ST JUDE MEDICAL INC
Item 1.
BUSINESS
General
St. Jude Medical, Inc. develops, manufactures and distributes cardiovascular medical devices for the global cardiac rhythm management, cardiology and cardiac surgery and atrial fibrillation therapy areas and neurostimulation medical devices for the management of chronic pain. Our four operating segments are Cardiac Rhythm Management (CRM), Cardiovascular (CV), Atrial Fibrillation (AF) and Neuromodulation (NMD). Our CV operating segment focuses on both the cardiology and cardiac surgery therapy areas. Our principal products in each operating segment are as follows: CRM - tachycardia implantable cardioverter defibrillator systems (ICDs) and bradycardia pacemaker systems (pacemakers); CV - vascular products, which include vascular closure products, pressure measurement guidewires, optical coherence tomography (OCT) imaging products, vascular plugs and other vascular accessories, and structural heart products, which include heart valve replacement and repair products and structural heart defect devices; AF - electrophysiology (EP) introducers and catheters, advanced cardiac mapping, navigation and recording systems and ablation systems; and NMD - neurostimulation products, which include spinal cord and deep brain stimulation devices. References to “St. Jude Medical,” “St. Jude,” “the Company,” “we,” “us,” and “our” are to St. Jude Medical, Inc. and its subsidiaries.
We market and sell our products through both a direct sales force and independent distributors. The principal geographic markets for our products are the United States, Europe, Japan and Asia Pacific. St. Jude Medical was incorporated in Minnesota in 1976.
We aggregate our four operating segments into two reportable segments based primarily upon their similar operational and economic characteristics: CRM/NMD and CV/AF. Our performance by reportable segment is included in Note 14 of the Consolidated Financial Statements in the Financial Report included in our 2011 Annual Report to Shareholders and filed as Exhibit 13 to this Form 10-K.
We utilize a 52/53-week fiscal year ending on the Saturday nearest December 31st. Fiscal year 2011, 2010 and 2009 consisted of 52 weeks and ended on December 31, 2011, January 1, 2011 and January 2, 2010, respectively.
The table below shows net sales and percentage of total net sales contributed by each of our four operating segments for fiscal years 2011, 2010 and 2009:
In March 2010, significant U.S. healthcare reform legislation, the Patient Protection and Affordable Care Act (PPACA) along with the Health Care and Education Reconciliation Act of 2010 was enacted into law. As a U.S. headquartered company with significant sales in the United States, this health care reform law will materially impact us. Certain provisions of the health care reform are not effective for a number of years and there are many programs and requirements for which the details have not yet been fully established or consequences not fully understood, and it is unclear what the full impacts will be from the legislation. The law does levy a 2.3% excise tax on all U.S. medical device sales beginning in 2013. Our U.S. net sales represented approximately 47% of our worldwide consolidated net sales in 2011 and we still expect the new tax will materially and adversely affect our business, cash flows and results of operations. The law also focuses on a number of Medicare provisions aimed at improving quality and decreasing costs. It is uncertain at this point what impacts these provisions will have on patient access to new technologies. The Medicare provisions also include value-based payment programs, increased funding of comparative effectiveness research, reduced hospital payments for avoidable readmissions and hospital acquired conditions, and pilot programs to evaluate alternative payment methodologies that promote care coordination (such as bundled physician and hospital payments). Additionally, the law includes a reduction in the annual rate of inflation for hospitals that began in 2011 and the establishment of an independent payment advisory board to recommend ways of reducing the rate of growth in Medicare spending beginning in 2014. We cannot predict what healthcare programs and regulations will be ultimately implemented at the federal or state level, or the effect of any future legislation or regulation. However, any changes that lower reimbursement for our products or reduce medical procedure volumes could adversely affect our business and results of operations.
Principal Products
Cardiac Rhythm Management: CRM focuses on the research, development and manufacture of products for cardiac arrhythmias, or irregular heartbeats. In 2011, we continued to expand our product pipeline with innovative technologies, including ICDs that provide life-saving therapy to patients suffering from lethal heart conditions, such as sudden cardiac arrest; cardiac resynchronization therapy (CRT) devices to save and improve the lives of patients suffering from heart failure (HF); pacemakers to help people whose hearts beat too slowly or who suffer from other debilitating cardiac arrhythmias; and leads (wires that connect our devices to the heart) to carry electrical impulses to the heart and provide information to the device from the heart. CRM also develops and markets programmers and remote monitoring equipment that are used by physicians and healthcare professionals to program and analyze data from our devices for the management of their patients.
