St. Jude Puts Price Tag on Japan Disaster

The company's first-quarter sales were down $5 million due to the earthquake and tsunami in Japan. Despite the unfavorable news, the company remains optimistic about the future of its devices.

Little Canada-based St. Jude Medical announced Wednesday that its first-quarter earnings declined slightly, largely due to a decrease of international sales in Japan and costs related to the company's acquisition of Plymouth-based AGA Medical.

Despite the unfavorable consequences of the disaster in Japan, the company expressed optimism about two new products, one of which recently gained approval by the U.S. Food and Drug Administration (FDA).

Net earnings for the first quarter totaled $233 million, or 71 cents per share, down from last year's first-quarter earnings of $239 million, or 73 cents per share. Net sales increased 9 percent to $1.4 billion.

Despite the increase in sales, St. Jude CEO Daniel Starks said that the company's international sales were down about $5 million during the first quarter due to the earthquake and tsunami in Japan. That decrease was primarily in the company's cardiac rhythm management division.

Starks said that the company expects favorable currency exchange rates to add $25 million to $30 million to its sales for the year, but that increase will likely be offset by the impact of the disaster in Japan.

St. Jude has about 650 employees in Japan, and Starks said that the aftermath of the disasters is still being felt by them.

“I am absolutely amazed at what our team in Japan has gone through and is continuing to go through,” Starks said Wednesday during an investor conference call.”We've got people who have been sleeping in offices. . . . The rolling power outages continue to this day and have the kind of impact that people couldn't imagine.”

Starks added that there is at least one hospital in Japan in which St. Jude had a “high market share.” It is now gone as a result of the tsunami.

“This puts into perspective the modest significance of our business versus other events in people's lives,” Starks said.

Despite the unfortunate effects of the Japan disaster, St. Jude is optimistic about its devices. On Wednesday, the company announced that its Trifecta heart valve has been approved by the FDA.

The valve is a replacement for diseased, damaged, or malfunctioning aortic heart valves and mimics the flow of a natural, healthy heart. Last year, the valve was approved for use in Canada and Europe. The company said that sales of the valve in Europe increased more than 30 percent in the first quarter, which exceeded expectations.

In Wednesday's investor conference call, Starks said that the company also is awaiting approval of its Unify Quadra-a heart defibrillator. Starks said that approval is expected by mid-year.

Starks expressed optimism about its $60 million investment in CardioMEMS Inc., an Atlanta-based medical company whose wireless monitoring technology was recently granted expedited review status by the FDA.

St. Jude's optimism for the future of its devices comes at a time when the med-tech industry has been battling tough market conditions, which have resulted in recent employee cuts at Fridley-based Medtronic, Inc., and Natick, Massachusetts-based Boston Scientific Corporation, which employs about 5,000 people in Minnesota.

Medtronic in February announced plans to reduce its global work force by 4 to 5 percent, or 1,500 to 2,000 positions. The number of affected Minnesota employees was not disclosed.

Medtronic said that the job cuts will enable it “to align its cost structure to current market conditions and continue to position Medtronic for long-term sustainable growth.” Following the announcement of the cuts, the company faced another setback when its Amplify spinal product failed to gain approval from the FDA. Reports have also been circulating that its Infuse bone-graft device is being investigated by the Department of Justice.

A few weeks after Medtronic announced its cuts, Boston Scientific also reportedly announced layoffs. According to media reports, the layoffs will affect 5 percent of employees and 2 to 3 percent of sales people within the clinical division of the company's cardiology, rhythm, and vascular business-which includes operations in Arden Hills, Maple Grove, and Plymouth.

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