07.29.15
$5.6 Billion
KEY EXECUTIVES:
Daniel J. Starks, Chairman, President & CEO
John C. Heinmiller, Exec. VP
Michael T. Rousseau, Chief Operating Officer
Eric S. Fain, M.D., Group President
Joel D. Becker, President, Americas Division
Denis M. Gestin, President, International Division
Scott P. Thome, VP, Global Operations and Supply Chain
Jeffry A. Fecho, VP, Global Quality
Mark W. Murphy, VP of Information Technology & Chief Information Officer
NO. OF EMPLOYEES: 16,000
GLOBAL HEADQUARTERS: St. Paul, Minn.
St. Jude Medical takes innovation seriously. In a year that showed a small rise in operating profits for the first time in three years—$1.15 billion in 2014, while 2012 and 2013 remained static at $1.1 billion—the company also spent the most it has on research and development in the past five years. The $692 million was well spent, however, CEO Daniel J. Starks pointed out: “…[I]nnovation is broader than delivering the next breakthrough product. It is about partnering with physicians, hospitals, payers, patients and our communities to challenge conventional thinking and create medical solutions that save and improve millions of lives worldwide—while reducing healthcare costs for all.”
According to Starks, fiscal 2014 was the year the company’s vision of “One St. Jude Medical” started to become a reality. Prior to 2012, the company operated in a highly decentralized environment characterized by six divisions organized according to priorities of different physician specialty groups or by geography. In 2012, reorganization began as part of an effort to anticipate and offset the medical device excise tax; the centralization initiatives were completed last year.
The year started with an aggressive push to seal the deal on “One St. Jude Medical.” Promotions and personnel changes were implemented to make sure the company stayed on track to finish 2014 with the reorganization solidly in place. Michael Rousseau, previously group president of St. Jude Medical, was promoted to chief operating officer. He was charged with overseeing sales, marketing, quality, technology development, operations and supply chain on a global basis. Eric Fain, previously president of the Implantable Electronic Systems Division (IESD), was promoted to group president of St. Jude Medical and made responsible for all clinical, regulatory and research and development activities across the company. Fain led the integration of IESD and the Cardiovascular and Ablation Technologies Division (CATD) into one cohesive St. Jude Medical research and development organization as part of the company’s innovation focus. The company also announced three new officers: Scott Thome was promoted to the newly created position of vice president, global operations and supply chain; Lisa Andrade was promoted to chief marketing officer; and Jeff Dallager was promoted to vice president, corporate controller.
“This new structure makes us more agile and allows us to better leverage our scale, capture R&D synergies and present ourselves more effectively to our customers in an environment of healthcare reform,” Starks said.
Starks credits the reorganization effort for FY14’s performance. For 2014, net sales were $5.62 billion, an increase of 4 percent from the prior year on a constant currency basis. Adjusted earnings per share (EPS) was $3.98 compared to adjusted EPS of $3.76 for 2013. On a constant currency basis, 2014 adjusted EPS increased 9 percent from the prior year.
Part of the grand restructuring plan was the company’s Manufacturing and Supply Chain Optimization Plan. This plan was initiated during 2014 to leverage economies of scale, streamline distribution methods, drive process improvements through “global synergies,” balance plant utilization levels, centralize certain vendor relationships and reduce overall costs. During 2014, the company incurred charges of $32 million related to severance and other termination benefits, fixed assets associated with information technology assets no longer expected to be utilized and distributor and other contract termination costs. The company currently expects to incur approximately $45 million to complete the plan during 2015, but may incur additional charges in the future.
Strategic Moves
St. Jude Medical made two key acquisitions in 2014: CardioMEMS Inc. and NeuroTherm Inc., based in Atklanta, Ga. and Wilmington, Mass., respectively.
In September 2010, St. Jude Medical acquired a 19 percent stake in CardioMEMS for $60 million, with an exclusive option to buy the remaining 81 percent of the company for $375 million. Following the U.S. Food and Drug Administration (FDA) clearance of the CardioMEMS HF (heart failure) system, St. Jude Medical hopped to and gobbled up the company post haste.
