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Executives

John C. Heinmiller - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Daniel J. Starks - Chairman of the Board, Chief Executive Officer and President

Analysts

Michael N. Weinstein - JP Morgan Chase & Co, Research Division

Frederick A. Wise - Leerink Swann LLC, Research Division

Robert A. Hopkins - BofA Merrill Lynch, Research Division

Joanne K. Wuensch - BMO Capital Markets U.S.

Kristen M. Stewart - Deutsche Bank AG, Research Division

St. Jude Medical (STJ) Q3 2011 Earnings Call October 19, 2011 8:00 AM ET

Operator

Welcome to St. Jude Medical's Third Quarter Earnings Conference Call. Hosting the call today is Dan Starks, Chairman, President and Chief Executive Officer of St. Jude Medical.

The remarks made during this conference call contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Such forward-looking statements include expectations, plans and prospects for the company including potential clinical successes, anticipated regulatory approvals, future product launches and projected revenues, margins, earnings and market shares.

The statements made by the company are based upon management's current expectations and are subject to certain risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties include market conditions and other factors beyond the company's control and the risk factors and other cautionary statements described in the company's filings with the SEC, including those described in the Risk Factors and Cautionary Statement section of the company's annual report on Form 10-K for the fiscal year ended January 1, 2011, and quarterly report on Form 10-Q for the fiscal quarter ended July 2, 2011. The company does not intend to update these statements and undertakes no duty to any person to provide such update under any circumstance.

[Operator Instructions] It is now my pleasure to turn the floor over to Dan Starks.

Daniel J. Starks

Thank you, Brooke. Welcome to the St. Jude Medical Third Quarter 2011 Earnings Conference Call. With me on the call today are John Heinmiller, Executive Vice President and Chief Financial Officer; Eric Fain, President of our Cardiac Rhythm Management division; Mike Rousseau, Group President; and Angie Craig, Vice President of Corporate Relations and Human Resources.

Our plan this morning is for John Heinmiller to provide his normal review of our financial results for the third quarter 2011 and to give sales and earnings guidance for the fourth quarter and full year 2011. I will then address several topics and open it up for your questions. Go ahead, John.

John C. Heinmiller

Thank you, Dan. Sales for the quarter totaled $1,383,000,000, up approximately 12% over the $1,240,000,000 reported in the third quarter of last year. Favorable foreign currency translations versus last year's third quarter increased this quarter sales by about $73 million. On a constant currency basis, third quarter sales increased approximately 6% versus last year.

During the third quarter, we recognized $21 million or $0.06 per share in after-tax special charges, primarily in connection with our previously announced restructuring actions initiated during the second quarter to realign certain activities within our CRM business, as well as costs associated with our continuing efforts to improve our international sales and sales support organization. In addition, we recognized $9 million or $0.03 per share in after-tax charges related to increased collection risk for accounts receivable related to one customer in Europe.

Additional information about these charges can be found in today's press release. Comments during this conference call referencing third quarter results and guidance for our full year 2011 results, including earnings per share, will be exclusive of these items.

Earnings per share were $0.78 for the third quarter of 2011, an 8% increase over adjusted EPS of $0.72 in the third quarter of 2010. During the third quarter, we completed our $500 million share repurchases program that was announced in August. This reduced the weighted average shares of common stock outstanding in the third quarter by approximately 6 million shares, which provided $0.01 of benefit to our adjusted EPS.

Before we discuss our third quarter 2011 sales results by product category with guidance for the fourth quarter, let me comment on foreign currency. As discussed on prior calls, the 2 main currencies influencing St. Jude Medical's operations are the euro and the yen. In preparing our sales and earnings guidance for the third quarter and full year 2011, we used exchange rates which assumed that each euro would translate into about $1.37 to $1.42 and each JPY 78 to JPY 83 would translate into USD $1. For the third quarter, the actual average exchange rates for the euro and the yen versus these assumptions did not result in a material difference in reported sales.

In preparing our sales and earnings guidance for the fourth quarter, we have updated the currency rates used in our model. We are now assuming that for the fourth quarter of 2011, each euro will translate into about $1.33 to $1.38 and that each JPY 76 to JPY 81 will translate into USD $1. This change in assumption regarding currency exchange rates decreases total forecasted sales for the fourth quarter of 2011 by about $20 million to $25 million, which we estimate will reduce fourth quarter EPS by approximately $0.02 to $0.03.

Now for the sales by product category discussion for the third quarter. Total Cardiac Rhythm Management or CRM sales, which includes revenue from both our ICD and pacemaker product lines, were $751 million, up 2% from last year's third quarter. On a constant currency basis, third quarter CRM sales were down 3% versus the third quarter of last year.

For the third quarter, ICD sales were $445 million, up 1% from last year's third quarter. On a constant currency basis, third quarter ICD sales decreased 3% versus last year. U.S. ICD sales were $257 million, down 10% versus last year's third quarter. International ICD sales were $188 million, a 21% increase over the third quarter of 2010, including $20 million of favorable foreign currency translations.

For low-voltage devices, sales for the third quarter totaled $306 million, an increase of 2% from last year's third quarter. On a constant currency basis, third quarter low-voltage device sales decreased 4% versus last year. In the United States, pacemaker sales were $126 million, down 6% from last year's third quarter. In our international markets, pacemaker sales were approximately $180 million, up 9% from the third quarter of 2010, including $18 million of favorable foreign currency translations.

For the fourth quarter of 2011, we expect total CRM product sales to be in the range of $714 million to $754 million. And for the full year 2011, we now expect total CRM sales to be in the range of $3,020,000,000 to $3,060,000,000. Our revised CRM sales guidance for 2011 takes into account the expected negative impact of currency in the fourth quarter and the fact that our Unify Quadra quadripolar CRT-D system was not approved by FDA within our previously assumed time line.

Atrial Fibrillation or AF product sales for the third quarter totaled $202 million, exceeding the top end of our guidance range and up 20% over the third quarter of last year, including $11 million of favorable foreign currency translations. On a constant currency basis, third quarter AF product sales increased 13% versus last year.