Our ICDs and cardiac resynchronization therapy defibrillator (CRT-D) devices treat patients with hearts that beat inappropriately fast, a condition known as tachycardia. ICDs monitor the heartbeat and deliver high energy electrical impulses, or “shocks,” to terminate ventricular tachycardia (VT) and ventricular fibrillation (VF). In VT, the lower chambers of the heart contract at an abnormally rapid rate and typically deliver less blood to the body’s tissues and organs. VT can progress to VF, in which the heart beats so rapidly and erratically that it can no longer pump blood. ICDs are typically implanted pectorally, below the collarbone, and connected to the heart by leads.
During 2011 we received approval for our Unify Quadra® CRT-D device (U.S. Food and Drug Administration (FDA) approval in November 2011 and European CE Mark approval in March 2011) and our Quartet® LV (left ventricular) Lead (FDA approval in November 2011 and European CE Mark approval in September 2009). Unify Quadra® and Promote Quadra®, available worldwide, represent our quadripolar pacing systems that provide the benefit of four different LV lead electrodes and up to ten pacing options, which allow physicians the ability to address pacing complications without the need to surgically reposition a lead.
Unify Quadra® further strengthens our product portfolio which includes our Unify® CRT-D and Fortify® ICD devices (FDA approval in May 2010 and European CE Mark approval in January 2010) that are significantly smaller in size than previous devices, offer improved longevity and provide high energy electrical impulse capability for life saving therapy when needed. In addition, in 2011 we launched our ShockGuard® software upgrade (FDA approval in April 2011 and European CE Mark approval in March 2011) for our Unify and Fortify family of devices that provide new enhancements intended to reduce the chance for inappropriate shocks to be delivered to the patient. All of our Unify® CRT-D and Fortify® ICD devices are also available with the DF4 connector standard that allows a single defibrillation lead connection between an ICD or CRT-D device and the heart, reducing the procedure time and volume of leads implanted in the chest cavity.
In addition, we continue to offer our Current Accel® and Promote Accel® devices (FDA approval in February 2010 and European CE Mark approval in March 2009) which are designed to adjust settings automatically to further enhance patient safety and minimize scheduled patient follow-ups. In addition, the AnalyST Accel® (European CE Mark approval in March 2009) and Fortify™ ST (European CE Mark approval in January 2010) devices represent our second and third generation ICD devices capable of continuously monitoring the electrical charges between heartbeats, providing physicians insight into clinical events to help improve patient management.
Our ICDs are used with the single- and dual-shock electrode transvenous defibrillation leads. Our latest ICD lead offerings include the Durata® SJ4 (FDA approval in April 2009) and Durata™ high voltage lead (FDA approval in January 2008), which feature a soft silicone tip and curved right-ventricular (RV) coil designed to further improve implant performance. The Durata® leads, along with the Riata® ST Optim® leads (FDA approval in July 2006), are small-diameter ICD leads and feature our exclusive Optim® insulation material that combines the durability of polyurethane and the softness of silicone. Optim® insulation has demonstrated a statistically significant reduction in the incidence of insulation abrasion when compared to our previous silicone insulated leads. Optim® insulation material was designed specifically for high- and low-voltage cardiac pacing leads. We now have Optim® insulation available in all of our lead segments and have phased out our older silicone insulated leads in favor of the improved reliability of Optim® based leads.
In December 2007, we released the QuickFlex® family of LV leads in the United States and Europe. Additionally, our LV lead platform includes the smaller diameter lead QuickFlex® µ (micro) LV lead (FDA approval in May 2010 and European CE Mark approval in September 2008). For improved LV lead implantation, we also offer our CPS Aim® SL (FDA approval in July 2009 and European CE Mark in April 2009) and CPS Direct® SL II (FDA approval in August 2009 and European CE Mark approval in September 2009) next generation slittable LV lead delivery tools designed to offer safer, more efficient implantation procedures and therapy delivery for patients with heart failure. We also provide additional tools for placement of LV leads that include the CPS Luminary®, CPS Duo®, CPS Courier® guidewires and the CPS Venture® wire control catheter.