According to St. Jude Medical, the HF system is the first and only FDA-approved heart failure monitoring device that has been proven to significantly reduce heart failure hospital admissions and improve quality of life in NYHA (New York Heart Assocation) Class III patients. The CardioMEMS HF System allows patients to take daily pulmonary artery (PA) pressure readings from the comfort of their home. PA pressure is the ideal measurement for managing heart failure, but reportedly, until now, could only be performed in the hospital. By monitoring PA pressure, doctors can detect falling pressure changes within the heart nearly a month before the current standard of weight and blood pressure changes.
The HF system is now the cornerstone of St. Jude Medical’s heart failure management portfolio.
“The CardioMEMS HF system is a game-changing technology that we believe could be one of the most exciting innovations we have ever launched,” Starks said. “However, we recognize this is a new market that requires time to develop. We have the right product at the right time to help improve patient outcomes, reduce the cost of healthcare, and help our customers better manage some of their most complex patients from a care perspective. Our early commercialization results reflect that customers recognize the value of integrating this technology into their heart failure practice … Because of its proven clinical evidence and value to patients and healthcare systems, we view the CardioMEMS HF system as our number one growth driver in 2015.”
The $200 million NeuroTherm acquisition bolstered St. Jude Medical’s chronic pain portfolio with the addition of radiofrequency ablation (RFA) for the treatment of spinal pain, a therapy that provides treatment for patients earlier in the chronic pain care continuum. Together with its spinal cord stimulation (SCS) therapy options, the RFA therapy creates a more complete range of chronic pain solutions.
“NeuroTherm’s radiofrequency ablation products are an ideal complement to St. Jude Medical’s chronic pain portfolio, providing our global sales force with additional interventional pain therapies that offer potential relief to patients earlier in the chronic pain continuum,” said Chief Operating Officer Michael T. Rousseau. “As the only medical device manufacturer with both RFA and spinal cord stimulation, this acquisition will enable us to offer more treatment options to patients worldwide who suffer from the debilitating effects of chronic pain.”
NeuroTherm was only part of a larger push to expand St. Jude Medical’s reach in the chronic pain market. In 2014, the company leveraged a number of products to fuel growth within its chronic pain programs. The Prodigy Chronic Pain System, which delivers Burst electrical stimulation (exactly what it sounds like—delivering electric pulses in bursts) as well as conventional tonic stimulation for a comprehensive approach to effective pain management, earned CE mark approval in March. For U.S. chronic pain patients, the Protégé upgradeable SCS system is the only implantable pulse generator (IPG) on the market that allows therapy upgrades to be made via software updates, the company claims. With Protégé, chronic pain patients can gain immediate access to new market-approved technology without surgical replacement of their IPG.
St. Jude Medical’s 2013 acquisition of Endosense SA and its Tacticath Quartz line of contact force sensing ablation catheters started to pay off in 2014. The strategy was to develop a state-of-the-art ablation catheter program; October 2014 saw FDA approval of the Tacticath Quartz line, enabling the company to launch the catheters states side. Endosense already had secured CE mark for the devices in 2012. In July 2014, St. Jude Medical received CE mark approval of its FlexAbility ablation catheter (FDA approval was received in January 2015). The approval further strengthened the company’s fast-growing ablation technology portfolio, adding a unique catheter for non-contact force cases. The FlexAbility ablation catheter was developed with feedback from leaders in the electrophysiology community and combines a bendable irrigated catheter tip with an advanced handle and next-generation shaft design. The added flexibility of the tip, in addition to the catheter’s ability to maneuver easily and reliably in challenging cases, was designed to enhance the quality of care for patients who require ablation procedures. Alongside the Tacticath Quartz irrigated ablation catheter, the company now could offer two different solutions designed to improve outcomes, efficiency and productivity in electrophysiology labs.
In summary, these strategic moves, both in 2014 and those made before that brought the chickens home to roost in 2014, had the following effects: The increase in 2014 net sales was primarily driven by the company’s atrial fibrillation products, which benefited from increased electrophysiology catheter ablation procedures and increased sales volumes associated with the company’s intracardiac echocardiography imaging product offerings. During 2014, it also benefited from incremental net sales associated with the NeuroTherm acquisition and the HF System FDA approval. Additionally, compared to 2013, the company continued to experience incremental net sales benefits from the 2013 acquisitions of Endosense and Nanostim and sales volume increases associated with the Spinal Modulation Axium Neurostimulator System, a targeted therapy for chronic pain. Increased sales volumes associated with the company’s fractional flow reserve technology products and optical coherence tomography imaging products, Trifecta pericardial stented tissue valve, transcatheter aortic heart valves and Amplatzer occluder products also continued to benefit 2014 net sales compared to 2013. Partially offsetting these net sales increases, the company experienced a 2014 net sales decline in its other neuromodulation chronic pain products—the third party vascular products distributed in Japan and its mechanical heart valves—due to a market preference for tissue valves, compared to 2013. Net sales in Japan dropped 7.2 percent.
