What do you do when the biggest market you play in continues to be weak, hospitals are buying less of your products, Europe, which used to be reliable, is now hobbled under austerity measures, and clinical trials don’t reach end points?
You lay off workers, and a few months later you cut some more.
That is exactly what Minnesota medical device maker St. Jude Medical (NYSE:STJ) has done.
In August, the company announced it was cutting 300 employees in a move that would save roughly $50 million to $60 million a year. And Thursday St. Jude made a regulatory filing in which it revealed it was cutting 500 more people. Only this time, there was no information on how much money would be saved.
The savings from the first round of layoffs were attributed by some analysts as a move to offset the medical device tax that goes into effect in January. But the latest round of cuts seem to reveal that there is more at play here.
Five analysts downgraded the stock last month. And in late October, two clinical studies of the company’s Amplatzer PFO Occluder, designed to close holes in the heart following a stroke, showed that the product could not definitively prove that it reduced the risk of a repeat stroke. Bloomberg News also reported that some analysts expect the U.S. Food and Drug Administration to reject the product’s application.
However, one analyst who downgraded the stock on Monday, believes the data from the RESPECT trial may be enough to get an FDA nod, but developing the market may be challenging. Morgan Stanley analyst David Lewis lowered the projection he had for PFO sales in 2018 from $105 million to $85 million.
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
But the bigger disappointment appears to be St. Jude’s prospects in the exciting therapies of transcatheter aortic valve implantation and renal denervation. Lewis described St. Jude’s Portico transcatheter aortic valve system and its EnligHTN renal denervation system as being “farther behind than we thought.”
Lewis goes on to add:
Portico launch will ramp slowly next year due to a limited range of initial sizes and may stall as Medtronic launches its second-gen device. Clinical differentiation in [renal denervation] is looking more limited and may make driving share challenging considering Medtronic’s commanding lead in data development and commercialization.
Edwards leads the market in transcatheter aortic valve implantation with the only approved device in the U.S. while Medtronic is ahead in the renal denervation space although no products are currently approved in the U.S.]
And like senior research analyst, Thom Gunderson, Lewis also believes that St. Jude is caught in a difficult place because of the week demand in ICDs, part of St. Jude’s biggest business — Cardian Rhythm Management.
“St. Jude derives half of its revenue from the troubled CRM market, which has remained weak for longer than we expected,” Lewis said, in the note downgrading the stock to neutral weight from overweight.
An earlier version of the story incorrectly stated that Edwards Lifesciences is the leader in renal denervation. It also incorrectly identified St. Jude’s Portico product, which is its transcatheter aortic valve implantation product, as the company’s renal denervation product.
