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Good News for STJ's Durata

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St. Jude Medical Inc. announced encouraging results regarding the highly controversial Durata and Riata ST Optim implantable cardioverter defibrillator (ICD) leads from an independent research. The research was conducted by renowned health science research institute Population Health Research Institute (PHRI) and presented at the Heart Rhythm 2013.

PHRI analyzed more than 11,000 leads from the Optimum, Score and SJ4 Post-Approval registries, sponsored by STJ. Initial results from the study demonstrated that the Optim-insulated leads are 99.9% free from insulation abrasion and 99.4% free from mechanical failure after 5 years of implant.

ICDs are used to treat abnormal heart rates, which might lead to sudden cardiac deaths (SCD). St. Jude’s latest ICD offerings include the FDA-approved Durata SJ4 and the Durata high-voltage leads. These leads along with the Riata ST Optim lead feature St. Jude’s exclusive Optim insulation, which has demonstrated a statistically significant reduction in the incidence of insulation abrasion in comparison to the previous generation silicone insulated leads.

Our Take

St. Jude had received a warning letter from the FDA in Jan 2013 for its Sylmar facility, which manufactures the Durata and Riata ST Optim leads. 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 insulation failure.

Positive data from the independent PHRI is encouraging as it indicates that the high-margin Durata ICD leads from St. Jude’s core Cardiac Rhythm Management (CRM) business are safe and reliable.

St. Jude’s CRM division is still underperforming, reflecting underlying end-market pressure. Revenues from the CRM division fell 8% year over year in the first quarter of 2013. ICD sales declined 5% in the first quarter but we believe that market trends will stabilize soon on the back of new products.

St. Jude’s peer Boston Scientific (BSX - Free Report) also reported disappointing CRM sales in the first quarter of 2013, indicating sustained softness in the CRM market.

The positive news regarding Durata and the recent CE Mark approval of new products sparked market optimism as shares of this Zacks Rank #3 (Hold) stock achieved a new 52-week high, touching $43.86 on Friday, May 10, above its previous 52-week high of $43.76. Orthopedic major, Stryker Corporation (SYK - Free Report) also attained a new 52-week high of $67.36 on May 9.

Other medical stocks such as Conceptus carrying a Zacks Rank #1 (Strong Buy), warrants a look.

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