Market For Heart Devices Won't Get A Jolt Anytime Soon

Don't expect sales of devices that shock the heart to get a jolt anytime soon.

The domestic market for implantable cardioverter defibrillators, or ICDs, slumped an estimated 14% to 15% in the final three months of 2011, according to Bernstein Research, and is projected to be down 11% in 2011 to $3.73 billion. New products aren't expected to halt the declines as Bernstein projects another 3% drop in 2012.

"We may continue to see market stress during 2012," St. Jude Medical Inc. (STJ) Chief Executive Daniel Starks said last month about the broader cardiac rhythm market, which includes ICDs. "We may very well have a mixed year with the first half of the year continuing to be a little bit weaker."

St. Jude and Boston Scientific Corp. (BSX) are key players in the U.S. market, with Medtronic Inc. (MDT) as the leader. The three companies declined to comment on their ICD sales and strategy for this story.

Sales of ICDs have suffered after a study published in a prominent medical journal indicated that the devices, which provide a shock to the heart when needed in patients with irregular heartbeats, were being used outside of clinical guidelines. Additionally, the Department of Justice has had an ongoing probe into reimbursement submissions for ICDs.

Companies and industry followers say those two factors have pressured ICD volumes as doctors adhere more closely to guidelines and as implant practices get more scrutiny.

Also not helping is that the market for ICDs--like stents, hip and knee implants, and other medical devices--is facing downward pressure on pricing because the industry's hospital customers are trying more aggressively to trim costs.

In the case of ICDs, "generally, the days of double-digit growth seem to be well in the past," said Raj Denhoy, an analyst at Jefferies & Co. "Pricing is going to remain pretty bad for these guys."

Woes in the heart market have weighed on the companies' stocks. Shares of Boston Scientific are down 15% in the past 12 months, while St. Jude is off 7.9%. Medtronic shares are down a fraction for the period; the company, which is larger and more diversified than its competitors in the space, is scheduled to report its fiscal third-quarter earnings next week.

In the face of slumping sales, companies are focusing on developing products that offer faster-growing sales potential, such as catheter-delivered heart valves and treatments for high blood pressure. But it's a strategy that will take time to produce results.

"There's a hole in the bucket, and you can't fill it fast enough," Denhoy said.

Last year, Boston Scientific announced U.S. Food and Drug Administration approval of new cardiac resynchronization therapy devices--a subset of ICDs. The company says the new products offer longer battery life and are smaller and thinner than competing devices, which is considered a cosmetic benefit.

"These new devices maintain our advantage in size and shape, which is often a critical factor for our patients," said Hank Kucheman, the company's interim chief executive, on Boston Scientific's fourth-quarter earnings call.

St. Jude has said it expects to gain at least one percentage point of share in the global cardiac rhythm market on a new ICD system that received U.S. approval late last year. The company says the new product limits complications and allows doctors more flexibility when implanting the device. St. Jude, however, is dealing with concerns over problems with wiring in separate ICDs--so any gains from the new product could be offset by share loss resulting from that issue.

Part of the difficulty for device makers is convincing hospitals to pay higher prices for new products.

"The features in the devices are similar enough that you can legitimately use any of the major companies' [products] and rescue the patients," said Bruce Wilkoff, president of the Heart Rhythm Society, a group for doctors, nurses and scientists treating rhythm disorders.

-By Anjali Athavaley, Dow Jones Newswires; 212-416-4912; anjali.athavaley@dowjones.com

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