Daniel J. Starks, Chairman, President & CEO
Joel D. Becker, President, United States Division
Frank J. Callaghan, President, Cardiovascular and Ablation Technologies
Kathleen M. Chester, VP, Global Regulatory
Eric S. Fain, M.D., President, Implantable Electronic Systems
Jeff Fecho, VP, Global Quality
Denis M. Gestin, President, International Division
NO. OF EMPLOYEES: 16,000
GLOBAL HEADQUARTERS: St. Paul, Minn.
For St. Paul, Minn.-based St. Jude Medical Inc., it’s probably safe to say that fiscal 2012 (ended Dec. 31) was the year of the lead. Unfortunately … lead not as in “taking the …” but as in “faulty defibrillator …” Throughout 2012, the company battled safety issues with different brands of its lead wires.
Lead wires run between the pulse generator of an implanted device and the heart. In a pacemaker, these leads allow the device to increase the heart rate by delivering small bursts of electric energy to make it beat faster. In an implantable cardioverter defibrillator (ICD), the lead has special coils to allow the device to deliver a high-energy shock and convert dangerous rapid rhythms (ventricular tachycardia or fibrillation) back to a normal rhythm. For both of these functions, leads must be in contact with heart tissue. Most leads pass through a vein under the collarbone that connects to the right side of the heart (right atrium and right ventricle). To remain attached to the heart muscle, most leads have either a small screw or hooks at the end. Within a few months, the body’s natural healing process forms scar tissue along the lead and at its tip, which fastens it even more securely in the patient’s body. Leads usually last longer than device batteries, so leads simply are reconnected to each new pulse generator (battery) at the time of replacement.
St. Jude’s brouhaha started in late 2011 when the U.S. Food and Drug Administration (FDA) issued a Class I recall of St. Jude’s Riata defibrillator leads, which the company had stopped selling in 2010. The company voluntarily sent a letter to doctors on Nov. 28, 2011, informing them that the wires, which are used to connect the devices to the heart, had a higher failure rate than was previously known. According to St. Jude, the wires inside some leads were penetrating the insulation, compromising the device’s integrity. The devices may inappropriately shock some patients and fail to deliver necessary therapy to others, the company said.
The issue quickly escalated early in 2012 when a March issue of HeartRhythm, a publication of the Heart Rhythm Society (a Washington, D.C.-based international organization focused on cardiac pacing and electrophysiology), claimed that Riata leads caused 22 deaths (St. Jude claims the number is only 20). The study, authored by Robert G. Hauser, M.D., was biased, according to St. Jude. The company called for a retraction of the article. The Heart Rhythm Society did not comply, saying the article had undergone expert review before publication.
For St. Jude Medical, it must have seemed as if the problem was snowballing.
Around the same time, the company sent out an advisory letter about its QuickSite and QuickFlex LV leads, indicating that wires used to connect cardiac resynchronization therapy (CRT) devices to the heart occasionally have become exposed on their silicone ends. At the time, St. Jude only confirmed 39 cases of exposure out of 171,000 leads sold globally. The risk posed is that the exposed leads cause an electrical short in the implanted CRT device—there have, however, been no reports of adverse effects or injury caused by lead exposure. While it had nothing to do with the Riata controversy, the timing was not optimal.
Perhaps even more than the faulty wires, at the center of the controversy was Hauser, whom St. Jude accused of being biased toward the company’s competitor, Medtronic Inc. Medtronic makes Quattro Secure, lead wires that perform the same function as the Riata leads. Hauser found that only five deaths were directly caused by Quattro leads, which St. Jude contends is a biased finding. Daniel Starks, CEO of St. Jude, told The New York Times that St. Jude has been “more transparent than [other companies]” about its leads, insinuating that Medtronic has not. This, Starks suggested, simply makes St. Jude look worse than their competitors, and may have affected the study.
Starks also suggested, along with other executives, that Medtronic has begun a “whispering campaign” about its other product, the Durata lead.
Medtronic, for its part, told Medical Product Outsourcing at the time that the accusations from St. Jude are not new.
“From the very beginning of their issues with their leads, St. Jude has been making claims that this is nothing more than a marketing campaign by Medtronic. However, the timeline of events clearly tells a different story,” said Medtronic spokesperson Christopher Garland.