Our pacemakers treat patients with hearts that beat too slowly, a condition known as bradycardia. Similar to ICDs, pacemakers are typically implanted pectorally, monitor the heart’s rate and, when necessary, deliver low-voltage electrical impulses that stimulate an appropriate heartbeat. Single-chamber pacemakers sense and stimulate only one chamber of the heart (atrium or ventricle), while dual-chamber devices can sense and pace both the upper atrium and lower ventricle chambers. Biventricular pacemakers can sense and pace in three chambers (atrium and both ventricle chambers).
In 2009, we received approval (FDA approval in July 2009 and European CE Mark approval in April 2009) of our Accent® (radio frequency) RF pacemaker and Anthem® RF CRT-P (cardiac resynchronization therapy pacemaker). The Accent® and Anthem® product family features RF telemetry that enables secure, wireless communication between the implanted device and the programmer used by the clinician, utilizing wireless telemetry from implant through follow-up, allowing for more efficient and convenient care and device management.
Our other pacing products include the Zephyr®, Victory® and Sustain™ family of pacemakers. The Zephyr™ family of pacemakers (FDA approval in May 2007) includes automaticity features to simplify device follow-up. All standard follow-up tests may be done automatically by the device. The Zephyr™ family of pacemakers includes functionality to reduce unnecessary ventricular pacing.
The Victory® line (FDA approval in December 2005), which includes the Victory® and Victory® XL family models, provide the enhancements of previous St. Jude Medical families while adding new capabilities. New capabilities include automatic P-wave and R-wave measurements with trends, lead monitoring and automatic polarity switch, follow-up electrograms, Ventricular Intrinsic Preference (VIPTM) to reduce right ventricle pacing and a ventricular rate during automatic mode switch histogram.
During 2011, we received approval (FDA approval in June 2011 and European CE Mark approval in September 2011) for our Sustain™ family of value tier devices. The Sustain™ family models maintain the therapeutic features of previous St. Jude Medical pacemakers, including the AF Suppression™ algorithm and the Beat-by-Beat™ AutoCapture™ Pacing System. This family offers atrial tachycardia and atrial fibrillation arrhythmia diagnostics. These features are designed to help physicians better manage pacemaker patients suffering from atrial fibrillation- the world’s most common cardiac arrhythmia. We also offer the Microny® II SR+ and Microny® K. These small-sized pacemakers are available worldwide. Another pacemaker, the Regency®, is offered outside of the United States.
Our current pacing leads include the Optisense Optim®, Optisense®, Tendril® STS, Tendril® ST Optim, Tendril® ST and Tendril® SDX lead families and the IsoFlex® Optim, IsoFlex® S, IsoFlex® P and Passive Plus® DX passive-fixation lead families, all available worldwide. All of these lead families feature steroid elution, which helps suppress the body’s inflammatory response to a foreign object. Our Optisense® leads offer an electrode spacing technology that has been clinically proven to significantly reduce far-field over-sensing and inappropriate mode switching.
Our CRM devices interact with an external device referred to as a programmer. A programmer has two general functions. First, a programmer is used at the time of implant to establish the initial therapeutic settings of these devices as determined by the physician. A programmer is also used for patient follow-up visits, which usually occur every three to twelve months based on patient need, to download stored diagnostic information from the implanted device for physicians to verify appropriate therapeutic settings. Since the introduction of programmable pacemakers, all CRM device manufacturers, including St. Jude Medical, have retained title to their programmers, which are used by their field sales force or by physicians and nurses or technicians.
In April 2006, we received FDA approval for the first software module of our Merlin™ Patient Care System, a universal programmer for St. Jude Medical ICDs and pacemakers. Merlin™ Patient Care System features a larger display, built-in full-size printer, touch screen and advanced new user interface. The programmer is a result of detailed customer research activities to optimize ease of use and to set new standards for efficient and effective in-clinic follow-up. This programmer has had several software updates since release to extend capabilities and support new products and markets. In 2008, the programmer was updated to include Japanese and Mandarin Chinese language support. In 2010, we introduced a new Pacing Systems Analyzer (PSA) that integrates into the Merlin™ programmer to allow for quick and easy testing of the leads during device implant.