For the fourth quarter of 2011, we expect AF product sales to be in the range of $205 million to $220 million. As a result of the strong performance in the first 3 quarters of 2011 and despite a weakening currency environment, we now expect our 2011 AF product sales to be in the range of $810 million to $825 million.

Total sales of cardiovascular products for the third quarter of 2011 were $328 million, up 37% over the third quarter of 2010, including $21 million of favorable foreign currency translations. On a constant currency basis, third quarter cardiovascular product sales increased 28% versus last year.

As discussed on prior calls, we now break out our sales of cardiovascular products into 2 categories, structural heart and vascular. Sales of heart valve products, along with the AMPLATZER Occluder products and left atrial appendage plug, are categorized as structural heart. Our vascular products include vascular closure products, the FFR PressureWire, OCT products, vascular plugs and other vascular accessories.

For the third quarter of 2011, sales of structural heart products were $151 million, an increase of 91% over the third quarter of 2010 or 80% on a constant currency basis. Sales of vascular products in the third quarter of 2011 were $177 million, a 10% increase over the third quarter of 2010 or 2% on a constant currency basis.

For the fourth quarter of 2011, we expect cardiovascular product sales to be in the range of $323 million to $338 million. We now expect our full year 2011 cardiovascular product sales to be in the range of $1,320,000,000 to $1,335,000,000. This revised 2011 guidance range is primarily the result of the anticipated negative impact of currency on our business in the fourth quarter.

Total sales of Neuromodulation products in the third quarter of 2011 were $102 million, up 10% from the third quarter of 2010, including $3 million of favorable foreign currency translations. For the fourth quarter of 2011, we expect sales of Neuromodulation products to be in the range of $102 million to $112 million. We now expect full year 2011 Neuromodulation sales to be in the range of $400 million to $410 million due to challenging market conditions and the elective nature of Neuromodulation therapy.

Looking to revenue by geography. In total, 48% of St. Jude Medical sales in the third quarter of 2011 came from the United States, while 52% came from international markets. As with prior quarters, the specific geographic breakdown of St. Jude Medical sales for the third quarter of 2011 is available in our press release.

The gross profit margin this quarter was 73.7%, up 100 basis points from the third quarter of 2010. For the full year 2011, we continue to expect gross profit margins to be in the range of 74.0% to 74.5%. Our third quarter SG&A expenses were 35.9% of net sales, an increase of 160 basis points over the third quarter of 2010. As we have mentioned on previous earnings calls, the AGA Medical operations, including the amortization expense related to intangible assets acquired, are expected to increase SG&A expenses as a percentage of net sales by approximately 70 basis points during 2011. For the full year 2011, we continue to expect SG&A as a percentage of net sales to be in the range of 35.0% to 35.5%.

Research and development expenses in the third quarter of 2011 were 12.8% of net sales compared with 12.1% of sales in the third quarter of 2010. For the full year 2011, we continue to expect R&D as a percentage of net sales to be in the range of 12.5% to 13.0%, as we continue to invest in our internal programs to drive growth in our business.

Net other expense was $20 million in the third quarter, which includes $7 million from the recently enacted excise tax in Puerto Rico. For the fourth quarter of 2011, we expect the other income and expense line item will be a net expense in the range of $20 million to $25 million. And for the full year 2011, we now expect other expense of approximately $91 million to $96 million.

For the third quarter, the company's effective income tax rate was 22.0%. For 2011, we continue to expect the tax rate to be in the range of 22.0% to 22.5%.

Moving on to the balance sheet. At the end of the third quarter of 2011, we had $960 million in cash and cash equivalents and approximately $3 billion in total debt and $1.5 billion available under a revolving credit facility with a group of banks.

Next, I want to offer some comments regarding our earnings per share outlook for the fourth quarter and the full year 2011. In preparing our EPS guidance, we have assumed that in the fourth quarter of 2011, the share count used in our fully diluted EPS calculation will be about 322 million to 324 million shares, with the weighted average outstanding shares for the full year 2011 at 327 million to 329 million. This revised guidance on outstanding shares reflects the impact of our $500 million share repurchase program, which we completed in the third quarter. For the fourth quarter, the company expects consolidated earnings per share to be in the range of $0.83 to $0.85. And for the full year 2011, we now expect consolidated earnings per share to be in the range of $3.26 to $3.28.

I'd now like to turn it back to Dan Starks.

Daniel J. Starks

Thank you, John. Virtually everyone in MedTech is concerned about the impact factors such as the European debt crisis, other macroeconomic conditions, foreign currency translations, healthcare reform and other public policy dynamics will have on MedTech market growth rates. These are legitimate concerns and continue to draw significant attention from the St. Jude Medical leadership team.

It is more important, however, to realize that St. Jude Medical has set itself apart from other companies by preparing to accelerate its growth in spite of these concerns. During our Annual Investor Conference in February of this year, we talked about 18 new growth drivers that support our confidence that we will accelerate our organic sales growth over the long-term. The remainder of my comments will update you on our progress and accomplishments implementing these new growth drivers.

Let me start with our Trifecta pericardial stented tissue valve program. We reported today that revenue for our structural heart program increased over 90% on a year-over-year basis during the third quarter. Although much of this growth was due to the benefit of our acquisition of AGA in November 2010, this growth also was due to the success of our Trifecta pericardial's tissue valve in Europe and in the United States and our Epic stented tissue valve program in Japan.

Keep in mind that the pericardial stented tissue valve market represents a new growth opportunity for St. Jude Medical of approximately $500 million annually. Revenue for our stented tissue valve products grew over 50% globally during the third quarter and is expected to continue growing at a strong double-digit rate for the foreseeable future. We are just beginning to capture our share of this new $500 million segment of the heart valve market.

A second new growth driver we are implementing to help accelerate our long-term organic sales growth is our Portico transcatheter valve implant or TAVI program. Our first in human series of implants at 3 centers in Canada and in Europe has been highly successful. We will begin enrolling in our pivotal trial for CE Mark purposes this quarter and are on track to begin a limited launch of our Portico line of TAVI heart valves in Europe before the end of 2012. We are optimistic that our Portico line of TAVI heart valves will offer key competitive advantages due to its ease of use, deployment accuracy, repositioning, capability and retrievability in a way that will support meaningful gain of market share once this product line is fully launched.

