St Jude Medical Earnings Call Insights: Quarter’s Selling Days and OUS Side of Business

St Jude Medical(NYSE:STJ) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Quarter’s Selling Days

Kristen Stewart – Deutsche Bank: Just real quickly, have you guys looked at just kind of the impact of the fewer selling days on the quarter in terms of the top line impact?

Daniel J. Starks – Chairman, President and CEO: Yes. The selling day difference is very clean in the United States. In the United States, we calculate 62 selling days in the first quarter of 2013 compared with 63 selling days in the first quarter of 2012. That calculates to a 1.6% difference. That 1.6% difference would account for the difference between the revenue that we reported in the first quarter of $1.338 billion, and if you were to adjust that for a 1.6% difference in selling days, that would equate to Q1 revenue of about $1.36 billion. So that’s the impact with the U.S. In international markets, the impact was a little bit greater, but the selling day calculation is different in each market.

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Kristen Stewart – Deutsche Bank: And then any update of the FDA warning letters?

Daniel J. Starks – Chairman, President and CEO: Remediation is on track. That would really be the update I’d give you. I’m tempted to turn your question over to Eric Fain, Kristen, but really, I won’t do that just because the warning letter has our full attention. There is nothing that is higher priority than diligently and urgently completely remediating everything related to that warning letter and our team is fully not only the division level team, but the full corporate team is fully focused on completely and urgently remediating that warning letter and we’re making very good progress with it…

Kristen Stewart – Deutsche Bank: Lastly, anything that you can share on CardioMEMS given the fact that you made the investment? I guess I would infer that you’re optimistic about bringing that product to market; so any update there?

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Daniel J. Starks – Chairman, President and CEO: Kristen, again, Eric Fain, of course, is very close to the CardioMEMS’ circumstances, but I think I’ll just answer the question myself and save Eric from having to give you a no comment. The reason that we mentioned CardioMEMS today is because we really had to make a disclosure regarding the debt financing that we offered and the impact that has on consolidating CardioMEMS results with ours for the remainder of this year, and one could read between the lines that that means that we are optimistic about the opportunity for CardioMEMS. But as far as anything more precise, we will continue to defer to CardioMEMS to make any announcements that it finds appropriate and we’re not yet in the position of thinking it’s appropriate for us to speak in anyway on behalf of CardioMEMS.


OUS Side of Business

Michael Weinstein – JPMorgan: Dan, your comments on the ICD side I thought were encouraging. The pacemaker side; however, you continue to struggle on that and I wanted you to suspend a minute on the OUS side of the pacemaker business, in particular, both Europe and Japan, and talk about what reverses those trends over the balance of the year and into ’14?

Daniel J. Starks – Chairman, President and CEO: So, the first thing would be to talk about the market dynamics in Japan. The greatest softness in our pacemaker results in the first quarter of 2013 on a year-over-year basis were in Japan, and it was for two reasons. It was because the both because of significant ASP declines and because of some volume decline that was the ASP declines were market-based declines. The volume decline was really St. Jude Medical based decline. And one might recall that the 10% decrease in reimbursement for pacemaker products took effect April 1 of 2012. So, in the first quarter of this year we’re still comparing against a 10% higher ASP, both on the ICD side of our business and in the pacing side of our business in Japan and we will lap that price differential beginning with the current quarter, the second quarter of 2013. So, right away, on a sequential quarter basis, one will see a 10% delta in our pacemaker sales results in Japan as well as in our ICD sales results in Japan. Then secondly, with so that really the ASP difference in Japan is one key dynamic to flag in. It’s very transparent, very visible and very predictable to us that our sales trend will improve with respect to ASP comparison and that part of the revenue trend comparison beginning this current quarter. On the volume side, we are losing share. As we said last quarter, we are indicating that we were losing share due to our lack of an MRI compatible pacemaker in Japan and the particular appetite of the market in Japan for that version of the low-voltage device. So, there the solution for us is to launch our Accent MRI pacemaker in Japan and we will do that in the third quarter. So, second quarter will see some improvement due to the ASP dynamics. In the third quarter, we will begin to see some improvement due to our launch of the Accent MRI, which is very competitive and we think preferred MRI compatible device, and then we’ll see the benefit of that Accent MRI launch continue to play out in the fourth quarter. So, that’s what we see particularly in Japan and are confident that we’ve got very good visibility on it. With respect to Europe, it’s more a question of the value tier in the pacemaker market and as we’ve indicated, we have chosen as a matter of operating discipline and long-term benefit to the business, we’ve chosen to walk away from a certain amount of potential pacemaker business for us in European markets, in particular, due to our pricing and tier strategy. And so here, the launch of our new platform beginning this quarter in Japan will give us a greater degree of flexibility and it will give us the possibility to participate in a new tier, in an additional tier of the pacemaker market without disrupting the stronger pricing that we have earned and enjoyed and want to continue to support with the current product lines in Europe. So, that would be the second significant dynamic on the pacing side. The third significant dynamic would be the launch beginning this quarter of our quadripolar CRT-P. And there again, that launch will be supported by the enthusiasm that already has been generated for the benefits of quadripolar CRT therapy on a high-voltage platform; those benefits will apply as well here on the low-voltage side, and so, it’ll be a new burst of energy and meaningful differentiation both with respect to impact on patient outcomes and with respect to playing to healthcare economic benefits in Europe. Then, the fourth point I’d make would be with respect to Europe will be toward the end of this year, and we can’t predict the timing exactly. It may end up not impacting revenue until 2014, but it has the potential to impact revenue to an extent toward the end of 2013 will be our acquisition of Nanostim and our launch of the world’s first leadless pacemaker in CE Mark countries. So, those are the major items we have, and again, it’s something that we have a lot of optimism will make a very significant difference to our pacing revenue trend and pacing revenue growth trend on a sequential quarter basis through remainder of this year. So, you should see some benefit in Q2; more benefit in Q3 and more benefit again in Q4.

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Michael Weinstein – JPMorgan: And Dan, could just comment overall and this is both, I think, U.S. and Europe, on the pricing environment for CRM products?

Daniel J. Starks – Chairman, President and CEO: Yeah, in the U.S. the pricing environment is really I would say that the dynamics are stable and that means that we continue to see the low to mid-single-digit ASP increases on a year-over-year basis. So, that’s what we saw in did I misspeak, I’m getting some signals here from around the table, low to mid-single-digit ASP increases decreases, excuse me, yeah, all right; yeah, excuse me. Yeah, all right, I was thinking why am I getting odd looks and I appreciate everybody flagging it for me. I just misspoke is all, and we’ve indicated in the past that we’ve seen low to mid-single-digit decreases and that we expect to continue to see low to mid-single-digit decreases in the United States. That’s exactly what we saw in the first quarter. In international markets, the ASP dynamics are more diverse and also more volatile and diverse in the sense that we actually see some year-over-year increase in some markets in CRM devices and in other markets, Japan as an example, because of the government management of pricing we see double-digit decreases on a year-over-year. So, when you think of it as ranging from year-over-year increase to double-digit decreases that defines the ASP dynamics in international markets, and when you total it all up, it seems to us based on our first quarter experience that our initial modeling for CRM total market dynamics in 2013 are appropriate. So, we indicated we thought that the whole market would decline on a constant currency revenue basis low to mid-single-digit and that everything that we saw in Q1 makes us think that that is a good estimate for full year 2013.

A Closer Look: St Jude Medical Earnings Cheat Sheet>>