anyone have the note from Jeffries?
Here you go.
St. Jude Medical (STJ)
How Do You Solve a Problem Like Riata?
Key Takeaway
Concern is growing over STJ's Riata Lead. The 7F ICD lead is no longer implanted
and the failure rate suggested by the company is quite low, but some clinicians
that are seeing increasing failures with the lead and are again questioning the
safety of smaller leads, with some reports of centers not implanting down-sized
leads at all. This is of particular issue for St. Jude, as they do not offer a larger
lead in their current portfolio.
Focus on Riata appears to be increasing on the heels of clinical papers and
physician awareness of potential issues. The recent abstract presented at European
Society of Cardiology in late August has gained traction, with some clinicians and investors
concerned about the potential for increasing failure rates with the St. Jude Riata lead model.
The issue is being worsened by the company denying any problem exists — all the way from
tech support to the investor relations department — which is creating a level of frustration
from those seeking additional information or guidance on how to address this issue. There
are reports that some centers have stopped implanting smaller sized leads, which essentially
blocks out St. Jude as they offer only 7F sized leads in their current portfolio.
On December 10, 2010, St. Jude issued a Dear Doctor letter to physicians indicating
the discontinuation of the silicone Riata lead and noted the worldwide failure rate due
to insulation breaches is 0.47% taking into consideration 227,000 silicone Riata leads
implanted. While the published failure rate remains quite small, some clinicians are now
indicating they believe the failure rate could be trending higher as the leads age and
physicians start to proactively inspect the leads via fluoroscopy, which should detect any
potential insulation breaches.
To be clear, the issues seen with the Riata lead to date appear to be more cosmetic, with lead
insulation breaches, rather than catastrophic failure of the lead. However the lack of clarity
on how to manage this issue is creating concern among the clinical community.
Valuation/Risks
We use 12x our 2012 EPS to arrive at a one-year price of $44 (from $55). The 12x multiple is in
line with current levels and reflects the uncertainty growing in the company's ICD franchise.
Other risks include slower CRM share gains, slowing in overseas growth, and regulatory risk