In addition to the programmer, physicians can monitor implanted devices and patient status using the Merlin.netTM Patient Care Network. The latest version of this system (v5.0) was approved by the FDA in June 2011 and received European CE Mark approval in May 2011. This system allows patients to use their home transmitters to send data stored in devices to an internet site for retrieval by their physician through standard analog or DSL telephone lines. Physicians can better manage their increased number of ICD and pacemaker patients by conducting remote follow-up sessions and using alerts of clinically important events, thereby increasing efficiency and reducing risks for the patient. Additionally, patient flexibility is enhanced by the reduction in the number of office visits required and the ability to have a physician quickly interrogate device data whenever symptoms warrant.
In 2008, we launched the Merlin@home line of RF transmitters (FDA approval in July 2008 and European CE Mark approval in September 2008). The RF technology enables daily monitoring and scheduled remote follow-ups to occur in the patient’s home without any required activity by the patient after the unit has been installed. Additionally, in November 2008 we received FDA and European CE Mark approval for a version of Merlin@home that utilizes an adaptor to transmit data over the cellular phone network for patients that may be traveling or unable to access a phone line.
Cardiovascular: Our Cardiovascular division participates in segments of the vascular and structural heart markets. Our vascular products include active vascular closure devices, compression assist devices, pressure measurement guidewires, diagnostic coronary imaging technology, vascular plugs, percutaneous catheter introducers and diagnostic guidewires. Our structural heart products include both mechanical and tissue replacement heart valves as well as heart valve repair products and transcatheter structural heart defect devices. With our acquisition of AGA Medical Holdings, Inc. (AGA Medical) in November 2010, we expanded our structural heart product portfolio with devices for left atrial appendage (LAA) closure, devices for patent foramen ovale (PFO) closure and devices to modify abnormal peripheral vessels with vascular plugs. We are committed to developing clinical evidence for the treatment of structural heart disease.
Vascular Products -We offer a full portfolio of access and closure devices for interventionalists. Our vascular closure devices are used to close radial and femoral artery puncture sites following percutaneous coronary interventions, diagnostic procedures and certain peripheral procedures. Active or passive (manual) compression is utilized to assist in closing artery puncture sites. Our active closure devices include our Angio-Seal™ product offering. The latest version is the Angio-Seal™ Evolution™. In addition to the performance and ease of use benefits offered from prior versions of Angio-Seal™, Angio-Seal™ Evolution features automated collagen compaction - thus making it easier for the clinician to ensure immediate arterial hemostasis (cessation of bleeding) and rapid deployment of the device. Prior versions of Angio-Seal™, Angio-Seal™ VIP and Angio-Seal™ STS Plus continue to generate revenue in our active closure product offering. Since its introduction to the market 15 years ago, more than 15 million Angio-Seal™ vascular closure devices have been utilized around the world.
We estimate that manual compression is utilized as the primary method to obtain hemostasis in approximately two-thirds of all percutaneous procedures. Our compression assist device offerings include both the RadiStop® and FemoStop™ compression assist devices that arrest bleeding of the radial and femoral arteries, respectively. External compression devices are often used to maintain pressure on the arteriotomy in order to facilitate hemostasis.
Percutaneous catheter introducers are used to create passageways for cardiovascular catheters from outside the human body through the skin into a vein, artery or other location inside the body. Our percutaneous catheter introducer portfolio consists primarily of peel-away and non peel-away sheaths, sheaths with and without hemostasis valves, dilators, guidewires, repositioning sleeves and needles. These products are offered in a variety of sizes and packaging configurations. Diagnostic guidewires, such as the GuideRight™ and HydroSteer™ guidewires, are used in conjunction with percutaneous catheter introducers to aid in the introduction of intravascular catheters. Our diagnostic guidewires are available in multiple lengths and incorporate a surface finish for lasting lubricity.
