$6.0 Billion

If you think there are a few missing elements from the header of the St. Jude Medical Inc. report, it’s for good reason. In late April, it was announced that the OEM was a part of the industry’s next mega merger. St. Jude Medical was being acquired by Abbott Laboratories for an estimated price of $25 billion. While the transaction didn’t formally close until after fiscal 2016 (just a few days into January 2017, actually), there is much more about the deal in the Abbott Laboratories report.

One result of the acquisition that did have a more direct impact on St. Jude Medical was the fact that employees would be saying goodbye to certain members of their device family upon the close of the Abbott transaction. Specifically, the companies had agreed to sell portions of their Vascular Closure and Electrophysiology businesses to Terumo Corporation for a price of $1.12 billion. Included in the deal were St. Jude’s Angio-Seal and Femoseal vascular closure products, as well as Abbott’s Vado Steerable Sheath.

Gaining even more headlines for St. Jude in 2016, however, was a very public dispute with short-selling firm Muddy Waters and cyber security company MedSec. MedSec issued a report that warned of cybersecurity concerns with St. Jude’s pacemakers and defribillators. The company claimed that hacks to these devices had two significant consequences, one resulting in the implanted device to pace at a potentially dangerous rate and another that would result in a drain of the batteries.

But the ethics behind the report were called into question due to the circumstances surrounding its release. According to a Reuters article on the matter, MedSec had approached Muddy Waters and a deal was completed between the two in which Carson Block, Muddy Waters’ head, would hire MedSec as a consultant, pay the company a licensing fee for research, and provide a percentage of any profits from the investment. At the time of the article, MedSec had been founded only 18 months earlier and the business model it was using was not necessarily seen by everyone as reputable. As a result, when Muddy Waters announced it was shorting St. Jude due to the findings of the report, it certainly raised a few eyebrows.

About a day after Muddy Waters’ announcement, St. Jude issued a statement refuting the report’s findings. “We have examined the allegations made by Muddy Waters Capital and MedSec on August 25, 2016 regarding the safety and security of our pacemakers and defibrillators, and while we would have preferred the opportunity to review a detailed account of the information, based on available information, we conclude that the report is false and misleading. Our top priority is to reassure our patients, caregivers, and physicians that our devices are secure and to ensure ongoing access to the proven clinical benefits of remote monitoring. St. Jude Medical stands behind the security and safety of our devices as confirmed by independent third parties and supported through our regulatory submissions.”

In its statement, St. Jude also addressed findings the report made, citing questionable testing methodology given the fact that the pacemaker would be implanted inside a patient, yet the report findings seemed to be provided for a device that was outside of the human body. Further, the OEM claimed that the report’s lack of details on the simulations that were run brings its findings into question.

Days later, St. Jude issued another statement, further refuting the allegations made by MedSec and Muddy Waters and those made in a video released by the firms. “Further demonstrating their fundamental lack of understanding of St. Jude Medical’s medical device technology, Muddy Waters Capital and MedSec presented a video yesterday that actually demonstrated the Radio Frequency Telemetry Lockout security feature of our pacemakers—not a ‘crash’ as they claimed. The video also confirms that the device’s clinical functions are operating as expected under these conditions.”

The following month, St. Jude Medical filed a lawsuit against Muddy Waters and MedSec, explaining that it was doing so to dissuade others from using a similar strategy as an attempt at financial gain. Muddy Waters followed up by hiring an additional security expert that supported the original MedSec findings.

Post fiscal 2016, a U.S. Food and Drug Administration (FDA) investigation called into question St. Jude’s statements as the government agency issued a warning letter to Abbott regarding the alleged cybersecurity concerns. The matter doesn’t seem to be resolved, but now Abbott Laboratories is on the hook for the issue as the new owner of St. Jude Medical. What the ultimate outcome is with regard to the cybersecurity issues and the devices will not likely be realized anytime soon. Hopefully, by the time it is, it’s a positive outcome where they have been resolved and not at the expense of a patient’s health or safety.

In the midst of all of this controversy between itself and Muddy Waters/MedSec, St. Jude announced that it was forming a Cyber Security Medical Advisory Board. Perhaps a reaction to the bad press regarding the concerns with its products or perhaps an honest attempt by a medical device firm to tackle this growing issue for the industry, the OEM stated that it recognized the need to address cybersecurity while balancing the care it provides to patients through its medical devices.

“Our mission is to deliver innovative technologies that save and improve lives,” Dr. Mark Carlson, then chief medical officer at St. Jude Medical, said in a press release that announced the formation of the board. “We take the cyber security of our devices very seriously and creating the Cyber Security Medical Advisory Board is one more demonstration of our ongoing commitment to advancing standards of patient care around the world without comprising safety and security.”

How the board will influence the cybersecurity of products under the leadership of Abbott will remain to be seen.

Given the number of releases the firm saw in 2016, an advisory board would be quite busy addressing all the potential cybersecurity issues. Not all of St. Jude’s new products were connected technologies, but a good number of them were. The notable product news in 2016 included:

• • The FDA approval and U.S. launch of MultiPoint Pacing Technology, featured in the Quadra Assura MP cardiac resynchronization therapy (CRT) defibrillator, Quadra Allure MP CRT-pacemaker, and two quadripolar Quartet LV leads

• • CE mark for the MRI compatibility of the Nanostim Leadless Pacemaker

• • CE mark and launch of an expanded selection of Quadripolar Pacing Leads

• • U.S. and European launch of the Trifecta Surgical Valve with Glide Technology for patients in need of aortic valve replacement

• • U.S. launch and first commercial implants of dorsal root ganglion stimulation therapy

• • EnSite Precision Cardiac Mapping System gets a limited market release in nine countries across Europe, followed later in the year by a full-market release; received FDA approval later in the year

• • European launch of the PressureWire Guidewire Technology to measure pressure differences across narrowed coronary arteries

• • CE mark approval and launch of SyncAV CRT software

• • FDA approval of BurstDR Stimulation, a spinal cord stimulation option for patients suffering from chronic pain

• • U.S. launch and first implant of Deep Brain Stimulation System and directional lead for patients suffering from movement disorders

• • FDA clearance and launch of the PressureWire X Guidewire designed to optimize PCI procedures in patients with complex anatomies

• • FDA approval and U.S. launch of the Amplatzer PFO Occluder, indicated to reduce the risk of recurrent ischemic stroke in patients with a PFO

• • CE mark approval for MRI labeling of the Quadra Allure MP Cardiac Resynchronization Therapy Pacemaker

• • CE mark approval for full body MR conditional labeling for the Proclaim Elite Spinal Cord Stimulation System

$5.5 Billion
NUMBER OF EMPLOYEES: 18,000

Last year saw St. Jude Medical Inc.’s largest acquisition yet. In October, the company bought Thoratec Corporation, which makes mechanical circulatory support technology for the treatment of advanced heart failure (HF).

The acquisition added the HeartMate II ventricular assist device, as well as the next-generation HeartMate 3, HeartMate PHP devices, and other complementary products to St. Jude Medical’s heart failure portfolio. With the addition of these product lines, St. Jude Medical now offers a significantly enhanced portfolio of devices for the management and treatment of heart failure.

The deal was valued at approximately $3.3 billion, net of cash acquired. Under the terms of the transaction, each outstanding share of Thoratec at the time of the closing was converted into the right to receive $63.50 in cash, without interest. St. Jude Medical expects the acquisition to be accretive to adjusted earnings per share in 2016.

Zacks analysts noted that St. Jude Medical is not accustomed to large takeovers. The analyst firm predicted the integration may cost the company more than it bargained for in 2016. However, this potential problem resolved itself earlier this year when Abbott one-upped the St. Jude-Thoratec deal by purchasing St. Jude Medical itself for $25 billion.

Financial Results

For the full-year 2015 (ended Dec. 31), net sales were $5.54 billion, compared with $5.62 billion in 2014. On a constant-currency basis, net sales increased 6 percent over the prior year. When comparing net sales for the full year 2015 to the combined net sales of both St. Jude Medical and Thoratec for the full-year 2014 and adjusting for foreign currency, comparable constant currency sales increased 4 percent.

