St Jude Medical Earnings Call Nuggets: the FDA Warning Letter and This Year’s Guidance Approach
The FDA Warning Letter
Kristen Stewart – Deutsche Bank: Just wanted to, I guess, ask just on the FDA warning letter. If you can maybe just give us just your thoughts on the progress that you’ve been making and any sort of timelines you might expect? Then secondly, just what gives you confidence in holding market share across ICDs and pacemakers going forward in 2003 as you stated in your guidance?
Daniel J. Starks – Chairman, President and CEO: With respect to the FDA warning letter, once we received FDA’s inspectional observations last October we reacted as though we already had received a warning letter. So, in October, we formed remediation teams; we implemented monthly progress reports to FDA; we gave highest priority to fully remediating all of the deficiencies noted in the Form 483 and now some of which were also noted in the warning letter, with the very highest degree of urgency. So, some of our remediation already has been completed. The remainder of it is going full steam ahead and is fully baked into our guidance. So, we expect to have all aspects of the warning letter remediated with priority and with urgency during 2013. Eric, is there anything else that you want to say about the warning letter?
Eric S. Fain, M.D. – President, Implantable Electronic Systems Division: No, I think you covered it.
Daniel J. Starks – Chairman, President and CEO: On the topic of ICD and pacer market share, a part of our – let me say that on the ICD side of the business, our fourth quarter results and our full year results for 2012 reaffirmed to us that our ICD market share is currently stable and that we expect this stability to remain a baseline for our ICD business in 2013. Next week we will offer an update through Eric Fain’s presentation on additional developments on the ICD side of our business in European markets. So, I’ll wait for our presentation next week to give you a little more information about that. On the pacemaker side of the business, we lost market share in the fourth quarter of 2012 and we expect our market share to continue to be vulnerable in the first part of 2013 just due to product cycle. So there are several observations that we’d like to offer about the pacemaker market. The first observation relates to the fact that most of the pacemaker market, as many appreciate, but I just want to make the point visible. About 60% of the revenue opportunity for the global pacemaker market comes from outside the United States. So, this has become over time primarily an international market rather than a domestic market, that would be point one. Then point two, as we look at the dynamics in Europe, in particular, it’s clear to us that total market unit volumes were impacted negatively in the fourth quarter of 2012 by austerity measures and related budget limitations in Europe. So in the fourth quarter, a number of customers stopped doing all but emergency procedures. We’ve found this to be especially the case in Italy, Spain and Portugal, but also to a lesser extent in other countries. A related dynamic is that where procedures continued to be done at a normal level, there remains very significant pressure on average selling prices. And as a matter of operating discipline, we do not offer premium products at low ASPs, although we note that some of our competitors do. Later this year, we will strengthen the value tier of our product line and become more competitive in the value tier segment of the market in Europe with new products that Eric Fain will address next week in his update on the product flow for our CRM business. Another factor here on market share relating to the pacemaker side of our CRM business is that, in the fourth quarter of 2012, we were not participating in the MRI segment of the pacemaker market in Japan or we have a several quarter gap between a competitive product offering and our Accent MRI market launch in Japan. So, in Japan, we will still not be participating in the MRI segment for another couple of quarters, but in the second half of this year, we will fully compete in that segment of the market in Japan. So, when you net all of that out, the way that we model it, Kristen, we see a stable market share with an opportunity for upside.
This Year’s Guidance Approach
Michael Weinstein – JPMorgan Securities: Dan, maybe I’ll start from kind of the highest level on the guidance. We went back the last couple of years with medical device markets slowing. It would turn out that you’ve guided in January and then having to back off of that guidance by the middle of the year. It looks like you approached this year’s guidance with a different intention. Can you just talk more big picture about, how you think about guidance and how you approached this year versus prior years?
Daniel J. Starks – Chairman, President and CEO: I can tell you how we approached it this year. We approached our guidance this year with the determination that if we were going to err with our revenue guidance, we were going to err on the side of being conservative. That has been our general attitude with initial guidance in past years as well. Although in past years, we have been surprised by negative developments that unfolded during the years, particularly with respect to a number of points that maybe are not worth revisiting here on this call, but in the last couple of years there have been negative developments that I think were not predicted by any of us and this year it may turn out to be the same, but our expectation is that we have – that if we have erred, we’ve erred on the side of being conservative.
Michael Weinstein – JPMorgan Securities: Let me just ask more two product specific questions. One, with MediGuide now launched and can you just talk about the gating factor? You talked about 12 installations in 2013. Why is it 12 and not two or three times that amount? Then second, can you give us an update on the neuromodulation warning letter and what expectations we should have for resolution 2013?
Daniel J. Starks – Chairman, President and CEO: Sure. Yeah, with MediGuide, our – we keep in mind, for example – I’m not going to mention a – some of you will think of other technology that has been offered by other companies in past times, where the tools needed to make the technology clinically valuable and cost effective. We’re really not available at the time that the capital equipment became available and people can think of examples where expensive capital equipment is sitting in the corner of EP cath labs and people use it to the hang their (lead) rather than use it in their clinical procedure. So, we are very focused on that as a negative customer experience that has resulted from other companies’ new technology, and we are determined that that will not be the case with the MediGuide technology. So, we are making ourselves be patient and very disciplined at the rate with which we roll out the MediGuide technology, and we are going to make sure that the disposable tools that are needed to make the MediGuide technology fully usable and clinically relevant and cost-effective are available at the same time that customers receive the capital equipment. So, we will offer more information about the flow of new products related to the MediGuide platform next week at our Annual Investor Conference. So that’s the first gating item. The second gating item is that we want the technology to be well-understood and we want the value of the technology to be well-understood at the point where we initiate full global launch. And in order for that to be the case, we need more clinical evidence. So we now have a core of centers, who are generating the clinical evidence that we want to have in hand and fully communicated to customers around the world at the time that we fully launch the MediGuide technology. So we are walking before we run. And we go from one system to six systems to 12 systems, and then we expect everything is on track here for full commercial launch in 2014. So that’s how we’re looking at it. Michael, you asked me a second question.
Michael Weinstein – JPMorgan Securities: Neuromodulation.
Daniel J. Starks – Chairman, President and CEO: Okay, yes. So we’ve made very good progress remediating the neuromodulation warning letter and the remediation is largely behind us. We had a very encouraging inspectional result in September. We had a re-inspection from FDA. The re-inspection resulted in only one observation. It was a minor observation relating to a flowchart that was not within document control. We remediated that the same day we received the observation. And other than that, we had a very clean inspection. So the remediation has really – is nearing its conclusion. Eric Fain will talk a little bit more about the remaining remediation next week at our annual investor conference. We expect the remediation to be complete during 2013.
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