j.p. morgan 33rd annual healthcare conference presentation 2015
TRANSCRIPT
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J.P. MORGAN 33RD ANNUAL HEALTHCARE
CONFERENCE Dan Starks, Chairman, President and Chief Executive Officer
St. Jude Medical
Jan. 14, 2015
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This presentation contains 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 the expectations, plans
and prospects for the Company, including potential clinical successes, anticipated regulatory approvals and 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 Statements sections of the Company’s Annual Report on Form 10 -K for the fiscal year
ended December 28, 2013 and Quarterly Report on Form 10-Q for the fiscal quarter ended September 27, 2014.
The Company does not intend to update these statements and undertakes no duty to any person to provide any
such update under any circumstance.
FORWARD-LOOKING STATEMENT
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Preliminary Q-4 2014 financial results
St. Jude Medical milestones in 2014
Looking forward to 2015
Summary
TOPICS
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PRELIMINARY Q-4 2014
FINANCIAL RESULTS
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Year-over-year sales increased approximately 5% on a currency neutral basis.
Currency had a negative $54 million impact year-over-year on Q-4 2014.
2014 was a “53-week” year resulting in 3 additional selling days in Q-4, which we
estimate increased the Q-4 growth rate by as much as 3 percentage points.
Preliminary sales from each product category were either within or above our
previously issued guidance range.
AF exceeded the high end of the previously issued guidance range.
Q-4 revenue from CardioMEMS products was $11.9 million.
We issued a press release this morning prior to market open that included a
geographic breakout of each sales category. Approximately 53% of sales
came from global markets outside the U.S., including approximately 14% from
emerging markets.
PRELIMINARY SALES FOR Q-4 2014 WERE APPROXIMATELY
$1.439 BILLION, IN LINE WITH OUR PREVIOUSLY ISSUED
GUIDANCE RANGE.
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We remain comfortable that adjusted EPS for Q-4 2014 will be within
our previously issued guidance of $1.02-$1.04.
These preliminary results mean that on a constant currency basis, we
delivered approximately 3.5% growth in sales and 7-8% growth in
adjusted EPS for full year 2014.
We will provide additional information on Q-4 2014 results as well as
2015 guidance on January 28 with a press release and conference call.
PRELIMINARY Q-4 2014 FINANCIAL RESULTS.
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ST. JUDE MEDICAL
MILESTONES IN 2014
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Our customers are changing. We are changing with them.
It no longer makes sense to organize by physician specialty in a
decentralized structure.
Our transition from four product divisions to one fully integrated
organization helps us leverage our scale, reduce costs, and strengthen
our focus on the new customer profile that is emerging as a result of
structural changes in the health care market.
WE COMPLETED THE REALIGNMENT OF OUR GLOBAL
BUSINESS.
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Sylmar new products – Allure Quadra CRT-P, Endurity and Assurity
pacemakers. Optisure high voltage lead.
Plano new products – Protégé SCS device for chronic pain.
WE RESOLVED THE WARNING LETTERS FDA PREVIOUSLY
ISSUED TO OUR SYLMAR AND PLANO FACILITIES AND
LAUNCHED NEW PRODUCTS FROM THESE SITES TO THE
U.S. MARKET.
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Endosense (2H ‘13) – TactiCath contact force sensing ablation platform
approved by FDA, Q-4 ‘14.
Nanostim (2H ‘13) – Nanostim leadless pacemaker is in an IDE clinical
trial.
CardioMEMS (1H ‘14) – the first phase of product launch is underway
in the U.S.
NeuroTherm (2H ‘14) – integration and sales force training is complete.
Product line launches are underway.
WE STRENGTHENED OUR PRODUCT PORTFOLIO WITH
FOUR ACQUISITIONS IN FOUR QUARTERS.
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EnligHTN renal denervation program – the market collapsed due to a
competitor’s clinical trial failing to meet its endpoint ($15-20 million
impact on revenue).
Portico TAVR program – we temporarily suspended implants to
evaluate reports of leaflet motion abnormalities ($5-10 million impact on
revenue).
WE ABSORBED SET BACKS ON TWO MAJOR GROWTH
DRIVER PROGRAMS.
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Guidance Results Pro Forma Results Jan. ’14 FY ’141 @ Jan. ‘14 FX
EPS $3.94 – 3.99 $3.97 – 3.99 $4.00 – 4.02
Revenue2 $5.600-5.750 $5.621 $5.646
1 Based on preliminary Q-4 results announced earlier today. 2 Revenue is expressed in billions.
WE DELIVERED 2014 RESULTS THAT MET OR EXCEEDED
THE GUIDANCE WE GAVE FOR THE YEAR IN JANUARY
2014.
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LOOKING FORWARD
TO 2015
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Full year impact of CardioMEMS.
Full year impact of new ablation catheters.
Return to growth in our neuromodulation business in the U.S.
Operating discipline. Scale. Continuous improvement in our supply
chain.
We will address this plan more extensively at our annual investor
conference on February 6, 2015.
1 This is not guidance for 2015. We will issue our guidance as usual on January 28 as part of
our quarterly earnings release.
WE PLAN TO ACCELERATE SALES GROWTH IN 2015 AND
CONTINUE TO LEVERAGE EPS ON A CONSTANT
CURRENCY BASIS.1
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CHAMPION trial data showed that this technology can help reduce 30
day, all cause hospital readmission rates for Medicare eligible Class III
heart failure patients by as much as 78% (AHA Scientific Sessions
2014).