In coronary disease diagnosis and intervention, an emerging treatment model involves the use of tools for physiologic lesion assessment rather than sole reliance on contrast-enhanced angiography. In this treatment model, blood flow through a stenotic coronary lesion is measured with a special purpose coronary guidewire containing a pressure sensor. Fractional flow reserve (FFR) is an index determining the functional severity of narrowings in the coronary arteries as measured by these guidewires. FFR specifically identifies which coronary narrowings are responsible for significantly obstructing the flow of blood to a patients’ heart muscle (called ischemia), and it is used by the interventional cardiologist to direct coronary interventions (such as stent procedures) and assess results for improved treatment outcomes.
Our PressureWire™ Certus™ guidewire, provides precise measurements of intravascular pressure during a cardiovascular procedure and helps aid physicians in determining the most beneficial lesions to treat. The landmark trial FAME (Fractional flow reserve (FFR) vs. Angiography in Multivessel Evaluation), which used our PressureWire™ Certus guidewires, was published in the January 15, 2009 issue of the New England Journal of Medicine. It demonstrated a statistically significant difference of 28% in Major Adverse Cardiac Events (MACE) such as death, myocardial infarction and repeat revascularization. The randomized, prospective, multi-center trial looked at 1,005 patients with multi-vessel coronary artery disease twelve months after receiving a stent, and compared outcomes for patients whose treatment was guided by FFR to those whose treatment was guided only by angiography. At the October 2009 Transcatheter Cardiovascular Therapeutics conference, two-year results from the FAME study were presented which demonstrated continued reductions in mortality, morbidity, stent utilization and procedural cost when PressureWire™ Certus was employed to guide the physician decision-making process. PressureWire™ Certus has regulatory approval in the United States, Europe and Japan.
In May 2010, the first patient was enrolled in the FAME II (Fractional Flow Reserve-Guided Percutaneous Coronary Intervention Plus Optimal Medical Treatment vs. Optimal Medical Treatment Alone in Patients with Stable Coronary Artery Disease) trial. The objective of the FAME II trial is to study the role of FFR in the treatment of stable coronary artery disease by comparing the clinical outcomes, safety and cost effectiveness of percutaneous coronary intervention (PCI) guided by FFR plus optimal medical treatment (OMT) to OMT alone. An interim analysis of the FAME II trial has found a highly statistically significant reduction in the need for hospital readmission and urgent revascularization when FFR-guided assessment was used to direct treatment in patients with coronary artery disease. As a result of the positive interim analysis, in January 2012, the FAME II Independent Data Safety Monitoring Board made the recommendation to stop further enrollment in the trial due to an excess number of adverse events in the OMT alone protocol. We support the recommendation, have stopped enrollment in the trial, and intend to publish the findings in 2012.
We also market PressureWire™ Aeris™ in Europe and the United States. Aeris is a guidewire that transmits a pressure signal wirelessly, and requires no additional equipment or cabling in the cardiac catheterization laboratory. The wireless technology of the PressureWire™ Aeris also eliminates cables crossing the sterile field, reducing variables and making the entire procedure faster and easier. Physicians can remove the device’s handle and insert a stent delivery system directly over the PressureWire™ Aeris, eliminating the time and cost of using an additional, traditional guidewire.
Our C7-XR™ OCT intravascular imaging system aids physicians in the diagnosis and treatment of coronary artery disease. The OCT coronary imaging technology helps to optimize treatment with stents, and has about 10 times better image resolution and 20 times faster image capture over the current industry standard of intravascular ultrasound (IVUS). This efficient technology provides easy visualization, with high resolution images in less than five seconds. OCT is a high resolution diagnostic coronary imaging technology that complements our FFR products. The combination of both OCT and FFR technology provides physicians with comprehensive lesion assessment information; FFR provides physiological data to help physicians determine which lesions to treat and OCT provides anatomical images to help guide stent selection and deployment as well as provide post-stenting information to ensure the procedure was successful. In the second half of 2011 (FDA approved in October 2011 and European CE Mark approval in July 2011), we launched ILUMIEN™ PCI Optimization System, the world’s first system to integrate the functional and anatomical modalities of FFR and OCT into one platform, for enhanced diagnostics and improved cathlab efficiency. ILUMIEN™ enables OCT imaging with the third generation C7 DragonFly™ intravascular imaging catheter, and FFR measurement through the PressureWire™ Aeris wireless guidewire which simplifies set-up and measurement through the elimination of connecting cables. The combined technology offers percutaneous coronary intervention (PCI) optimization that helps physicians determine if therapeutic intervention is necessary.
