Originally Published MDDI November 2005

St. Jude Medical proves that good processes and a good reputation are key ingredients for success.

Heather Thompson

St. Jude Medical (SJM) is thriving. In 2004, the St. Paul, MN–based company reported record sales of $2.3 billion. Currently, SJM is the third largest provider of cardiovascular devices. Such success comes from incredibly hard work and sometimes, according to Thomas J. Gunderson of Piper Jaffray (Minneapolis), it also takes a little bit of good fortune. “Some companies are good, and some are lucky,” says Gunderson, a device industry analyst. “St. Jude is both.” Although its cardiac resynchronization therapy device (CRT-D) was the third such implantable defibrillator introduced, he explains, SJM put out a good product and was able to benefit in the marketplace. “It's not easy making cardio implants or any cardio devices,” he says. “You must have a good sales force, good leadership, and substance to back it up.”

St. Jude Medical also has a good reputation with industry. Trabue Bryans, executive vice president and general manager of AppTec Laboratory Services (Marietta, GA), says that her company has worked with St. Jude Medical several times, with excellent results. “Throughout the years, the people at St. Jude that we have interacted with have always been competent, dedicated, and exhibited a positive attitude in all situations,” she explains.

The company embodies multiple strengths: good product development, support for innovation, straightforward sales and marketing tactics, and solid relationships with suppliers. At its core, though, St. Jude Medical's strength seems to come from a desire to both help and protect patients.

ICDs in the Market

It is difficult to talk about SJM's strengths without mentioning its competitors—and the contest is fierce. There are three major players in the implantable cardio defibrillator (ICD) market, explains Gunderson—Medtronic Inc., Guidant Corp., and St. Jude Medical. This oligopoly is good for the market, he says, because it keeps the contenders honed. All three are consistent in putting out strong products and keeping prices competitive. Part of SJM's reputation for high quality is because of such competitive spirit.

In August 2005, however, Guidant had a major recall of its ICDs. Of course, says Gunderson, recalls happen all the time in the medical market. “Today it was Guidant, but tomorrow it could be anyone. It is not a question of quality,” he explains. The recall created a vacuum that was quickly filled by SJM's ICD model with CRT.

However, St. Jude Medical's chair, president, and CEO, Daniel J. Starks, does not view Guidant's recall as a positive development for SJM. “It's really just very disruptive for everybody, as well as being traumatic for patients and stressful for physicians. For us, it's a little bit like looking at a car accident. We're not in it, but we just absolutely hate to see it and take it as bad news for everybody,” Starks said in the company's second quarter earnings analyst call.

SJM, understandably, is not counting on the current climate of the market for success; instead it is using its resources to make good products. “Generally speaking, we don't really organize our approach to product reliability, patient safety, or regulatory schemes based on competitor behavior or based on how we think parties outside of the business might respond to things,” Starks says. “Our approach is to do everything that we can think of, all in the context of continuous improvement, to make our products as reliable and safe as can be.”

Starks believes that this is the basis of good business, and it is that concern, rather than market or regulatory position, that drives the company. “A number of us have family members or close friends who have [ICDs] in their bodies. So it is personal for us to make these devices as helpful, safe, and reliable as possible—independent of any regulatory or other requirements.”

The patient, says Starks, is always his first and last concern. And he approaches medical device manufacturing with a healthy dose of fear. “It is not an exaggeration to say that our firm is constantly worried that somebody is going to be harmed or that somebody might die because of the failure of one of our products. That's just integral to our business, and it's the way we drive ourselves all of the time and continue to drive ourselves.”

Research and Product Development

One of the best ways to protect patients is with sound clinical research and product development. St. Jude produces some of the industry's leading devices, such as the Angio-Seal vascular closure device. In 2004, SJM introduced several new products in the cardio market, including two CRT-Ds, a left-ventricular lead, and lead-delivery tools. In 2005, the company also introduced a stented tissue heart valve to the U.S. market.

None of these products would be possible without meticulous research. “St. Jude is a very conscientious company,” says Bryans. “It does not hesitate to do whatever testing is necessary to ensure the safety and integrity of its products.”

In some cases, such attention to research opens up a new market. For example, SJM sponsored research on ICDs that was published in the May 20, 2004, issue of the New England Journal of Medicine. The research demonstrated that the ICDs helped prevent sudden cardiac death in nonischemic patients, whose heart failure was unrelated to coronary artery disease. Such clinical findings, along with other industry trials, spurred a decision by the Centers for Medicare and Medicaid Services to expand reimbursement for certain heart-failure patients, thereby creating a new market segment. As a result, the number of patients eligible for ICD therapy more than doubled, from 650,000 to approximately 1.6 million.

