07.24.12
15. St. Jude Medical
$5.6 Billion
KEY EXECUTIVES:
Daniel J. Starks, Chairman, President & CEO
John C. Heinmiller, Exec. VP & Chief Financial Officer
Michael T. Rousseau, Group President
Joel D. Becker, President, U.S. Division
Denis M. Gestin, President, International Division
Frank J. Callaghan, President, Cardiovascular Division
Eric S. Fain, President, Cardiac Rhythm Management Division
Rohan J. Hoare, President, Neuromodulation Division
Jane J. Song, President, Atrial Fibrillation Division
Thomas Northenscold, VP of Information Technology and Chief Information Officer
NO. OF EMPLOYEES: 16,000
GLOBAL HEADQUARTERS: St. Paul, Minn.
Denton A. Cooley, M.D., can still remember the bouts of insomnia that followed his brush with history on April 4, 1969. On that particular morning, the 48-year-old surgeon implanted an artificial heart into an ailing Skokie, Ill., man named Haskell Karp. The device—a monstrosity of plastic and polyester fiber linked to a bedside control console the size of a washing machine—kept Karp alive for three days, longer than any animal in which it previously had been implanted.
“It’s hard to sleep after an experience like that,” Cooley said in an online video posted by Modern Climate, a Minneapolis, Minn.-based consumer-centric advertising agency. “The period of excitement stays with you and it’s not uncommon to be lying awake at 2 or 3 o’clock in the morning with your brain still thinking about the patient experience.”
The patient experience vastly has improved in the four decades since Karp lost his heart to science (he technically lost it to Cooley, but the surgeon was working for the benefit of science so it’s basically a wash). Though today’s artificial hearts have become more proficient at keeping patients alive, they nonetheless remain a “bridge to transplant”—devices that keep the body functioning until a matching organ can be found.
In the Modern Climate video, Cooley compared his generation of cardiac surgeons to NASA astronauts, claiming both professions explored previously unchartered territory (for astronauts, it was the moon; for Cooley and his colleagues, it was the more mysterious engine of human life).
Neither group had an easy task. Those that reached for the moon were forced to overcome the physical and physiological challenges of space travel, while the group that stayed on earth had trouble designing the proper heart valve.
“We had many problems with those early designs of valves, beginning with the Starr-Edwards ball and cage design. I remember you could almost hear them across the room if the patient opened his mouth,” Cooley recalled. “But the St. Jude valve was more or less solid… I don’t know of any valve that is better—the St. Jude valve design has stood up very well through the years. In my mind, you don’t desert an old friend like this valve.”
Professional desertion has never really been a problem for St. Jude. Since the introduction of its first mechanical valve (the Regent) in 1977, the company has accumulated a loyal following of doctors who have implanted its valves in more than 2 million patients. Such devotion has helped the St. Paul, Minn.-based firm become a leading developer and manufacturer of cardiac devices, with customers in more than 100 countries worldwide.
That allegiance also was likely partly responsible for an 8.6 percent increase in sales last year.
Revenue climbed $446,925 to $5.6 billion and gross profit rose 8.6 percent to $4 billion, the highest in company history. Net earnings fell 9 percent to $825.8 million, due mainly to a $154.1 million after-tax restructuring charge in the company’s Cardiac Rhythm Management (CRM) division, and increased collection risks with European customers.
St. Jude’s CRM division was the top-grossing unit in 2011 (year ended Dec. 31), generating more than half of the company’s total net sales. But the unit, which sells implantable cardioverter defibrillators (ICDs) and pacemakers, amassed $3.03 billion in sales, an amount nearly equal to 2010. Executives attributed the division’s flat sales to CRM market contraction in the United States.
ICD and pacemaker sales were flat as well, rising a nominal 0.2 percent and 0.8 percent respectively, according to St. Jude’s 2011 annual report. ICD revenue totaled $1.82 billion while pacemaker system sales stood at $1.2 billion. ICD sales drivers included the Unify cardiac resynchronization therapy defibrillator and Fortify ICD in Japan. Launched in the second quarter of 2011, both devices are smaller, deliver more energy and have a longer battery life than conventional devices.
