By Thomas Lee
LITTLE CANADA, Minnesota– Earlier this month, St. Jude Medical Inc. (NYSE:STJ) marked a 30-year history of developing neurostimulation technology at the American Academy of Pain Medicine’s annual meeting.
But in truth, St. Jude’s neurostim business really begun in 2005. That’s when the local medical device maker, known mostly for its pacemakers and implantable cardio defibrillators, purchased Advanced Neuromodulation Systems of Plano, Texas. The smooth acquisition gave St. Jude a much-needed revenue boost at a time when global demand for mechanical heart devices started to wane.
ANS also helped St. Jude narrow the considerable lead of industry giant Medtronic Inc. (NYSE:MDT) in Fridley, Minn. Last year, St. Jude won European approval for its Libra deep-brain stimulation device to treat Parkinson’s disease and hopes to soon challenge Medtronic’s Activa devices in the United States. St. Jude is also conducting clinical trials on a DBS device to treat depression and recently entered the Chinese and Japanese markets.
ANS “has been a very good acquisition for St. Jude,” said Chris Chavez, the former ANS CEO who now leads St. Jude’s neurostim division. ”We have not only expanded by revenue but also by geography. It’s a classic acquisition in which everyone wins. The reason for St. Jude to buy us was to build on a growth platform. Judging by our performance [since the deal], it’s clear that we continued our growth and outpaced the competition.”
Since 2005, St. Jude’s neurostimulation sales have more than doubled to $353 million, jumping 30 percent alone last year. It’s the company’s fastest-growing business. By contrast, St. Jude’s core cardiac rhythm management division in 2008 posted a sales increase of 14.1 percent.
St. Jude’s 21 percent average growth rate over the past four years has allowed it to gain some ground on Medtronic, by far the industry leader. Last year, Medtronic’s neuromodulation business grew 9 percent to $1.4 billion.
The key to St. Jude’s success, analysts and executives say, was the company’s ability to seamlessly absorb its acquisition. ANS senior executives, including Chavez, have remained at St. Jude, a continuity of management virtually unheard of in today’s world of messy corporate marriages, said Tom Gunderson, a medical device analyst with Piper Jaffray & Co. in Minneapolis who followed ANS closely.
“We have built on a [cultural] foundation that really celebrates on what people can do,” Chavez said.
It also helps that St. Jude largely avoided the legal and regulatory headaches of Boston Scientific’s (NYSE:BSX) much larger purchase of Guidant Corp., an acquisition also meant to help Medtronic rival BSX boost its neurostim business, said Venkat Rajan, a medical device analyst with research firm Frost & Sullivan.
Thanks in large part to ANS, St. Jude is gaining market share on Medtronic with a solid, high quality portfolio of neurostim products like the Eon Mini, Rajan said, the world’s smallest and lightest rechargeable implantable pulse generators for chronic pain.
Chavez said the company has adopted a “not one size fits all” strategy in which “we create a family of components that are interchangable, a kind of Legos that enables physicians to create solutions for patients.”
For instance, the Food & Drug Administration recently approved the company’s new Penta neurostimulation leads for back pain, which use a unique design and micro-texturing process to deliver greater amounts of electricity through small electrodes. Last December, St. Jude introduced its next generation Multi-Steering software to its Rapid Programmer at the North American Neuromodulation Society’s annual conference. The software allows doctors to more quickly evaluate pain patterns and direct multiple therapies to different parts of the body.
Experts, however, say the future growth in neuromodulation lies with deep-brain stimulation. There St. Jude faces an uphill battle against Medtronic, the only company selling FDA-approved rechargable DBS devices in the United States.
Last June, Medtronic won regulatory approval to market its Activa DBS devices to treat advanced Parkinson’s and epilepsy. A major study published earlier that year in the Journal of the American Medical Assn. concluded that Medtronic’s DBS devices worked just as well as drugs in improving the quality of life of patients suffering from Parkinson’s.
Chavez says Medtronic’s first to market position gives it an “obvious advantage.”
However, “the brain is rich with targets,” he said. “I suspect the market for DBS will expand into multiple applications.”
The company estimates the global DBS market will hit more than double to $637 million in 2014 from $309 million last year.
St. Jude completed enrollment for a 150-patient,15-site study to treat migraine headaches with DBS technology and is expanding its high-profile BROADEN clinical trial. That 50-patient study will test whether St. Jude DBS devices can help patients suffering from depression who don’t respond to drugs.
The company is unlikely to ever catch Medtronic in neurostim sales, but St. Jude can provide a spirited challenge to MDT’s’s dominance, Piper Jaffray’s Gunderson said.
Chavez hopes St. Jude can chip away at Medtronic’s lead the same way it did with pacemakers and ICDs, using the same entrepreneurial spirit from ANS.
“At ANS, we had more vision than resources,” he said. “We don’t think of it as competing with Medtronic. We view it as a [company] that comes between our products and the patient.”