Bloomberg News

St. Jude Looks to New Technologies to Bolster Sales Growth

February 09, 2012

(Updates with closing share price in fifth paragraph.)

Feb. 3 (Bloomberg) -- St. Jude Medical Inc., maker of devices to treat heart conditions, is betting on new technologies this year to overcome weak demand for older medical products, Chief Executive Officer Daniel Starks said.

St. Jude will start selling minimally invasive aortic heart valves and an ablation device to treat hypertension in Europe by the end of the year, Starks said. Analysts estimate the valve market, now led by Medtronic Inc. and Edwards Lifesciences Corp., exceeds $2 billion a year, while the hypertension market may top $25 billion, St. Paul, Minnesota-based St. Jude said.

The focus on high-profit new products will help St. Jude return to “high single-digit or low double-digit” sales gains for the next five years, Starks said. The company said 2012 sales will increase 4 percent to 7 percent, less than the growth posted at the turn of the century. The device maker generated revenue of $5.6 billion in 2011, a 1 percent increase from a year earlier.

“We have a plan that will return us to significantly higher growth than we delivered this past year,” Starks said in a telephone interview. “We are fanatic about targeting opportunities where we can generate multiple billions in new revenue but will still save those who are currently paying.”

St. Jude rose 1.6 percent to $42.51 at the close of trading in New York.

Investor Presentations

The company is presenting its research and development pipeline to investors and analysts today, emphasizing new technology and recent products for cardiovascular disease, heart rhythm management and brain stimulation. Cost cutting and measures to streamline operations in 2011 and 2012 will save more than $150 million next year, Starks said.

“They have a combination of new markets they are developing on their own and bigger opportunities that may be in areas that are also being developed rapidly by others,” said Raj Denhoy, an analyst for Jefferies & Co. in New York, in a telephone interview. “St. Jude’s ability to play in those markets and our understanding of how their technologies compare are the questions at this point.”

St. Jude’s Fractional Flow Reserve technology, which helps cardiologists pinpoint and treat blockages in the heart arteries, has the potential to boost short-term growth, Denhoy said. An independent monitoring board halted a study of the technology last month, saying the product worked so well at cutting the need for repeat hospitalization and retreatment that all patients in the trial should receive it.

Resynchronize Heart

The company’s quadripolar system to resynchronize the heart rhythm with a four electrode lead cuts the time to implant a device, uses less radiation and prevents hospital readmissions, Starks said. The technology, approved in November, will become the standard of care, Starks said.

“The competition can’t follow us without putting out an entirely new hardware platform,” he said. “We are years ahead with a disruptive technology in the biggest cardiovascular market.”

The company has had recent setbacks with its technology. CardioMems Inc., which is partly owned by St. Jude, failed to win a U.S. Food and Drug Administration panel’s backing to sell a first-of-its-kind implant to monitor patients for signs of heart failure in December.

‘Fast Follower’

The company has been expanding its research for several years and is becoming a complex business, said Thomas Gunderson, a Piper Jaffray & Co. analyst based in Minneapolis. While St. Jude has been a “fast follower,” allowing others to do the initial market development and coming in later with a rival product, the company has now caught up, he said.

“They are in a lot of different areas,” Gunderson said. “They may not always be the first, because that’s risky, but they are starting to be a leader.”

Starks said one area that’s “huge” is treating the sympathetic nerves outside the kidney artery walls to lower blood pressure. St. Jude has been working on the program for three years, he said.

Minneapolis-based Medtronic sells a similar renal denervation system in Europe. St. Jude sees itself as a pioneer, not a follower, Starks said.

“We will be second to market in Europe, but it’s a wide open new market and we are neck and neck,” he said. The company has new technology that’s a “St. Jude original,” Starks said.

New Sheaths

The approach uses new sheaths and a multi-electrode catheter that is faster and easier to use, eliminating the need to reposition the device during the procedure, said Frank Callaghan, president of the company’s cardiovascular division, in a telephone interview.

St. Jude is also developing a device to closes holes in the heart that can trigger strokes; a minimally invasive mitral valve; and a tracking system for cardiologists working in the heart that’s based on Israeli fighter jet technology, Starks said. The tracking system enables doctors to view what they are doing inside the heart in the same way that the global positioning systems show drivers where they are on the road.

“They’ve got numerous shots on goal, which lowers the risk portfolio from an investor standpoint,” Gunderson said. “Usually the team with the most shots on goal wins.”

--Editors: Bruce Rule, Jeffrey Tannenbaum

To contact the reporter on this story: Michelle Fay Cortez in Minneapolis at mcortez@bloomberg.net

To contact the editor responsible for this story: Reg Gale at Rgale5@bloomberg.net


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