Some experts found that St. Jude has been less than forthcoming about the risk of its products. St. Jude’s advisory letter to physicians in 2010 stated a 0.47 percent chance of Riata wire exposure, while other researchers independent of the company put that number closer to 30 percent. A summer 2011 paper published by physicians in Northern Ireland cited a 15 percent Riata failure rate. That November, St. Jude issued another letter providing “updated estimates of failures” of Riata leads.
“They have at multiple steps underplayed the gravity of the situation,” said Kenneth Ellenbogen, M.D., medical device expert and chairman of the division of cardiology at the Virginia Commonwealth University Pauley Heart Center in Richmond, Va. He sometimes is a consultant for St. Jude and its competitors.
In an attempt to demonstrate transparency while simultaneously revealing what it sees as bias in Hauser’s study, St. Jude independently searched the FDA’s Manufacturer and User Facility Device Experience Database (MAUDE), the device database Hauser used to gather information. The company found 74 Riata lead-related deaths, while Hauser reported finding only 71 (related deaths are different from deaths directly caused by the device). At the same time, St. Jude claims it found 377 Quattro lead-related deaths, while Hauser reported only 62. St. Jude also points out that the comparison between Riata and Quattro leads is an unequal one, considering the two leads are insulated by different materials—Riata leads by silicone and Quattro leads by polyurethane. St. Jude noted that the FDA specifically states on its website that MAUDE is “not intended to be used either to evaluate rates of adverse events or to compare adverse event occurrence rates across devices,” making Hauser’s use of the data, according to the company, inappropriate. Further, the FDA includes a disclaimer that states the reports submitted to the database “[do] not necessarily reflect a conclusion by the party submitting the report or by FDA that the report or information constitutes an admission that the device, or the reporting entity or its employees, caused or contributed to the reportable event.”
Despite these disclaimers, a quick search of the HeartRhythm database showed that it is not uncommon for researchers to use MAUDE as a tool for research.
St. Jude Medical said in a statement that the company spent more than 300 hours trying to replicate the numbers Hauser came up with in his study, but hasn’t been able to. St. Jude found “duplicate reports, inconsistent categorizations and failures to include all available reports.”
In August last year, the “lead” issue came up again with questions about the company’s Durata leads, which were accused of fraying. An unidentified doctor reported a case to the FDA in May, but reportedly did not inform St. Jude he or she was doing so.
Because the report was anonymous yet quite detailed, Goldman Sacks Analyst David Roman questioned its authenticity at the time. St. Jude, nonetheless, maintained that it was a repeat of the Riata saga. The company announced that the frayed wires were caused by external abrasion rather than an internal wiring problem. According to the company, the Durata leads were damaged by the patient’s calcified heart valve, which commonly occurs in patients with heart disease. The Durata leads are insulated by polyurethane—which St. Jude has pointed out several times in the last several months—while the Riata leads were insulated by a silicone that tended to break down.
The FDA allowed St. Jude Medical officials to travel to the Florida hospital where the Durata lead was explanted in order to examine the cause. According to the company, one of its “senior engineers” travelled to the hospital to investigate.
“Through our investigation, we have identified that the patient had an additional defibrillation lead that had been capped (and was no longer being used). In the fluoroscopic images, the two leads cross in the region mentioned in the filed MAUDE report. Based upon physical examination, our analysis indicates the damage to the Durata lead is consistent with external abrasion from contact with a calcified, or hardened, heart valve or possibly from lead-to-lead contact. External abrasion is a known cause of failure across all cardiac leads in the industry, which is different from the inside-out abrasion seen with externalized conductors observed in some Riata leads.”
Durata issues didn’t disappear, however, in January this year. The FDA released a sharply-worded warning letter to St. Jude Medical in which it said it might soon fine or take other actions against the company for failing to address agency concerns about Durata. In the letter, dated Jan. 10, the agency said that St. Jude had failed to address a variety of concerns about the component arising from an agency inspection last fall of a company factory in California.
Though it must have seemed that way at times, there were plenty of successes to note in St. Jude’s 2012 performance. Among the notable news:
- The company received European CE mark approval of the Assura portfolio of ICDs and cardiac resynchronization therapy defibrillators (CRT-Ds). According to the company, the Assura family of devices features proprietary Shockguard technology that has three new algorithms that help protect patients against inappropriate shocks while providing the highest amount of delivered energy.
