Sales Jump Ahead of Merger with Abbott Laboratories

Heart Failure segment’s sales zoom 48% on robust demand for HeartMate and CardioMEMS

Source: Company's Website
Source: Company’s Website

St. Jude Medical Inc. (NYSE: STJ) announced its Q2 FY16 financial results on July 20th, 2016. Headquartered in St. Paul, Minnesota, the Company together with its subsidiaries, develops, manufactures, and distributes cardiovascular medical devices for cardiac rhythm management, cardiovascular and atrial fibrillation therapy areas worldwide. In addition, the company offers vascular closure devices, compression assist devices, pressure measurement guidewires, diagnostic coronary imaging technology, percutaneous catheter introducers, diagnostic guidewires, heart failure monitoring devices, renal denervation technology and vascular plugs, optical coherence tomography imaging products, as well as CardioMEMS, a heart failure monitoring device.

St. Jude Medical operates under five major focus areas: Atrial Fibrillation, Heart Failure, Neuromodulation, Cardiovascular, and Traditional Cardiac Rhythm Management (CRM). Read more about St. Jude Medical’s financial results below.

Q2 FY16 financial highlights

Source: Company's Presentation
Source: Company’s Presentation

St. Jude Medical’s Q2 FY16 net sales jumped 11% to $1.56 billion compared to net sales of $1.41 billion in the year-ago quarter.

On a comparable constant currency basis, net sales increased by about 2% compared to the year-ago quarter. International sales grew 10% as reported, and by 7% on a comparable constant currency basis during the reporting quarter.

Segmental highlights

Atrial Fibrillation (AF) – St. Jude Medical’s Q2 FY16 AF product sales jumped 13% to $324 million, both on a reported and constant currency basis compared to the prior year quarter. The higher sales were driven by strong global demand for TactiCath and FlexAbility ablation catheters.

Heart Failure (HF) – St. Jude Medical’s Q2 FY16 HF product sales, which include cardiac resynchronization therapy (CRT) products, HeartMate ventricular assist devices and the CardioMEMS HF System, surged 48% to $384 million compared to the prior year’s quarter, primarily due to incremental net sales associated with ventricular assist devices, acquired through its Thoratec acquisition in July 2015.

Source: Company's Presentation
Source: Company’s Presentation

On a comparable constant currency basis, HF product sales slid 1% compared to the prior year’s quarter.

Source: Company's Website
Source: Company’s Website

The Q2 FY16 segmental results reflect a robust demand for ventricular assist devices, offset by the impact of U.S. CRM sales weakness for CRT products.

Neuromodulation – St. Jude Medical’s Q2 FY16 sales of neuromodulation products jumped 19% to $140 million on a reported basis and 20% on a constant currency basis compared to the prior year’s quarter. Neuromodulation growth was driven by the St. Jude Medical Burst technology offerings in international markets, the U.S. launch of the Axium system as well as the introduction of the Infinity DBS system.

Cardiovascular – St. Jude Medical’s Q2 FY16 cardiovascular sales inched up 1% to $319 million compared to the prior year’s quarter. On a constant currency basis, cardiovascular sales rose 2% compared to the prior year quarter, driven by robust demand for the Portico Transcatheter Aortic Valve Implantation System in Europe, OPTIS optical coherence tomography products, and PressureWire fractional flow reserve technology.

Traditional Cardiac Rhythm Management (CRM) – St. Jude Medical’s Q2 FY16 CRM sales fell 8% to $395 million on a reported basis. After adjusting for the impact of foreign currency, CRM sales fell 7% during the reporting quarter. CRM products, which include single and dual chamber implantable cardioverter defibrillator (ICD) and pacemaker products, were impacted by lower U.S. sales, partially offset by continued adoption of its MRI conditional product portfolio.

During Q2 FY16, the medical devices manufacturer incurred net after-tax charges of $67 million, or $0.23 per diluted share, primarily related to amortization of intangible assets and acquisition-related costs. Including these items, reported net earnings for Q2 FY16 were $238 million, or $0.83 per share, compared with reported net earnings of $290 million, or $1.02 per share, in the year-ago quarter. Excluding these items, adjusted net earnings for Q2 FY16 were $305 million, or $1.06 per share, compared with adjusted net earnings of $293 million, or $1.03 per share, in the year-ago period.

Other highlights

On April 28th, 2016, drug major Abbott Laboratories Inc. (NYSE: ABT) entered into a definitive agreement to acquire St. Jude Medical. The merged entity would create a medical device leader with a leading position in the high-growth cardiovascular market and the neuromodulation market. Under the agreement, St. Jude Medical’a shareholders will receive $46.75 in cash and 0.8708 shares of Abbott common stock, representing a total consideration of approximately $85 per share, valuing the transaction at roughly $25 billion.

The deal would give Abbott access to St. Jude Medical’s new medical device products including the EnSite Precision next-generation cardiac mapping system. The combined entity is expected to achieve annual pretax synergies of $500 million by 2020, including sales and operational benefits. The transaction, which is pending regulatory approvals, is expected to close in Q4 FY16. Due to planned merger with Abbott, St. Jude Medical is withdrawing financial guidance for FY16.

Stock Performance

S5St. Jude Medical’s stock stood at $81.70, inching up 0.17%, at the close on Friday, July 22nd, 2016, having vacillated between an intraday high of $81.85 and a low of $81.38 during the session. The stock’s trading volume was at 1,608,899 for the day. The Company’s market cap was at $23.29 billion as of Friday’s close.

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