The CRM division’s dismal performance reflects a continued slump in the U.S. market for heart-related devices. While the seeds for the slump were planted well before 2011, the market slide rapidly deteriorated during the first three months of 2011, shortly after the January publication of a Journal of the American Medical Association article that questioned the need for ICDs. The story cited a study that showed 22.5 percent of patients typically fall short of the medical guidelines necessary to receive the $25,000 devices. The findings did not determine a reason for such a high rate of non-compliance with the guidelines, but author Sana M. Al-Khatib, M.D., offered an explanation to The New York Times, blaming the failure on physicians’ lack of knowledge and awareness of Medicare’s National Coverage Determination criteria. Such ignorance—as startling as it is sobering—certainly contributed to weak demand for ICDs in the first three months of 2011, but other factors in place long before the JAMA article was published very well could explain lower device sales last year.
One such factor was an investigation by the U.S. Justice Department into hospitals’ ICD billing to Medicare; another was the government’s prosecution of St. Jude Medical for allegedly paying kickbacks to entice doctors to implant the company’s pacemakers and defibrillators (the firm agreed in January 2011 to pay the government $16 million to resolve the allegations).
St. Jude’s CRM sales slipped 2 percent during the second quarter of 2011 (period ended June 30) to $401 million, a frustrating setback for the company, considering it gained market share from a 2010 decision by Boston Scientific Inc. to stop ICD shipments and pull its field inventory in the United States.
“What we see here is that the U.S. CRM market fell into a pothole during the second quarter,” Chairman, President and CEO Daniel J. Starks griped to investors during a summertime conference call to discuss the firm’s Q2 results. “Twenty-eight percent of our sales fell into a pothole.”
Fortunately for St. Jude, that pothole was limited to the CRM market. The company’s Cardiovascular division experienced explosive growth last year, garnering $1.3 billion in sales, a staggering 29 percent increase compared with 2010. Robust sales of vascular products and structural heart devices were responsible for the division’s skyrocketing growth rate—each posted double-digit sales increases. Vascular product sales jumped 10 percent to $740 million due to higher demand of vascular plugs and optical coherence tomography products as well as $34.6 million in favorable foreign currency translation. Lower sales of the company’s Angio-Seal active closure devices prevented further gains in vascular product revenue.
Structural heart device sales ballooned 63.7 percent to $597.3 million. Executives attributed the surge to vigorous sales of AGA Medical’s Amplatzer occluder products (St. Jude purchased AGA Medical in November 2010 for $1.1 billion) and solid demand for the Trifecta tissue valve, which was approved by the U.S. Food and Drug Administration in April 2011. The valve, designed to optimize blood flow, is made from a polyester and tissue-covered titanium stent, or base. The valve contains leaflets manufactured from bovine and porcine pericardial tissue that attach to the outside of the stent, a design the company claims allows the leaflets to open more fully and efficiently, mimicking the performance of a healthy aortic heart valve and limiting tissue abrasion through stent-to-leaflet contact.
St. Jude’s Atrial Fibrillation (AF) division posted solid gains last year, but it couldn’t match the upsurge in the Cardiovascular unit. AF sales totaled $822 million, an increase of 16 percent compared with 2010. On a constant currency basis, AF product sales increased 12 percent in 2011.
Sales drivers in this unit included the EnSite Velocity System and related connectivity tools (EnSite Connect, EnSite Courier and EnSite Derexi modules) as well as Safire BLU and Therapy Cool line of EP irrigated ablation catheters.
The Therapy Cool Path Duo and Safire BLU Duo are sterile, single use 7 French catheters constructed of thermoplastic elastomer material and four noble metal electrodes. The catheters have a through-lumen connected to open conduits at the 4-millimeter tip electrode for heparinized saline irrigation during the ablation procedure.
The catheters are inserted into a blood vessel, usually though a site in the upper leg or neck. The catheter is manually advanced through the blood vessels until it reaches the correct location inside the heart. Once the site is identified, the devices deliver radio frequency energy to destroy small areas of tissue blocking the heart’s internal electrical signals that cause typical atrial flutters.
St. Jude’s Neuromodulation division trailed its brethren in sales but still delivered a notable performance in 2011, earning $418.3 million, a 10 percent increase compared with FY2010.
International neuromodulation product revenue expanded 30 percent, driven by gains in the Eon Mini platform and growing market acceptance of the Epiducer Lead Delivery system, which gives physicians the ability to place multiple neurostimulation leads through a single entry point.