Commenting on the company’s financial results, St. Jude Medical President and Chief Executive Officer Michael T. Rousseau said, “We are pleased with the momentum we achieved in 2015 in our atrial fibrillation, heart failure, and neuromodulation businesses, and with the significant progress we have made integrating Thoratec, which had a strong fourth quarter. In 2016, we expect to continue our focus on these key areas which will drive our growth and allow us to deliver a comprehensive portfolio of innovative technologies to patients around the world.”

St. Jude Medical operates on a 52/53 week fiscal year convention with an extra 53rd week occurring approximately every six years. The company’s fiscal fourth quarter 2014 had one extra week of sales compared to fiscal fourth quarter 2015. The company’s fiscal year 2014 had three extra selling days compared to fiscal year 2015. In order to provide similar sales comparisons for quarterly and annual results, the company recommends adjusting for the impact of this convention. While the calculation is not precise, the company estimates that these fewer selling days in 2015 negatively impacted fourth quarter 2015 results by approximately 5 to 6 percentage points and full-year 2015 results by approximately 1 percentage point.

Atrial Fibrillation Sales

For the full-year 2015, Atrial Firbrillation (AF) product sales were $1.09 billion, an increase of 5 percent over the prior year. On a constant-currency basis, AF product sales increased 13 percent in 2015.

St. Jude Medical significantly improved its ablation catheter offerings in its cardiac arrhythmia product portfolio last year with the commercialization of two new catheters. The TactiCath Quartz contact-force sensing irrigated ablation catheter pioneered the ability to give physicians a realtime, objective measure of the force applied to the heart wall during a cardiac ablation procedure to treat paroxysmal AF. The company’s FlexAbility ablation catheter was designed with feedback from leaders in the global electrophysiology community to enhance the quality of care for patients during ablation procedures. According to St. Jude Medical, the product introductions have allowed physicians to tailor patient therapy for optimized outcomes and position the company as the provider of choice to electrophysiology customers.

Cardiovascular and Cardiac Rhythm Management (CRM) Performance

CRM sales last year totaled $2.52 billion, a 10 percent decrease when compared with 2014. On a constant-currency basis, total CRM sales decreased 3 percent from the prior year.

Total cardiovascular product sales for 2015 were $1.31 billion, a decrease of 3 percent from the prior year. On a constant-currency basis, cardiovascular product sales increased 6 percent in 2015.

The CardioMEMS HF System is the cornerstone of St. Jude Medical’s heart failure product portfolio. The company claims it is the only firm with a U.S. Food and Drug Administration (FDA)-approved remote hemodynamic monitoring device.

In the November 2015 edition of The Lancet, prospective data from the CHAMPION study showed that after a mean of 31 months of follow-up, HF patients managed with the CardioMEMS HF system had a 48 percent reduction in HF hospitalizations compared to patients managed with the current standard of care. The data confirms the benefits of the technology and has driven strong clinical acceptance. However, with new innovative technologies, reimbursement can lag behind regulatory approval. Thus, St. Jude Medical is pursuing a National Coverage Determination from the Centers for Medicare & Medicaid Services to ensure that indicated patients have access to the CardioMEMS HF system. The process is expected to be completed by the end of this year and the company continues to develop this new market by expanding clinical evidence to drive adoption and reimbursement globally. St. Jude Medical’s acquisition of Thoratec—the largest in the company’s history—positions the company as the market leader in left ventricular assist devices (LVADs).

In 2015 St. Jude Medical announced CE mark for the HeartMate 3 Left Ventricular Assist System, a significant new product for its HF portfolio. The company expects the LVAD market to continue to be an attractive growth market in 2016, and expects to continue developing the market, since currently only about 10 percent of eligible patients receive this life-saving therapy. The HeartMate 3 LVAS international launch has gone well, and the HeartMate 3 LVAS U.S. investigational device exemption clinical study, MOMENTUM, is making good progress with patient enrollment.

The company also received CE mark approval in December last year to add magnetic resonance conditional labeling for its Quadra Assura CRT-D and Quadra Assura MP CRT-D with MultiPoint Pacing technology.

Neuromodulation Revenue

Neuromodulation product sales in 2015 were $475 million, an increase of 9 percent over the prior year. On a constant currency basis, however, Neuromodulation product sales increased 14 percent last year.

By adding Spinal Modulation Inc., and its Axium Neurostimulator System (approved by the FDA in February 2016) to its offerings in 2015, St. Jude Medical is now the only medical device manufacturer to offer radiofrequency ablation, spinal cord stimulation (SCS), and dorsal root ganglion stimulation therapy solutions for the treatment of chronic pain. These two acquisitions, supported by compelling clinical data, offer unique proprietary solutions that change the landscape of the chronic pain management market.

In 2015, the St. Jude Medical Invisible Trial System received approval in the United States and Europe. The system is fully wireless and leverages Apple technology for both the patient and physician controllers.  Developed with physician and patient feedback, the system is designed to offer patients an improved and discreet SCS trial experience. Also approved in Europe in 2015, the Proclaim Elite Spinal Cord Stimulation System is the first and only upgradeable and non-rechargeable SCS system approved to deliver Burst stimulation.

Also in 2015, SUNBURST trial results analyzing St. Jude Medical’s Burst technology demonstrated a reduction or elimination of paresthesia in 91 percent of patients. The company plans to establish Burst therapy as the dominant spinal cord stimulation waveform to achieve superior pain relief across rechargeable and rechargeable-free devices.

$5.6 Billion
NO. OF EMPLOYEES: 16,000

St. Jude Medical takes innovation seriously. In a year that showed a small rise in operating profits for the first time in three years—$1.15 billion in 2014, while 2012 and 2013 remained static at $1.1 billion—the company also spent the most it has on research and development in the past five years. The $692 million was well spent, however, CEO Daniel J. Starks pointed out: “…[I]nnovation is broader than delivering the next breakthrough product. It is about partnering with physicians, hospitals, payers, patients and our communities to challenge conventional thinking and create medical solutions that save and improve millions of lives worldwide—while reducing healthcare costs for all.”

According to Starks, fiscal 2014 was the year the company’s vision of “One St. Jude Medical” started to become a reality. Prior to 2012, the company operated in a highly decentralized environment characterized by six divisions organized according to priorities of different physician specialty groups or by geography. In 2012, reorganization began as part of an effort to anticipate and offset the medical device excise tax; the centralization initiatives were completed last year.

The year started with an aggressive push to seal the deal on “One St. Jude Medical.” Promotions and personnel changes were implemented to make sure the company stayed on track to finish 2014 with the reorganization solidly in place. Michael Rousseau, previously group president of St. Jude Medical, was promoted to chief operating officer. He was charged with overseeing sales, marketing, quality, technology development, operations and supply chain on a global basis. Eric Fain, previously president of the Implantable Electronic Systems Division (IESD), was promoted to group president of St. Jude Medical and made responsible for all clinical, regulatory and research and development activities across the company. Fain led the integration of IESD and the Cardiovascular and Ablation Technologies Division (CATD) into one cohesive St. Jude Medical research and development organization as part of the company’s innovation focus. The company also announced three new officers: Scott Thome was promoted to the newly created position of vice president, global operations and supply chain; Lisa Andrade was promoted to chief marketing officer; and Jeff Dallager was promoted to vice president, corporate controller.

“This new structure makes us more agile and allows us to better leverage our scale, capture R&D synergies and present ourselves more effectively to our customers in an environment of healthcare reform,” Starks said.

Starks credits the reorganization effort for FY14’s performance. For 2014, net sales were $5.62 billion, an increase of 4 percent from the prior year on a constant currency basis. Adjusted earnings per share (EPS) was $3.98 compared to adjusted EPS of $3.76 for 2013. On a constant currency basis, 2014 adjusted EPS increased 9 percent from the prior year.