In addition to our TAVI line of heart valves and our new lines of stented tissue valves, a third major growth driver that we are implementing within our structural heart program is our percutaneous mitral valve repair or PMVR product line. Although we still are not disclosing details of our PMVR technology due to our patent protection activities, I would like to say a little more about our PMVR program.

Mitral valve regurgitation is the most common form of valvular heart disease and is a significant public health problem that leads to dilation of the heart, atrial fibrillation, pulmonary congestion and heart failure. Like the other major disease states St. Jude Medical addresses with its technology, mitral valve regurgitation is both an epidemic and expensive disease for healthcare budgets in the United States and globally. We estimate that if our PMVR technology can help even 5% of the patients in developed markets who already have been diagnosed with symptomatic mitral valve regurgitation, we will have a new $2 billion growth driver. At the same time, we save money for global healthcare budgets.

We are starting our first in human series of PMVR procedures this quarter. We estimate that we will receive CE Mark and begin launching this technology in Europe before the end of 2013. We expect to capture good synergies in Europe from the investment we will make to launch both our Portico line of TAVI heart valves before the end of 2012 and our PMVR technology before the end of 2013.

A fourth new growth driver within our structural heart franchise is our left atrial appendage or LAA closure system. In 2010, LAA closure technology was recognized by the Cleveland Clinic as one of the most important MedTech innovations of the year. The National Institute for Clinical Excellence (sic) [National Institute for Health and Clinical Excellence] or NICE in the U.K. issued guidance in 2010 supporting the comparative effectiveness of LAA closure in patients with atrial fibrillation. At least one commentator estimates that with reasonable assumptions the LAA closure market will be a new $400 million growth market by 2015.

St. Jude Medical's AMPLATZER Cardiac Plug LAA closure system currently enjoys a leading market share in Europe and is growing at a strong double-digit rate. In the United States, the feasibility phase of our IDE clinical trial has been completed. We expect to begin enrolling in the pivotal phase of our IDE clinical trial in the near future. With favorable comparative effectiveness data, the endorsement of major key opinion leaders and the normal but time-consuming work of market development initiatives, we think our LAA closure program has the realistic potential to become a winner in an environment of health care reform and budget cuts and become a major new growth driver for St. Jude Medical over the long term.

Before I move away from the topic of new growth drivers within our structural heart program, I would like to touch on the topic of PFO closure for stroke and migraine. Enthusiasm for PFO closure for emerging indications has been dampened by the unsuccessful CLOSURE I and mistrials conducted by NMT, although reservations are understandable and St. Jude Medical models no revenue tied to emerging indications for PFO closure. NMT's Closure I and mistrials compare to St. Jude Medical's RESPECT and PREMIUM trials in the same way that a leaky boat compares to the Niña, the Pinta and the Santa Maria of the Columbus expedition. Compared with the NMT PFO closure system which was reported to leak, we expect our AMPLATZER PFO closure device to show better procedural success, a better closure rate, less device thrombus and less atrial fibrillation.

In addition to the superiority of our product design, St. Jude Medical's clinical trials also are designed differently from the NMT trials in favorable ways. We have different inclusion and exclusion criteria and different clinical endpoints. Although we do not know whether our RESPECT or PREMIUM clinical trials will be successful, these trials deserve continued attention as serious initiatives which have the potential to generate new growth.

The PFO closure trial furthest along is our RESPECT trial, which evaluates the benefit of PFO closure for certain patients who have a high risk of stroke. We currently have approximately 950 patients enrolled in this event-driven trial. We are blinded to the data and therefore cannot comment further, but we expect the clinical data defining the end point of this trial to become available during 2012.

Moving on to our Neuromodulation growth franchise. We announced last month that we have received industry's first and only regulatory approval for use of an implanted neurostimulation device for patients who suffer from intractable chronic migraine. Data from our pivotal clinical trial were presented at the International Headache Congress in Berlin in June.

In considering this data, it is important to note that the patients we studied were the so-called worst of the worst. The inclusion criteria required failure of at least 3 drugs and a headache lasting at least 4 hours per day for 15 or more days per month, causing at least moderate disability. Patients enrolled in the study kept a diary of headache days and actually suffered from an average of 26 headache days per month. At 12 weeks follow-up, patients in the treatment group experienced a 28% decrease in number of headache days, a 41% improvement in overall disability measured by the Migraine Disability Assessment or MIDAS questionnaire, and a 20% improvement in Zung Pain and Disability Index or PAD scores, as well as numerous improvements by other qualitative measures.

Neuromodulation therapy will not be appropriate for everyone in Europe who suffers from intractable chronic migraine, but headache neurologists in Europe now have another tool in their toolbox which will help reduce the suffering for some of these patients. We estimate that approximately 2.2 million patients in Europe suffer from severe and chronic migraine, which is approximately 5% of the total migraine population in Europe. If we can help only 5% of this 5% with our Neuromodulation therapy, we will have a new $1 billion growth driver. At the same time, we reduce patient suffering and help improve healthcare economics. As always market development will take time, but limited market release activities already are underway and are expected to benefit our organic sales growth rate in 2012.

Another major new growth driver we are implementing is renal denervation for treatment-resistant hypertensive patients. Our first in human series for our renal denervation system already is underway. We expect to receive CE Mark and begin launching our renal denervation technology in Europe before the end of 2012. To clarify the significance of this new technology for St. Jude Medical's growth program, we estimate that as many as 1 in every 3 adults in the developed world suffers from hypertension. Approximately 25% of patients treated for hypertension do not respond to medical therapy. We estimate that if we are able to treat only 1% of adult hypertensive patients who do not respond to medical therapy, we will have a new $1 billion growth driver.

