Devices & Diagnostics

What sluggish ICD market? St. Jude Medical Inc. bucks the trend

It’s been a while since we could get excited about implantable cardioverter defibrillators (ICDs), the watch-sized devices that shock an irregular heart back into rhythm. The device that helped launched the dominance of Minnesota’s medical device industry barely registers a yawn today. ICDs are what we call a “mature” industry, growing around 4 to 6 […]

It’s been a while since we could get excited about implantable cardioverter defibrillators (ICDs), the watch-sized devices that shock an irregular heart back into rhythm.

The device that helped launched the dominance of Minnesota’s medical device industry barely registers a yawn today. ICDs are what we call a “mature” industry, growing around 4 to 6 percent a year.

That’s why companies like Medtronic Inc. (NYSE: MDT) and Boston Scientific Corp. (NYSE: BSX) plow significant resources into fast-growing products like heart valves, deep brain stimulations and insulin pumps.

So what in tarnation is going on at St. Jude Medical Inc. (NYSE: STJ)? The company, based in Little Canada, Minnesota, said ICDs sales jumped an eye-popping 18 percent in the second quarter, following a 15 percent leap in the first quarter. St. Jude is generating ICDs growth that’s about three to six times the market rate.

By comparison, Medtronic generated a 6.2 percent gain in ICDs sales for its recently completed fiscal 2010. BSX said second-quarter ICDs sales fell 24 percent, partly due to a temporary suspension of global ICDs shipments.

St. Jude did pick up some sales from BSX’s snafu. Yes, the company is a lot smaller than its rivals so it has a lot more room to grow.

But St. Jude estimates only 3.3 percent of its total global ICDs sales came from BSX’s problems. And St. Jude is not exactly a startup, either: With nearly $5 billion in annual sales, the company recently joined the elite Fortune 500 list at number 445.

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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.

How to explain St. Jude’s explosive uptick? Well, there’s the old-fashioned reason: The company is selling innovative products that customers want to buy.

In a conference call with analysts last week, CEO Dan Starks said its new Unify and Fortify ICDs, equipped with a smaller circuit design and more advanced battery technology, made up more than 50 percent of total ICDs sales in the United States in June, an “unprecedented” feat and a good leading indicator for the remainder of the year, he said.

Unify and Fortify, approved by the Food and Drug Administration in May, certainly appeared to supercharge domestic ICDs sales in the second quarter. U.S. sales jumped nearly 7 percent to $300 million from $281 million in the first quarter, while international sales remained flat at $171 million.

Despite St. Jude’s performance, Ross Meisner, managing partner at Dymedex Consulting in St. Paul, says the long-term prospects for ICDs remains a mature mid single-digit growth rate. Sometimes, you get “quarterly fluctuations,” he said.

Starks certainly doesn’t see it that way. During the conference call, Starks was quick to note that St. Jude’s performance was not a market fluke, but rather the result of innovation.

“I don’t think we have had such a rich technology era as we have now,” he said. “It’s about the value of our technology advantage. … We have done a good job in being proactive enough to position us to be a winner in this current economic environment. We’ve offered some good evidence St. Jude has been an absolute winner.”

Starks said he expects ICDs sales to continue to surge for the remainder of the year and beyond, especially as patients need to swap out their ICDs for newer models.

By contrast, Medtronic and Boston Scientific both recently combined cardiac rhythm management, which includes pacemakers and ICDs, with faster growing cardiovascular units like atrial fibrillation and peripheral stents.

The combined businesses will “really help to actively drive, if you will, technology synergy or drive operating leverage to be able to coordinate services in front of the customer,” Medtronic CEO Bill Hawkins told investors at the Goldman Sachs Healthcare Conference last month.

In other words, CRM’s slow growth no longer justifies operating it as a separate business. Synergies and efficiency are the name of the game now as Medtronic and BSX  try to sell a bunch of cardio-related products to hospitals through one sales channel.

Something tells me that St. Jude is in no rush to phase out CRM as a stand-alone entity. With ICDs sales  growing at 15 percent or more a quarter, why would it?