Part of the grand restructuring plan was the company’s Manufacturing and Supply Chain Optimization Plan. This plan was initiated during 2014 to leverage economies of scale, streamline distribution methods, drive process improvements through “global synergies,” balance plant utilization levels, centralize certain vendor relationships and reduce overall costs. During 2014, the company incurred charges of $32 million related to severance and other termination benefits, fixed assets associated with information technology assets no longer expected to be utilized and distributor and other contract termination costs. The company currently expects to incur approximately $45 million to complete the plan during 2015, but may incur additional charges in the future.

Strategic Moves

St. Jude Medical made two key acquisitions in 2014: CardioMEMS Inc. and NeuroTherm Inc., based in Atklanta, Ga. and Wilmington, Mass., respectively.

In September 2010, St. Jude Medical acquired a 19 percent stake in CardioMEMS for $60 million, with an exclusive option to buy the remaining 81 percent of the company for $375 million. Following the U.S. Food and Drug Administration (FDA) clearance of the CardioMEMS HF (heart failure) system, St. Jude Medical hopped to and gobbled up the company post haste.

According to St. Jude Medical, the HF system is the first and only FDA-approved heart failure monitoring device that has been proven to significantly reduce heart failure hospital admissions and improve quality of life in NYHA (New York Heart Assocation) Class III patients. The CardioMEMS HF System allows patients to take daily pulmonary artery (PA) pressure readings from the comfort of their home. PA pressure is the ideal measurement for managing heart failure, but reportedly, until now, could only be performed in the hospital. By monitoring PA pressure, doctors can detect falling pressure changes within the heart nearly a month before the current standard of weight and blood pressure changes.

The HF system is now the cornerstone of St. Jude Medical’s heart failure management portfolio.

“The CardioMEMS HF system is a game-changing technology that we believe could be one of the most exciting innovations we have ever launched,” Starks said. “However, we recognize this is a new market that requires time to develop. We have the right product at the right time to help improve patient outcomes, reduce the cost of healthcare, and help our customers better manage some of their most complex patients from a care perspective. Our early commercialization results reflect that customers recognize the value of integrating this technology into their heart failure practice … Because of its proven clinical evidence and value to patients and healthcare systems, we view the CardioMEMS HF system as our number one growth driver in 2015.”

The $200 million NeuroTherm acquisition bolstered St. Jude Medical’s chronic pain portfolio with the addition of radiofrequency ablation (RFA) for the treatment of spinal pain, a therapy that provides treatment for patients earlier in the chronic pain care continuum. Together with its spinal cord stimulation (SCS) therapy options, the RFA therapy creates a more complete range of chronic pain solutions.

“NeuroTherm’s radiofrequency ablation products are an ideal complement to St. Jude Medical’s chronic pain portfolio, providing our global sales force with additional interventional pain therapies that offer potential relief to patients earlier in the chronic pain continuum,” said Chief Operating Officer Michael T. Rousseau. “As the only medical device manufacturer with both RFA and spinal cord stimulation, this acquisition will enable us to offer more treatment options to patients worldwide who suffer from the debilitating effects of chronic pain.”

NeuroTherm was only part of a larger push to expand St. Jude Medical’s reach in the chronic pain market. In 2014, the company leveraged a number of products to fuel growth within its chronic pain programs. The Prodigy Chronic Pain System, which delivers Burst electrical stimulation (exactly what it sounds like—delivering electric pulses in bursts) as well as conventional tonic stimulation for a comprehensive approach to effective pain management, earned CE mark approval in March. For U.S. chronic pain patients, the Protégé upgradeable SCS system is the only implantable pulse generator (IPG) on the market that allows therapy upgrades to be made via software updates, the company claims. With Protégé, chronic pain patients can gain immediate access to new market-approved technology without surgical replacement of their IPG.

St. Jude Medical’s 2013 acquisition of Endosense SA and its Tacticath Quartz line of contact force sensing ablation catheters started to pay off in 2014. The strategy was to develop a state-of-the-art ablation catheter program; October 2014 saw FDA approval of the Tacticath Quartz line, enabling the company to launch the catheters states side. Endosense already had secured CE mark for the devices in 2012. In July 2014, St. Jude Medical received CE mark approval of its FlexAbility ablation catheter (FDA approval was received in January 2015). The approval further strengthened the company’s fast-growing ablation technology portfolio, adding a unique catheter for non-contact force cases. The FlexAbility ablation catheter was developed with feedback from leaders in the electrophysiology community and combines a bendable irrigated catheter tip with an advanced handle and next-generation shaft design. The added flexibility of the tip, in addition to the catheter’s ability to maneuver easily and reliably in challenging cases, was designed to enhance the quality of care for patients who require ablation procedures. Alongside the Tacticath Quartz irrigated ablation catheter, the company now could offer two different solutions designed to improve outcomes, efficiency and productivity in electrophysiology labs.

In summary, these strategic moves, both in 2014 and those made before that brought the chickens home to roost in 2014, had the following effects: The increase in 2014 net sales was primarily driven by the company’s atrial fibrillation products, which benefited from increased electrophysiology catheter ablation procedures and increased sales volumes associated with the company’s intracardiac echocardiography imaging product offerings. During 2014, it also benefited from incremental net sales associated with the NeuroTherm acquisition and the HF System FDA approval. Additionally, compared to 2013, the company continued to experience incremental net sales benefits from the 2013 acquisitions of Endosense and Nanostim and sales volume increases associated with the Spinal Modulation Axium Neurostimulator System, a targeted therapy for chronic pain. Increased sales volumes associated with the company’s fractional flow reserve technology products and optical coherence tomography imaging products, Trifecta pericardial stented tissue valve, transcatheter aortic heart valves and Amplatzer occluder products also continued to benefit 2014 net sales compared to 2013. Partially offsetting these net sales increases, the company experienced a 2014 net sales decline in its other neuromodulation chronic pain products—the third party vascular products distributed in Japan and its mechanical heart valves—due to a market preference for tissue valves, compared to 2013. Net sales in Japan dropped 7.2 percent.

The Heart of The Matter

Cardiac devices remain the cornerstone of St. Jude Medical’s business. With the addition of the blockbuster CardioMEMS HF system, the company has only bolstered itself as a force to be reckoned with in the cardiac technology space. ICD systems brought in $1.75 billion in sales revenue in 2014; pacemakers brought in $1.05 billion; and atrial fibrillation products brought in $1.04 billion, a significant increase over 2013 at 9 percent. Vascular products brought $709 million in net sales, and structural heart products $639 million.

Neuromodulation sales in 2014 saw a 2.6 percent increase over the previous year, bringing in $437 million.

Solving Problems

Importantly, St. Jude Medical resolved two FDA warning letters in 2014 and put them in the past.

One letter dated back to 2009, when the FDA issued a Form 483 to the company regarding its Plano, Texas, facility. The form identified certain observed non-conformities with Current Good Manufacturing Practices. Following the incident, the company’s Neuromodulation division provided written responses to the FDA elaborating certain corrective actions. St. Jude Medical acquired the Plano facility in 2005 for $1.3 billion. Prior to the acquisition, the facility was operated by Advanced Neuromodulation Systems, which according to Zacks analysts, was the second-largest supplier of devices that use electrotherapy to treat chronic pain and nerve disorders.

The company also resolved a 2013 letter concerning its Sylmar, Calif., plant that makes the Durata and Riata ST Optim cardiac leads. 
“We take our responsibility as a medical device manufacturer very seriously,” said Starks. “We are encouraged by the resolution of the FDA’s warning letter and will continue to work to ensure the highest standards are met across our manufacturing facilities.”

$5.50 Billion
NO. OF EMPLOYEES: 16,000

The news was surprising, to say the least. Yoshinori, 58, seemed to be in excellent health: Fit and trim, he exercised regularly and watched his diet. Hence, the Wakayama, Japan, resident was caught off-guard by his diagnosis of coronary artery disease, the narrowing of small blood vessels that supply blood and oxygen to the heart. The condition affected 105,551 Japanese residents in 2011 and accounted for 11.7 percent of all deaths, World Health Organization data show.

