St. Jude Medical Inc.
) has won CE Mark approval for its Ellipse and SJM Assura
portfolio of implantable cardioverter defibrillators (ICDs) and
cardiac resynchronization therapy defibrillators (CRT-Ds). The
advanced devices from the company's Cardiac Rhythm Management
(CRM) segment incorporate unique features that are capable of
delivering high-voltage treatment to patients with heart failure
and lower risk of lead-to-can abrasion.
According to the American Heart Association, there are about 5
million heart failure patients in America, with 550,000 new cases
diagnosed every year. ICDs are used to treat abnormal heart
rates, which might lead to sudden cardiac deaths (SCD). In the
U.S., roughly 325,000 die due to SCD, annually. The CRT-D device
is used to resynchronize heart beat in patients with heart
failure and provide back up support for SCD.
CRM under Scrutiny
St. Jude's core CRM division is still underperforming. Revenues
from the CRM division fell 8% year over year in the first quarter
of 2013. The beleaguered ICD market, as reflected by sustained
implant volume pressure and the Riata/Durata lead issue,
continues to hurt CRM results. ICD sales declined 5% in the first
quarter but we believe that market trends will stabilize soon.
St. Jude is currently trying to solve manufacturing and quality
systems-related problems at its Sylmar facility, which
manufactures the highly controversial Riata ST Optim and Durata
leads. The company received a warning letter from the FDA in Jan
2013. The FDA is concerned that the newer generation high-voltage
Durata leads might face the same problem as the Riata leads,
which the company recalled in 2011 due to potential risk of
serious injury or deaths.
The downside to the warning letter is that the company will no
longer receive any regulatory approval in the U.S. related to any
products in the Sylmar facility until the issue is resolved.
Despite these headwinds, management is confident that the Durata
defibrillation lead with Optim lead insulation is safe and
effective based on available data.
Amid several downsides, the CE Mark approval and positive news
regarding Durata sparked market optimism as shares of this Zacks
Rank #3 (Hold) stock achieved a new 52-week high, touching $43.86
on Friday, May 10, above its previous 52-week high of $43.76.
) also attained a new 52-week high of $67.36 on May 9.
New products from the CRM division should drive top-line growth
for St. Jude, once the warning letter is resolved. Hence, the
company is focused on selling its products in international
markets and the CE Mark approval should further bolster physician
confidence in St. Jude's cutting-edge product lines. Recently,
the company has also won CE Mark for the Allure Quadra Cardiac
Resynchronization Therapy Pacemaker (CRT-P) and has already
launched the product in Europe.
Other medical stocks such as
) carrying a Zacks Rank #1 (Strong Buy), and
) carrying a Zacks Rank #2 (Buy), warrant a look.
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