There's a paradox at the heart of the $6 billion cardiac-defibrillator industry: fewer than 15% of patients whose lives could be saved by these electrical cardiac devices actually have them, by some estimates -- yet sales growth is slowing.
With Boston Scientific Corp. having formally closed Friday on its $27 billion acquisition of No. 2 defibrillator maker Guidant Corp., the hard work begins. The challenge of the reshaped industry will be overcoming safety concerns amid recalls, dealing with cost-cutting by federal health regulators and getting the message out about device benefits to legions of primary-care doctors. The other main players are No. 1 Medtronic Inc. of Minneapolis and St. Jude Medical Inc. of St. Paul, Minn., a close No. 3 to Boston Scientific, of Natick, Mass.
For several years, the business of making electrical devices to rein in dangerously fast heartbeats had generated annual sales gains of 20% or more, before product recalls last year slowed that growth. Much of the growth stemmed from the fact there was a large market of people with faulty hearts. About 400,000 Americans die suddenly each year of cardiac-rhythm aberrations[i.e. more than 1,000 people per day, which seems a more striking way to depict the magnitude of the medical need].
Yet medical studies in the past decade have shown that many of these people could have been identified -- and treated with defibrillators -- beforehand. A matchbox-sized defibrillator implanted under the skin can dispatch a jolt of electricity to restore normal heart rhythm, saving patients' lives.
Given that, Boston Scientific tossed in mountains of cash during a bidding war with Johnson & Johnson to buy Guidant. Now some executives think J&J may make a play for St. Jude, whose price has dwindled of late[#msg-10737155].
Both companies declined to comment. However, J&J Chairman and CEO William C. Weldon, in a letter to shareholders in March, wrote about the Guidant takeover fight and the cardiovascular-device business, saying, "We remain committed to strengthening our business in this important therapeutic category."
Boston Scientific jumps into the field just as signs are emerging that the 20% sales growth has slowed. St. Jude, in particular, announced defibrillator sales that disappointed Wall Street and suggested that Guidant had won back from St. Jude some sales it lost last year. Now, St. Jude is beefing up its sales force by 500 people, or roughly 30%. Medtronic said it will respond by increasing its cardiac-rhythm sales and sales-support personnel, which now total more than 2,000, and Boston Scientific declined to comment. Certainly, there is still room for the industry to grow.
"My understanding is that, of the potential pool of patients, about 15% of those people are actually getting the devices," said Eric N. Prystowsky, a prominent electrophysiologist -- a cardiologist specializing in heart-rhythm problems -- based in Indianapolis.
The evidence is powerful that such devices save lives in patients with congestive heart failure, or with previous heart attacks and diminished cardiac pumping power. For instance, a 2002 study conducted by researcher Arthur J. Moss at the University of Rochester and colleagues found that defibrillators reduced deaths by 31% in patients with previous heart attacks and an "ejection fraction" -- the amount of blood actually pumped out of the left ventricle with each beat -- of 30 or less. (Sixty or more would be typical of a healthy adult.)
"Defibrillators' clear advantage is that they prolong life," said William T. Abraham, chief of cardiovascular medicine at Ohio State University.
Why, then, are so many patients not getting them, especially since Medicare now widely pays for them? One big part of the answer is the product recalls in 2005 at Guidant and Medtronic, along with the attendant publicity they generated, in the view of doctors, executives and Wall Street observers. They say referring doctors, such as internists, have backed off from sending as many patients to have devices installed. "You have to bring up the confidence across the board," said Piper Jaffray medical analyst Thom Gunderson.
In a conference call last week, St. Jude chairman and CEO Daniel J. Starks forecast defibrillator-industry market growth of just 5% to 7% in this year's second quarter and 11% to 13% by the second half of 2006. He said sales will increase as "a sense of reality returns about what the real enemy is, and the real enemy is sudden cardiac death."
Recalls and bad publicity aren't the only obstacles to increasing sales in the defibrillator business, however. Another is that the federal Medicare system is calling for 22% cuts in the amount it will reimburse hospitals for defibrillator surgery. While Medicare often backs off from Draconian proposals, such a proposed cut augurs poorly. "We wouldn't be surprised to see moderation in the final rule," wrote analyst Bruce M. Nudell of Bernstein Research, "but we feel that the proposal is a harbinger of a less favorable med-tech price...environment." Mr. Gunderson thinks sales growth may well return to 20% annually but that it may take two to three years.
Another obstacle to sales is that most congestive heart-failure patients -- those who are candidates for the most sophisticated and expensive of defibrillators -- aren't being cared for by cardiologists but by primary-care physicians such as family doctors and internists.
"What we're not seeing in adequate numbers is referrals from the primary-care physician," said Dr. Abraham. He gave a speech in Ohio recently to such doctors and found they were surprised to learn that virtually every one of their patients with moderate congestive heart failure was, in fact, a candidate for a defibrillator. For the industry to grow, he said, "the marketing effort has to go to the primary-care doctors." <<
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