3 Heart-Stirring Stories From 2012

We at the Fool are starting to wax nostalgic over 2012, and the year hasn't even ended. And what industry gets our hearts stirring more than the cardiac medical device makers? The past year saw solid share gains for several of the major players in the industry. Here are three of the key stories that made a difference in 2012. 

1. International
The year could have been even better were it not for some international troubles. Edwards Lifesciences (NYSE: EW  ) listed European austerity moves as a primary factor for missing estimates in the third quarter. Abbott (NYSE: ABT  ) attributed decreasing international sales to a strong U.S. dollar.Despite these issues, Abbott's shares increased 15% for the year, while Edwards jumped 28%.

Medtronic (NYSE: MDT  ) also noted both of these factors as headwinds during the year. The company did experience some success, though, in launching new products in Japan.Medtronic's shares are up 8% for the year.

Boston Scientific (NYSE: BSX  ) reported decreased international sales in most regions as well. The company's one growth area, however, originated from its Intercontinental segment, which includes emerging markets in China, India, and Latin America.Similarly, St. Jude Medical (NYSE: STJ  ) saw overall international sales decline but with bright spots of growth in the Asia-Pacific and Japan regions. Shares are up for the two companies in 2012 nearly 8% and 4%, respectively.

2. Innovation
The introduction of new products was a recurring theme in 2012. Several innovative stents hit the market. Abbott launched a few of its own, including the XIENCE Xpedition Everolimus Eluting coronary stent. (Try saying that tongue-twister three times fast.) The new stent received the CE Mark and rolled out in European countries in August.Boston Scientific came out with its Synergy everolimus-eluting stent in Europe in October in addition to several others during the year. 

Probably the most excitement, though, came from the debut of new heart valves from several of the industry's leaders. Edwards Lifesciences rolled out its Intuity heart valve in Europe early in 2012 and began U.S. studies later in the year.While it wasn't a new product launch, Edwards also received FDA approval for using its Sapien transcatheter aortic heart valve for a new group -- high-risk aortic stenosis patients. This move opened up a much wider market for the company.

St. Jude Medical began marketing its Trifecta heart valve in Japan in April after receiving regulatory approval. St. Jude also saw the first transapical implantation for its Portico transcatheter heart valve in October. 

Medtronic didn't market a new heart valve over the past year, but it did make progress with a clinical trial. The company presented positive results from a European study of its Engager transcatheter aortic heart valve in October. 

3. In-fighting
Competition in the medical device industry has always been tough, but two companies -- Boston Scientific and Medtronic -- particularly noted competitive pricing pressures over the past year. Analysts expect the rivalry between leaders in the heart valve market to especially heat up over the next year.

The fight carried over from the marketplace into the courtroom for a couple of companies. The U.S. Court of Appeals affirmed a 2010 decision that found Medtronic infringed upon a transcatheter heart valve patent held by Edwards. Medtronics was fined $74 million for allegedly incorporating Edwards' technology in its CoreValve heart valve.

Into 2013
While Edwards had the best year from a share return perspective, who looks most promising headed into 2013? The chart below shows how the rivals stack up in several key metrics.

Company Price/Sales Fwd P/E PEG  Fwd Dividend Yield
Abbott  2.62 12.48   1.47  0.80%
Boston Scientific   1.08 13.53   2.01  N/A
Edwards Lifesciences   5.84 28.30   1.82  N/A
Medtronic   2.63 11.05   2.19 2.40% 
St. Jude Medical   2.01 10.18   1.11 2.60% 

Source: Yahoo! Finance.

Overall, St. Jude presents the most compelling value play when we factor in growth prospects. However, Edwards' premium valuation isn't an accident. The company continues to thrive and recently announced solid growth projections for 2013

The industry as a whole faces a new challenge next year, with a 2.3% excise tax on medical devices courtesy of Obamacare. Because the tax will be levied on gross sales, the impact on earnings could be even higher unless companies can pass the added costs along to customers. The Obama administration argues that the increased number of Americans insured because of the controversial law will more than make up for the new tax.

This time next year (assuming the Mayans were wrong), we'll know how the industry fared with increased competition, more new products, and higher taxes. And we can wax nostalgic once more.

 

One competitor in the cardiac medical device industry faces an even bigger change next year than most. Abbott spins off its branded-drug business into a new company, leaving the medical device segment and others in the original entity. It's a confusing event to understand, with many investors left wondering what to do with these two stocks once they're separated. To help investors better understand the upcoming event, the Fool has created a brand-new premium report outlining both Abbott Labs and its spinoff, AbbVie. Inside, we outline all of the must-know opportunities and risks facing both companies, so make sure to claim this 2-for-1 report by clicking here now


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