St. Jude’s Revenue Jumps on Heart Failure Products

Diagnostic major’s sales jumped 12% to $1.49 billion during Q3 FY16

s1Medical devices maker St. Jude Medical Inc. (NYSE: STJ) announced its Q3 FY16 financial results on October 19th, 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.

Q3 FY16 financial highlights

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

St. Jude’s Q3 FY16 net sales jumped 12% to $1.49 billion compared to net sales of $1.34 billion in the year-ago period. On a comparable constant currency basis, net sales grew by approximately 2% compared to the year-ago quarter. International sales grew 13% as reported or 8% on a comparable constant currency basis.

The Company is focusing on bringing new technology to patients in Q4 FY16 and throughout FY17 aimed at elevating current standards of care while reducing the cost of healthcare.

During Q3 FY16, St. Jude incurred net after-tax charges of $74 million, or $0.26 per diluted share, primarily related to amortization of intangible assets and acquisition-related costs. Including these items, reported net earnings for Q3 FY16 declined marginally to $212 million, or $0.73 per share, compared to reported net earnings of $215 million, or $0.75 per share, in the year-ago quarter. Excluding these items, adjusted net earnings for Q3 FY16 were $286 million, or $0.99 per share, compared with adjusted net earnings of $277 million, or $0.97 per share, in the year-ago period.

Segmental highlights

Atrial Fibrillation (AF): St. Jude Medical’s Q3 FY16 AF product sales grew 14% on a reported basis to $316 million, and by 12% on a constant currency basis compared to the prior year quarter. Results were driven by continued strong global TactiCath™ and FlexAbility™ ablation catheter sales and the Ensite Precision Mapping system sales in international markets.

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

Heart Failure (HF): St. Jude Medical’s Q3 FY16 HF product sales, which include cardiac resynchronization therapy (CRT) products, HeartMate ventricular assist devices and the CardioMEMS HF System, surged 46% to $351 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.

On a comparable constant currency basis, HF product sales grew 3% compared to the prior year’s quarter.

The Q3 FY16 segmental results reflect continued impact of U.S. CRM sales weakness on CRT products, partially offset by global growth in ventricular assist devices.

Neuromodulation: St. Jude Medical’s Q3 FY16 sales of neuromodulation products jumped 17% on a reported basis and on a constant currency basis to $141 million 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 Q3 FY16 cardiovascular sales jumped 8% to $313 million compared to the prior year’s quarter. On a constant currency basis, cardiovascular sales rose 7% compared to the prior year’s quarter, driven by robust demand for the Portico Transcatheter Aortic Valve Implantation System in Europe and OPTIS optical coherence tomography products.

Traditional CRM: St. Jude Medical’s Q3 FY16 CRM sales fell 7% on a reported basis and constant currency basis to $395 million. 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.

Other highlights

Abbott acquisition: 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’s 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.

Allegations by Muddy Waters: St. Jude has recently been the target of short-seller Carson Block’s Muddy Waters LLC, which made allegations that St. Jude’s pacemakers and defibrillators may be uniquely vulnerable to cyber security attacks. St. Jude, which has denied the allegations, warned patients about an unrelated risk of accelerated depletion of its defibrillator batteries, which has led to two deaths in Europe.

To make matters worse, Muddy Waters released several videos that demonstrated how St. Jude’s implanted heart devices could be easily manipulated from outside. The videos also reportedly showed how St. Jude’s Merlin equipment can be reverse-engineered, allowing the programmer commands to be manipulated so that a patient may get an unnecessary cardiac shock or the device may be turned off. St. Jude CEO Michael Rousseau said on a conference call that he expected Muddy Waters to continue to mislead investors and patients about the cyber safety of its devices.

Meanwhile, St. Jude announced in mid-October 2016 that it will recall some of its 400,000 implanted heart devices due to the risk of premature battery depletion, a condition linked to two deaths in Europe.

Sale of medical devices to Terumo: Abbott, which is in the process of completing the St. Jude acquisition by the end of 2016, said on October 18th, 2016, that the companies would sell some of their medical devices to Japan-based Terumo Corp. for about $1.12 billion. The deal is subject to the successful completion of Abbott’s acquisition of St. Jude and other approvals. The all-cash transaction will include St. Jude Medical’s Angio-Seal and Femoseal vascular closure products and Abbott’s Vado Steerable Sheath. Abbott said it would retain its vascular closure products.

Stock Performance

s4St. Jude’s stock stood at $79.42, gaining 0.08%, at the close on Monday, October 24th, 2016, having vacillated between an intraday high of $79.81 and a low of $79.12 during the session. The stock’s trading volume was at 2,750,866 for the day. The Company’s market cap was at $22.71 billion as of Monday’s close.

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