- The company announced the first implant of its 23 mm Portico transcatheter aortic heart valve using the transapical delivery system. In transapical valve delivery, a small incision is made between the patient’s ribs and the valve is delivered through the apex (or lower tip) of the left ventricle of the heart. The transapical procedure was performed by Dr. Anson Cheung, associate professor of surgery and director of cardiac transplant at St. Paul’s Hospital in Vancouver, British Columbia. Made of bovine pericardial tissue, the Portico transcatheter heart valve is designed to increase physicians’ control and placement accuracy during valve deployment. The Portico valve is the first valve that has the ability to be completely resheathed (the process of bringing the valve back into the delivery catheter) and repositioned at the implant site before being released from the delivery system. The resheathing feature also allows the physician to retrieve the valve, if necessary. Because the Portico heart valve can be implanted without placing the patient on cardiopulmonary bypass, where a machine takes over heart and lung function during surgery, this makes it an appropriate treatment option for patients with severe aortic stenosis. As an alternative to transapical delivery, Portico valves also can be delivered through a catheter inserted in the transfemoral artery, which is located in the leg. The system received CE mark in Europe but is not yet approved for use in the United States.
- St. Jude launched its MediGuide system, which it claims is the first 3-D navigation system intended for the evaluation of vascular and cardiac anatomy on a recorded fluoroscopic image instead of live fluoroscopy (a series of X-ray images). The use of recorded images allows physicians to reduce the duration of radiation exposure during cardiovascular procedures, revolutionizing medical imaging procedures in the electrophysiology (EP) lab. It allows clinicians to perform cardiac procedures with less fluoroscopy and the corresponding exposure to harmful radiation. Similar to a global positioning system (GPS) that automobile drivers use to determine the location of their car on a map, MediGuide Technology allows physicians to see the precise location and orientation of MediGuide-enabled devices inside the heart. Worldwide, physicians perform several billion radiation-based imaging studies annually, approximately one-third of which are in cardiovascular patients. According to the American Heart Association, the collective dose of ionizing radiation that patients annually received during medical tests increased among the general population an estimated 600 percent between 1980 and 2006. As a result, there has been a dramatic increase in human exposure to ionizing radiation. MediGuide integrates the Artis zee angiography systems, a line of interventional radiology and cardiology imaging devices from Siemens Healthcare.
- Last summer, the company realigned its product divisions into two new operating units: the Implantable Electronic Systems Division (IESD) and the Cardiovascular and Ablation Technologies Division (CATD). The company also centralized several support functions including information technology, human resources, legal, business development, and many marketing functions. Under the leadership of Eric Fain, the IESD comprises the former Cardiac Rhythm Management Division and the former Neuromodulation Division. Under the leadership of Frank Callaghan, the CATD is composed of the former Atrial Fibrillation Division and the former Cardiovascular Division. Fain and Callaghan will report to Group President Michael Rousseau. As part of the reorganization, three additional executive officers were named: Donald Zurbay, Rachel Ellingson and Kathleen Chester. Donald Zurbay is vice president of finance and chief financial officer, reporting to John Heinmiller, who is taking on an expanded role as executive vice president, overseeing the centralization of the IT, HR, legal and business development functions. Rachel Ellingson was named vice president, corporate relations, as Angela Craig assumes additional responsibilities as vice president, global human resources. Kathleen Chester was named to a newly created role of vice president, global regulatory.
- “The reorganization we have announced today is part of a comprehensive plan to accelerate our growth,” said Daniel J. Starks. “We are focused on reducing costs, leveraging economies of scale, maintaining the highest level of quality, and funding our entire portfolio of new growth drivers.”
- The company estimates that as a result of the organizational changes, it will be able to reduce pre-tax operating expenses by approximately $50-$60 million annually beginning in 2013. A total of 300 jobs were cut as a result of the reorganization.
