St. Jude Medical, Inc. (STJ)

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St. Jude Medical Inc. (STJ)

Q3 2010 Earnings Call

October 20, 2010 8:00 AM ET

Executives

Dan Starks – Chairman, President and CEO

John Heinmiller – Executive Vice President and CFO

Mike Rousseau – Group President

Eric Fain – President, Cardiac Rhythm Management Division

Angie Craig – Vice President, Corporate Relations and Human Resources

Analysts

Bob Hopkins – Banc of America

Mike Weinstein – J.P. Morgan

Rick Wise – Leerink Swann

Kristen Stewart – Deutsche Bank

Derrick Sung – Sanford Bernstein

Joanne Wuensch – BMO Capital Markets

Vivian Cervantes – Maxim Group

David Roman – Goldman Sachs

Adam Feinstein – Barclays Capital

Presentation

Operator

Welcome to St. Jude Medicals Third Quarter 2010 Earnings Conference Call. Hosting the call today is Dan Starks, Chairman, President and Chief Executive Officer of St. Jude Medical.

The remarks made during this conference call contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Such forward-looking statements include the expectations, plans and prospects for the company including potential clinical successes, anticipated regulatory approvals and future product launches and projected revenues, margins, earnings and market shares.

The statements made by the company are based upon managements current expectations and are subject to certain risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties include market conditions, risk related to the companys proposed acquisition of AGA Medical Holdings and other factors beyond the companys control and the risk factors and other cautionary statements described in the companys filings with the SEC including those described in the risk factors and cautionary statement sections of the companys quarterly report on Form 10-Q for the fiscal quarter ended April 3rd, 2010.

The company does not intend to update these statements and undertakes no duty to any person to provide any such update under any circumstance. (Operator Instructions)

It is now my pleasure to turn the floor over to Dan Starks.

Dan Starks

Thank you, Dennis. Welcome to the St. Jude Medical third quarter 2010 earnings conference call. With me on the call today are John Heinmiller, Executive Vice President and Chief Financial Officer, Mike Rousseau, Group President, Eric Fain, President of our Cardiac Rhythm Management Division and Angie Craig, Vice President of Corporate Relations and Human Resources.

Our third quarter results reinforce our conviction that our growth program is on track and that St. Jude Medical is well positioned to continue growing long-term at a superior rate. We now have raised our 2010 EPS guidance range for the third time in three quarters and beaten consensus expectations for EPS by a combined total of $0.17 earnings per share over the same period.

Before I discuss the factors underlying another successful quarter for St. Jude Medical, I want to talk briefly about our proposed acquisition of AGA Medical. As we announced on Monday, St. Jude Medical has entered into a definitive agreement to acquire AGA Medical for $20.80 per share in cash and stock in a total transaction valued at $1.3 billion.

For those of you who are unfamiliar with AGA Medical, the company generated total revenue in 2009 of $199 million, an increase of 21% over the prior year on a constant currency basis. AGA Medical has a leading share of the $250 million interventional cardiology market to repair congenital heart defects, as well as a full pipeline of products directed toward new growth drivers.

We are especially excited to enter the market for left atrial appendage closure in patients who suffer from atrial fibrillation. The AGA Medical left atrial appendage occluder already has a leading market share in Europe and has the potential to become a major new growth driver for St. Jude Medical over the next five years as part of our atrial fibrillation and our structural heart programs.

The AGA Medical acquisition also will add to St. Jude Medicals structural heart program, a leading share of the emerging market in Europe, to close a PFO or hole in the atrial septum in cryptogenic stroke patients.

The market for left atrial appendage closure and the market for PFO closure both have the opportunity to become new billion dollar markets following global market release of products and full development of relevant markets. The AGA acquisition also brings to St. Jude Medical a next generation vascular plug technology that we expect to replace embolic coils to occlude peripheral blood vessels in a variety of interventional radiology procedures.

This vascular plug technology will add both a new growth driver and critical mass to St. Jude Medicals vascular closure franchise in the interventional radiology cath lab. We expect a strong complement between all of these new growth drivers in St. Jude Medicals existing cardiovascular programs. The transaction is expected to be accretive to adjusted earnings per share in 2011.

Last but not least, John Barr, the President and CEO of AGA Medical has agreed to join St. Jude Medical to add to our leadership talent and to help ensure a smooth integration of the acquisition. We look forward to welcoming John Barr and AGAs 550 employees to St. Jude Medical just as soon as the transaction is closed.

I would now like to ask John Heinmiller to conduct his normal review of our third quarter results along with his typical update for the entire St. Jude Medical business. I will then address several topics about our overall program and open it up for your questions on the quarter and our acquisition of AGA Medical. Go ahead, John.

John Heinmiller

Thank you, Dan. Sales for the quarter totaled $1.240 billion up approximately 7% over the $1.160 billion reported in the third quarter of last year. On a constant currency basis, third quarter sales increased 8% versus last year. Unfavorable foreign currency translations versus last years third quarter reduced this quarters sales by about $10 million.

At the end of 2009, the federal research and development tax credit expired and congress has not yet extended the credit for 2010. In this circumstance, GAAP requires us to estimate our-- and record our effective income tax rate assuming that the R&D credit is not extended.

For purposes of this conference call and our calculation of adjusted net earnings, however, we are assuming that the tax credit will be extended retroactively for 2010, as in past years. As a result, comments referencing third quarter results and our guidance for 2010 including EPS amounts are presented based on an effective income tax rate that contemplates the extension of the tax credit retroactive to January 1st, 2010.

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