was in the picture. So was Nicholas, a company cofounder and a powerful board chairman.
But Tobin was the company’s chief executive, and he has to answer for the impact on Boston Scientific shares, which closed yesterday at $9.66. That’s nothing but a disaster.
Boston Scientific now boasts about new business diversification and a brimming product pipeline, thanks in large part to its ownership of Guidant. Perhaps the deal will look better in five years, but that’s a story for another day.
Jim Tobin was dealt a few bad hands over the past decade. But he should have played them better.
Steven Syre is a Globe columnist. He can be reached at syre@globe.com. 
