St. Jude Medical reported financial results last week that were surprising on two fronts.

Amid a persistently contracting cardiac rhythm management market, the firm’s CRM business, while not growing, performed better than expected in the second quarter. But several of it its non-CRM businesses, which the company relies on to drive growth, experienced a slowdown and performed below analyst predictions, according to second-quarter results presented July 18.

St. Jude cautioned against excitement with the CRM numbers and actually lowered its official guidance for the business for the remainder of the year based on concerns with the underlying market. And the company blamed primarily broader economic and pricing trends for the non-CRM slowdowns, reemphasizing the major growth opportunities in its atrial fibrillation, neuromodulation and cardiovascular businesses.

“We don’t think it’s about us and our business and our competitive position. We really think it is a class effect,” said CEO Daniel Starks on a July 18 earnings call, in reference to the non-CRM unit results. “The fact that we see it across virtually all product lines and we see it not only in the U.S. but we’re seeing it in Europe, in particular, as well ... it just seems like there was some slowing in our markets.”

St. Jude recently resolved a 2009 FDA warning letter targeting one of its ablation catheter manufacturing facilities, a milestone that immediately allowed increased investment in new product development.

St. Jude’s atrial fibrillation unit reported 8% constant-currency growth to $218 million in the quarter, but the company has established expectations for that business to be a double-digit percentage gainer. Starks says he remains confident the firm will hit that target for the full year.

The CEO disclosed that St. Jude recently resolved a 2009 FDA warning letter detailing quality system problems at one of its ablation catheter manufacturing facilities. (See [A#01350170015].)

“While that warning letter was pending, the highest priority for our AF division was to remediate all quality system deficiencies as opposed to working on new product development,” Starks said. “Resources allocated to new product development already have been expanded as a result of closing out our warning letter.”

The company’s neuromodulation unit reported 5% growth to $106 million, which lagged expectations. That business was also hit in 2009 by an FDA warning letter, which remains unresolved. (See [A#01350280016_b].)

Quality systems remediation efforts are delaying multiple neurostimulation product submissions to the agency, including the company's deep brain stimulation device for Parkinson’s and a peripheral nerve stimulation system for migraine, despite clinical trial work being complete on those projects, Starks acknowledged.

In addition, St. Jude withdrew its Brio deep brain stimulation pulse generators from overseas markets in April due to a design problem. Starks said the firm is on track to reintroduce the devices in Europe by the end of September. (See Also see "International News In Brief" - Medtech Insight, 9 April, 2012..)

The company’s cardiovascular division reported only 3% constant-currency growth. But the CEO was most bullish about the longer-term growth prospects for that division. Starks highlighted active clinical development efforts for its investigational Portico transcatheter valve aortic valve replacement device and its patent foramen ovale and left atrial appendage products for stroke, as well as a recent limited launch in Europe of the EnlighHTN renal denervation system, among other efforts.

Hope For More Stable Global CRM Market In 2013

Cardiac rhythm management, meanwhile, experienced a 3% decline in the quarter to $746 million. But due to an already well-established CRM market slowdown, that result was generally perceived as a positive. In particular, the firm’s U.S. implantable cardioverter defibrillator business did better than expected (although its sales dropped from $272 million to $267 million).

The U.S. ICD business was pressured by concerns among some electrophysiologists that instances of “inside-out” abrasion, which led to the withdrawal of St. Jude’s Riata ICD leads in 2010, could crop up in the firm’s newer Durata leads. (See Also see "St. Jude Tries To Get Ahead Of Questions On Durata ICD Leads" - Medtech Insight, 2 April, 2012..)

But that factor was more than balanced by customers gained through some of the firm's newer products, including the Unify Quadra cardiac resynchronization therapy defibrillator system, launched in 2011. Overall, St. Jude estimates it picked up one to one-and-a-half U.S. ICD market share points during the quarter.

The company’s performance in the European ICD and U.S. pacemaker markets, however, was less positive, causing St. Jude to lower expectations for its overall CRM business for the rest of the year. Starks said the company believes the global CRM market is contracting at a “low to mid single-digit” rate, and that he can’t predict when it will stabilize.

“We have regularly been overly optimistic,” he said. “Because we have not been able to predict the bottom of the market here on a frequent basis, we are determined to be conservative.”

The best St. Jude is hoping for is not growth, but simply for the global CRM market to stop declining in the beginning of next year, Starks said.

“If we have a no-growth CRM market ... that’s all we need to match up with all of these new growth drivers we have coming to accelerate our sales growth in a meaningful way in 2013.”

Everything-But-CRM Growth Drivers Slow In Q2 For St. Jude

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