Boston Scientific Corp.’s (NYSE:BSX) cardiac rhythm management unit might be in a more pronounced slump than initially thought. Regulatory documents show that the company’s CRM business lost some significant ground during the first quarter.
The Natick, Mass.-based medical device maker reported April 20 that sales for its CRM division, which makes pacemakers and implantable defibrillators, jumped 4 percent to $559 million during the first three months of 2011. But a closer look at the numbers reveals that BSX benefited more from a favorable comparison than a strong performance.
Near the end of first quarter of 2010, Boston Scientific abruptly stopped all shipments and and pulled field inventory of its implantable cardioverter defibrillators and cardiac resynchronization therapy defibrillators, after discovering that it missed a pair of FDA filings. The move cost the company an estimated $72 million in sales during Q1 2010, according to a regulatory filing, not to mention forcing BSX to cede precious market share to competitors Medtronic (NYSE:MDT) and St. Jude Medical (NYSE:STJ).
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So a more accurate comp for Boston Scientific’s Q1 2010 CRM sales is not $538 million but $610 million. Compared with that figure, Q1 2011 CRM sales were off by about 8.4 percent.
And that decline, in turn, might have been a key driver behind BSX’s decision to take a $697 million impairment on goodwill charge during the quarter, rather than the official version: a general softening of the CRM market.
“We believe physician reaction to JAMA study results in early January and the DOJ and local inquiries into ICD implant appropriateness of use is contributing but, we don’t believe they will be long-lasting,” BoSci CEO Ray Elliott said during an earnings call with analysts. “We have taken U.S. CRM goodwill write-down predominantly as a result of our future view of the market in its entirety, including all the various players.”
But one of Boston Scientific’s chief rivals, St. Jude, fluffed off the JAMA study as having “little impact” on its own CRM sales. The St. Paul, Minn.-based BSX rival reported a 9 percent uptick in its CRM business during the same quarter.
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“When you look closely at the percent of the available population that is potentially impacted by the JAMA article, it amounted to just a very small percent of the total opportunity and really was not material on a total global basis when we look at the anticipated growth rate of the global CRM market,” STJ CEO Daniel Starks said during the company’s earnings call.
The CRM industry will get a truer measure of the study’ effects later in May, when Medtronic reports its earnings for the first three months of 2011. Should the Fridley, Minn.-based giant boast robust CRM sales, BSX’s claim of market softness may turn out to be a red herring aimed at concealing weakness in one of its bread-and-butter businesses. CRM sales make up just under a third of Boston Scientific’s total revenues, coming in at about $2.1 billion a year.
In the meantime, BSX officials have admitted that CRM sales domestically will be down by single-digit percentage points in 2011 and are pointing up such positive signs as a recent uptick for its drug-eluting stent business — with Elliott even taking a few shots at rival product lines.
During an investors conference in Boston earlier in the week, Elliott took a few pointed shots at St. Jude’s and Medtronic’s CRM.
“Protecta is a catch-up product,” Elliot said about MDT’s implantable cardioverter-defibrillator. “We’ve had that technology since 2008. I know Medtronic wouldn’t agree, but they’d be wrong.”
The feisty Elliot then fired a round across St. Jude’s bow, calling that company’s new Quartert quadripolar left ventricular pacing lead “99 percent hype.”
“There’s been a massive amount of curb appeal on the [Quartet], but it’s really 99 percent hype. It’s as simple as that,” he said.
The BSX push to shore up CRM took a somewhat rare turn this week with a warranty program for its CRT-D devices and leads in the event of chronic phrenic nerve stimulation. PNS occurs when a misplaced or loose lead stimulates the phrenic nerve, which controls the diaphragm. Chronic PNS may result in the need for a second surgery to replace the lead location.
“Under the program, implanting centers in the U.S. can qualify for a full refund if they have to replace a Boston Scientific Cognis CRT-D device, attached to any Boston Scientific bipolar left ventricular lead, with a competitive device due to unmanageable PNS within six months post-implant,” said cardiology, rhythm and vascular group president Hank Kucheman. “With this warranty program, we are firmly standing behind the performance of our CRT-D devices and LV lead portfolio to ensure patients get the heart failure therapy they need without complications related to phrenic nerve stimulation.”
In announcing the program, BSX took another shot at St. Jude’s Quartet, citing a recent study showing that its bipolar CRT system successfully avoided PNS without repositioning 95 percent of the time “during the acute implant procedure,” while the quadripolar lead boasted a rate of between 89 and 95 percent of the time. The data was taken from BSX’s Election trial, recently published in the journal Europace.
The Massachusetts Medical Devices Journal is the online journal of the medical devices industry in the Commonwealth and New England, providing day-to-day coverage of the devices that save lives, the people behind them, and the burgeoning trends and developments within the industry.