After determining its severity, cardiac surgeons treated Yoshinori’s blockage with a stent, using the Ilumien Optis PCI Optimization System from St. Jude Medical Inc. to guide it into place. The imaging system—launched in Japan in March 2013—employs fractional flow reserve (FFR) to measure intra-arterial pressure and 3-D optical coherence tomography (OCT) to capture panoramic views of the affected artery. It also uses the company’s PressureWire guidewire for FFR measurement and the Dragonfly Duo catheter for scanning the clogged vessel’s walls with a near-infrared laser to create the 3-D image.

“The Ilumien Optis system enables a higher-image resolution, and thus makes it possible for us to analyze difficult anatomical structures, allowing us to focus on diagnostic and treatment strategies,” said Takashi Akasaka, M.D., of Wakayama Medical University, the likely choice of Yoshinori’s treatment and recovery. “This new analytical tool is helpful for sizing and placing the stent. This technology has become increasingly important to help efficiently diagnose and treat patients.”

The Ilumien technology was equally as crucial to St. Jude’s bottom line last year, helping the 38-year-old medtech manufacturer rebound from a 3 percent sales slide in Q1. The system also was a central part of the company’s ongoing strategy to profit through innovation.

“Medical device companies cannot keep doing the same things and expect to keep up with the burdens facing healthcare today,” Chairman/President/CEO Daniel J. Starks told shareholders in the company’s 2013 annual report. “Our success depends on our ability to invent medical devices that help improve patient outcomes and reduce the cost of healthcare. In each disease state where St. Jude Medical is focused, we haven’t just developed a product, but have developed innovative, comprehensive solutions to costly and complex problems. This commitment to investing in innovation helped return our business to growth during 2013.”

The homecoming was quite muted, though. While the company’s adjusted earnings per share swelled 12 percent on a constant currency basis (diluted net earnings rose 4.1 percent to $2.49), net sales remained flat at $5.5 billion and operating profit fell 4.5 percent to $1 billion, annual report data indicate. Gross profit was down as well, slipping 1 percent to $3.9 billion compared with 2012. U.S. sales remained flat at $2.5 billion, and Japanese revenue was off 14.7 percent.

Still, St. Jude managed to boost its stock price 76 percent and increase its dividend by 9 percent for the second consecutive year. Starks attributed the growth to product approvals/launches (16 total), acquisitions, and a departmental restructuring in 2012 that reportedly saved the company more than $100 million.

The realignment, which consequently impacted 2013 net earnings by $1.34 per diluted share, reorganized St. Jude’s product segments into two new operating units: the Implantable Electronic Systems Division (IESD), comprising the former Cardiac Rhythm Management and former Neuromodulation units; and the Cardiovascular and Ablation Technologies Division (CATD), constituting the former Atrial Fibrillation and former Cardiovascular segments.

In their first full year of operation, the two units counterbalanced each other, with the 3 percent hike in CATD net sales offsetting the 2 percent slide in IESD revenues. The latter division lost $38 million (1 percentage point) to foreign exchange rates but made up for the deficit by launching the Ellipse and SJM Assura portfolio of implantable cardioverter defibrillators and cardiac resynchronization therapy defibrillators; the Accent MRI Pacemaker; the Tendril MRI lead (approved in Japan in June) and the Allure Quadra Cardiac Resynchronization Therapy Pacemaker. IESD’s $3.2 billion sales gross also got a lift from distribution of the Axium Neurostimulator System, a targeted therapy for chronic pain. St. Jude gained rights to the system through its $40 million equity investment in Menlo Park, Calif.-based Spinal Modulation Inc., a privately held firm developing a next-generation spinal cord stimulator for chronic pain treatment. The venture gives St. Jude a 19 percent voting interest in the company and dibs on purchasing it at a later date for up to $300 million plus milestone payments.

IESD sales and operating profit, which fell 6 percent to $2.1 billion, ultimately were stonewalled by flat implantable cardiac defibrillator revenues ($1.7 billion) and a 6.2 percent decrease in pacemaker systems proceeds. Strong sales of the company’s Ellipse and Assura ICDs featuring DynamicTx Over-Current Detection Algorithm, which automatically adjusts shock configurations, kept revenues on par with 2012. The Ellipse and Assura’s popularity was strongest in the United States, where ICD proceeds climbed 1 percent to $1 billion compared with the previous year. The products did not fare as well internationally, however, as sales declined 2 percent to $714 million.

Pacemaker systems’ grand total ($1 billion) fell victim to overall price declines and foreign exchange rates in 2013, though the losses partially were offset with the Allure Quadra CRT-P, Accent MRI Pacemaker and Tendril MRI lead launches. The company also beefed up its portfolio with the Nanostim, a non-surgical leadless pacemaker that is less than 10 percent the size of a conventional device and is touted to be the least invasive technology currently available. The Nanostim debuted in Europe at the end of 2013, shortly after St. Jude purchased its parent company (Nanostim) for $121 million in cash.

Nanostim’s deft technology, however, failed to impress customers. U.S. and international pacemaker proceeds both tumbled 6 percent last year, dropping to $424 million and $618 million respectively.

Neuromodulation products proved to be the sole moneymakers for IESD (just barely), generating an additional 0.7 percent in sales ($426 million). Executives attributed the growth to St. Jude’s distribution agreement with Spinal Modulation as well as stonger demand for its deep brain stimulation products that treat Parkinson’s disease, tremors and/or dystonia.

Like its sister division, CATD was stung by volatile foreign exchange rates. But the unit overcame its $63 million, 3-percentage-points handicap to secure $2.2 billion in sales thanks to robust gains in atrial fibrillation (AF) and structural heart product revenues.
AF product sales jumped 7 percent to $957 million compared with 2012, according to the company’s annual report. Growth drivers included the EnSite Velocity System and related connectivity tools (EnSite Connect, EnSite Courier and EnSite Derexi modules) as well as St. Jude’s intracardiac echocardiography imaging product offerings, which provide doctors with a clear picture of the heart’s inner mechanism. The company also augmented its AF lineup with the $171 million purchase of Endosense SA, the Swiss developer of the TactiCath irrigated ablation catheter. CE Mark-approved for atrial fibrillation and supra ventricular tachycardia ablation, the TactiCath technology provides physicians with a real-time, objective measure of the force needed within the heart wall during a catheter ablation procedure.

While vascular revenue growth improved from 1 percent in the first half of 2013 to 3 percent in the second half (constant currency), net sales ended the year down 2 percent at $704 million. Executives blamed the poor performance on foreign exchange rates along with economic pressures and average sales price declines in Japan, which has prompted many third-party manufacturers to switch to a direct selling model with end customers. Those Far Eastern headwinds, however, were somewhat offset by strong sales of St. Jude’s FFR technology products and OCT imaging systems, as well as the late-summer European launch of the next-generation EnligHTN Renal Denervation System, a product designed tor treat patients with drug-resistant, uncontrollable hypertension.

Structural heart revenue increased 3.1 percent (12 percent on a constant currency basis) to $631 million, with gains coming primarily from tissue heart valves and left atrial appendage closure devices, both of which grew at double-digit rates.

$5.6 Billion
NO. OF EMPLOYEES: 16,000

Denton A. Cooley, M.D., can still remember the bouts of insomnia that followed his brush with history on April 4, 1969. On that particular morning, the 48-year-old surgeon implanted an artificial heart into an ailing Skokie, Ill., man named Haskell Karp. The device—a monstrosity of plastic and polyester fiber linked to a bedside control console the size of a washing machine—kept Karp alive for three days, longer than any animal in which it previously had been implanted.

“It’s hard to sleep after an experience like that,” Cooley said in an online video posted by Modern Climate, a Minneapolis, Minn.-based consumer-centric advertising agency. “The period of excitement stays with you and it’s not uncommon to be lying awake at 2 or 3 o’clock in the morning with your brain still thinking about the patient experience.”

The patient experience vastly has improved in the four decades since Karp lost his heart to science (he technically lost it to Cooley, but the surgeon was working for the benefit of science so it’s basically a wash). Though today’s artificial hearts have become more proficient at keeping patients alive, they nonetheless remain a “bridge to transplant”—devices that keep the body functioning until a matching organ can be found.