Keep in mind that today hypertension generates a direct annual cost of global medical budgets of approximately $500 billion. As with each of our other major investments, St. Jude Medical's goal is to create a new $1 billion growth franchise for the benefit of our investors. At the same time, we help make quality global healthcare more affordable.

These are the exact same goals that motivated our investments in fractional flow reserve or FFR technology for patients suffering from coronary artery disease, CardioMEMS technology for patients who suffer from heart failure, deep brain stimulation for treatment-resistant depression and an entire portfolio of medical device technologies developed to help address the epidemic of atrial fibrillation. All of these technologies have been reviewed thoroughly in past communication, so I will not extend my prepared remarks by reiterating details of these technologies here.

St. Jude Medical places high priority on investing in properly designed comparative effectiveness trials to support robust reimbursement and healthy market growth long term for all of our emerging technologies. The gold standard for this initiative is our past sponsorship of the FAME trial, which established that the cost of stenting patients with multivessel coronary disease can be reduced by 14% through the use of our fractional flow reserve or FFR technology.

The complete list of comparative effectiveness trials we are supporting includes the CABANA for atrial fibrillation, the EAST trial for atrial fibrillation, the FAME II trial for coronary artery disease, the SCD-HeFT 10-Year Follow-up Study for heart failure in ICD patients and the Brodmann trial for patients who suffer from treatment-resistant depression. Taken together, these investments give us confidence that after our new technologies enter the market in an environment of macroeconomic stress and healthcare reform, our technologies will be surrounded by adequate reimbursement and attractive market growth long term.

Next I would like to offer updates on the progress we are making with key initiatives in our Cardiac Rhythm Management or CRM franchise. I'm going to start with an update on our ST segment monitoring technology. We have not been talking about our ST segment monitoring technology recently because we have been working with FDA to define the regulatory pathway needed to bring this technology to the market in the United States. Now that the regulatory pathway is clear, we offer this update.

First as a reminder, the ST segment is a section of an electrocardiogram that depicts electrical changes between heartbeats to indicate obstruction of blood flow and oxygen to the heart muscle. We are the first and only company who has been able to monitor these changes with our implantable defibrillator or ICDs, which means we can do so in a manner that is extremely cost-effective for patients who have ICD. This technology is especially important because it may provide an early warning signal that a patient is experiencing a heart attack.

When a patient is experiencing a heart attack, every minute counts. For every 30 minutes that treatment is delayed, mortality increases by 7.5%. Because symptoms can be vague and approximately 1/3 of patients don't even have typical chest symptoms, the average time it takes for a patient to seek treatment has remained at almost 3 hours in the United States over the last decade.

This ST segment monitoring technology received CE Mark in December of 2008 and is now nearing the end of its third year on the market in Europe. This technology was approved by the MHLW in Japan in 2010 and is now widely available not only in Europe and Japan, but also in China, India and in all other major markets around the world.

St. Jude Medical announced last quarter that we have now enrolled our first patient in the IDE clinical trial required by FDA to bring this technology to market in the United States. Our Analyze ST trial is a prospective, non-randomized, multicenter, pivotal IDE investigation of up to 5,228 patients who will be enrolled at approximately 200 medical centers. The Analyze ST trial is designed to study the safety and efficacy of the ST segment monitoring technology in the Fortify ST ICD. The sensitivity of the feature for detecting acute coronary syndrome events including myocardial infarctions will be the primary efficacy end point. The primary safety end point will be assessed by reporting the percentage of patients who experienced a false positive detection.

The Analyze ST trial will be the largest IDE trial for an implantable device ever performed in the United States and will cost tens of millions of dollars. It is premature for us to predict when this technology will become available in the United States, but our rough estimate is that it will be between 7 to 8 years after the technology became available in Europe and approximately 4 to 5 years after the technology became available in Japan and virtually all other major markets.

Our takeaway from this experience is that there is a compelling need for the FDA regulatory approval process to become more predictable, more transparent and more cost-effective. The regulatory pendulum at the FDA has swung too far in the wrong direction against innovation and needs to take a more practical approach to risk benefit analysis. The medical device industry is a major generator of jobs, exports and healthcare savings for the U.S. economy. St. Jude Medical is focused on technology innovation that is part of the solution to affordable healthcare and sustainable economic growth. We need a strong FDA that is fully funded and that has the culture and organizational confidence to strike the right balance between approving innovative medical device technology on the one hand and on the other hand, protecting the public health in a way that is not overly defensive.

Next is an update on FDA regulatory approval for our Unify quadripolar CRT-D system. As we indicated previously, our first-generation quadripolar CRT-D system received CE Mark and began limited launch in Europe exactly 2 years ago this month. Last month, we announced CE Mark and initial launch of our second-generation quadripolar CRT-D system in Europe. Although this technology is not yet available in Japan, it is available in India and in most other major medical device markets outside the United States.

In markets where the product already is available, St. Jude Medical is gaining meaningful market share due to physician appreciation of the advantages a quadripolar CRT-D system can bring to help reduce the expense and duration of initial implants, to help reduce reoperations due to phrenic nerve stimulation, high pacing thresholds and lead dislodgment and to help improve the ability of a physician to electronically reposition the Left-Heart Lead without the need for an additional surgery.

We cannot predict when we will receive FDA approval for our Unify quadripolar CRT-D system. We are waiting FDA response to our completed PMA supplement submission and are not aware of any outstanding issues. Our field organization has already been trained and inventory is in place to support a strong launch of our Unify Quadra product line in the United States within days of receiving FDA approval. Our experience in Europe and in other major markets with our quadripolar CRT-D system makes us optimistic that this product line will help us gain meaningful share in the United States once we have approval to bring this innovation to market.

Next, I'd like to touch on the success we are having with our Accent MRI Pacemaker in Europe. We announced last quarter that we received CE Mark approval and we're initiating launch in Europe of our Accent MRI Pacemaker. The advantage of this pacemaker system is that it offers uncompromised ticking of pacing technology in addition to full MRI compatible scanning capabilities with no anatomical zone or MRI power restrictions. This is a breakthrough innovation that offers significant benefits to patients and clinicians. Early customer response in Europe is encouraging. We look forward to fully deploying this technology in Europe over the next few quarters and then bringing this innovation to the United States when we are able to satisfy the FDA process for doing so.