The Heart of The Matter
Cardiac devices remain the cornerstone of St. Jude Medical’s business. With the addition of the blockbuster CardioMEMS HF system, the company has only bolstered itself as a force to be reckoned with in the cardiac technology space. ICD systems brought in $1.75 billion in sales revenue in 2014; pacemakers brought in $1.05 billion; and atrial fibrillation products brought in $1.04 billion, a significant increase over 2013 at 9 percent. Vascular products brought $709 million in net sales, and structural heart products $639 million.
Neuromodulation sales in 2014 saw a 2.6 percent increase over the previous year, bringing in $437 million.
Solving Problems
Importantly, St. Jude Medical resolved two FDA warning letters in 2014 and put them in the past.
One letter dated back to 2009, when the FDA issued a Form 483 to the company regarding its Plano, Texas, facility. The form identified certain observed non-conformities with Current Good Manufacturing Practices. Following the incident, the company’s Neuromodulation division provided written responses to the FDA elaborating certain corrective actions. St. Jude Medical acquired the Plano facility in 2005 for $1.3 billion. Prior to the acquisition, the facility was operated by Advanced Neuromodulation Systems, which according to Zacks analysts, was the second-largest supplier of devices that use electrotherapy to treat chronic pain and nerve disorders.
The company also resolved a 2013 letter concerning its Sylmar, Calif., plant that makes the Durata and Riata ST Optim cardiac leads. “We take our responsibility as a medical device manufacturer very seriously,” said Starks. “We are encouraged by the resolution of the FDA’s warning letter and will continue to work to ensure the highest standards are met across our manufacturing facilities.”
KEY EXECUTIVES:
Daniel J. Starks, Chairman, President & CEO
John C. Heinmiller, Exec. VP
Michael T. Rousseau, Chief Operating Officer
Eric S. Fain, M.D., Group President
Joel D. Becker, President, Americas Division
Denis M. Gestin, President, International Division
Scott P. Thome, VP, Global Operations and Supply Chain
Jeffry A. Fecho, VP, Global Quality
Mark W. Murphy, VP of Information Technology & Chief Information Officer
NO. OF EMPLOYEES: 16,000
GLOBAL HEADQUARTERS: St. Paul, Minn.
St. Jude Medical takes innovation seriously. In a year that showed a small rise in operating profits for the first time in three years—$1.15 billion in 2014, while 2012 and 2013 remained static at $1.1 billion—the company also spent the most it has on research and development in the past five years. The $692 million was well spent, however, CEO Daniel J. Starks pointed out: “…[I]nnovation is broader than delivering the next breakthrough product. It is about partnering with physicians, hospitals, payers, patients and our communities to challenge conventional thinking and create medical solutions that save and improve millions of lives worldwide—while reducing healthcare costs for all.”
According to Starks, fiscal 2014 was the year the company’s vision of “One St. Jude Medical” started to become a reality. Prior to 2012, the company operated in a highly decentralized environment characterized by six divisions organized according to priorities of different physician specialty groups or by geography. In 2012, reorganization began as part of an effort to anticipate and offset the medical device excise tax; the centralization initiatives were completed last year.
The year started with an aggressive push to seal the deal on “One St. Jude Medical.” Promotions and personnel changes were implemented to make sure the company stayed on track to finish 2014 with the reorganization solidly in place. Michael Rousseau, previously group president of St. Jude Medical, was promoted to chief operating officer. He was charged with overseeing sales, marketing, quality, technology development, operations and supply chain on a global basis. Eric Fain, previously president of the Implantable Electronic Systems Division (IESD), was promoted to group president of St. Jude Medical and made responsible for all clinical, regulatory and research and development activities across the company. Fain led the integration of IESD and the Cardiovascular and Ablation Technologies Division (CATD) into one cohesive St. Jude Medical research and development organization as part of the company’s innovation focus. The company also announced three new officers: Scott Thome was promoted to the newly created position of vice president, global operations and supply chain; Lisa Andrade was promoted to chief marketing officer; and Jeff Dallager was promoted to vice president, corporate controller.
