Analysts on Wall Street are readjusting expectations of the 2011 cardiac rhythm management market, ahead of what could be a very important earnings announcement slated for later this month by Medtronic (NYSE:MDT).
The most recent voice of skepticism, Leerink Swann analyst Frederick Wise, sent a note to investors this morning readjusting his already-low expectation for the CRM market this year after cardiologists at the annul Heart Rhythm Society meeting told him their procedure volumes were down.
“Overall, we left feeling incrementally more concerned about near-term ICD implant volumes due to: (1) the ‘chilling impact’ — one MEDACorp physician’s words — of ongoing DoJ hospital investigations; (2) the early Jan. JAMA article suggesting overutilization of ICDs in the U.S.; and (3) ongoing macroeconomic pressures,” Wise wrote. “Every doctor we spoke with noted concerns about declining implant volumes, with one noting that volumes at his practice are down ~8%-10% since the Jan./Feb. timeframe. Though difficult to extrapolate what we heard to every U.S. EP practice, this could suggest that our current basically flat 2011 U.S. ICD market growth projection could prove high.”
Medtronic, the world’s largest pure-player medical device maker, is the last of the big three players in the CRM space to report results for the first three months of 2011. Its take on market conditions could tip the balance on Wall Street, lending weight to either of the forecasts on the Street. Twin Cities rival St. Jude Medical Inc. (NYSE:STJ), the first of the big CRM players to announce results, reported a 9 percent uptick in its CRM business during the first three months of 2011. CEO Daniel Starks said the recent JAMA study had “little impact” on its own CRM sales.
“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,” Starks said during the company’s Q1 earnings call.
That view is in direct contrast with Boston Scientific (NYSE:BSX), which hewed to the line espoused by Leerink’s Wise: the Justice Dept. probe and the JAMA study are to blame for the softness in its CRM business and the reason BSX took a nearly $700 impairment of goodwill charge during the first quarter.
“We believe physician reaction to JAMA study results in early January and the DOJ and local inquiries into ICD implant appropriateness of use is contributing, but we don’t believe they will be long-lasting,” CEO Ray Elliott told analysts on an earnings call. “We have taken the U.S. CRM goodwill write-down predominantly as a result of our future view of the market in its entirety, including all the various players.”
On paper, the Natick, Mass.-based company posted a 4 percent jump in its CRM division during the first quarter, to $559 million, but a closer look at the numbers reveals that it 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 implantable cardioverter defibrillators and cardiac resynchronization therapy defibrillators, 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 competitors Medtronic (NYSE:MDT) and St. Jude Medical (NYSE:STJ).
So 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.