Our AMPLATZER™ Vascular Plugs are expandable, cylindrical devices made from Nitinol wire that reduce or eliminate blood flow to abnormal blood vessels. Vascular occlusion can be used to reroute blood away from inappropriately formed blood vessels to different blood vessels. Our AMPLATZER™ Vascular Plugs are designed for use in abnormal blood vessels outside the heart, below the neck and above the knee and utilize standard delivery systems commonly used by interventional radiologists and vascular surgeons in these procedures.
Structural Heart Products - Heart valve replacement or repair may be necessary because the native heart valve has deteriorated due to congenital defects or disease. Heart valves facilitate blood flow from the chambers of the heart throughout the entire body. For over 30 years, St. Jude Medical has developed heart valves, and in early 2011, we reached a significant milestone with over two million mechanical heart valve implants. The St. Jude Medical Regent™ mechanical heart valve received European CE Mark approval in December 1999 and received FDA approval in March 2002.
In March 2010, we received European CE Mark approval for the Trifecta™ valve, marking the Company’s launch into the pericardial aortic stented tissue valve market. This was followed by FDA approval for the Trifecta™ valve in April 2011. The Trifecta tissue valve is used to replace a patient’s diseased, damaged or malfunctioning aortic heart valve, which controls blood flow from the heart to the rest of the body. The next-generation tissue valve has a tri-leaflet stented pericardial design which offers excellent hemodynamic performance (the optimization of blood flow through the valve), or nearly unobstructed blood flow, in order to mimic as closely as possible the flow of a natural, healthy heart. The unique valve design includes leaflets manufactured from pericardial tissue attached to the exterior of the valve stent which open more fully and efficiently to perform like a natural aortic heart valve. Also contributing to the valve’s durability, the Trifecta valve offers our patented LinxTM AC technology, an anticalcification treatment designed to reduce tissue mineralization (hardening), one of the primary causes of valve deterioration.
We also market both the Epic™ and Biocor™ porcine stented tissue heart valves. The Epic™ stented tissue valve is identical in design to the Biocor™ stented tissue valve but incorporates Linx™ AC. Epic™ and Biocor™ are available for aortic and mitral valve replacement with Epic™ Supra and Biocor™ Supra as additional options for aortic valve replacement.
We offer a line of heart valve repair products, including two fully flexible and two semi-rigid rings: the Tailor™ flexible ring and the Attune™ flexible adjustable annuloplasty ring, the SJM™ Séguin Semi-Rigid Ring and the SJM™ Rigid Saddle Ring. Annuloplasty rings are prosthetic devices used to repair diseased or damaged mitral and tricuspid heart valves.
In September 2010, the national co-principal investigators for our transcatheter aortic valve implantation (TAVI) clinical trial were announced. The TAVI study will evaluate the safety and efficacy of our transcatheter aortic valve for patients who experience severe aortic stenosis and who may be at an elevated risk for open-heart surgery. Our transcatheter heart valve is designed to increase physicians’ control and accuracy during valve deployment. Two delivery methods for our transcatheter valve will be evaluated in the trial - the transfemoral and the transapical systems, which are both designed to make transcatheter valve deployment and retrieval easier for physicians.
A structural heart defect is an abnormality in the structure of the heart and associated vessels, such as the aorta and pulmonary artery. Many structural heart defects result from problems in normal fetal heart development and are referred to as congenital heart defects. Structural heart defects can be clinically significant and require immediate treatment early in life or can become clinically significant later in life when the child reaches adulthood. Two common categories of structural heart defects are (1) septal defects, which consist of a hole in the wall between the atria or ventricles that causes an errant flow of blood in the heart, and (2) failed closure of embryonic passageways, which reroute blood around the lungs in the prenatal heart and occur when the foramen ovale or the ductus arteriosus remain open after birth. Our AMPLATZER™ structural heart device platform includes occlusion devices that close or seal structural defects found in a patient’s heart. Our AMPLATZER™ occlusion devices utilize our expertise in braiding Nitinol, a metal alloy with superelastic and shape-memory characteristics, and designing transcatheter delivery systems that enable simple and precise implantation of our devices. Our AMPLATZER™ family of occluders uses Nitinol because its properties allow the devices to be compressed inside a delivery sheath and then return to their original shape once deployed at the implant site. The combination of the use of Nitinol and our manufacturing techniques allows us to create device shapes specific to each indication.