“This new structure makes us more agile and allows us to better leverage our scale, capture R&D synergies and present ourselves more effectively to our customers in an environment of healthcare reform,” Starks said.
Starks credits the reorganization effort for FY14’s performance. For 2014, net sales were $5.62 billion, an increase of 4 percent from the prior year on a constant currency basis. Adjusted earnings per share (EPS) was $3.98 compared to adjusted EPS of $3.76 for 2013. On a constant currency basis, 2014 adjusted EPS increased 9 percent from the prior year.
Part of the grand restructuring plan was the company’s Manufacturing and Supply Chain Optimization Plan. This plan was initiated during 2014 to leverage economies of scale, streamline distribution methods, drive process improvements through “global synergies,” balance plant utilization levels, centralize certain vendor relationships and reduce overall costs. During 2014, the company incurred charges of $32 million related to severance and other termination benefits, fixed assets associated with information technology assets no longer expected to be utilized and distributor and other contract termination costs. The company currently expects to incur approximately $45 million to complete the plan during 2015, but may incur additional charges in the future.
Strategic Moves
St. Jude Medical made two key acquisitions in 2014: CardioMEMS Inc. and NeuroTherm Inc., based in Atklanta, Ga. and Wilmington, Mass., respectively.
In September 2010, St. Jude Medical acquired a 19 percent stake in CardioMEMS for $60 million, with an exclusive option to buy the remaining 81 percent of the company for $375 million. Following the U.S. Food and Drug Administration (FDA) clearance of the CardioMEMS HF (heart failure) system, St. Jude Medical hopped to and gobbled up the company post haste.
According to St. Jude Medical, the HF system is the first and only FDA-approved heart failure monitoring device that has been proven to significantly reduce heart failure hospital admissions and improve quality of life in NYHA (New York Heart Assocation) Class III patients. The CardioMEMS HF System allows patients to take daily pulmonary artery (PA) pressure readings from the comfort of their home. PA pressure is the ideal measurement for managing heart failure, but reportedly, until now, could only be performed in the hospital. By monitoring PA pressure, doctors can detect falling pressure changes within the heart nearly a month before the current standard of weight and blood pressure changes.
The HF system is now the cornerstone of St. Jude Medical’s heart failure management portfolio.
“The CardioMEMS HF system is a game-changing technology that we believe could be one of the most exciting innovations we have ever launched,” Starks said. “However, we recognize this is a new market that requires time to develop. We have the right product at the right time to help improve patient outcomes, reduce the cost of healthcare, and help our customers better manage some of their most complex patients from a care perspective. Our early commercialization results reflect that customers recognize the value of integrating this technology into their heart failure practice … Because of its proven clinical evidence and value to patients and healthcare systems, we view the CardioMEMS HF system as our number one growth driver in 2015.”
The $200 million NeuroTherm acquisition bolstered St. Jude Medical’s chronic pain portfolio with the addition of radiofrequency ablation (RFA) for the treatment of spinal pain, a therapy that provides treatment for patients earlier in the chronic pain care continuum. Together with its spinal cord stimulation (SCS) therapy options, the RFA therapy creates a more complete range of chronic pain solutions.
“NeuroTherm’s radiofrequency ablation products are an ideal complement to St. Jude Medical’s chronic pain portfolio, providing our global sales force with additional interventional pain therapies that offer potential relief to patients earlier in the chronic pain continuum,” said Chief Operating Officer Michael T. Rousseau. “As the only medical device manufacturer with both RFA and spinal cord stimulation, this acquisition will enable us to offer more treatment options to patients worldwide who suffer from the debilitating effects of chronic pain.”