In the Modern Climate video, Cooley compared his generation of cardiac surgeons to NASA astronauts, claiming both professions explored previously unchartered territory (for astronauts, it was the moon; for Cooley and his colleagues, it was the more mysterious engine of human life).

Neither group had an easy task. Those that reached for the moon were forced to overcome the physical and physiological challenges of space travel, while the group that stayed on earth had trouble designing the proper heart valve.

“We had many problems with those early designs of valves, beginning with the Starr-Edwards ball and cage design. I remember you could almost hear them across the room if the patient opened his mouth,” Cooley recalled. “But the St. Jude valve was more or less solid… I don’t know of any valve that is better—the St. Jude valve design has stood up very well through the years. In my mind, you don’t desert an old friend like this valve.”

Professional desertion has never really been a problem for St. Jude. Since the introduction of its first mechanical valve (the Regent) in 1977, the company has accumulated a loyal following of doctors who have implanted its valves in more than 2 million patients. Such devotion has helped the St. Paul, Minn.-based firm become a leading developer and manufacturer of cardiac devices, with customers in more than 100 countries worldwide.

St. Jude’s CRM division was the top-grossing unit in 2011 (year ended Dec. 31), generating more than half of the company’s total net sales. But the unit, which sells implantable cardioverter defibrillators (ICDs) and pacemakers, amassed $3.03 billion in sales, an amount nearly equal to 2010. Executives attributed the division’s flat sales to CRM market contraction in the United States.

ICD and pacemaker sales were flat as well, rising a nominal 0.2 percent and 0.8 percent respectively, according to St. Jude’s 2011 annual report. ICD revenue totaled $1.82 billion while pacemaker system sales stood at $1.2 billion. ICD sales drivers included the Unify cardiac resynchronization therapy defibrillator and Fortify ICD in Japan. Launched in the second quarter of 2011, both devices are smaller, deliver more energy and have a longer battery life than conventional devices.

The CRM division’s dismal performance reflects a continued slump in the U.S. market for heart-related devices. While the seeds for the slump were planted well before 2011, the market slide rapidly deteriorated during the first three months of 2011, shortly after the January publication of a Journal of the American Medical Association article that questioned the need for ICDs. The story cited a study that showed 22.5 percent of patients typically fall short of the medical guidelines necessary to receive the $25,000 devices. The findings did not determine a reason for such a high rate of non-compliance with the guidelines, but author Sana M. Al-Khatib, M.D., offered an explanation to The New York Times, blaming the failure on physicians’ lack of knowledge and awareness of Medicare’s National Coverage Determination criteria. Such ignorance—as startling as it is sobering—certainly contributed to weak demand for ICDs in the first three months of 2011, but other factors in place long before the JAMA article was published very well could explain lower device sales last year.

One such factor was an investigation by the U.S. Justice Department into hospitals’ ICD billing to Medicare; another was the government’s prosecution of St. Jude Medical for allegedly paying kickbacks to entice doctors to implant the company’s pacemakers and defibrillators (the firm agreed in January 2011 to pay the government $16 million to resolve the allegations).

St. Jude’s CRM sales slipped 2 percent during the second quarter of 2011 (period ended June 30) to $401 million, a frustrating setback for the company, considering it gained market share from a 2010 decision by Boston Scientific Inc. to stop ICD shipments and pull its field inventory in the United States.

“What we see here is that the U.S. CRM market fell into a pothole during the second quarter,” Chairman, President and CEO Daniel J. Starks griped to investors during a summertime conference call to discuss the firm’s Q2 results. “Twenty-eight percent of our sales fell into a pothole.”

Fortunately for St. Jude, that pothole was limited to the CRM market. The company’s Cardiovascular division experienced explosive growth last year, garnering $1.3 billion in sales, a staggering 29 percent increase compared with 2010. Robust sales of vascular products and structural heart devices were responsible for the division’s skyrocketing growth rate—each posted double-digit sales increases. Vascular product sales jumped 10 percent to $740 million due to higher demand of vascular plugs and optical coherence tomography products as well as $34.6 million in favorable foreign currency translation. Lower sales of the company’s Angio-Seal active closure devices prevented further gains in vascular product revenue.

Structural heart device sales ballooned 63.7 percent to $597.3 million. Executives attributed the surge to vigorous sales of AGA Medical’s Amplatzer occluder products (St. Jude purchased AGA Medical in November 2010 for $1.1 billion) and solid demand for the Trifecta tissue valve, which was approved by the U.S. Food and Drug Administration in April 2011. The valve, designed to optimize blood flow, is made from a polyester and tissue-covered titanium stent, or base. The valve contains leaflets manufactured from bovine and porcine pericardial tissue that attach to the outside of the stent, a design the company claims allows the leaflets to open more fully and efficiently, mimicking the performance of a healthy aortic heart valve and limiting tissue abrasion through stent-to-leaflet contact.

St. Jude’s Atrial Fibrillation (AF) division posted solid gains last year, but it couldn’t match the upsurge in the Cardiovascular unit. AF sales totaled $822 million, an increase of 16 percent compared with 2010. On a constant currency basis, AF product sales increased 12 percent in 2011.

Sales drivers in this unit included the EnSite Velocity System and related connectivity tools (EnSite Connect, EnSite Courier and EnSite Derexi modules) as well as Safire BLU and Therapy Cool line of EP irrigated ablation catheters.

The Therapy Cool Path Duo and Safire BLU Duo are sterile, single use 7 French catheters constructed of thermoplastic elastomer material and four noble metal electrodes. The catheters have a through-lumen connected to open conduits at the 4-millimeter tip electrode for heparinized saline irrigation during the ablation procedure.

The catheters are inserted into a blood vessel, usually though a site in the upper leg or neck. The catheter is manually advanced through the blood vessels until it reaches the correct location inside the heart. Once the site is identified, the devices deliver radio frequency energy to destroy small areas of tissue blocking the heart’s internal electrical signals that cause typical atrial flutters.

St. Jude’s Neuromodulation division trailed its brethren in sales but still delivered a notable performance in 2011, earning $418.3 million, a 10 percent increase compared with FY2010.
International neuromodulation product revenue expanded 30 percent, driven by gains in the Eon Mini platform and growing market acceptance of the Epiducer Lead Delivery system, which gives physicians the ability to place multiple neurostimulation leads through a single entry point.

$5.2 Billion
NO. OF EMPLOYEES: 15,000

If St. Jude Medical President, CEO and Chairman Daniel J. Starks had a difficult time delivering news to shareholders at the end of 2009, he might have relished the job at the end of fiscal 2010. While 2009 was “not without its challenges,” 2010 “was a highly successful year.”

Indeed it was. The device company’s net sales amounted to almost $5.2 billion, a 10 percent increase over the previous year (the same on a currency neutral basis). Foreign currency translation comparisons increased fiscal year 2010 sales by about $23 million.

St. Jude attributed most of its growth to implantable cardioverter defibrillator (ICD) and atrial fibrillation products.

Actually, St. Jude saw significant increases in each of its segments. Cardiac Rhythm Management sales totaled $3 billion, also a 10 percent increase over FY09. The growth was the same on a currency-neutral basis. ICD sales increased 16 percent in the fourth quarter, bringing the total sales for 2010 to $1.8 billion. Pacemaker sales were more consistent with 2009, totaling $1.2 billion, a 2 percent increase.

Sales for the segment perhaps were bolstered by the temporary elimination in March 2010 of competing Boston Scientific ICD products in the United States. “Although Boston Scientific resumed sales in mid-April 2010, we experienced an incremental ICD net sales benefit in the range of approximately $35 million to $40 million,” St. Jude stated in the 2010 financial report.

The Cardiac Rhythm Management division launched several new products for various platforms, including U.S. implants of its Unify cardiac resynchronization therapy defibrillator and the Fortify ICD. The devices feature advanced battery technology and circuitry that allow for the smallest device footprint in the industry and rapid charge times without compromising longevity or power. The year also saw the U.S. launch of the Wireless USB Adaptor for the Merlin@home transmitter, which allows patient data to be downloaded from an implantable cardiac device and transmitted through cellular networks.