The AMPLATZER™ Septal Occluder was approved by the FDA in 2001 (European CE Mark approval in 1998), which addresses one of the largest treatment areas of the structural heart defect market-the closure of an atrial septal defect (ASD). An ASD is an abnormal opening in the wall between the left and right atria. Because the right side of the heart receives extra blood, it is forced to bear more than its normal workload. The potential complications of ASDs include high blood pressure in the lung’s vessels, which can lead to pulmonary hypertension, damage to blood vessel walls and heart failure. ASDs are increasingly being detected and treated in adults.
Our AMPLATZER™ Duct Occluder received FDA approval in 2003 (European CE Mark approval in 1998) and is intended for the closure of a patent ductus arteriosus (PDA) larger than four millimeters, which we believe represent approximately 30% of total PDA defects. Our AMPLATZER™ Duct Occluders are uniquely shaped to achieve consistent, effective closure of PDAs. The failed closure of the ductus arteriosus after birth is called a patent, or open, ductus arteriosus. In patients with a PDA, blood that should have traveled through the aorta to nourish the body goes instead back into the lungs, which can lead to difficulty breathing, failure to grow normally and chronic respiratory failure.
A ventricular septal defect (VSD) is an abnormal opening in the wall between the left and right ventricles. Because the left side of the heart receives extra blood, it is forced to bear more than its normal workload. The potential complications of VSDs include heart failure, high blood pressure and failure of a child to thrive at a normal rate. We market and sell our AMPLATZER™ VSD Occluders to address membranous VSDs (European CE Mark approval in 1998) and muscular VSDs (FDA approval in 2007 and European CE Mark approval in 1998). Membranous VSDs are defects in the upper portion of the ventricular septum near the valve connecting the heart with the aorta and characterized by more flexible, membranous tissue. Muscular VSDs are defects in the middle portion of the ventricular septum, which is characterized by thicker, more muscular tissue.
The AMPLATZER™ PFO Occluder technology (European CE Mark approval in 1998) allows for simple and confident PFO closure using a minimally-invasive transcatheter procedure instead of surgery. This product is specifically designed to accommodate the anatomy of a PFO and has demonstrated clinical success. Unlike other structural heart defects that could be described as holes, PFOs are more like tunnels formed by two overlapping membranes that fail to seal closed at birth.
The AMPLATZER™ Cardiac Plug (European CE Mark clearance in 1998) provides an alternative therapy for reducing the risk of stroke in patients with atrial fibrillation. The unique design of the AMPLATZER™ Cardiac Plug device provides secure placement and self-positioning for optimal occlusion at the orifice of the LAA.
Atrial Fibrillation: Atrial fibrillation is a rapid and inconsistent heart rhythm that occurs in the upper chambers of the heart. People suffering from atrial fibrillation may experience fatigue and shortness of breath, and atrial fibrillation has been shown to increase the risk of stroke. Atrial fibrillation and other irregular heart rhythms such as atrial flutter and Wolff-Parkinson-White Syndrome are often managed with medications that palliate the symptoms of the irregular heartbeat. We are committed to developing device-based ablation therapies for these conditions that offer the potential for a cure.
We provide a complete system of access, diagnostic, visualization and ablation products that assist physicians in diagnosing and treating various irregular heart rhythms. Our products are primarily designed to be used in the EP lab and cardiac surgery.
Our access products enable clinicians to facilitate the percutaneous delivery of diagnostic and ablation catheters to areas of the heart where arrhythmias occur. These products include, among others, our Swartz™ and Swartz™ Braided Transseptal fixed-curve introducers, which are designed to guide catheters to precise locations in the right and left atria. In addition, our Agilis NxT™ Steerable Introducer (FDA approval in July 2006) enables increased access and stability of catheters in the heart. The Agilis™ NxT™ Steerable Introducer is supplied in several different curve styles and configurations to accommodate different patient anatomies and procedure techniques. We also offer the Agilis™ EPI Steerable Introducer (FDA approval in April 2009) which is designed to facilitate catheter delivery epicardially, or outside the chambers of the heart.
