St. Jude Invests in CardioMEMS - Analyst Blog

Medical devices major St. Jude Medical (STJ) has inked an agreement to invest $60 million in privately-held cardiac devices maker CardioMEMS Inc, for a 19% stake in the entity. The deal also includes an exclusive option for St. Jude to fully acquire CardioMEMS for $375 million should the latter achieve certain undisclosed milestones.

St. Jude has stated that the agreement will have no impact on its 2010 earnings per share outlook. BofA Merrill Lynch, a unit of Bank of America (BAC), and JPMorgan Chase’s (JPM) subsidiary J.P. Morgan Securities are acting as financial advisors to St. Jude and CardioMEMS, respectively.

Atlanta-based CardioMEMS has developed an implantable wireless sensor, a novel miniature device, which can be implanted in the pulmonary artery using a catheter-based technique to monitor cardiac performance in patients with severe cardiovascular disorders such as heart-failure (HF) and aneurysms.

The sensor leverages radiofrequency (RF) energy to record and transmit real time cardiac data (such as blood pressure and heart rate data) to the physicians for analysis. Importantly, these data can be transmitted from the patient’s home, thereby reducing the need for expensive hospitalizations. CardioMEMS is currently awaiting the approval of the U.S. Food and Drug Administration (FDA) to commercialize the device.

HF is a chronic, debilitating condition which afflicts more than 5 million Americans. Around 670,000 new cases are diagnosed annually. The disease involves increased rates of hospitalization and high morbidity and mortality. HF accounts for roughly $37 billion in direct and indirect costs to the health care system annually in the U.S.

CardioMEMS’ monitoring system is backed by strong clinical data. In a company-sponsored trial, it was observed that patients who received the implantable sensor had a 30% and 38% reduction in the rate of HF-associated hospitalizations at six months and after a year, respectively, following the implantation.

St. Jude is well positioned to savor incremental opportunities in the cardiac rhythm management (CRM) business (especially in ICDs) on the back of strong product pipeline and technology advancements. The company’s strategic investment in CardioMEMS represents another significant opportunity to boost its technologies focused on improving HF management. Moreover, the deal better positions St. Jude to compete with its bigger rival Medtronic (MDT), which markets implantable remote cardiac monitors through its CareLink online network platform.

However, St. Jude contends with pricing pressure and the heightened competition in a mature pacemaker market. The Government-mandated healthcare reform in the U.S. has created a degree of uncertainty for medical devices companies and led to a less flexible pricing environment. We currently have a Neutral recommendation for St. Jude, which is supported by a short-term Zacks #3 Rank (Hold).
 
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