JPM: St. Jude plagued by gap in its portfolio of pacemakers and implantable defibrillators

St. Jude Medical Ellipse ICD--Courtesy of St. Jude Medical

St. Jude Medical ($STJ) needs to get its cardiac rhythm management unit back on track by filling gaps in the portfolio, CEO Michael Rousseau said at the J.P. Morgan Healthcare Conference in San Francisco.

Due to weakness in the sales of CRM devices (implantable defibrillators and pacemakers) the company projected revenue a little lower than expected--$1.45 billion instead of $1.48 billion according to The Wall Street Journal--causing its stock to drop 3%.

Rousseau said the company needs FDA approval of low-voltage CRM devices, saying achieving the milestone (later than competitors) in Japan caused the company to regain market share in that market. The lack of "high-voltage" CRM devices is also a tailwind, but is "mitigated by the fact that the devices in high voltage are literally the same exact device we're selling today, and that's true for all of our competitors," Rousseau said.

He expects low-voltage approval in in the first half of the year and high-voltage approval in early 2017.

The poor CRM performance was not entirely unexpected. Jefferies equity analyst Raj Denhoy previously predicted the company will lose a percentage point in market share in ICDs and pacemakers in 2015 and going forward into 2016 at the hands of competitors Boston Scientific ($BSX) and Medtronic ($MDT).

Rousseau also said the CardioMEMS Heart Failure Monitor continues to be hampered by spotty reimbursement from Medicare Administrative Contractors (MACs), or private insurers that process claims for Medicare beneficiaries.

"The single biggest question that we're dealing with here is the dynamic of fee-for-service versus fee-for-value. It is a dynamic we deal with in a number of our products. Our industry, quite frankly, has to deal with it, and that is dealing with the fact that the cost comes in one year and the benefit is spread over multiple years. And as the paradigm shifts, as the governments put in both regulations and penalties and things of this nature, it will begin the change. But in the meantime, the road for innovation is going to be challenging," he said.

On the bright side, Rousseau said that the European launch of the recently acquired HeartMate 3 ventricular assist device is going well, with sales rising 15% year over year to $136 million, above the top end of the company's projection.

He also touted the company's atrial fibrillation unit, saying "We will have the single largest launch in our history in atrial fibrillation. We will have new hardware. We will have new software. We will have a new advanced mapping system. We will bring the first sensor-enabled ablation catheters into the market. This will be a catalyst for the next generation of therapy in atrial fibrillation."

The company also plans to launch neuromodulators for relieving chronic pain that don't need to be recharged.

In addition, Rousseau said that the suspension of the medical device tax will enable St. Jude to invest in product launches, clinical trials and expanded R&D.

Under the company's new reporting structure, cardiovascular device sales rose 2% million to $327 million, sales of atrial fibrillation devices rose 4% to $276 million, newly acquired Thoratec's sales rose 15% to $136 million, neuromodulation sales rose 9% to $128 million, and cardiac rhythm management sales fell 10% to $580 million.

As Rousseau put it, "It's pretty straightforward. We have our business on track, and we have CRM off the track," adding, "The bottom line is the pressure continues and will continue until we fill this product gap in 2016."

- here's the Wall Street Journal story