“This technology improves patient care by providing an efficient remote monitoring system when the use of a landline is inconvienent or unavailable,” said Eric S. Fain, M.D., president of the Cardiac Rhythm Management division. “The Wireless USB Adaptor is another addition to our innovative product portfolio and demonstrates the strength of our connectivity platform.”

In addition, the segment announced the European launch of the Promote Quadra, the first quadripolar pacing system, which offers physicians the ability to address pacing complications without needing to surgically reposition a lead.

While FY10 didn’t see any launches in the Atrial Fibrillation segment, sales increased an impressive 13 percent, to $708 million. On a constant currency basis, Atrial Fibrillation sales increased 12 percent.

Neuromodulation product sales totaled $380 million, a 15 percent increase over the prior year. On a constant currency basis, sales increased 16 percent. Fiscal year 2010 marked the approval of the segment’s Eon Mini spinal cord stimulation system—the first rechargeable neurostimulator for chronic pain management in Japan. The Eon Mini is also the smallest, longest-lasting rechargeable neurostimulator in the world, according to St. Jude.

“Neurostimulation offers chronic pain patients a therapy that can deliver sustainable relief,” said Chris Chavez, president of the Neuromodulation division. “The Japanese approval of the Eon Mini neurostimulator represents an important step toward broadening the availability of this therapy.”

Cardiovascular products brought in about $1 billion, which represented a 9 percent increase compared with 2009. On a constant currency basis, the increase was 8 percent. Vascular closure products represented the only decrease for the company, of 2 percent to $375 million. Heart valve products were up 4 percent, totaling $337 million.

The Cardiovascular segment also debuted a new line of Introducers which received both U.S. Food and Drug Administration and European CE Mark approval. The Engage family of Introducers are equipped with features intended to minimize trauma to the artery and set the stage for closure.

“St. Jude Medical is focused on developing products that reduce risk and improve physician control during procedures,” said Frank Callaghan, president of the Cardiovascular division. “The Engage Introducers were designed to provide physicians with reliable femoral and radial vascular access that can be easily repeated for any patient, no matter their individual anatomy or medical history.”

In addition to largely successful product sales, St. Jude benefitted from its fourth quarter, $1.3 billion acquisition of Plymouth, Minn.-based AGA Medical Holdings, Inc., which became part of the Cardiovascular division and brought in $25.2 million of incremental net sales. The acquisition was beneficial to St. Jude’s portfolio in four markets: left atrial appendage closure, patent foramen ovale, modification of abnormal peripheral vessels with vascular plugs, and repair of structural heart defects.

St. Jude previously added to its Cardiovascular segment in the prior quarter, when it acquired LightLab Imaging, Inc. The $90 million deal made St. Jude the first device company to offer both optical coherence tomography—a high-resolution diagnostic coronary imaging technology—and fractional flow reservetechnology. Following the acquisition, St. Jude filed a patent infringement lawsuit against San Diego, Calif.-based Volcano Corp., whichalready was embroiled in a legal battle with LightLab for allegedly interfering with LightLab’s relationship with Axsun Technologies Inc., a wholly-owned subsidiary of Volcano. LightLab claimed that Volcano engaged in wrongful use of LightLab’s confidential information and trade secrets; a jury ruled in favor of LightLab in February 2010.

Later, in July 2010, St. Jude alleged that several products distributed by Volcano infringed on five key patents for St. Jude’s Medical Pressure Wire Technology platform for guide wires, which were acquired from Radi Medical Systems AB.

“St. Jude Medical has made significant investments in the interventional cardiology space, including the coronary assessment and more recently the coronary imaging markets,” Callaghan said at the time of the filing. “From clinical research to important product advancements, Radi Medical Systems and now St. Jude Medical have contributed considerably to the success of this marketplace. As a company that values the innovations we bring to the marketplace, we intend to protect our intellectual property.”

Volcano countersued in September of 2010; a decision has yet to be reached.

Fiscal year 2010 also marked the end of St. Jude’s five-year struggle with an industry-wide review of post-market studies and registries initiated by the Boston office of the U.S. Department of Justice. As part of the settlement, St. Jude paid $16 million to the government, but stated that it was not admitting liability or wrongdoing by entering into the agreement. Instead, the agreement was reached in order to avoid the potential costs and risks associated with litigation. “The company maintains that its post-market studies and registries are legitimate clinical studies and registries designed to gather important scientific data,” a company statement read.

13. St. Jude Medical

$4.7 Billion

KEY EXECUTIVES:
Daniel J. Starks, Chairman, President and CEO
John C. Heinmiller, Exec. VP and CFO
Frank J. Callaghan, President, Cardiovascular Division
Christopher G. Chavez, President, Neuromodulation Division
Eric S. Fain, President, CRM Division
Jane J. Song, President, Atrial Fibrillation Division
Denis M. Gestin, President, International Division
Behzad Khosravi, VP, Global Quality

NO. OF EMPLOYEES: 14,000

GLOBAL HEADQUARTERS: St. Paul, Minn.

Perhaps with a gift for understatement, Daniel Starks, president CEO and chairman of St. Jude Medical, wrote to shareholders at the end of the fiscal year noting, “2009 was not without its challenges,”
He continued: “Along with other health care companies, St. Jude Medical participated in the discussion of how to best reform healthcare without compromising patient access to new technology. The regulatory environment continued to become more challenging and economic distress impacted many of our global markets.”

That sums up the medical device sector’s year pretty neatly. With that kind of environment, turning profits and innovating would seem to be mutually exclusive. Not in St. Jude’s case, it appears.
Net sales for the St. Paul, Minn.-based firm were $4.68 billion compared with $4.36 billion in 2008, an increase of 7 percent. Foreign currency translation comparisons decreased full-year 2009 sales by about $99 million. On a currency neutral basis, net sales grew 10 percent compared with the prior year. For the full-year 2009, reported net earnings were $777 million, or $2.26 per share, up from $353 million in 2008.

The company, however, was not unaffected by broader economic concerns. St. Jude initiated restructuring efforts that included some layoffs, mainly in sales areas. In August, the company laid off 200 people in sales, service and support positions across the country. Though financial results were solid compared with the financial storm swirling globally, some parts of St. Jude’s performance for the year didn’t meet management’s or Wall Street’s expectations. The result was a little belt tightening.

Sales for the Cardiac Rhythm Management unit, which include implantable cardioverter defibrillator (ICD) and pacemaker products, were $2.77 billion, a 3 percent increase. ICD product sales were $1.58 billion, a 3 percent increase. Total pacemaker sales for 2009 were $1.19 billion, up 2 percent compared with 2008. The CRM division was prolific in 2009 with new product releases and approvals. The company received U.S. Food and Drug Administration (FDA) approval and European CE Mark for the industry’s first pacemakers with wireless telemetry from implant to follow-up, the Accent RF pacemaker and the Anthem RF CRT-P (cardiac resynchronization therapy pacemaker). St. Jude also received FDA approval of the Promote Plus CRT-D (cardiac resynchronization therapy defibrillator) and Current Plus ICD (implantable cardioverter defibrillator), with features allowing physicians to customize therapy for individual patients. The FDA also gave the nod to St. Jude’s SJ4 connector, which the company maintains is the first simplified single-connection system between high-voltage devices and the wires that connect the device to a patient’s heart. The benefits include reduced procedure time and fewer leads implanted in the chest cavity. In addition, the company also received European approval of the industry’s first quadripolar pacing system for CRT-Ds, offering physicians multiple pacing features for their heart failure patients, without having to surgically reposition the lead. Early in the year, the Japanese Ministry of Health, Labour and Welfare, in addition to reimbursement approval, okayed clinical use of St. Jude’s Atlas II ICD, a device used to treat patients with potentially lethal abnormal heart rhythms.

Atrial Fibrillation (AF) product sales were $628 million, an increase of 15%. In 2009, St. Jude received European approval and FDA clearance to market its EnSite Velocity Cardiac Mapping System, which is cardiac navigation and visualization technology. According to St. Jude, the system’s advanced design lets physicians efficiently diagnose and formulate a strategy to treat abnormal heart rhythms.

