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Medical devices giant, St. Jude Medical (STJ - Analyst Report) has entered into an exclusive distribution agreement with Spinal Modulation, Inc. to sell its Axium Neurostimulator System in the global market. The new product expands St. Jude’s neuromodulation product line for chronic pain management under the Implantable Electronic Systems Division.

St. Jude has made a $40 million equity investment in the privately-held company and has also signed a long-term exclusive option to purchase the company for up to $300 million. In addition, revenue-based milestones will be paid following approval from the U.S. regulatory body for sale within the nation.

Spinal Modulation’s Axium Neurostimulation System offers therapy to patients with chronic, intractable pain. The uniqueness of the device lies in the fact that it delivers specific stimulation to the dorsal root ganglion instead of the traditional spinal cord stimulation (SCS) technologies that operate by positioning leads along the dorsal column of the spine. The targeted stimulation allows for treatment in areas, which are difficult to address such as the groin, lower leg and foot. Moreover, it uses 95% less power than the traditional ones.

Market Opportunity

According to management, 10%–13% of the adult population ails from crippling conditions, including chronic pain. St. Jude has the advantage of selling the Axium Neurostimulation System in Europe as the technology has already received the European CE Mark in Nov 2011.

Spinal Modulation has also gained an investigational device exemption (IDE) from the U.S. Food and Drug Administration (FDA) to conduct a study on the efficiency of the product. Enrollment is expected to begin in the second half of 2013.

The Neuromodulation product line constitutes only 7% of St. Jude’s vast product offerings. Neuromodulation sales dropped 4% in the first quarter of 2013, with the U.S. sales down 6% and international revenues up 4% year over year.

We believe that the deal is beneficial for St. Jude as the CE-Marked Axium Neurostimulation System has considerable opportunity to attract revenues in the European Union.

St. Jude currently has a Zacks Rank #3 (Hold). Some of St. Jude’s larger peers such as Medtronic (MDT - Analyst Report), Boston Scientific (BSX - Analyst Report) and Cyberonix (CYBX - Analyst Report) are also major players in the neuromodulation market.

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