Finally, in addition to implementing new growth drivers, St. Jude Medical continues to focus on improving the productivity of our global operations. The special charges we recognized this quarter in connection with restructuring our part of this initiative we will continue to restructure as appropriate, as well as expand our manufacturing volumes in Malaysia, in Costa Rica, in South Carolina and in other cost-advantaged locations as part of our comprehensive programs to optimize our cost structure long term.

I would like to conclude my prepared remarks by summarizing that our program for implementing 18 new growth drivers is making good progress. We are supporting these new growth drivers with robust comparative effectiveness data. We simultaneously are reducing cost and increasing productivity. St. Jude Medical's program for delivering superior growth over the long term is on track.

With that, I will stop and turn it over to Brooke to moderate the questions. Brooke, go ahead, please.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is coming from Rick Wise with Leerink Swann.

Frederick A. Wise - Leerink Swann LLC, Research Division

I guess I'll start with the ICD market. I mean, clearly still weak. Just -- I'd appreciate your reflections on when do you think we run the full course of the DOJ and JAMA impact. And are you -- can volumes -- can this market grow again in the next year or so?

Daniel J. Starks

Well, Rick, first -- so let me make a couple of comments, first with respect to the what we saw in the CRM market this last quarter. We would continue to guide to the same level of growth this quarter that we guided to last quarter, which was we wanted to be conservative. We wanted to really take this issue off the table for purposes of updating models for St. Jude Medical and for our growth rate. And we indicated that we expected for full year 2011 the global CRM market to shrink about 2%, and so that continues to be a good estimate here one quarter later. We really did not see significant changes in the CRM market over the last 90 days. We think the market didn't get better. The market didn't get worse. We saw ASP dynamics consistent during this last quarter as in the prior quarter. It's a tough market with a number of distressed conditions, but it seems to be reasonably steady state. With respect to the Department of Justice investigation, as everyone would appreciate, we have no special insights. The DOJ doesn't talk to us about it. So we -- we're really monitoring events as they become publicly visible in the same way that everybody else is. And so we cannot predict what comes next or exactly what's the time line is for the DOJ investigation. And I don't think anybody outside the DOJ can actually do that. With respect to the kind of longer-term outlook for the CRM market, the -- we've directed people's attention to the American Heart Journal study that came out earlier this year. It was a study that was conducted by a number of luminaries from UCLA, from Northwestern University, from Duke. It indicated the number of patients who are dying every year who are not receiving optimal therapy for heart failure conditions, including optimal ICD therapy. And that is -- so there were a number of wide range estimates for what the impact is on the public health from the failure of available technology to get to all of the patients who need it. But at the midpoint, as I recall, there is an estimate that about 20,000 people a year in the United states were needlessly dying of their heart failure condition due to their -- the fact that they didn't have in ICD and they should've had one. So there's just one data point. We've referred people a number of times to other kind of highly visible data points, the miniscule number of implants per population in emerging markets. We particularly cite China and India and -- but also a number of other emerging markets, all of which give us the optimism that over the long term there's still plenty of growth left in the global CRM market and St. Jude Medical will be well positioned to take advantage of that growth as it emerges. So those are -- Rick, those are my main comments on kind of the dynamics surrounding the CRM market. Did I answer your question or was there another part of it?

Frederick A. Wise - Leerink Swann LLC, Research Division

You did. I'll just follow-up on 2 things. I'm just focusing on some of the controversies at this point. If you could address -- just -- I'm curious to hear your thoughts on Riata and Quadpole. Riata, how concerned are you, if at all, that this could develop into a more significant issue for St. Jude? And Quadpole, you clearly are stating that it's murky at the FDA these days. I assume the fourth quarter, since -- nothing from Quadpole if I understood you. When are you hoping -- I mean, is it right to think about sort of first half, first quarter '12? How should we think about it?

