Medical Device Daily Associate

Amid speculation that the implantable device problems being experienced byGuidant (Indianapolis)might be showing effects through the entire space,St. Jude Medical (St. Paul, Minnesota) reported disappointing sales of its implantable cardioverter defibrillator (ICD) and said it would report lower than expected 1Q06 results.

The company now expects to report 1Q06 earnings of 35 to 36 cents-per-share, it said yesterday, including a 3 cent-per-share expense of stock compensation, and net sales of about $784 million.

The company is due to report 1Q06 results on April 19.

In January, St. Jude forecast first-quarter earnings of 41 to 43 cents a share, excluding stock compensation expense, and net sales between $799 million and $839 million. Analysts, on average, had forecast first-quarter earnings of 39 cents a share on sales of $827.5 million, according to a poll by Thomson Financial.

And in the wake of a series of product recalls by competitor Guidant (Indianapolis), the company had appeared ready to gain substantial U.S. market share at that company's expense. Instead – and perhaps falling under the unexpected consequence category – the company's overall ICD sales have slowed.

Its first quarter U.S. pacemaker sales are expected to total $221 million, a 2% increase over the first quarter of 2005, but well below the company's earlier projections that ranged between $300 million and $310 million.

The company said it is undertaking a detailed customer review to clarify the extent to which ICD sales were affected by this slowdown or by other factors. ICD revenues outside the U.S. continue to meet expectations, it said.

“While most of our business continues to meet or exceed expectations, the events in the marketplace over the past year have led to increased volatility and have made ICD market growth patterns in the United States less predictable,“ said Daniel Starks, St. Jude president, CEO and chairman. “We are very pleased with the continued strength across our multiple growth platforms and excited about the many new cardiac rhythm management products set to be introduced this year. We remain confident in the long-term growth prospects of the ICD marketplace, where the vast majority of patients who could benefit from this technology have yet to receive a device.“

Analysts were also surprised by the ICD downturn in sales, saying they did not expect growth to slow so dramatically, especially since ICDs continue to be the fastest growing segment of the medical device sector.

“While market disruptions from Guidant's field actions do not come as a surprise, the dramatic drop-off in ICD sales sequentially does,“ Harris Nesbitt (New York) med-tech analyst Joanne Wuensch said in an investor note.

Her firm had projected U.S. ICD sales of $313 million and overall company revenues of $841 million for the quarter, she noted.

Based on physician surveys, Wuensch said she “expect[s] that it will take roughly six to 12 months for ICD volumes to regain their footing after the Guidant negative news flow, creating a weak 1H06 and a stronger 2H06.“

John Putnam, an analyst at Stanford Financial Group (Boca Raton, Florida), said in a report that he had worried as early as January that St. Jude was too optimistic about gaining market share, particularly with rival Guidant's string of product recalls and warnings. He had estimated ICD revenue at a more modest $288 million, but even that turned out to be high.

“Nothing grows in a straight line, and that's what they've been predicting,“ Putnam said.

Recommending purchase of ICD competitor Medtronic 's (Minneapolis) shares on expected weakness in that stock, due to St. Jude's disappointing ICD sales, wasFirst Albany Capital (New York) analyst Jason Mills.

While noting his firm is tempering its ICD estimates going forward, he said it remains “steadfast in [our] belief that current indications for use – namely the favorable January 2005 SCD-HeFT-driven reimbursement changes – translate into a vastly under-penetrated ICD market, in which a slowdown in device utilization, while clearly a reality in the near term, could turn out to be short-lived.“

Aside from the disappointing ICD results, St. Jude said that revenues for all other product categories are expected to meet or slightly exceed previous guidance.

Atrial fibrillation product sales for the first quarter are expected to be $74 million, a 25% increase over 1Q05.

Total sales of cardiology products for the quarter are expected to be $111 million, flat with the same period in 2005. Within this category of products, vascular sealing device sales for the first quarter of 2006 are expected to be $84 million.

Total cardiac surgery sales for the first quarter of 2006 are expected to be $74 million, an increase of 3% over the comparable period in 2005.

St. Jude's sales of neuromodulation products for the first quarter are expected to total $42 million. The company did not have neuromodulation sales in 1Q05.