St. Jude Medical Inc. shares closed down more than 8 percent Wednesday as the medical device manufacturer trimmed its financial outlook on disappointing news about two key heart devices.
During a conference call with investors to discuss third quarter results, Chief Executive Daniel Starks said his company now doesn't expect U.S. approval for a new pacemaker that's compatible with MRI scans until the first half of next year.
Crosstown rival Medtronic PLC already has such a device on the market, and St. Jude Medical had been hoping for a third quarter approval this year to better compete for pacemaker patients in the U.S.
Meanwhile, the company also lowered its near-term sales expectations for CardioMems, a new heart monitor for early symptoms of heart failure.
Despite the technology's promise, one commercial insurer that administers Medicare benefits has opted not to pay for CardioMems.
"We have been under some stress, specifically in the MRI space," said chief operating officer Michael Rousseau, who is scheduled to succeed Starks as CEO effective Jan. 1.
On CardioMems, Rousseau said: "The headwind … is the managing, educating, informing the reimbursement-to-payer community on exactly what this technology can mean for them."
Along with Medtronic and Boston Scientific, St. Jude Medical is one of the big three manufacturers of pacemakers and implantable defibrillators in the United States.
All three companies have large operations in the Twin Cities. St. Jude Medical, based in Little Canada, employs more than 3,000 people in Minnesota.
During the third quarter, St. Jude Medical closed on its purchase of Thoratec, a $3.4 billion deal that's the largest acquisition in the company's history. Thoratec sold left ventricular assist devices, or LVADs, with sticker prices up to $100,000 for patients with advanced heart failure.
"We see the acquisition of Thoratec as a capstone on our transition to become the first and only medical device company that can surround the epidemic disease of heart failure with a comprehensive portfolio of medical device solutions and related services," Starks said. He added that new, cost-effective technology for heart failure patients is needed, or else health care systems will be "overwhelmed by a tsunami of medical care costs."
But talk about Thoratec took a back seat on Wednesday to questions about CardioMems and the market for cardiac rhythm management (CRM) devices. The term encompasses both pacemakers, which can help patients with slow heart beats, and implantable defibrillators, which shock failing hearts back into rhythm.
Medtronic has been first to market in the U.S. with pacemakers that are compatible with MRI scans, and the technology gap has cost St. Jude Medical market share, said Raj Denhoy, an analyst with Jefferies LLC, in an interview.
This fall, Medtronic announced U.S. approval for an MRI-compatible defibrillator, where St. Jude Medical now also faces a technology gap, Denhoy said. During Wednesday's conference call, St. Jude officials said they now expect approval for their MRI-compatible defibrillator in late 2016 or early 2017.
"Their CRM business is still going to be under pressure for a while," Denhoy said.
During the third quarter, CardioMems sales were essentially flat compared with the second quarter, wrote Michael Weinstein, an analyst with J.P. Morgan, in a note to investors Wednesday. The result is "likely to be disappointing for investors and supports our view that … estimates for this franchise may be too aggressive," Weinstein wrote.
But St. Jude remains optimistic about the technology because it's helping patients, Rousseau said. The manufacturer will make the case for CardioMems over the next few months, he added, during meetings with key health insurers.
"Some of the payers are not making the right assumptions and do not have accurate data," he said. "And that's on us to educate this community and to get them up to speed."
For the quarter that ended Oct. 3, St. Jude Medical reported net sales of $1.34 billion, a 2 percent decline compared with the same period last year. On a constant currency basis, revenue increased by 6 percent, the company said.
St. Jude Medical posted net earnings for the quarter of $277 million, or 97 cents per share, after adjusting for one-time items and an expected benefit from a federal research and development tax credit. During the same quarter last year, St. Jude saw adjusted earnings of $296 million, or $1.02 per share.
The third-quarter results were slightly ahead of analysts surveyed by Thomson Reuters, who expected 96 cents per share in earnings.
St. Jude Medical said it now expects full-year earnings in the range $3.93 to 3.95 per share, down from prior guidance of $3.96 to $4 per share. Weinstein of J.P. Morgan noted the reduction during Wednesday's conference call, telling company officials: "To pull back here late in the year is going to surprise a few people."
St. Jude Medical shares closed Wednesday at $62.30, down $6.06 on the day.
Christopher Snowbeck • 612-673-4744
Twitter: @chrissnowbeck
