STJ ST. Jude Medical, Inc.

For Immediate Release

Chicago, IL – January 9, 2012 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Edwards Lifesciences (EW), Medtronic (MDT), Boston Scientific Corporation (BSX), St Jude Medical (STJ) and Johnson & Johnson (JNJ).

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Here are highlights from Friday’s Analyst Blog:

Heart-to-Heart: Evolving TAVR Market

The past few years were challenging for the medical devices companies due to widespread economic uncertainty, reimbursement pressure and declining procedure volume. The ripple effects of these events took a heavy toll on the industry across the board. The companies were forced to look for other solutions to manage their top line.

In addition to restructuring initiatives and focus on emerging markets, the target was primarily on nascent technologies. In a sector where innovation and state-of-the-art medical technology is the name of the game, it becomes practically indispensable in a weak and languishing market.

In this context, transcatheter aortic valve replacement ("TAVR") is a much sought after technology in the medical devices space with many players adopting the acquisition route to imbibe the know-how. With the first human TAVR procedure performed in 2002 by Dr. Alain Cribier, the technology has come a long way as an alternative option for treating patients with aortic stenosis. The FDA has hitherto approved TAVR only
for senile aortic stenosis.

What is at Stake?

Senile aortic valve stenosis is a progressive, age-related disease caused by calcium deposits on the aortic valve that cause the valve to narrow. As the heart works harder to pump enough blood through the smaller valve opening, it eventually weakens, leading to problems such as fainting, chest pain, heart failure, irregular heart rhythms ("arrhythmias"), and even cardiac arrest.

After the onset of these symptoms, more than half of the patients succumb within a couple of years. Open heart surgery seems to be the standard of care to restore the normal blood flow by replacing the diseased valve.

However, many patients with age working against them along with myriad complications are deemed unsuitable for this surgery. As per estimates, approximately 300,000 people worldwide have been diagnosed with severe aortic stenosis, of which approximately one-third are considered ineligible for open heart surgery.

The Playing Field

To meet the urgent need of patients unfit for open heart surgery, several companies are currently working on this technology. However, it is only Edwards Lifesciences (EW) who holds the laurel of successfully bringing to market the Sapien transcatheter heart valve ("THV") in the US (November 2011). Although the Sapien was originally developed to be delivered through two approaches – transfemoral (via the patient’s femoral artery) or the transapical (via a small incision between the ribs) – the FDA approval came for the former.

Edwards thus has the first mover advantage in the US market. The largest medical devices player, Medtronic (MDT), is however not far behind with its CoreValve. Enrollment in the US pivotal study of CoreValve is currently on track and scheduled for completion in mid 2012. The European market, however, is a witness to cut throat competition with both Medtronic and Edwards in the fray since 2007. Given the stalemate in Europe, the two players are struggling to increase their respective market share.

Medtronic’s CoreValve portfolio in Europe includes 26mm, 29mm and31mm valves via three access routes – transfemoral, subclavian (through the subclavian artery located beneath the collar bone) and direct aortic access – all based on the self-expanding platform. Approval for the 23mm valve is expected in the second half of fiscal 2012.

Medtronic and Edwards were the only players targeting the TAVR market in Europe until a couple of months back. However, the competitive landscape is likely to change with the recent launches of two TAVR systems – JenaValve from Germany based JenaValve Technology and Acurate TA by Switzerland based Symetis – both in September 2011. These devices are approved for transapical procedures only.

Pipeline Candidates

Viewing the huge potential in the TAVR market, several other devices are under development. Candidates in queue include Engager from Medtronic (through the acquisition of Ventor Technologies in 2009), Boston Scientific Corporation’s (BSX) Lotus valve (with the acquisition of Sadra Medical in January 2011), St Jude Medical’s (STJ) Portico valve, and a valve from Direct Flow Medical.

Medtronic began a pivotal trial for the Engager system (to be delivered through transapical approaches) in Europe in September 2011. While Boston Scientific plans to launch Lotus in EMEA in the second half of 2013, St Jude Medical is targeting a limited launch of the Portico valve in Europe before the end of 2012. CE Mark trial of the next-generation (18F) valve from Direct Flow Medical was scheduled to begin in 2011. Well
capitalized players such as Johnson & Johnson (JNJ).

Edwards expects US approval of Sapien for high-risk ("Cohort A") patients in mid-2012 while the FDA nod for Sapien XT ("Cohort B") is expected in 2014. Other products under development from the Sapien line include Sapien 3, a lower profile balloon expandable valve and Centera valve, a low profile, repositionable self-expanding valve, both of which will be delivered through the 14F eSheath delivery system.

Caveats for TAVR Procedures

Beyond the huge scope of TAVR, several issues are still unresolved and need to be looked into. These issues revolve around proper selection of patients, choosing the right delivery method, and dealing with high risk complications including the overt risk of stroke. To address the high risk of stroke associated with TAVR, the FDA has asked Medtronic to include major stroke as a primary endpoint in addition to all-cause mortality
for patients in the inoperable cohort.

On request from the Society of Thoracic Surgeons ("STS") and the American College of Cardiology ("ACC"), the Centers for Medicare & Medicaid Services ("CMS"), in September 2011, decided to initiate a National Coverage Analysis for TAVR. Any unfavorable reimbursement decision from the CMS could have an adverse impact on this fledgling technology.

Who Will Win the Race?

Although the TAVR procedure is not without its shortcomings, as seen above, close scrutiny of the procedures performed and proper selection of patients are crucial for best results. The MedTech players are all keen to have their fingers in the TAVR pie, a fact that bespeaks of the economic potential of this specialized, state-of-the-art procedure.

These devices are priced at a hefty premium to conventional surgical valves. For example, Sapien has a price tag of $30,000, way above any surgically implanted valve. However, the prevailing economic uncertainty and the adoption of austerity measures would force the players to increasingly compete on price.

Our Pick

Among so many players vying for a share of the TAVR market, we believe Edwards is in an advantageous position compared to its peers. Until recently, Edwards was the only player in the European market with a transapical procedure (approximately half of total volume) and was enjoying 100% of the market share. Although competition in this space is set to intensify with new products such as JenaValve and Acurate TA waiting in the wings, we believe Edwards with its rich experience of more than four years is well poised to take on the competition.

On the transfemoral side, Medtronic’s CoreValve had a larger share before the introduction of Edwards’ Sapien XT. While the former still has its edge, Edwards is working on closing the gap.

The current scenario in the US market is congenial for Edwards given the head-start it enjoys compared to Medtronic. The latter is still a couple of years away from launching its product, CoreValve, in 2014. By that time Edwards will also be ready to compete with its next generation Sapien XT valve and, on top of it, with more than two years of experience.

Acknowledging the shortcomings of TAVR, we expect the technology to nonetheless succeed in deepening its penetration level. However, the developmental path will involve several modifications and check points, which we believe is only the right thing to do given the severity of the disease and human life at stake.

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