STJ ST. Jude Medical, Inc.

Recently, Volcano Corporation (VOLC) received clearance for its PrimeWire Prestige pressure guide wire in Japan. The company is targeting a full market release of the product in Japan in the second quarter of 2011. PrimeWire Prestige, already available in the US and Europe, has received favorable feedback from physicians.

Volcano Corporation’s functional measurement (FM) products consist of pressure and flow consoles and single-procedure disposable pressure and flow guide wires. The company believes that publication of favorable trial data relating to the measurement of fractional flow reserve (FFR) in addition to angiography will lead to further adoption of FM technology by clinicians.

Japan is an important market for Volcano Corporation, which accounted for 27% of total revenues during fiscal 2010. Since the termination of the distribution agreement with Goodman in July 2009, the company has recorded a huge jump in revenues from this region. While previously products were sold through distributors in Japan, following the termination of distribution agreement with Goodman, the company started selling its products directly through an internal sales force.

Direct marketing in Japan has enabled Volcano to realize end market prices for its products. On top of this, the company terminated its distribution agreement with Fukuda Denshi in Japan, which has been effective since December 1, 2010. As a result, Volcano will be able to address 95% of its business in Japan on a direct basis.

The establishment of a direct sales force should allow the company to provide more focused service and support to the market. We believe the transition to a direct sales force will boost top- and bottom-line in the long run.

The company also increased its sales force in Japan to 59 people at the end of 2010 compared with 46 at the end of 2009. It is encouraging to note that the transition of more than 180 accounts served previously by Fukuda took place on December 1 and the customer response has been favorable.

However, Volcano Corporation’s sales from this area will suffer a major blow following the earthquake and tsunami, which led to the loss of thousands of lives. In this scenario, the launch of the latest generation pressure guide wire should drive sales, to some extent. Presence of players such as St. Jude Medical (STJ) and Boston Scientific Corporation (BSX) poses a highly competitive scenario for the company.

We are currently ‘Neutral’ on the stock.

 
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