Neuromodulation product sales for the company’s Advanced Neuromodulation Systems—or ANS—division were $331 million, up 30 percent. This level of growth was fueled by strong clinician demand for the Eon Mini neurostimulator, which company officials claim is the world’s smallest, longest-lasting rechargeable spinal cord stimulator for chronic pain. The spinal cord stimulation market segment is an estimated $1 billion and growing approximately 15 percent per year. During 2009, St. Jude launched its first products in the estimated $360 million deep brain stimulationmarket. The Brio neurostimulator was approved in Europe for treating patients with Parkinson’s disease. In Australia, the Libra and Libra XP deep brain stimulation systems also were approved for the treatment of Parkinson’s disease. More than 60,000 patients in 35 countries have been implanted with St. Jude Medical neurostimulation systems.

For the company’s Cardiovascular division, sales for 2009 were $953 million, up 11 percent. Sales of vascular closure products were $381 million, up 4 percent. Total heart valve product sales were $323 million, flat when compared with 2008. Management said the acquisition of Radi Medical Systems in late 2008 “provided a catalyst” for accelerated growth of the firm’s cardiovascular business in 2009, with technology to measure fractional flow reserve, an index that identifies which coronary artery lesions are ischemic and are blocking blood flow to the heart.

For 2010, St. Jude continued is rapid release of new technology, and through the first quarter of fiscal 2010 reported double-digit sales growth (11 percent to $1.26 billion).

$4.3 Billion
NO. OF EMPLOYEES: 14,000

When Daniel J. Starks first looked back at his company’s 2008 performance earlier this year, he was reminded of an ancient Chinese curse: May you live in interesting times.

With unemployment rates and gas prices rising astronomically amid a global economy nearly destroyed by Wall Street’s historic meltdown, 2008 certainly epitomized the phrase “interesting times.”

What made those times even more interesting at St. Jude Medical Inc. was the fact that 2008 (particularly the fourth quarter) turned out not to be a curse at all. The company steadily increased its

St. Jude Medical’s Eon Mini Rechargeable IPG System. Photo courtesy of St. Jude Medical.

$3.8 Billion
NO. OF EMPLOYEES: 12,000

St. Jude Medical may not top MPO’s  “Top Companies” list in terms of net sales, but it can brag about a different impressive accolade: For the second consecutive year, Fortune magazine recently named the company the top-ranked medical and other precision equipment company. Indeed, reputation is key for any medical device manufacturer, and in spite of all the challenges 2007 brought to all the players in the cardiac rhythm management (CRM) market, St. Jude still managed to raise net sales 14% from $3.3 billion in 2006 to $3.78 billion in 2007 and grow cash flow from operations by 33% (from $648.8 million in 2006 to $865.6 million in 2007). Along its upward climb, the device manufacturer even managed to record fourth-quarter revenues topping $1 billion—a first for the company.

The success story was fueled by investments in new people, products and programs, with approximately 13% of sales allocated to R&D, according to Daniel J. Starks, St. Jude’s chairman, president and CEO. More than 20 new products were introduced in the company’s lines of implantable cardioverter defibrillators (ICDs) and pacemakers alone.

Revenues for the CRM division were $2.37 billion in 2007, a 15% increase from 2006. Among the contributors were new introductions such as Current and Promote, St. Jude’s first radiofrequency wireless devices to treat heart failure and arrhythmias. CRM also saw US and European approvals of the Zephyr pacemaker, which automatically performs standard follow-up testing; US approval of the Merlin.net Patient Care Network, a Web-based remote monitoring system for patient device data; launches of the Atlas+ HF CRT-D and Epic HF CRT-D heart failure devices in Japan; and expansions in the company’s high-voltage leads for heart failure devices.

Although the global ICD market has suffered in recent years after a slew of product recalls, Stark said the company believes the growth rate ultimately will improve in the United States (if not elsewhere), and St. Jude will continue to roll out new ICD products in the future—that strategy focus is bolstered by the knowledge that ICD and pacemaker sales were leading contributors of the company’s double-digit net sales growth in 2007. ICD sales grew nearly 19% to $1.3 billion in 2007, while pacemaker sales grew 11% to approximately $1.06 billion, compared with 2006. US-based ICD sales grew 11% to $887.8 million, and international sales grew nearly 38% to $417.1 million. Pacemaker sales in the United States totaled $507.9 million, a 9% gain from 2006; international sales grew 13% to $555.3 million in 2007.

The Atrial Fibrillation (AF) unit, meanwhile, had revenue increases of 26% to an approximate total of $410.7 million, compared with $325.7 million in 2006. Among the various regulatory approvals for AF technologies used in the diagnosis and treatment of arrhythmias was US and European clearance for St. Jude’s EnSite System Version 7 (which later was followed by approval in both regions for the EnSite Fusion Registration Module) used during electrophysiology procedures.

Neuromodulation is another area showing great promise for St. Jude Medical in years to come, and the company reported that its sales force additions and expanded geographic footprint led to increased sales for its Advanced Neuromodulation Systems division, with revenue growth of 17% to $209.9 million for 2007. Some of the notable introductions included enhancements to the Eon Neurostimulation System with NeuroDynamix technology, which was integrated with Rapid Programmer 3.1 to provide customized, targeted pain coverage; the company also received FDA approval for the Lamitrode Tripole 16C paddle leads for low-back pain. A large focus for the Neuromodular group moving forward will be its clinical trial evaluating deep brain stimulation for the treatment of depression; other trials also are being held to evaluate this technology for Parkinson’s disease, essential tremor and migraines, among other indications.

One of the largest changes made in 2007 was St. Jude’s move to combine its cardiac surgery and cardiology businesses into one unit, now known as the Cardiac Division. Sales of cardiovascular products increased nearly 7% to $790.6 million, compared with $741.6 million in 2006. One area of interest in this unit is in a new stented pericardial tissue valve, which began US investigational device exemption clinical trials in 2007. This follows on the heels of strong volume growth for St. Jude’s tissue heart valves. Net sales of vascular closure devices grew 4% for the year, due in part to increase sales of the company’s Angio-Seal product.

For all units combined, the United States captured the lion’s share of sales at $2.1 billion, while Europe, Japan and Asia-Pacific markets had total net sales of $937 million, $322 million and $193 million, respectively.

In all these regions, physician customers will see a new side of St. Jude Medical as 2008 progresses. Physicians attending the 88th Annual Meeting of the American Association of Thoracic Surgery in May were the first to see St. Jude’s unveiling of its new corporate brand identity, designed to communicate the company’s mission to develop products and services that put more control into the hands of those who treat cardiac, neurological and chronic pain patients. A new logo fashioned with eight small squares organized into a larger square, with an unaligned ninth square in the middle, is intended to evoke the risks present in any medical procedure (ie, the ninth square) and the company’s commitment to helping doctors control those risks (ie, the surrounding squares).

Branding initiatives aside, new product rollouts will continue to dominate in 2008, as evidenced by clearance in May by the FDA and Europe officials for St. Jude’s CPS Duo stylet and guidewire system, as well as the CPS Courier guidewire—not to mention FDA approval for the Mond stylet. In April, the company also announced an agreement to acquire EP MedSystems, Inc., a provider of CRM and AF products, for $92.1 million.

Indeed, the company is on a roll, with the first quarter of 2008 surpassing the $1 billion mark for the second consecutive quarter. With total net sales of $1.01 billion for the quarter, sales increased 14% compared with the same quarter in 2007. CRM products increased 15% compared with a year ago, while ICD, pacemaker, AF, and neuromodulation sales grew 20%, 10%, 28% and 8%, respectively.

$3.3 Billion
No. of Employees: 11,000

St. Jude Medical continued its growth in 2006, besting 2005’s sales results by 13%. The St. Paul, MN-based manufacturer of cardiac and neuromodulation devices reported net sales of $3.3 billion for 2006 compared to $2.9 billion for the prior fiscal year. Net earnings for 2006 were $548 million, a significant increase compared to $393 million in 2005.

Despite recent increased scrutiny of implantable cardioverter defibrillator (ICD) devices by the FDA and in the press, St. Jude’s growth in 2006 continued to be fueled by its successful Cardiac Rhythm Management (CRM) division. The market for ICDs has slipped during the past few years after high-profile industry recalls, though analysts have predicted a rebound for 2007.

