Biotech Values

[DewDiligence]

STJ is another stock that has been
pounded, perhaps unduly, by worries
about reimbursement and market share.
The stock could now be a bargain.



http://yahoo.reuters.com/stocks/QuoteCompanyNewsArticle.aspx?storyID=urn:newsml:reuters.com:20060419...

>>
St. Jude profit rises, but cuts '06 outlook

Wed Apr 19, 2006 11:59 AM ET
By Debra Sherman

CHICAGO, April 19 (Reuters) - St. Jude Medical Inc. <STJ.N> on Wednesday said quarterly earnings rose 15 percent on higher sales of implantable devices to correct abnormal heart rhythms, but it lowered its outlook for the full year and disclosed plans to expand its U.S. sales force.

The St. Paul, Minnesota-based medical device maker said it revised its outlook because of a continued slowdown in sales of the profitable heart devices -- implantable cardioverter defibrillators, or ICDs -- in the wake of last year's series of high-profile product recalls by rival Guidant Corp. <GDT.N>.

Last week, Guidant posted better-than-expected first-quarter ICD sales, leading many analysts to believe the struggling medical device maker, soon to be acquired by Boston Scientific Corp. <BSX.N>, had stolen market share from St. Jude.

Medtronic Inc. <MDT.N>, the leading manufacturer of the heart devices, commanding about half that market, has not yet reported its quarterly results, so the market dynamics are not clear yet, St. Jude said.

St. Jude Chief Executive Daniel Starks conceded Guidant probably took ICD market share from his company in the quarter as Guidant's most loyal customers returned after Guidant worked out some of its product issues.

UNPRECEDENTED MARKET DYNAMICS

"We have not seen this kind of market withdrawal surrounded by this level of product recall in the past, so we really don't have a prior experience to help us predict exactly how these dynamics play out," Starks said in a telephone interview. "Our sense is that we will hold our market share in the second quarter and our sense is that the impact of that kind of exchange tied to the recalls has either completely or largely played itself out," he added.

St. Jude, a maker of a broad range of devices used in cardiology, reckons it had 18 percent of the ICD market in the first quarter. Starks said he was confident that St. Jude could recapture ICD market share as it launches a series of new products to address errant heart rhythms. Most of those launches are slated for the second half of the year.

"To gain share, you need new customers, new products and new sales people," he said, noting that over the next four quarters, St. Jude will add about 500 sales people, boosting its force by about 30 percent.

St. Jude, which earlier this month warned that first-quarter results would not meet expectations, said its net income in the period was $137 million, or 36 cents a share, compared with $119 million, or 32 cents a share, a year ago. Analysts on average had expected the St. Paul, Minnesota-based company to earn 36 cents a share, including stock-based compensation, according to Reuters Estimates.

The latest results include 3 cents per share for stock options expense.

First-quarter net sales rose 18 percent to $784 million, with ICD sales up 27 percent to $262 million.

OUTLOOK REVISED

St. Jude revised its 2006 earnings per share forecast to a range of $1.55 to $1.60, which includes the impact of expensing stock compensation. Its previous forecast was $1.64 to $1.67. The company forecast second-quarter earnings of 36 cents to 39 cents per share.

"As of right now, management guidance, in our view, appears reasonable," JP Morgan analyst Michael Weinstein told clients in a research note.

Separately, St. Jude said its board authorized a $700 million share buyback program.

Shares of St. Jude have lost nearly a third of their value over the past three months. During that same period, the S&P Health Care Equipment Index has fallen about 7 percent.

Starks declined to comment on the sinking stock price or takeover speculation that has surrounded St. Jude for years.
<<