- The FDA approved the Assura implantable ICDs and CRT-Ds that feature SecureSense RV lead noise discrimination, an algorithm that expands the St. Jude Medical ShockGuard technology and offers advanced sensing options designed to reduce the incidence of inappropriate shocks for patients with these devices. The SecureSense RV Lead Noise Discrimination algorithm is expected to assist physicians by providing advanced alerts as well as more proactively lowering the risk of lead-related complications through its ability to automatically withhold tachycardia therapy in the presence of lead noise (over-sensing of electrical signals). The technology differentiates lead noise from true ventricular tachycardia (VT) or ventricular fibrillation (VF) episodes that require life-saving therapy. ShockGuard uses programming that distinguishes between rhythms that require defibrillation therapy and those that do not, such as benign arrhythmias. DecisionTx programming offers advanced sensing technology designed to avoid sensing unwanted signals (T-waves) and more anti-tachycardia pacing options, which can convert many fast ventricular arrhythmias painlessly and avoid the need for high-voltage shocks. Using ShockGuard with DecisionTx programming, 98.5 percent of patients are projected to be free of inappropriate shocks after one year, according to the company.
By the Numbers
Net sales in 2012 were $5.5 billion compared with $5.6 billion in 2011, a decrease of about 2 percent. Unfavorable foreign currency translation comparisons decreased full-year 2012 sales by about $137 million. On a currency neutral basis, net sales grew 1 percent over the prior year. Cardiac Rhythm Management (CRM) product sales for 2012 were $2.9 billion, down approximately 6 percent from 2011. On a currency neutral basis, total CRM sales declined 3.5 percent from the prior year. ICD product sales were $1.7 billion, a decrease of 4 percent when compared with 2011. On a constant currency basis, total ICD sales declined 2 percent from the prior year. Total pacemaker sales for 2012 were $1.1 billion. On a constant currency basis, total pacemaker sales declined 6 percent from the prior year. Atrial fibrillation sales were $898 million, an increase of 9 percent. Total cardiovascular sales for 2012 were $1.3 billion, down 1 percent from 2011, including a $36 million decrease due to unfavorable foreign currency translations. On a constant currency basis, cardiovascular product sales increased 2 percent in 2012. Total structural heart product sales for 2012 were $612 million, an increase of 3 percent compared with 2011 or 6 percent on a currency neutral basis. Vascular product sales were $716 million, down about 3 percent from 2011. Neuromodulation product sales for 2012 were $423 million, up 1 percent over the prior year. For 2012, reported net earnings were $752 million ($2.39 per share) down from $826 million ($2.52). Forty-seven percent of sales were generated in the United States, while 53 percent came from international markets.
It’s worth noting that the company has seemed to slough much of 2012’s negative impact on sales. In 2013 so far, the company has delivered stronger financial results than Wall Street was expecting.
In July, the company posted higher-than-expected second-quarter earnings and revenue as sales of devices to treat abnormal heart rhythms improved from earlier this year, sending its shares up 7 percent. The company also raised the lower end of its 2013 full-year net earnings forecast and predicted that sales would gain momentum this year as it rolls out a series of new heart devices.
St. Jude had lost market share in the past year due to its lead-wire problems. Sales of ICDs and pacemakers, the company’s biggest product category, fell 4 percent to $718 million in the second quarter from a year earlier, but the decrease would have been 2 percent if the impact of foreign currency was excluded. However, analyst Aaron Vaughn of investment firm Mid-Continent Capital said sales of the company’s ICDs and pacemakers had improved from the first quarter.
“With all of the concerns over the Durata and Riata over the past year or so, this has got to be considered a good quarter for them,” said Vaughn, whose company does not own St. Jude shares.
St. Jude said its 2013 second-quarter net income fell to $115 million, or 40 cents per share, from $244 million, or 78 cents per share, a year earlier, primarily due to costs from the early retirement of debt. Earnings excluding special items were 96 cents per share. On that basis, analysts on average had expected 94 cents. Net sales declined slightly to $1.40 billion from $1.41 billion as the U.S. dollar strengthened against the yen and euro, reducing the value of overseas revenue. Analysts on average had expected sales of $1.36 billion. Excluding the impact of foreign currency translations, second-quarter sales increased by about 2 percent from 2012, according to St. Jude. Company officials now expect full-year 2013 net earnings to be between $3.70 and $3.73 per share, increasing the lower end of the range by 2 cents. As of July 17, shares of St. Jude, which were trading at two-year highs, rose 7 percent to $51.86 on the New York Stock Exchange.