$5.6 Billion
KEY EXECUTIVES:
Daniel J. Starks, Chairman, President & CEO
John C. Heinmiller, Exec. VP & Chief Financial Officer
Michael T. Rousseau, Group President
Joel D. Becker, President, U.S. Division
Denis M. Gestin, President, International Division
Frank J. Callaghan, President, Cardiovascular Division
Eric S. Fain, President, Cardiac Rhythm Management Division
Rohan J. Hoare, President, Neuromodulation Division
Jane J. Song, President, Atrial Fibrillation Division
Thomas Northenscold, VP of Information Technology and Chief Information Officer
NO. OF EMPLOYEES: 16,000
GLOBAL HEADQUARTERS: St. Paul, Minn.
Denton A. Cooley, M.D., can still remember the bouts of insomnia that followed his brush with history on April 4, 1969. On that particular morning, the 48-year-old surgeon implanted an artificial heart into an ailing Skokie, Ill., man named Haskell Karp. The device—a monstrosity of plastic and polyester fiber linked to a bedside control console the size of a washing machine—kept Karp alive for three days, longer than any animal in which it previously had been implanted.
“It’s hard to sleep after an experience like that,” Cooley said in an online video posted by Modern Climate, a Minneapolis, Minn.-based consumer-centric advertising agency. “The period of excitement stays with you and it’s not uncommon to be lying awake at 2 or 3 o’clock in the morning with your brain still thinking about the patient experience.”
The patient experience vastly has improved in the four decades since Karp lost his heart to science (he technically lost it to Cooley, but the surgeon was working for the benefit of science so it’s basically a wash). Though today’s artificial hearts have become more proficient at keeping patients alive, they nonetheless remain a “bridge to transplant”—devices that keep the body functioning until a matching organ can be found.
In the Modern Climate video, Cooley compared his generation of cardiac surgeons to NASA astronauts, claiming both professions explored previously unchartered territory (for astronauts, it was the moon; for Cooley and his colleagues, it was the more mysterious engine of human life).
Neither group had an easy task. Those that reached for the moon were forced to overcome the physical and physiological challenges of space travel, while the group that stayed on earth had trouble designing the proper heart valve.
“We had many problems with those early designs of valves, beginning with the Starr-Edwards ball and cage design. I remember you could almost hear them across the room if the patient opened his mouth,” Cooley recalled. “But the St. Jude valve was more or less solid… I don’t know of any valve that is better—the St. Jude valve design has stood up very well through the years. In my mind, you don’t desert an old friend like this valve.”
Professional desertion has never really been a problem for St. Jude. Since the introduction of its first mechanical valve (the Regent) in 1977, the company has accumulated a loyal following of doctors who have implanted its valves in more than 2 million patients. Such devotion has helped the St. Paul, Minn.-based firm become a leading developer and manufacturer of cardiac devices, with customers in more than 100 countries worldwide.
That allegiance also was likely partly responsible for an 8.6 percent increase in sales last year.
Revenue climbed $446,925 to $5.6 billion and gross profit rose 8.6 percent to $4 billion, the highest in company history. Net earnings fell 9 percent to $825.8 million, due mainly to a $154.1 million after-tax restructuring charge in the company’s Cardiac Rhythm Management (CRM) division, and increased collection risks with European customers.
St. Jude’s CRM division was the top-grossing unit in 2011 (year ended Dec. 31), generating more than half of the company’s total net sales. But the unit, which sells implantable cardioverter defibrillators (ICDs) and pacemakers, amassed $3.03 billion in sales, an amount nearly equal to 2010. Executives attributed the division’s flat sales to CRM market contraction in the United States.
ICD and pacemaker sales were flat as well, rising a nominal 0.2 percent and 0.8 percent respectively, according to St. Jude’s 2011 annual report. ICD revenue totaled $1.82 billion while pacemaker system sales stood at $1.2 billion. ICD sales drivers included the Unify cardiac resynchronization therapy defibrillator and Fortify ICD in Japan. Launched in the second quarter of 2011, both devices are smaller, deliver more energy and have a longer battery life than conventional devices.
