Can St. Jude Medical Inc. Win This Crucial Market?

Cardiac device giant St. Jude Medical (NYSE: STJ  ) hasn't exactly posted a repeat performance of its star-studded 2013 this year.

Despite gaining more than 35% over the past year, St. Jude's stock has dropped off by more than 3% over the past three months. The company's lackluster performance hasn't inspired investors, either, as total cardiovascular sales fell 1% in its most recent quarter, with its largest business, cardiac rhythm management, barely managing growth. Add to that St. Jude's struggles to keep up with the leaders in the exciting transcatheter aortic valve replacement market, and it's been a downbeat year so far for this medical device staple.

But St. Jude may be ready to turn the corner on that last issue. A breakthrough with the company's Portico heart valve has the company thinking big in the prized U.S. market, but should investors expect St. Jude to close the gap between it and the market's early leaders, Edwards Lifesciences (NYSE: EW  ) and Medtronic (NYSE: MDT  ) ?

St. Jude's best growth hope?
St. Jude's Portico heart valve has experienced some early success in its young life: European regulators first approved the device back in 2012 and added a second approval for a different size of the Portico last year. But the big market in this heart valve battle is the U.S. Edwards Lifesciences, the early leader in the market, received FDA approval in 2011. Medtronic's burst onto the scene to compete with Edwards in a hard-fought battle recently after the company's CoreValve device received U.S. approval this January.

While the Portico hasn't gotten that far yet, it did strike a major success recently. St. Jude announced on Tuesday that doctors conducted the first two American implants of the Portico in patients. That's not the end goal for St. Jude by far, but it's a big step toward eventual potential U.S. approval, along with ongoing randomized trials of the devices around the country.

St. Jude's Portico TAVR device. Source: St. Jude Media Gallery

While Edwards Lifesciences and Medtronic have dug into this market already, St. Jude's not backing out of the fight -- and for good reason. St. Jude's Portico offers the advantage of being movable where it's implanted in the heart, a feature that's thought to reduce possible risk for patients.

Of course, for investors, the real advantage is in this market's potential.

Edwards and Medtronic have waged a protracted battle across the U.S. and Europe for leadership in this market, which the Millennium Research Group projected back in 2012 would provide almost all of the growth of the overall American heart valve market to $1.5 billion by 2016. For a cardiac device market that's struggled to gain ground and revenue in light of tight competition and falling prices, this kind of a growth opportunity is a can't-miss situation for investors and firms alike. Other firms have taken notice: Boston Scientific has pushed into the area with its own Lotus heart valve as of late. While Boston's far off from possible U.S. approval like St. Jude, it scored European regulatory approval for the Lotus last October.

St. Jude needs all the help it can get. The company's made significant strides in its promising atrial fibrillation business, which saw revenues gain 10% in constant currency year over year in the firm's most recent quarter. But that business is tiny in terms of sales compared to St. Jude's dominant CRM and cardiovascular groups, which rely on devices such as implantable cardioverter defibrillators and pacemakers -- products that have been anything but growth-friendly lately. Restocking the product portfolio with devices such as the Portico and in niches such as atrial fibrillation is pivotal for St. Jude's long-term growth plans.

Keeping an eye on the long term
In all, the company still has a long way to go with the Portico. While the first two U.S. implantations of the Portico is a big step for St. Jude, it's just one accomplishment in the journey toward American regulatory approval -- and toward catching up with Edwards and Medtronic in this hot industry. Yet even though St. Jude's behind in the race, this is one battle that investors can't afford to take their eyes off of. St. Jude's in big need for growth, and the Portico (and the transcatheter aortic valve replacement market) looks like it could be a great option for helping to alleviate that problem in the long term.

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