Starks says that the company will continue to place a high priority on research, especially as it pertains to device production. “We will focus on maintaining a significant investment in R&D,” he says.

Equally important to maintaining R&D investments is maintaining strong relationships with suppliers. Especially for a large company, it is a difficult but integral part of creating quality products. For more than a decade, SMC Ltd. has worked with SJM through its St. Paul facilities. Jim Meier, SMC's sales and marketing manager, says the firm is loyal and appreciates the value of its suppliers. “I remember, about two and a half years ago, we got a call from [SJM manager of procurement and logistics] Todd Conrad at 4 p.m. on a Friday,” recalls Meier. “He had an urgent deadline for some molded parts for a surgical device and the parts needed some revision.” Employees at SMC worked through the weekend to meet Conrad's requirements on time. “A few weeks later,” Meier continues, “Todd Conrad walked through our doors and personally shook the hand of every person involved in that project.”

While speaking of SMC's relationship with St. Jude, Meier is also focused on shoring up standards and keeping the patient in mind. “With respect to new products, there is a greater emphasis on strong validation than there was 10 years ago—that's across the board,” he says. “We hope that in providing St. Jude with valuable product, we are helping them serve patients and helping those patients attain greater quality of life.”

Reaching New Markets

More than any one aspect, SJM's strategic acquisitions and investments have infused the company with innovative new products and enabled it to broaden its reach into untapped markets, such as atrial fibrillation (AF). According to Gunderson, SJM's foray into AF is indicative of the company's good business practices. “St. Jude boldly goes after its targets,” says Gunderson. “It sets high goals and then gives its people the tools to meet those challenges.”

Recently, SJM created the Atrial Fibrillation Division, a group focused on developing curative approaches to AF and electrophysiology. The group comprises technology acquired by SJM, including that of Epicor Medical, Irvine Biomedics, and Endocardial Solutions. Starks has high hopes for the future of the AF market, and especially SJM's role in it. “We expect products surrounding atrial fibrillation to become significant contributions to our growth beginning as early as 2008,” he says. “The best indicator of our progress in executing our AF strategy is our success in expanding physician use of St. Jude Medical's emerging ablation technologies.”

With physicians in mind, says Starks, the company has begun first uses of Epicor surgical ablation technology at several centers in the United States. Research indicates that cardiac tissue ablation can prevent abnormal heart rhythms by rendering abnormal areas of heart tissue inactive.

High-intensity, focused ultrasound creates very precise ablative lesions without needing to stop the patient's heart. Energy is applied to the outside of a beating heart. By adjusting power and wavelength, the energy is focused to ablate precise areas of cardiac tissue without affecting surrounding tissue or blood vessels, thereby creating continuous, full-thickness lesions. Results of a multicenter clinical trial using the Epicor technology were published in the September 2005 issue of the Journal of Thoracic and Cardiovascular Surgery.

Critical to the ablation procedure is a 3-D mapping technology. SJM uses the EnSite System, which displays 3-D graphics of cardiac structures and arrhythmias and enables catheter navigation without the use of fluoroscopy. “We continue to place new EnSite Systems, expanding our participation in existing atrial fibrillation ablation procedures,” says Starks.

St. Jude Medical is also expanding its cardiology business, building on the success of its market-leading Angio-Seal vascular closure device. With the acquisition of Velocimed, the company's Cardiology Division has three new product platforms for interventional cardiology—the Premere foramen ovale closure device, the Proxis embolic protection device, and the Venture guide catheter.

Exceeding Expectations

In looking at the next five years, Starks is both optimistic and realistic. “We have a good five-year rolling plan. St. Jude Medical is very much built for growth across the board.”

As far as taking the lead in the cardio market, “The best way to lock in market share is to understand that it's never possible to do so,” he says. “The market will continue to be extremely competitive and as soon as we start thinking we've got everything locked in, we become vulnerable—not that we expect that to happen.”

Regardless of the market, Starks says SJM has to maintain the same level of effort and focus to keep the customers it has. “We've been successful in gaining access to new customers, and we continue to pay them exactly the same level of attention once we start to do business with them.” That, he explains, is the only way to gain and keep customers.

Perhaps the best way to understand St. Jude Medical is to say that the company consistently exceeds expectations—its own, as well as those of the market. “Our aspirations are higher than our commitments, and we work to be balanced and reasonable in our growth expectations. We really pay a good amount of attention to overachieving our internal expectations,” Starks says.

That is the secret to a successful company, notes Gunderson. “The bottom line is that St. Jude has consistently underpromised and overperformed,” he says. “I wish more companies would follow that path.”

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