blue cardiac medical device

Erik: Abbott’s acquisition of St Jude Medical affects nearly every vascular market we study. Abbott will be able to bundle its coronary stent with St. Jude’s interventional cardiology diagnostic tools; Abbott’s late 2014 bet on rotor mapping for atrial fibrillation ablation is more likely to succeed now that it can be combined with St. Jude’s wide array of electrophysiology devices; and Abbott’s MitraClip can complement the array of St. Jude’s structural heart devices.

Alex: From the point of view of interventional cardiology, Erik you have it exactly right; the combination of Abbott’s stents with St. Jude’s OCT/FFR (ie, coronary artery diagnostic tools) capabilities is going to be extremely powerful, as both are best-in-class in their respective domains. Despite some recent pressure from Boston Scientific and the SYNERGY stent, Abbott still has the flagship XIENCE as well as pending approval of the Absorb BVS in the US. Meanwhile, St. Jude is extremely dominant in imaging/pressure guidewires, despite the recent surge from ACIST in the FFR segment. Now that they can bundle these things together? Look out.

Erik: Another important area of synergy between the companies is in atrial fibrillation ablation. All Abbott has is its rotor mapping system, a new ablation-guiding tool that still needs clinical validation. St Jude is the second biggest competitor in this space and offers a full range of ablation products from its widely used mappings system, to its diagnostic catheters, to its contact-force sensing ablation catheter.

Sean: Before this acquisition, Abbott was showing a keen interest in the minimally invasive structural heart market. In particular, its MitraClip device is the only transcatheter mitral valve repair (TMVR) device available in the US. St. Jude’s suite of transcatheter heart defect closure devices (such as the AMPLATZER septal occluder) should fit nicely into this product portfolio and create synergies for the company, as interventional cardiologists are the target users for both devices.

Both companies’ pipeline products also complement each other: Abbott recently paid $250 million for a transcatheter mitral valve implantation (TMVI) device, while St. Jude is currently running a pivotal trial for its Portico TAVR device. St. Jude’s LAA closure device is also being investigated for US approval. If all these products hit the market, the new Abbott-St. Jude entity will be the only company with a truly comprehensive transcatheter structural heart offering.

Erik: St. Jude Medical has been the unluckiest medtech company I have studied which makes it an odd acquisition target:

  • Its biggest source of revenue, cardiac rhythm management (CRM), has performed poorly in recent years due to a lack of MRI-compatible devices in the US.
  • Its leadless pacemaker, Nanostim, was the first to gain CE mark approval but its commercialization hit a snag over patient deaths. Now Medtronic is leading this market in Europe and is the only competitor with FDA approval for a leadless pacemaker.
  • Its TAVR device had its CE mark suspended in late 2014 over observations of leaflet thrombosis (although with further study it turned out this is an issue with all tissue valves, even surgical ones).
  • Its contact-force sensing ablation catheter was second to market in the US.
  • Its investment in patent foramen ovale (PFO) closure in cryptogenic stroke patients has failed miserably. No PFO closure device has ever earned FDA approval in the 15 year history of these devices but St. Jude expects it to happen this year. However, the targeted patient population will be much smaller than what was initially imagined.

Anything I missed?

  • Sean: St Jude didn’t even get a chance to show whether or not its EnligHTN renal denervation system was effective. The company was running the second-most advanced renal denervation clinical program (behind only Medtronic), but ended up suspending its pivotal trial due to the failure of Medtronic’s SYMPLICITY HTN-3.
  • FernandoSt. Jude made a big bet on the large Class III heart failure segment with CardioMEMS, an implantable heart monitor. It’s supposed to be a major growth driver but has faced difficulty in getting reimbursement in the US. Abbott’s leadership position in the IC device market will provide a springboard for adoption of the HeartMate PHP; a Thoratec pVAD for high-risk PCI procedures. Abiomed is the current leader in this segment and wasn’t worried when St. Jude Medical acquired Thoratec last year. They may think differently now that it’s Abbott.
  • Beata: The company received a warning letter from the FDA regarding its Plano, Texas neuromodulation device manufacturing facility in 2009. The issues were not fully addressed until 2014, causing St. Jude to fall behind in innovation race and lose market standing.

Erik: Given all this baggage, financial analysts were a bit skeptical over Abbott’s decision. But why now?

Fernando: Abbott said they needed ‘breadth in a changing healthcare environment.’ In English, customers don’t want to deal with 4 or 5 companies, they want one vendor with a broad portfolio and excellent support. Their cardiovascular portfolios complement each other well, positioning the combined company to be the number 1 or 2 competitor in most cardiovascular segments.

Ashish: Having researched the Indian and Chinese medtech markets, the most competitive firms have lower prices and a strong distribution network. These can only be realized by larger firms. In the surgical heart valve space, St. Jude dominates these countries, now Abbott can use the network St. Jude has built for the MitraClip and their future transcatheter mitral valve replacement device. This will be especially true as rising incomes allow patients to afford new therapies that local companies do not have. For example, India’s local medtech supplier, TTK Healthcare, offers a popular mechanical valve but no transcatheter heart valve devices. Abbott will be well positioned to offer such devices as the demand for minimally invasive treatments climbs.

Erik: Fascinating. Needless to say this is the biggest medtech story of the year. St. Jude is the patron saint of lost causes and it seems Abbott is trying to change that.

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