The CRM division’s dismal performance reflects a continued slump in the U.S. market for heart-related devices. While the seeds for the slump were planted well before 2011, the market slide rapidly deteriorated during the first three months of 2011, shortly after the January publication of a Journal of the American Medical Association article that questioned the need for ICDs. The story cited a study that showed 22.5 percent of patients typically fall short of the medical guidelines necessary to receive the $25,000 devices. The findings did not determine a reason for such a high rate of non-compliance with the guidelines, but author Sana M. Al-Khatib, M.D., offered an explanation to The New York Times, blaming the failure on physicians’ lack of knowledge and awareness of Medicare’s National Coverage Determination criteria. Such ignorance—as startling as it is sobering—certainly contributed to weak demand for ICDs in the first three months of 2011, but other factors in place long before the JAMA article was published very well could explain lower device sales last year.
One such factor was an investigation by the U.S. Justice Department into hospitals’ ICD billing to Medicare; another was the government’s prosecution of St. Jude Medical for allegedly paying kickbacks to entice doctors to implant the company’s pacemakers and defibrillators (the firm agreed in January 2011 to pay the government $16 million to resolve the allegations).
St. Jude’s CRM sales slipped 2 percent during the second quarter of 2011 (period ended June 30) to $401 million, a frustrating setback for the company, considering it gained market share from a 2010 decision by Boston Scientific Inc. to stop ICD shipments and pull its field inventory in the United States.
“What we see here is that the U.S. CRM market fell into a pothole during the second quarter,” Chairman, President and CEO Daniel J. Starks griped to investors during a summertime conference call to discuss the firm’s Q2 results. “Twenty-eight percent of our sales fell into a pothole.”
Fortunately for St. Jude, that pothole was limited to the CRM market. The company’s Cardiovascular division experienced explosive growth last year, garnering $1.3 billion in sales, a staggering 29 percent increase compared with 2010. Robust sales of vascular products and structural heart devices were responsible for the division’s skyrocketing growth rate—each posted double-digit sales increases. Vascular product sales jumped 10 percent to $740 million due to higher demand of vascular plugs and optical coherence tomography products as well as $34.6 million in favorable foreign currency translation. Lower sales of the company’s Angio-Seal active closure devices prevented further gains in vascular product revenue.
Structural heart device sales ballooned 63.7 percent to $597.3 million. Executives attributed the surge to vigorous sales of AGA Medical’s Amplatzer occluder products (St. Jude purchased AGA Medical in November 2010 for $1.1 billion) and solid demand for the Trifecta tissue valve, which was approved by the U.S. Food and Drug Administration in April 2011. The valve, designed to optimize blood flow, is made from a polyester and tissue-covered titanium stent, or base. The valve contains leaflets manufactured from bovine and porcine pericardial tissue that attach to the outside of the stent, a design the company claims allows the leaflets to open more fully and efficiently, mimicking the performance of a healthy aortic heart valve and limiting tissue abrasion through stent-to-leaflet contact.
St. Jude’s Atrial Fibrillation (AF) division posted solid gains last year, but it couldn’t match the upsurge in the Cardiovascular unit. AF sales totaled $822 million, an increase of 16 percent compared with 2010. On a constant currency basis, AF product sales increased 12 percent in 2011.
Sales drivers in this unit included the EnSite Velocity System and related connectivity tools (EnSite Connect, EnSite Courier and EnSite Derexi modules) as well as Safire BLU and Therapy Cool line of EP irrigated ablation catheters.
The Therapy Cool Path Duo and Safire BLU Duo are sterile, single use 7 French catheters constructed of thermoplastic elastomer material and four noble metal electrodes. The catheters have a through-lumen connected to open conduits at the 4-millimeter tip electrode for heparinized saline irrigation during the ablation procedure.
The catheters are inserted into a blood vessel, usually though a site in the upper leg or neck. The catheter is manually advanced through the blood vessels until it reaches the correct location inside the heart. Once the site is identified, the devices deliver radio frequency energy to destroy small areas of tissue blocking the heart’s internal electrical signals that cause typical atrial flutters.
St. Jude’s Neuromodulation division trailed its brethren in sales but still delivered a notable performance in 2011, earning $418.3 million, a 10 percent increase compared with FY2010.
International neuromodulation product revenue expanded 30 percent, driven by gains in the Eon Mini platform and growing market acceptance of the Epiducer Lead Delivery system, which gives physicians the ability to place multiple neurostimulation leads through a single entry point.
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