The near term outlook for St. Jude Medical is not very rosy.

That conclusion is leading RBC Capital Markets Analyst Glenn Novarro to cut his rating on the Minnesota medical device company's stock to "underperform" or sell. 

In a research note Tuesday, Novarro wrote that RBC's survey with about 50 electrophysiologists revealed that St. Jude may lose an amount of market share over the next two years that is more than expected. And that has repercussions to the bottom line.

"As a point of sensitivity, we estimate that every ~1 point of worldwide ICD market share loss translates into [about] $100M of lost annual sales and an EPS hit of [roughly] $0.10," Novarro says.

Novarro estimates that St. Jude may lose about 300 basis points or 3 percentage points of market share in the U.S.

The main culprit appears to be the Durata ICD lead, which many believe is similar in design to the failed Riata leads that were recalled. Novarro maintains that while some analysts believe that the Durata risk is behind the company, he thinks a recall may occur in the next year or two. And the pipeline of St. Jude's products - especially in the multibillion transcatheter aortic valve replacement and renal denervation markets - will not suffice to act as an offset to ICD market decline and a Durata recall.

"While we do not believe a Durata recall is likely in the near term, we believe a recall would result in lost sales of [about] $500-600 million (or 1/3 of STJ’s worldwide ICD franchise), which would yield an EPS hit of about $0.60 in 2014," he writes.

-- By Arundhati Parmar, Senior Editor, MD+DI

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