The CRM division accounted for roughly $2 billion—or 62%—of St. Jude’s total sales. Results for CRM—which includes ICD and pacemaker products—represented a 7% improvement in 2006 compared to 2005. St. Jude’s ICDs and pacemaker products grew 9% and 4% in net sales, respectively, for 2006. ICD product sales were $1.1 billion for 2006, while pacemakers were $956 million.

St. Jude now claims the No. 2 market share position for CRM products, behind market-leader Medtronic, following the purchase of Guidant by Boston Scientific. During an analyst meeting in February this year, Mike Coyle, CRM division president, predicted the ICD market would return to growth and that St. Jude would continue to gain market share. He also called the company’s performance “solid” in 2006 despite “difficult market conditions.”

St. Jude expects pacemaker market growth of 2% to 4% in 2007, in addition to 3% to 9% ICD market growth. Beginning in 2008, according to figures presented by Coyle at the meeting, the global ICD market should be capable of sustaining 10% to 15% growth over the balance of the decade, based on international market expansion, continued penetration in the United States as a primary prevention tool and expanding indications for ICD therapy globally, among others.

St. Jude’s three other divisions—Atrial Fibrillation, Neuromodulation and Cardiovascular—also reported sales growth. Atrial Fibrillation experienced a 28% increase to $326 million for 2006 compared to 2005. The company’s Advanced Neuromodulation Systems unit, which St. Jude acquired in 2005 for $1.3 billion, reported a 17% increase in sales to $179 million. The company’s Cardiac Surgery and Cardiology divisions—combined into a singular Cardiovascular Division at the beginning of this year—reported $741 million in product sales, a 4% increase compared to 2005. The division includes St. Jude’s line of vascular closure devices and heart valve products.

“Our cardiology and cardiac surgery businesses will be stronger together,” explained CEO Daniel Starks, adding that streamlining the businesses would allow the companies to take advantages of savings, boost operating efficiencies and invest more in research and development. “The creation of a new Cardiovascular division, together with the expansion of our sales force and recent new product introductions, are part of a comprehensive program to position St. Jude Medical to deliver a minimum 15% growth in 2007 and beyond,” Starks added.

In 2006, the company released more than 20 new products, calling it one of the most successful periods for new product releases in their history. Most notably, the FDA cleared or approved:

• Angio-Seal VIP, the next generation of the company’s vascular closure device

• Merlin Patient Care System, a universal programmer for ICDs and pacemakers

• Atlas II ICD and the Atlas II HF CRT-D (cardiac resynchronization therapy defibrillator)

• EnSite System 6 Software for Cardiac Mapping and Navigation, for 3-D cardiac models during an electrophysiology procedure. Physicians use the models to collect information about the heart’s electrical activity and assist in diagnosing and treating many arrhythmias, including atrial fibrillation

Company officials are planning on that many or more launches for this year. Most recently, St. Jude received FDA approval for the Current ICD and Promote CRT-D, the company’s newest devices for treating patients with potentially lethal heart arrhythmias and heart failure. They are the first devices to be built on the company’s new consolidated hardware and software platform to support implantable cardiac devices.

Financially, fiscal 2007 already has started with double-digit growth. For the first quarter, ended April 17, St. Jude reported $887 million in net sales, an increase of 13%. ICD product sales ($302 million) for the first quarter of 2007 increased 15% compared to the same period last year, while pacemaker sales ($247 million) grew 12%. Sales of atrial fibrillation products continued to grow at impressive rates—up 26%. Early this year, St. Jude also initiated a repurchase program of up to $1 billion in common stock.

“The investments we made in new people, new products and new programs in 2006 already are beginning to favorably impact our results,” Starks said. “Over 75% of our revenue grew at double-digit rates during the quarter.”

$2.9 Billion ($41.3B Total)
No. of Employees: 10,000

St. Jude Medical, a manufacturer of cardiac and neuromodulation devices, had an extremely enviable 2005, with the largest improvement in sales seen by any of the companies on this list. With a robust 27% increase in sales, which reached $2.9 billion (compared with $2.3 billion in 2004), the company was on a major winning streak.

Nearly three quarters (73%) of that growth achieved (approximately $451 million) was attributed to the Cardiac Rhythm Management (CRM) division, which contributed $1 billion in sales from its implantable cardioverter defibrillators (ICDs) alone—marking an impressive 72% gain over 2004. With only very few other major players in the ICD market, St. Jude expects the division to grow an additional 20% over the next few years, aided by the launch of an estimated 20 new products in 2006.

Acquisitions over the course of 2005 played a pivotal role in St. Jude’s success. Believing that providing advanced atrial fibrillation products to electrophysiologists would help increase ICD sales, the company’s Atrial Fibrillation Division acquired Endocardial Solutions, Inc., a St. Paul, MN-based manufacturer of diagnostic systems, in January 2005 for $272 million.

Later, in April, St. Jude’s Cardiology Division acquired Maple Grove, MN-based Velocimed, LLC for $74 million. Founded in 2001, the company makes specialty interventional cardiology devices, with the following three product platforms: the Premere patent foramen ovale (PFO) closure system; the Proxis proximal embolic protection device; and the Venture guidewire control catheter for accessing difficult anatomy and crossing chronic total occlusions in interventional catheterization procedures.

With the $1 billion neuromodulation medical device market having experienced historic 20% growth over the last several years, the talk of the town in late 2005 was St. Jude’s Neuromodulation Division move to acquire Advanced Neuromodulation Systems, Inc. (ANS) for $1.3 billion. This purchase is expected to generate future sales from new products for Parkinson’s Disease, migraine headaches, angina and tinnitus. With ANS, the second largest manufacturer of spinal cord stimulation devices, St. Jude is poised to take on the $1 billion, under-penetrated market at full force.

The acquisition strategy appears to be continuing in 2006, as St. Jude paid $50 million in January to acquire Los Angeles, CA-based Savacor, Inc., a manufacturer of devices that help physicians detect and manage symptoms associated with progressive heart failure.

During the company’s spending spree for its acquisitions, the company was benefiting from numerous product approvals and launches. The CRM division saw strong sales for the Altas+ HF and Epic HF cardiac resynchronization therapy defibrillators, as well as the launch of St. Jude Medical’s first ICDs in Japan. FDA approval was also granted for the expanded capabilities of the Housecall Plus ICD remote monitoring system and the Frontier II low-voltage device for cardiac resynchronization therapy pacing. In addition, other launches included the QuickSite Bipolar CRT lead (United States and Europe) and the IsoFlex P (polyurethane) pacing lead. Most recently, St. Jude received European CE Mark approval for the Epic II ICD and the Epic II HF CRT-D.

St. Jude’s Atrial Fibrillation Division achieved several milestones in 2005, including a limited launch of the Epicor Cardiac Ablation system. Also introduced to the market were the Ensite System Version 5.1 and the Ensite Verismo Segmentation Tool, as well as the high-power IBI-1500T6 Cardiac Ablation Generator.

The Cardiac Surgery Division strengthened its tissue and valve repair product lines with the SJMBiocor stented tissue valve and expects the launch to bolster growth of the stented valve business in 2006 and beyond.

St. Jude’s numbers have been slightly tempered by ongoing litigation involving heart valves coated with Silzone, a coating that has lead to a small (but significant) increase in the incidence of explant due to paravalvular leak. As of February this year, 12 individual cases were pending in federal courts, with plaintiffs seeking damages of up to $120.5 million. Additionally, 24 suits involving 32 patients were filed in individual states.

Overall, with the success of numerous product launches and an upper management structure that has remained unchanged, St. Jude Medical is on track to experience additional growth. For the first quarter of 2006, the company already increased net sales by 18%, reaching $784 million versus $664 million last year. However, unfavorable foreign currency translation comparisons decreased those sales by about $22 million. ICD, atrial fibrillation and neuromodulation segments experienced the largest percentages of growth, with double-digit percentages of 27%, 25% and 31%, respectively.