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St. Jude Medical: Feeling the momentum mojo

|Includes: BSX, MDT, St. Jude Medical, Inc. (STJ)

Earnings reports are good ways to measure a company’s financial performance. What they’re less useful for is gauging a company’s confidence. You know… Mojo. Swagger. Groove.

And here’s what I see: Medtronic Inc. (NYSE:MDT) always had it. Boston Scientific Corp. (NYSE:BSX) has lost it. And St. Jude Medical Inc. (NYSE: STJ) is feeling it.

Minnesota has traditionally been home to the Big Three of medical devices. That hasn’t changed, but I’d argue St. Jude, based in Little Canada, has supplanted Boston Scientific for that No. 2 position behind Medtronic, based in Fridley. (Boston Scientific has major operations in Arden Hills.)

Supplanted, not by sales or employees, but by the intangible quality of momentum. Case in point: St. Jude’s plan to purchase AGA Medical Holdings Inc. for $1.3 billion, a move that instantly catapults the company as a major player into the fast growing device market for structural heart problems.

The move was very Medtronic-ish: using its considerable cash to purchase some great intellectual property at a discounted price, plus adding immediate impact to the top line.

In fact, St. Jude expects AGA to grow its 2011 annual sales in the low double-digits even without several promising products in the Plymouth, Minnesota, company’s regulatory pipeline.

St. Jude this year also shelled out $90 million to purchase LightLab Imaging Inc.; and committed another $60 million to acquire a 19-percent stake in CardioMEMS, the Atlanta company developing wireless monitoring technology for heart failure, with the option of buying the entire company for $375 million.

And St. Jude is scoring big gains in the global market for implantable cardioverter defibrillators (ICDs), an area that has more or less been written off by the rest of the industry.

“The ICD business may not be a growth driver for our competitors as they lose market share, but we expect it to continue to be a growth driver for St. Jude Medical,” CEO Dan Starks told investors during a conference call Wednesday.

So confident is St. Jude in its prospects that the company boosted its 2010 profit forecast despite slowing sales growth in the third quarter and the financial impact of the AGA deal.

Meanwhile, Boston Scientific on Tuesday said it swung to a third quarter profit of $190 million compared to a loss of $94 million. However, sales fell 5 percent to $1.92 billion.

Hard to show swagger when sales continue to fall. BSX is trying to put behind it an unfortunate couple of years marked by layoffs, financial pressures and regulatory woes.

CEO Ray Elliott visited the Twin Cities a couple of months ago to rally the troops. Insisting Boston Scientific has turned a corner, Elliott promised the company would make acquisitions.

Last month, Boston Scientific inked a deal to spend $193.5 million in cash — and possibly $250 million more — on Asthmatx Inc.

But right now, only Medtronic and St. Jude are making deals and boosting sales. Until Boston Scientific unleashes its checkbook, the company risks falling further away from its main competitors.

Acquisitions, of course, are not the only measure of strength, and a bad purchase can hurt a company more than a good purchase can help. If anyone knows this, it’s Boston Scientific, whose $26 billion purchase of Guidant Corp. in 2006 is widely seen as one of the worst in corporate history.

But Boston Scientific wildly overpaid for Guidant when the economy was in much better shape than it is now. As Medtronic and St. Jude can attest, today’s weak economy presents plenty of attractive deals at attractive prices.

And if Boston Scientific wants to grow again, it needs to do deals. Companies like Medtronic and St. Jude will make deals to goose sales in the face of a difficult global economy for healthcare.

Can Boston Scientific find enough swagger to pull the trigger?

 



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