Comparative 30 day hospital readmission rates for these patients is an
important metric used to calculate CMS reimbursement levels to U.S.
hospitals in 2015.
We have the right product at the right time to help improve patient
outcomes, reduce the cost of health care, and help customers increase
their revenue.
CARDIOMEMS IS ONE OF OUR MOST IMPORTANT
CATALYSTS FOR 2015.
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CMS granted a New Technology Add-on Payment for in-patient
treatment effective October 1, 2014. This recognizes that CardioMEMS
provides substantial clinical improvement over already available
technologies and is designed to facilitate access for Medicare
beneficiaries.
CMS granted additional Pass-Through Payment for out-patient
treatment effective January 1, 2015.
We generated sales of approximately $11.9 million in Q-4 2014 and
expect to generate sales well over $50 million in 2015.
OUR EARLY EXPERIENCE WITH CARDIOMEMS IS
ENCOURAGING.
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The ablation catheter segment of the EP market is more than $1 billion
in annual revenue. We are under-represented in this segment.
Our FlexAbility family of ablation catheters received CE Mark in Q-3
2014. FDA approval is expected this quarter.
Our TactiCath family of contact force pressure sensing catheters
received FDA approval in Q-4 2014.
AF product sales in Q-4 increased 17%1 year-over-year on a constant
currency basis compared with 9% growth YTD through Q-3.
1 We estimate that 3 percentage points of this growth may have been due to additional selling
days.
ANOTHER IMPORTANT CATALYST FOR 2015 IS THE NEW
ABLATION CATHETERS IN OUR AF PROGRAM.
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Revenue from neuromodulation products in international markets grew
25% on a constant currency basis for full year 2014 compared with a
decline of 5% in the U.S.
The lifting of our FDA warning letter, our launch of the Protégé SCS
product line in the U.S. and our acquisition of NeuroTherm mark the
beginning of a turn-around in our U.S. neuromodulation business.
We expect additional new products to help accelerate sales growth
further in 2015. We will provide more details at our upcoming annual
investor conference.
A THIRD CATALYST FOR SALES ACCELERATION IS THE
RETURN TO GROWTH OF OUR NEUROMODULATION
BUSINESS IN THE U.S.
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The restructuring we completed in 2014 and other investments facilitate
ongoing reductions in costs and improvements in productivity.
We will continue to use our balance sheet and cash flow to drive
shareholder value.
We plan to move to cash EPS.
Foreign exchange will have a negative impact on both sales and EPS
results.
A SECOND MAJOR GOAL IN 2015 IS TO CONTINUE TO
LEVERAGE EPS ON A CONSTANT CURRENCY BASIS.
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Our centralized organization and our enterprise-wide SAP
implementation facilitates ongoing improvements to our global supply
chain.
We continue to expand manufacturing in cost advantaged locations.
We have made significant improvement to our quality systems that
should reduce scrap and other quality costs in 2015.
THE RESTRUCTURING WE COMPLETED IN 2014 AND
OTHER INVESTMENTS FACILITATE ONGOING
REDUCTIONS IN COSTS AND IMPROVEMENT IN
PRODUCTIVITY.
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This morning we announced that our board of directors has authorized
a $500 million share repurchase.
This stock repurchase also reflects the strong confidence our management team
and our board have in our long-term growth and success.
This stock repurchase implies a favorable impact to 2015 of approximately $0.10
EPS.
We have ample capacity to continue returning capital to shareholders
and continue to augment our growth strategy with disciplined
acquisitions as appropriate.
WE WILL CONTINUE TO USE OUR BALANCE SHEET AND
CASH FLOW TO DRIVE SHAREHOLDER VALUE.
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We recognize that many of our peers add back amortization expense and
report “cash EPS” to investors. We likewise will provide 2015 guidance
and report our future quarterly results using this cash EPS basis.
We are mindful that many investors compare peer companies across a variety of
metrics and that it is helpful for investors to have similar information across
companies.
In 2014, if we were to add back the tax-affected amortization expense to our adjusted
EPS, this calculation would have added approximately $0.20 to full -year 2014
adjusted EPS.
We will continue to provide a reconciliation to GAAP EPS.
WE PLAN TO MOVE TO CASH EPS BEGINNING IN 2015.
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If today’s currency rates remain stable, we estimate that currency will
have a negative impact on sales of approximately $275 million-$300
million.
Since our October earnings call, currency has become a significant headwind due to
macroeconomic factors.
There was a $54 million dollar impact from currency alone in Q-4 2014.
We estimate that this currency headwind would translate into $0.45-$0.50 of EPS.
We have initiated a forward dollar-cost average hedging program that will reduce the
short-term impact of foreign exchange volatility in future periods.
FOREIGN EXCHANGE WILL HAVE A NEGATIVE IMPACT ON
BOTH SALES AND EPS RESULTS IN 2015.
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SUMMARY
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Our CardioMEMS, AF, and neuromodulation programs all support these
goals.
We expect to continue to reduce costs and improve productivity.
We expect to use our strong balance sheet and cash flow to return
cash to shareholders and fund disciplined acquisitions as appropriate.
We will provide our guidance for 2015 with the press release and
conference call scheduled for January 28.
WE ARE WELL POSITIONED TO ACCELERATE SALES
GROWTH AND DELIVER EPS LEVERAGE ON A CONSTANT
CURRENCY BASIS IN 2015.
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