Wilson Greatbatch, the
self-professed "humble tinkerer" and a trailblazer in medical
technology, invented the first implantable cardiac pacemaker in
1958 which kept the rhythm of millions of heartbeats and preserved
countless lives across the planet.
A couple of decades later, the first
patient received an implantable defibrillator, the brainchild of
Dr. Michel Mirowski, in 1980. But that took place decades ago and
we have come a long way since then. Medical technology has advanced
by leaps and bounds, revolutionizing the way medicine is practiced,
in a hi-tech world.
And what is more quintessential in
this Faustian quest for good, and even better health, than taking
care of the heart? There is a Chinese proverb that goes: “If you
keep a green bough in your heart, the singing bird will
come.”
Heart failure, in a nutshell, is the
inability of the heart to pump enough blood. It is a leading cause
of death in the U.S. and one leading medical device company,
St. Jude (STJ), is committed to revolutionize the
treatment of patients, with this fatal condition with a
ground-breaking device.
CRT – An Effective
Treatment
As per data from the National Heart,
Lung, and Blood Institute (“NHLBI”), roughly 5.7 million people are
afflicted by heart failure in the U.S. alone. Around 60 million
Americans are at high-risk to develop heart failure every year.
Needless to say, it is among the leading causes of hospitalization
in the nation with roughly 1 million hospitalizations annually.
When it comes to economic burden, an estimated $38 billion is spent
every year in direct and indirect costs for heart failure.
Cardiac resynchronization therapy
(“CRT”), delivered through implantable cardioverter defibrillator
(“ICD”) or a pacemaker, resynchronizes the beating of the heart’s
lower chambers that often beat abnormally in patients with heart
failure. CRT has been found to be effective in improving the
quality of life in many patients with heart failure.
St. Jude’s
Gift
The U.S. Food and Drug
Administration (“FDA”) has finally cleared the industry's first
quadripolar pacing system, representing one of the most significant
landmarks in the MedTech firmament in recent times.
The regulator has given its green
signal to St. Jude’s much-awaited “Unify Quadra” cardiac
resynchronization therapy defibrillator (“CRT-D”), representing a
key milestone for the St. Paul, Minnesota-based medical devices
major. The device was originally expected to reach the U.S. market
in mid-2011, but was eventually delayed to year end due to
technical reasons.
The news provided a much needed
boost to St. Jude’s shares, which jumped $2.75 (or 7.71%) to $38.44
on Wednesday, the highest spurt since March 2010. The company’s
shares have lost nearly 30% of its value since May 2011, given the
current deceleration in the CRM market.
St. Jude said that it will start
shipping the first-of-its-kind device shortly. Besides Unify
Quadra, the FDA has also approved the company’s “Quartet” left
ventricular (“LV”) pacing lead (flexible wire) which is used by the
novel pacing device. The approval came at a time when St. Jude
warned physicians that its controversial Riata defibrillator leads
have a greater failure rate than reported earlier.
Unify Quadra: A Game
Changer?
St. Jude debuted with the so-called
quadripolar technology with the launch of “Promote Quadra” CRT-D in
Europe in 2010. Promote Quadra coalesces multiple pacing
configuration, features and programming options, allowing surgeons
to optimize the system at implant to better manage common pacing
complications such as phrenic nerve or diaphragmatic stimulation,
which can occur in patients implanted with a CRT system.
Phrenic nerve or diaphragmatic
stimulation takes place when an electrical output from a CRT device
unintentionally activates the diaphragm muscle, resulting in major
discomfort for patients. The complication generally occurs due to
the location of the LV pacing lead electrode.
Unify Quadra is a small quadripolar
pacing system which enables physicians to more effectively manage
the pacing needs of patients with heart failure. The LV lead in
Unify Quadra contains two additional electrodes (electrical
conductor) vis-à-vis the legacy bipolar leads. Unify Quadra landed
in Europe in September 2011 and has been well-received in the
continent.
Unify Quadra represents an
advancement over Promote Quadra, offering all the benefits of
quadripolar technology in a device with the smallest footprint in
the industry. The narrower shape allows surgeons to implant the
device through a minute incision, leading to reduced time in
closing the incision and a smaller scar for the patient.
Unify Quadra uses the “Quartet” LV
pacing lead, the first lead to feature four pacing electrodes,
which can be used in up to ten pacing configurations. This provides
surgeons with a greater number of options to place the lead in the
most stable position and manage implant complications, resulting in
improved patient outcome. Since the surgeon can adjust pacing
locations or configurations, the technology has the potential to
reduce the need for multiple surgeries.
The
Payoff
A still choppy CRM market remains an
overhang on St. Jude and its compatriots Medtronic
(MDT) and Boston Scientific (BSX). Prevailing
macroeconomic conditions, pricing pressure, austerity measures, the
impact of healthcare reform and Europe's sovereign debt plight are
expected to weigh on the roughly $12 billion CRM market. Implant
volume growth has been encumbered by a number of factors including
the U.S. Department of Justice’s investigation into hospitals'
implant practices and concerns of overuse.
The core CRM business remains St.
Jude’s Achilles' heel with revenues growing at a sluggish clip,
impacted by the beleaguered U.S. defibrillator market. On the
contrary, its smaller segments such as Atrial Fibrillation,
Neuromodulation and Cardiovascular continue to grow at a torrid
pace and remain the bastions of the company’s growth story.
Nevertheless, with Unify Quadra to
hit the U.S. market shortly, we envisage that St. Jude is now
strongly placed to savor incremental opportunities in CRM having
the distinction of being the only company to offer quadripolar
pacing technology globally. This avant-garde pacing technology is
expected to set a new standard of care in cardiac treatment.
Such sophisticated treatment would
also come at a premium price tag helping St. Jude to win ground in
the roughly $6.5 billion U.S. defibrillator space. However, the
company should also brace itself for reignited competition in a
soft ICD market.
We stay tuned to see the response of
the other big Kahunas of the MedTech world, Medtronic and Boston
Scientific, as they look to level the playing field. While both
these entities have quadrapolar leads in their pipeline, it will
take a while (at least a year) before they hit the U.S. market,
giving St. Jude a clear lead.
Our long-term Neutral recommendation
on St. Jude is in agreement with a Zacks #3 Rank (Hold) retained by
the stock. We are also Neutral on Medtronic and Boston Scientific,
both of which carry short-term Zacks #3 ranks.
BOSTON SCIENTIF (BSX): Free Stock Analysis Report
MEDTRONIC (MDT): Free Stock Analysis Report
ST JUDE MEDICAL (STJ): Free Stock Analysis Report
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