Medtronic Inc. (NYSE:MDT) reported slow sales for its cardiac rhythm management business, confirming analysts’ suspicions that the U.S. market for implantable cardiac defibrillators and pacemakers is in a slump.
The Fridley, Minn.-based medical device giant said sales for its CRM group dropped 5 percent during the 12-months ended April 29, to $5.01 billion, compared to $5.26 billion during fiscal 2010. The drop was primarily attributable to a 6 percent dive in sales of MDT’s defibrillation systems, which went from $3.16 billion in 2010 to $2.96 billion in 2011.
Pacemaker sales dropped 4 percent during 2011 to $1.90 billion, compared to $1.98 billion in 2010. Medtronic officials cautioned that the current fiscal year came in a week shorter than 2010.
The CRM slump was particularly bad in the U.S., where sales dropped 9 percent to $2.69 billion, compared to $2.94 billion during 2010, primarily driven by a 10 percent slowdown in ICD sales. Internationally, sales were essentially flat for the CRM unit, at $2.32 billion compared to last year.
Medtronic’s cardiovascular business, which includes coronary stents and structural heart products, was up nearly 9 percent to $3.1 billion, compared to $2.86 billion during the same period last year. Cardiac and vascular group sales were essentially flat at $8.54 billion for FY2011.
During the fourth quarter, CDRM sales were $1.32 billion, down 7 percent, with ICD revenue accounting for most of the drop-off. ICD sales were down 14 percent during the quarter, to $760 million. The quarterly comparison included a bump from the massive ICD shipment hold that affected Boston Scientific Corp. (NYSE:BSX) in early 2010. Excluding the effect of the BSX shipment hold, MDT said ICD revenue was down 8 percent on a constant-currency basis.
Poor CRM sales for one of the industry’s heaviest hitters makes it all but official the market is in a slump that’s affected at least two of its three biggest players.
The slump, which Medtronic’s CFO Gary Ellis estimated during a conference call with investors was somewhere in the high single digits, has been universally blamed on lower procedure volumes driven by a U.S. Dept. of Justice investigation and a recent study (published in January in the Journal of the American Medical Assn.) that showed that 22.5 percent of patients fell short of medical guidelines required to receive the $25,000 devices.
MDT rival Boston Scientific was so concerned about the slump that it took a $697 million write-down during the first quarter to account for it.
The Natick, Mass.-based medical device maker reported April 20 that sales for its CRM division, which makes pacemakers and implantable defibrillators, jumped 4 percent to $559 million during the first three months of 2011. But a closer look at the numbers reveals that BSX benefited more from a favorable comparison than a strong performance.
Near the end of first quarter of 2010, Boston Scientific abruptly stopped all shipments and and pulled field inventory of its ICDs and CRT-Ds, after discovering that it missed a pair of FDA filings. The move cost the company an estimated $72 million in sales during Q1 2010, according to a regulatory filing, not to mention forcing BSX to cede precious market share to Medtronic and its Tein Cities peer, St. Jude Medical (NYSE:STJ).
A more accurate comp for Boston Scientific’s Q1 2010 CRM sales is not $538 million but $610 million. Compared with that figure, Q1 2011 CRM sales were off by about 8.4 percent.
BSX and St. Jude, fluffed off the JAMA study as having “little impact” on CRM sales. The St. Paul, Minn.-based St. Jude reported a 9 percent uptick in its CRM business during the same quarter.
“When you look closely at the percent of the available population that is potentially impacted by the JAMA article, it amounted to just a very small percent of the total opportunity and really was not material on a total global basis when we look at the anticipated growth rate of the global CRM market,” STJ CEO Daniel Starks said during the company’s earnings call.
For its part, Medtronic reported a $3.10 billion profit on $15.93 billion for FY2011, essentially flat compared to $3.01 billion on sales of $15.81 billion during FY2010.
The company said it expects revenue growth in the range of 1 percent to 3 percent for FY2012, with diluted earnings per share in the range of $3.43 to $3.50.