Daniel J. Starks

Well, let me start with the second point first. On the Quadpole, we -- as I indicated, our submission is complete. We're not aware of any outstanding issues and we're waiting to hear from FDA. So approval could be later today. Approval could be later this quarter. Approval could be -- so we -- that tells you our state of knowledge. We're ready to go. The technology has been established to be safe. It's been established to be effective. It's been on the market in Europe for 2 years. It's helping patients elsewhere all around the world. We look forward to the opportunity to have this technology begin to help patients in the United States as well and we just wait day by day, but have no special insight into when we'll receive our approval. On the former question about the -- our ICD leads. First -- so there's a lot I'd like to say, and it'll go beyond the scope of what I could really appropriately address in this call. But starting point is we have the most robust post-market surveillance of lead reliability of anybody in the industry. A lot of times, people talk about the limitations of passive reporting and we always point out that we have the most robust active reporting, active follow-up of our device reliability, including our ICD lead reliability. We have a robust score registry. We have a robust optimum registry, both of which are active registries. We conduct additional studies as needed on an active basis. So we -- if you look at all the fine print in the product performance reports that come out in the CRM space, you'll see that we break out more data and that the inputs into our data are far more comprehensive and robust than is the case from other organizations. So we have a lot of confidence that we have a good handle on St. Jude Medical device reliability. And as everyone can see from just looking at reliability records here over the last, pick any period of time, I'll just say over the last 5 years, our device reliability performance has been -- has set the standard for device reliability bar none. So that would be just kind of an opening comment. But then what's going on here with the topic of 7 French leads is really something that's going to play to our advantage. And what I think the headline issues that a person might see and some of the ways that commentators really get drawn into competitive marketing efforts I think is something that I'd like to address. And let me start with the context. So the first thing is people ought to -- just keep in mind that our ICD lead line are in -- is a -- represents a very significant competitive advantage to us today, and it has now for a number of years. So we have the only 7 French ICD line on the market. Boston Scientific works with a 9 French lead line the way that we calculate the measurements. Medtronic works with an 8 French lead line the way that we calculate the measurement. And so -- and the fact that we have the only 7 French lead line is meaningful from a clinical perspective. So keep in mind that ICD patients include a large percent -- a large percent of ICD patients are heart failure patients and so by definition, that means that their hemodynamics already compromised. And so the heart failure patients who receive ICD therapy are typically going to receive a CRT-D device. And so that's 3 leads. That's 3 leads in a single vessel. And so clearly, it makes a difference if those leads can perform effectively and take up less space in the vascular system of a patient who's hemodynamics already are compromised and clearly, a smaller lead is better. Medtronic saw that when they had a 7 French lead line. We saw that as we put our 7 French lead line in the market. It draws a strong customer preference because of the advantages to the patients that I've just summarized. When Medtronic pulled their 7 French ICD lead line off the market, that created a major advantage for us. And you would recall, Rick, and others who've been in the field here long enough would recall that when Medtronic pulled its Fidelis lead line off the market due to the catastrophic fractures and failures that forced them to take the entire line off the market and never return it to market, that created a big advantage for us. And the question was how long was that advantage going to last, how long would it take for Medtronic to get back on the market with a 7 French lead line. People may forget that, that was October 2007. At the time, the speculation was it might take Medtronic as long as 2 years to get a 7 French ICD line -- lead line back on the market. Four years later, they don't have one and I would encourage everyone to go to Medtronic after this call and ask for an update on when will Medtronic got a 7 French lead line back out on the market. And our understanding, which would be, of course, limited by the fact that Medtronic doesn't really talk to us about this, but our market intelligence is that Medtronic has been unable to be successful in developing their 7 French lead line and that they're still years away. I don't know if they're going to give you a date or not, our intelligence is they're still years away. So that's the context for what's stirred up here in the last 30 days or so. So Medtronic has recently started a campaign in the United States where they're going to customers and they're telling them 7 French leads are too small and not safe, and they point to a study by one center in Northern Ireland that documented partial failures of ICD lead insulation. There are several problems with Medtronic's campaign. The first is that the center in Northern Ireland used mostly 8 French leads. And then second thing is that lead insulation failures are not due to French size. The thickness of silicone insulation on a 7 French lead is exactly the same as the thickness of silicon insulation on an 8 French lead. So right away you see where the Medtronic field organization gets itself off track thinking, "Oh, if it's a 7 French, they must just thin down the insulation." And that may be what Medtronic tried to do in their lead development efforts. That may be why they've been unsuccessful in getting a 7 French lead line back on the market. That's not what we did to provide a 7 French ICD lead. Our technology innovation was far more elegant inside the lead. We did not in any way compromise the insulation thickness or the lead insulation to give physicians and patients the benefit of a -- of 7 French ICD line. And then third -- and there be again, in an expanded conversation, a person would like to bring out a lot of engineering data and really educate the market and this is exactly what we're doing with our physician customers. But third, although failure rates are low overall due to insulation failure caused by abrasion, although the failure rates are low overall, 8 F leads -- the 8 French leads have a statistically significant higher rate of insulation failure. And -- now remember my earlier remarks, Medtronic is the only company with an 8 French ICD lead on the market. So this is a peculiar situation where you've got a company where the data shows a statistically significant higher insulation failure rate on an 8 French lead, and you got that company running around talking about insulation failures. So it's the kind of situation that really plays to our strength. It's a great marketing opportunity for us. This is going to backfire on anyone who is working with either incorrect or incomplete data to work to mislead customers and deprive patients of the benefit of state-of-the-art technology. And this -- well, all of this -- what this does is this sets the table for us to come in, point out all of the things and far more than I've just outlined to customers to talk about and remind customers of the advantages of the St. Jude Medical ICD lead line. So in the interim here, a key theme for us is that although the overall failure rates are low, we have long focused on insulation failure due to abrasion as a problem to solve in our efforts of continuous improvement in our lead technology. And so I'm not sure of the exact time line, it's been 10 years or so that we've been invested and we've been developing a proprietary material that we call Optim, which we began to put into our lead line in 2006. Optim is 50x more resistant to abrasion than silicon. You can no longer buy an ICD lead from St. Jude Medical unless it is protected from abrasion by Optim. That's why at the end of last year, we completely discontinued offering to customers any ICD leads that were unprotected by Optim. Customers can only get the benefit of Optim protection against insulation failures and Optim protection against lead abrasion from St. Jude Medical. So all of this is -- it's a little bit -- I'm reminded of Brer Rabbit, talking about don't throw me into the briar patch. We're a little bit like Brer Rabbit saying, "Oh my goodness, let's not talk leads." The -- I'm saying that tongue-in-cheek, with the point being that we like talking about leads. We like talking about the competitive advantage of St. Jude Medical's ICD leads and pacing leads. We like talking about the advantages of the reliability data. We like talking about the advantages of our lead-handling performance. We like talking about the advantages of our smaller leads without any compromise in the insulation and in fact with a superior technology in our insulation material. And so that's what -- what's teed up here. So that's a -- I've offered you a couple of my comments. And again, the engineering data is really very robust, very favorable to St. Jude Medical, very favorable to patient safety. And our entire lead line has been a strong basis for our gaining market share over the last 4 years, and it'll continue to be a basis for our gain of share in the de novo market here in years to come. And that's without having the benefit of quadripolar. So having attention be to leads plays to our strengths. And if the competitors help focus their attention to leads, that's fine with us. We actually have quite a bit of our own marketing initiative designed to help get physicians to give us time to walk them through all of the reasons that the St. Jude Medical ICD system is a superior system, and particularly on the strengths of our superiority of leads.

Operator

Our next question comes from Mike Weinstein with JPMorgan.

Michael N. Weinstein - JP Morgan Chase & Co, Research Division

Let me just first just ask on the TAVI program because I think I may have missed this, but I just want to make sure I caught it correctly. So, Dan, you're rolling immediately from the first man into the CE Mark study. And if I heard you correctly, you now expect to have Portico approved and/or CE Mark by the end of 2012 versus the prior expectation of 2013. Did I tell -- hear that correctly?

