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St. Jude Medical Inc. (STJ - Analyst Report) has won the U.S. Food and Drug Administration (FDA) approval for its Ellipse and SJM Assura portfolio of implantable cardioverter defibrillators (ICDs) and cardiac resynchronization therapy defibrillators (CRT-Ds). The devices received CE Mark approval in May 2013.
 
The advanced devices from the company’s Cardiac Rhythm Management (CRM) business incorporate unique features that are capable of delivering high-voltage treatment to patients with heart failure. St. Jude is a pioneer in providing a low-friction coating on the ICD device instead of the lead, that helps lower the risk of lead-to-can abrasion.
 
Market Potential
 
According to the American Heart Association, there are about 5 million heart failure patients in America, with 550,000 new cases diagnosed every year. ICDs are used to treat abnormal heart rates, which might lead to sudden cardiac deaths (SCD). In the U.S., roughly 325,000 die due to SCD, annually. The CRT-D device is used to resynchronize heartbeat in patients with heart failure and provide back up support for SCD.
 
CRM Under Scrutiny
 
St. Jude’s core CRM division is still underperforming. Revenues from the CRM division fell 8% year over year in the first quarter of 2013. The beleaguered ICD market, as reflected by sustained implant volume pressure, continues to hurt CRM results. ICD sales declined 5% in the first quarter but we believe that market trends will stabilize soon.
 
St. Jude is currently trying to solve manufacturing and quality systems-related problems at its Sylmar facility, which manufactures the highly controversial Riata ST Optim and Durata leads. The company received a warning letter from the FDA in Jan 2013. The FDA is concerned that the newer generation high-voltage Durata leads might face the same problem as the Riata leads, which the company recalled in 2011 due to potential risk of serious injury or deaths.
 
However, a recent research conducted by renowned health science research institute Population Health Research Institute (PHRI) demonstrated that St. Jude’s Durata and Riata ST Optim ICD leads are safe and reliable.
 
Our Take
 
Amid several downsides, the approval from the U.S. regulatory body should further boost physician confidence in St. Jude’s technologically advanced product portfolio. New products from the CRM division should drive top-line growth for St. Jude, once the issue regarding the warning letter is resolved. 
 
St. Jude has a Zacks Rank #3 (Hold). Other medical stocks such as Haemonetics (HAE - Analyst Report), Atricure (ATRC - Snapshot Report) and Baxano Surgical (BAXS - Snapshot Report) warrant a look. HAE carries a Zacks Rank #1 (Strong Buy), while the other two carry a Zacks Rank #2 (Buy).

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