STJ ST. Jude Medical, Inc.

Leading medical devices player, Medtronic (MDT) has decided to combine its US Cardiac and Vascular Group sales functions into a single, unified sales organization effective from May 1, 2011. The former Vice President of sales for the company’s largest segment -- Cardiac Rhythm Disease Management -- David Roberts will lead this new group of 2,700.

This comes as a measure to respond to the challenges that are being faced by hospitals. Moreover, this decision by Medtronic takes into account the growing importance of hospital administrators in the decision making process related to device selection. According to the company, previously these businesses were primarily focused on clinicians as the key decision makers for medical device selection for their patients.

In addition, Medtronic created a Strategic Account Management team that would report to the new sales organization. This team will focus exclusively on delivering a cross-business portfolio of products and services to cardiac and vascular-focused hospital administrators.

Medtronic’s Cardiac and Vascular Group will comprise of CRDM, Structural Heart, Endovascular Innovations, Peripheral, Coronary, Renal Denervation, and Physio-Control. During the last reported quarter, the company had announced its intention of divesting the Physio-Control business.

Along with third quarter results, Medtronic announced restructuring initiatives to make it sustainable for long-term growth. As a part of this plan, about 4%-5% of the workforce (representing 1500-2000 positions) will be reduced during the fourth quarter. Consequently, Medtronic will incur a one-time charge related to the restructuring during the fourth quarter. 

Recommendation

Medtronic recorded a 3% growth in revenues during the last reported quarter although sales continued to decline in its largest segments, CRDM. However, breaking the trend of the past few quarters, the Spinal segment recorded higher revenues. Moreover, recent product approvals including MRI SureScan pacemaker and Protecta ICDs should further provide some support to the CRDM segment.

Meanwhile, Medtronic is increasing its focus on emerging markets and emerging therapies and expects these to be major growth drivers going ahead. Acquisitions should enable the company to record higher revenues in the forthcoming period. However, the company operates in a highly competitive environment with players such as Boston Scientific (BSX) and St Jude Medical (STJ) and is exposed to the risk of currency movement.

We maintain our Neutral recommendation on the stock.

 
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