Daniel J. Starks

Yes, you heard that correctly. The only caveat that I'd add, Mike, would be to mention that I indicated that we anticipate a limited launch of the Portico line by the end of 2012. So it won't be all sizes at the end of 2012. And as you know, the -- everyone who has jumped into the market has done so kind of size by size. But you'll see us -- we're on track to initiate a limited launch before the end of 2012. So the whole program is ahead of schedule, and we'll be -- we're expecting to be raring to go here before the end of next year.

Michael N. Weinstein - JP Morgan Chase & Co, Research Division

Great. And let me add just a couple of other pipeline questions, if I can. Can you update us, and if I missed this I apologize as well, on the DBS submission in the U.S. and the expected approval timing there? And then on CardioMEMS, I just want to make sure we're thinking about it appropriately as we're modeling 2012. Should we be assuming at this point that if the FDA panel votes in favor for CardioMEMS that you would then exercise your option to buy in the company?

Daniel J. Starks

Mike, you didn't miss anything on the DBS approval time line for the U.S. I omitted it, and I omitted it deliberately because we're really having -- we're really finding ourselves unable to predict FDA approval times. And so I've been silent on it, and we think it's prudent to model -- to be conservative in modeling U.S. approvals in the current regulatory environment. And we're not encouraging anyone to model DBS revenue in the United States here in the nearest term. That'd be the first thing. On the CardioMEMS side of the -- I'd like to refer all questions regarding CardioMEMS to CardioMEMS. We, of course, are never intending to be offensive to any partners, but CardioMEMS doesn't really like us talking about their technology while we don't yet own it. So I don't mean talking about the technology, but I mean the -- that the extent of our comments appropriately ought to be limited, particularly anything about approval, et cetera, until such time as we own it. So I would -- that's why I didn't say more in my prepared comments. And if others ask questions on the CardioMEMS side, we're happy to remind everyone about the value of the technology, the CHAMPION trial data, the robustness of reimbursement to our enthusiasm for that technology. But other than that, we refer everyone to CardioMEMS itself for more information. And with respect to our exercising our option, Mike, there are reasons why I won't be more explicit, but we're giving you all kinds of lines to read between when we talk about our enthusiasm for the technology.

Michael N. Weinstein - JP Morgan Chase & Co, Research Division

Let me just sneak one more in, Dan, if I can. I don't know if you saw our recent piece on renal denervation. I thought the one piece of the puzzle that everybody's going to be focused on, if we fast forward a couple of years, is going to be the competitive landscape in the U.S. market and the potential for intellectual property battle between Medtronic and whoever else may follow them, including yourself. Can you just spend a minute to the degree which you're comfortable talking about the IP and your comfort on entering that market, not just in Europe but in the U.S.?

Daniel J. Starks

Yes, I won't say anything that'd be terribly helpful, Mike, as you might predict. The -- this is just like any other space that we're invested in and that we're active in. We pay a lot of attention to intellectual property as a starting point. And so -- and with respect to renal denervation as well with respect to the TAVI market and the PMVR market and in the same way that we did here with the CRM market, we're all over it. We've got a lot of talent focused on what's the whole landscape, what's the right place for us within that landscape, how can we change the landscape with our own IP activity. So we're fully focused on the intellectual property landscape for renal denervation in the same way that we are for each of our other major technologies and major new growth drivers. As far as saying anything more specifically, anytime anyone asks questions on legal strategy, we always no comment and -- we always say no comment. And so we don't discuss our -- the legal advise or legal strategies or kind of legal thinking publicly, but we spend a lot of attention on it behind closed doors.

Operator

Our next question comes from Kristen Stewart with Deutsche Bank.

Kristen M. Stewart - Deutsche Bank AG, Research Division

Dan, I just wanted to go back to your comments on the CRM market and just kind of the quadripolar approval. I wasn't sure whether or not that was or was not included within your guidance for the fourth quarter.

Daniel J. Starks

Yes. It's a good -- thanks for the question, Kristen, and we haven't been clear on that. The reason that our guidance range for the fourth quarter is -- for a single quarter is a little bit larger than it usually is, is to accommodate all possibilities here on the quadripolar side. So if we get a quadripolar approval later today, then we'd expect the ICD, the total CRM revenue to come in up in the upper half of our range. If we don't get approval at all, we'll expect the CRM revenue to come in the lower half of the range. And so rather than try to put any finer point to it and since we really don't know if it's today, tomorrow, next week, next month or not at all, we just have a little bit larger range for our guidance this quarter than usual to accommodate all eventualities.

Kristen M. Stewart - Deutsche Bank AG, Research Division

Okay. And then have you guys looked just kind of basically at the primary implant rates within the ICD, kind of market as a whole. I would assume that they are obviously down in the U.S., but I'm just surprised that you're down so much, given the fact that you should still have that tailwind from replacements.

Daniel J. Starks

Yes. Well, we'll -- first of all, for -- as we always caution folks, be careful with single-quarter numbers. There's inventory loading, unloading that really factors in as with customer purchasing practices, and so be careful with any one quarter. But we'll need to -- I mean, we look at everything. We've got a good group of talented people that are focused full time on all of the details of building up a market model. We don't talk about our growth -- market growth expectations in that level of detail, but all of that level of detail exists. And as we said a quarter ago, the -- in the U.S., the CRM market clearly hit a pothole and took a bit of a dive last quarter. It has not recovered this quarter. So as you look at the -- look for short-term data that would indicate a positive trend, we won't point you to do that. What we'll say is the market took a drop a quarter ago. It continues in that same kind of depressed condition, those very weak dynamics. Those weak dynamics were merged into our market model a quarter ago. Those weak dynamics are continuing into this quarter, and so our view of the CRM market for 2011 remains exactly the same. We find it now to be stable at a lower level, and we'll continue to think that way until we start to see some upticks. And we aren't in any better position to predict exactly when we'll see the upticks than anyone else is.

Kristen M. Stewart - Deutsche Bank AG, Research Division

And then, John, just on the growth margin. I assume this quarter you saw positive benefit from currency and that should start to work its way out as we look ahead. When might we anticipate some of the savings from the movement of manufacturing to lowest -- lower-cost jurisdictions really start to be reflected on that line?

