Boston Scientific, Medtronic Shares Drop

Shares of implantable defibrillator makers St. Jude Medical Inc., Medtronic Inc. and Boston Scientific Corp. have fallen amid concerns the market for the heart-rhythm devices may not rebound from 2005 troubles as fast as expected.
    Talks with doctors at last week’s Heart Rhythm Society annual meeting in Boston suggest the market for implantable cardioverter defibrillators, or ICDS, will regain a 15% growth pace, Deutsche analyst Tao Levy said. But there is concern it won’t happen until next year, he said.
    “The majority of discussions indicate that it will take longer than expected for the market growth to resume a normalized pattern,” Levy said in a recently issue research note.
    The ICD market was hurt last year by major product recalls at Medtronic and Boston Scientific. The device troubles kept doctors busy replacing devices rather than implanting new ones, and created negative sentiment among patients.
    The negative sentiment continues to weigh on market growth, as do signs that doctors “may have over-implanted” newer, more expensive defibrillators in recent years, Levy said. Also, careful Medicare scrutiny has doctors choosing less expensive “single-chamber” ICDs rather than more expensive “duel-chamber” devices, Levy said.
    Deutsche Bank lowered its 2006 defibrillator market growth outlook to 7% from a prior 12% growth forecast, and lowered its 2007 growth outlook to 13% from an earlier 19% forecast.
    St. Jude has “greater exposure to a protracted ICD recovery and premium valuation,” Levy said.
    The company has said it expects the ICD market to continue growing as much as 20% a year in coming years, given the large pool of people with heart troubles, but that it sees a slower growth pace this year.
    St. Jude estimated last month the defibrillator market grew just 5% to 7% in the first quarter, and projected the same growth rate for the second quarter. The company then expects 11% to 13% market expansion in the second half of the year.
    Boston Scientific spokesman Paul Donovan said the company has a long-term focus and is “very optimistic” about the long-term potential of its new heart rhythm business.
    The Boston meeting didn’t completely sour the sentiment on ICD makers. In a research note, William Blair & Co. analyst Ben Andrew reiterated his outperform ratings on St. Jude and Medtronic, and he said “we believe a second-half recovery of the ICD market is on track.”
    According to Andrew, “the ICD market remains one of the most appealing in medical technology with only 15 percent of patients indicated for a device receiving one.” Also, more than 1,000 people in the U.S. die each day from sudden cardiac death, and the vast majority of those deaths could have been prevented with an implantable defibrillator, Andrew said.