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Analysts Predict Robust CRM Sales in 2010

Drug-eluting stents (DES) have long been a growth driver for the U.S. cardiac device sector, providing companies with hefty profits and reshuffling market shares across the industry. As demand for these devices has grown, so has competition among the largest manufacturers of stents, namely Abbott Laboratories, Boston Scientific Corp., Johnson & Johnson, Medtronic Inc. and St. Jude Medical Inc.

The global market for coronary stents is dominated by DES, with growth measuring more than 7 percent (more than twice that of bare metal stents), according to industry data. Last year, DES commanded 60 percent of the typical coronary stent market, though in some countries such as China, the share was significantly larger. Such steady growth has attracted smaller companies to the sector, resulting in fewer proceeds for larger firms and more intense competition for market share.

With progressively smaller slices of the DES market now up for grabs, cardiovascular device manufacturers must develop innovative new products to outmaneuver their competitors and recapture lost revenue. In some cases, companies are finding innovation in emerging therapies such as percutaneous heart valve repair, catheter ablation for atrial fibrillation, computed tomography angiography and nuclear medicine. Other novelties are being found in updates to existing product lines (leads, defibrillators, pacemakers and guide wires).

Such possibilities for innovation in the cardiovascular sector are giving company executives and Wall Street analysts high hopes for 2010. St. Jude Medical executives, for instance, expect the firm’s cardiac rhythm management (CRM) business to grow faster than the market this year. Abbott—bolstered by positive study results for its heart clip device—anticipates double-digit revenue growth in 2010, including a favorable foreign exchange impact between 1 and 2 percent. A more detailed look at the prospects for St. Jude Medical, Abbott and other cardiovascular device manufacturers follows:

St. Jude Medical: Investing in its Future

This St. Paul, Minn.-based device behemoth has always invested heavily in research and development (R&D). But last year, management kicked that expenditure up a notch, spending a record $135.1 million in the final quarter of 2009, according to the company’s fourth-quarter earnings report. Chairman, President and CEO Dan Starks vowed to continue that high level of R&D spending, telling analysts the company would devote at least 12 percent of its sales this year to R&D.

“The benefits of our sustained commitment to R&D should be highly visible during 2010,” he said during a conference call to discuss fourth-quarter earnings. “We expect to launch over 15 new products within our Cardiac Rhythm Management franchise.”

Some of those new products were unveiled last month at the American College of Cardiology Conference in Atlanta, Ga. They include the Engage Introducer, a device that enables doctors to access patients’ hearts through the femoral vein or artery; the EnSite Velocity Cardiac Mapping System, a product designed to help doctors more efficiently diagnose and guide therapy to treat abnormal heart rhythms; the EP-WorkMate Recording System, a workstation that digitizes cardiac signals for diagnosis; pacemakers; an implantable cardiac monitor;and a defibrillation lead connector system.

While software systems and diagnostic products will enable St. Jude to further diversify its product lines, the defibrillator and pacemaker devices will help drive sales, experts said. Jeff Jonas, an analyst with Rye, N.Y.-based Gabelli & Co., predicted sales growth of 8 to 9 percent—well above the company’s own guidance estimate of 6.5 percent (for CRM sales).

St. Jude executives expect the European approval of its Trifecta replacement heart valve to also contribute to sales growth this year. The valve is used to replace aortic valves that are diseased, damaged or malfunctioning. Trifecta, according to company data, is designed to closely match the blood flow of a healthy heart, and is made partly of tissue from the pericardium (the sac surrounding the heart).

While Jonas does not discount the importance of the approval, he estimated the move would add between $10 million and $20 million to the company’s coffers in 2010. “Not really enough to move St. Jude’s needle,” he told Medical Product Outsourcing.

What Jonas and other analysts expect to move St. Jude’s needle this year—at least temporarily—is the revenue it stands to gain from Boston Scientific’s troubles with its implantable cardiac defibrillator (ICD). The Natick, Mass.-based company removed the product from the market in mid-March after revealing that changes to its ICD manufacturing process were not approved by the U.S. Food and Drug Administration (FDA).

Pulling its ICD device from the market has dire consequences for Boston Scientific: Analysts estimate that the company can lose as much as $25 million per week for as long as the product is shelved. While the FDA usually takes 30 days to approve manufacturing process changes, it is possible that approval could take longer. Wells Fargo analysts estimate a 30-day process could cost Boston Scientific $150 million; moreover, for each 30-day period that the company’s ICD is off the market, Boston Scientific loses five market share points to St. Jude and Med-tronic, Wells Fargo analysts said.
“There’s more to this than just the short-term impact of having the ICD off the market for a month or so,” said Jonas. “You have to be a reliable manufacturer or supplier in this business, and this [problem] just gives [Boston Scientific] a real black eye.”

Medtronic: Diversity Through Acquisition

Though it most likely will benefit from Boston Scientific’s oversight, Medtronic is relying on new technologies and acquisitions to gain market share in the cardiovascular sector this year. The Minneapolis, Minn.-based firm won approval last month from an FDA panel of cardiologists for a pacemaker that can be used with magnetic resonance imaging (MRI) scanners.

Patients with pacemakers are generally discouraged from undergoing MRI scans because the radio waves can interfere with the functioning of their device. Support from the panel does not guarantee approval by the FDA, though the agency usually follows the group’s advice. Medtronic executives are optimistic that FDA officials will approve the device in time for a market launch this summer.
In addition to the MRI-compatible pacemaker, Medtronic also is banking on its acquisition of Invatec and two affiliated companies to boost revenue this year. Executives expect the $500 million deal to “accelerate the growth” of Medtronic’s cardiovascular business and increase its competitive position in the $2 billion peripheral vascular market.

The company’s vascular revenue jumped 15 percent to $120 million in the third quarter of fiscal 2010, ended Jan. 29. Cardiovascular revenue grew 28 percent to $722 million, according to third-quarter earnings data.Coronary, structural heart, and endovascular revenue grew 23 percent, 20 percent, and 15 percent, respectively, all on a constant currency basis.

Medtronic’s cardiac rhythm disease management revenue totaled $1.243 billion, a 6 percent increase compared with the third quarter of fiscal 2009. Worldwide ICD revenue was $756 million.

Abbott: XIENCE, Heart Valve Brighten Outlook

Executives boast that the Abbott Park, Ill.-based firm has 10 coronary technologies in its R&D pipeline over the next five years. One of those is the MitraClip, a device designed to improve a leaky heart valve without major surgery. A study released in mid-March concluded that the MitraClip was safer at one month than more intensive, chest-opening surgery. The device, however, did not reduce the leakage problem as much at one year, a finding that drew some questions from the study’s authors.

MitraClip is only sold overseas. Its impact on sales has been minor so far—less than $10 million in overseas MitraClip sales is expected in the first quarter of 2010. Abbott hopes to win FDA approval next year to launch the product in the United States, where it potentially could generate several hundred million dollars in revenue over the next several years. Some analysts have said the company could eventually reap more than $1 billion (worldwide) from the device.

Other new technologies in the works at Abbott are zeroing in on the stent market. New products include the Xience Nano, small vessel DES, Xience Prime (slated for release in the United States in 2012), an ultra-thin metallic DES, next-generation balloons and bioabsorbable DES.