John C. Heinmiller

Oh, I think we wouldn't offer guidance into 2012 at this point. We're obviously, as Dan mentioned in the call, working to -- on all of those initiatives that we think over the long term will have a positive effect on gross profit margin, but we wouldn't be anymore specific at this point. We're still comfortable with where we are for the current year and continuing to guide for the full year that the gross profit margin will end up in the range of 74.0% to 74.5%, and then we'll be looking forward to giving guidance for 2012 when we do our report in late January.

Daniel J. Starks

But, Kristen, what we could add is just -- for the color commentary surrounding John's remarks, which I agree with 100%. For the color commentary, our program of continuing to ramp up volumes in cost-advantaged locations is completely on track. So the manufacturing -- those activities have gone and are continuing to go very well of the -- we -- and so the -- so we'll look forward to updating everyone with our guidance for 2012. And directionally here, on a multiyear basis directionally, that continues to be a very visible, highly assured aspect of our total program to optimize our cost structure and continue to keep the level of profit that permits us to invest the level of R&D that we are investing, even though market conditions are as tough as they are.

Operator

Your next question comes from Bob Hopkins with Bank of America Merrill Lynch.

Robert A. Hopkins - BofA Merrill Lynch, Research Division

Just 2 quick ones. Dan, on the -- on your market forecast for global Cardiac Rhythm Management market of negative 2%, which as you said is consistent with what you mentioned last quarter. I just want to know, is that a reported number or a constant currency number? Just for clarification.

Daniel J. Starks

Yes. I'm going to clarify it with a cloud. It's kind of in between, Bob. So the reported number is really -- I think the data which showed -- well, we have to wait to see the other companies report first here for the third quarter. But I think the reported number is actually a little more positive and the constant currency number is a little more negative, and we're not putting that finer point to it. So we really think of it as a minus 2%, and that's close enough.

Robert A. Hopkins - BofA Merrill Lynch, Research Division

Okay. We'll wait for the others to report and see where we end up. And then, Dan, on the -- back on Riata for a quick second. And thanks for the detailed thoughts there, but have you guys done a deep dive on the case report out of Ireland and why they experienced such high failure rates? Is there anything that you can tell us at this point that might explain those high failure rates, or have you not had a chance to really dig in there?

Daniel J. Starks

Well we're all over it, but there's nothing that we'd comment on. And so -- when we talk about a particular center, we would never really talk about a particular center here in a public forum. What we'll -- what we would talk about would be just the overall reliability data and the -- and as reflected in our product performance report. So we really would never, I don't think, in any instance. I can't think of where we'd start talking about a single center, an identified center's experience.

Robert A. Hopkins - BofA Merrill Lynch, Research Division

Okay. And then just lastly on Quadpole. So is the -- the message that since you last communicated to us on the last quarterly call, you've -- that FDA has basically asked you for nothing, no incremental detail. It's just been radio silence, and you're still just waiting. Is that the message?

Daniel J. Starks

No. But again, we -- there are some topics that just are not helpful to address publicly. Regulatory communications are among them. Specific centers experiences would be among them. Legal issues are among them, and regulatory communications are among them. So we consider the communications when we are communicated with, unless it's something that the center has made public or that it's a public kind of document. We keep communications confidential, and we just find that the working relationships are facilitated that way.

Operator

Our final question comes from Joanne Wuensch with BMO Capital Markets.

Joanne K. Wuensch - BMO Capital Markets U.S.

It's actually very brief, it's 3 parts. When will we see TAVI data? What was the x FX acquisition growth rate? And can you explain a little bit more why Neuromodulation sales were weaker than expected? It was a sort of a fuzzy answer to me.

Daniel J. Starks

The -- let me start with Neuromodulation. The neuromodulation market is impacted a little differently than our other markets in that the neuromodulation procedures are so highly elective. And so here I'm talking about spinal cord stimulation for pain. And people can -- people of -- anybody who's going to get a spinal cord stimulation implant has been living with that pain for a very extended period. And -- to the extent that they're talking about paying out of pocket for another physician consultation and a referral to someone else and a high deductible on the implant, the unemployment rate, the lapsing of medical coverage, the lapsing of COBRA coverage, the -- and just consumer conservatism on spending money clearly has an impact -- has had an impact on the neuromodulation market here, disproportionate to the -- its impact on other portions of the total St. Jude Medical market landscape. So I think that's what's going on there. On the topic of the TAVI data and when you'll first see TAVI data, I can't actually answer that question, Joanne. It's not that it's a secret, it's that I don't have the information at my fingertips and I'm sorry, I can't answer it. And on the topic of -- I'm sorry, the third part was?

Joanne K. Wuensch - BMO Capital Markets U.S.

Well, it's housekeeping. What was your growth rate with the pull out foreign exchange and the AGA acquisition?

Daniel J. Starks

I don't have the number.

John C. Heinmiller

Yes. I don't know -- we -- the constant currency growth rate was 6% for the quarter.

Daniel J. Starks

Yes.

John C. Heinmiller

So there's -- there'd be obviously some AGA sales in there.

Daniel J. Starks

Yes. I'm sorry we -- I wish we ended on a high note here, Joanne, with crisp answers to all 3 parts of your questions and we didn't do a very good job, but that's the best we can do.

Okay. All right, thank you. So we -- I apologize we got to fewer questioners than usual. But I'm still going to -- we've gone over an hour, and I'm still going to conclude the call. And we'll be happy to continue to take questions that are consistent with our normal protocol and normal level of public disclosure here later today. So, Brooke, maybe you could read your concluding comments, and we'll adjourn. Thank you, everybody, for joining us.

Operator

Today's call is being recorded and will be available for replay beginning at 12 p.m. Eastern Time. The dial-in numbers are, U.S., (855) 859-2056 and international, (404) 537-3406. Enter the pin number 14757022. Thank you. This does concludes today's teleconference. Please disconnect your lines at this time.

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