NeuroTherm was only part of a larger push to expand St. Jude Medical’s reach in the chronic pain market. In 2014, the company leveraged a number of products to fuel growth within its chronic pain programs. The Prodigy Chronic Pain System, which delivers Burst electrical stimulation (exactly what it sounds like—delivering electric pulses in bursts) as well as conventional tonic stimulation for a comprehensive approach to effective pain management, earned CE mark approval in March. For U.S. chronic pain patients, the Protégé upgradeable SCS system is the only implantable pulse generator (IPG) on the market that allows therapy upgrades to be made via software updates, the company claims. With Protégé, chronic pain patients can gain immediate access to new market-approved technology without surgical replacement of their IPG.
St. Jude Medical’s 2013 acquisition of Endosense SA and its Tacticath Quartz line of contact force sensing ablation catheters started to pay off in 2014. The strategy was to develop a state-of-the-art ablation catheter program; October 2014 saw FDA approval of the Tacticath Quartz line, enabling the company to launch the catheters states side. Endosense already had secured CE mark for the devices in 2012. In July 2014, St. Jude Medical received CE mark approval of its FlexAbility ablation catheter (FDA approval was received in January 2015). The approval further strengthened the company’s fast-growing ablation technology portfolio, adding a unique catheter for non-contact force cases. The FlexAbility ablation catheter was developed with feedback from leaders in the electrophysiology community and combines a bendable irrigated catheter tip with an advanced handle and next-generation shaft design. The added flexibility of the tip, in addition to the catheter’s ability to maneuver easily and reliably in challenging cases, was designed to enhance the quality of care for patients who require ablation procedures. Alongside the Tacticath Quartz irrigated ablation catheter, the company now could offer two different solutions designed to improve outcomes, efficiency and productivity in electrophysiology labs.
In summary, these strategic moves, both in 2014 and those made before that brought the chickens home to roost in 2014, had the following effects: The increase in 2014 net sales was primarily driven by the company’s atrial fibrillation products, which benefited from increased electrophysiology catheter ablation procedures and increased sales volumes associated with the company’s intracardiac echocardiography imaging product offerings. During 2014, it also benefited from incremental net sales associated with the NeuroTherm acquisition and the HF System FDA approval. Additionally, compared to 2013, the company continued to experience incremental net sales benefits from the 2013 acquisitions of Endosense and Nanostim and sales volume increases associated with the Spinal Modulation Axium Neurostimulator System, a targeted therapy for chronic pain. Increased sales volumes associated with the company’s fractional flow reserve technology products and optical coherence tomography imaging products, Trifecta pericardial stented tissue valve, transcatheter aortic heart valves and Amplatzer occluder products also continued to benefit 2014 net sales compared to 2013. Partially offsetting these net sales increases, the company experienced a 2014 net sales decline in its other neuromodulation chronic pain products—the third party vascular products distributed in Japan and its mechanical heart valves—due to a market preference for tissue valves, compared to 2013. Net sales in Japan dropped 7.2 percent.
The Heart of The Matter
Cardiac devices remain the cornerstone of St. Jude Medical’s business. With the addition of the blockbuster CardioMEMS HF system, the company has only bolstered itself as a force to be reckoned with in the cardiac technology space. ICD systems brought in $1.75 billion in sales revenue in 2014; pacemakers brought in $1.05 billion; and atrial fibrillation products brought in $1.04 billion, a significant increase over 2013 at 9 percent. Vascular products brought $709 million in net sales, and structural heart products $639 million.
Neuromodulation sales in 2014 saw a 2.6 percent increase over the previous year, bringing in $437 million.
Solving Problems
Importantly, St. Jude Medical resolved two FDA warning letters in 2014 and put them in the past.
One letter dated back to 2009, when the FDA issued a Form 483 to the company regarding its Plano, Texas, facility. The form identified certain observed non-conformities with Current Good Manufacturing Practices. Following the incident, the company’s Neuromodulation division provided written responses to the FDA elaborating certain corrective actions. St. Jude Medical acquired the Plano facility in 2005 for $1.3 billion. Prior to the acquisition, the facility was operated by Advanced Neuromodulation Systems, which according to Zacks analysts, was the second-largest supplier of devices that use electrotherapy to treat chronic pain and nerve disorders.
The company also resolved a 2013 letter concerning its Sylmar, Calif., plant that makes the Durata and Riata ST Optim cardiac leads. “We take our responsibility as a medical device manufacturer very seriously,” said Starks. “We are encouraged by the resolution of the FDA’s warning letter and will continue to work to ensure the highest standards are met across our manufacturing facilities.”