For diagnosing arrhythmias percutaneously, we offer a portfolio of fixed-curve and steerable catheters. Our Response™, Supreme™ and Inquiry™ fixed curve catheters gather electrical information from the heart that indicate what may be causing an arrhythmia and/or the location of its source. Our steerable product lines include Livewire™ and Inquiry™ which allow clinicians to move the catheter tip in precise movements in order to diagnose the more anatomically challenging areas within the heart. Our Reflexion Spiral™ (FDA approval in October 2006) and Inquiry™ Optima™ PLUS (FDA approval in March 2006) are circular mapping catheters that enable the physician to check for electrical isolation of the pulmonary vein openings during an AF ablation procedure. The Reflexion HD™ (FDA approval in January 2009) and Inquiry AFocus II™ (FDA approval in August 2010) are high-density, circular mapping catheters that are designed to leverage the mapping capabilities of the EnSite Velocity™ System to create accurate high-density geometries and detailed electrical maps. In addition, our EnSite Array™ non-contact mapping catheter, which works with the EnSite Velocity™ System, enables physicians to quickly map complex and unstable arrhythmias in a single heartbeat without touching the walls of the patient’s heart.
We also offer our Confirm™ implantable cardiac monitors device (FDA approval and European CE Mark approval in September 2008). This small implantable device is designed to help physicians monitor for abnormal cardiac conditions.
Our EP-WorkMate™ recording system is used to monitor electrical activity of the heart via intracardiac catheters and features our new ClearWave™ technology for high fidelity signals and an integrated stimulator, EP 4™ Cardiac Stimulator.
Our EnSite Velocity™ System, introduced in 2009, is a mapping and navigation system that, when used in conjunction with the EnSite Array™ non-contact mapping catheter or EnSite NavX™ navigation and visualization technology, creates three-dimensional cardiac models, shows catheters moving within those models and allows physicians to map and visualize electrical activity in the heart. The EnSite Velocity™ System also includes various modules and tools to assist the physician with their EP procedure. The OneMap™ Tool helps create detailed chamber models more quickly with more information and the RealReview™ function allows the user to view live and pre-recorded cardiac models and electrical maps simultaneously. Our EnSite Derexi™ module facilitates the exchange of information between the EnSite Velocity™ System and the EP-WorkMate™ recording system, improving efficiency and procedural workflow. Our EnSite Courier™ module imports cardiac information from the hospital’s Picture Archiving and Storage (PACS) network.
We also offer an ultrasound system which provides intracardiac ultrasound imaging to provide more detail about the cardiac anatomy. Our ultrasound product line consists of the ViewMate™ Z Intracardiac Ultrasound System and the ViewFlex™ PLUS Intracardiac Echocardiography (ICE) catheter.
Complex interventional procedures, including catheter ablations, expose operators, staff and patients to the significant risks of fluoroscopy. We are developing our MediGuide™ Technology platform to facilitate reductions to fluoroscopy exposure while also increasing procedural efficiencies. Our MediGuide™ Technology consists of a hardware system which is integrated with the customer’s fluoroscopy system and various products offered by our Company, including our EP diagnostic and ablation catheters and our EnSite Velocity™ platform. We are continuing to expand our MediGuide™ Technology platform as additional integrated products are developed and approved.
We offer two general ablation product lines which focus on disabling abnormal tissue that causes or perpetuates arrhythmias: ablation catheters, which are used as part of a percutaneous procedure and are designed to apply RF energy to the inside of the heart; and surgical cardiac ablation devices, which are used to ablate cardiac tissue from epicardially (outside the heart).
Our standard non-irrigated tip ablation catheters include our Livewire™ TC Ablation Catheters uni- and bi-directional models that offer stability and excellent contact with cardiac tissue. Our Safire™ (4mm and 5mm) and Safire TX™ (8mm) Bi-directional Ablation Catheter product line offers a comprehensive range of catheter tip sizes (4mm and 5mm catheter tips, FDA approval in August 2006, and 8mm catheter tip, FDA approval in October 2007) and curve configurations and is built on our ComfortGrip™ handle platform that is designed for physician comfort and control during EP procedures. Our Therapy™ 4mm and 8mm tip standard catheter lines provide a range of curve options and temperature control. When used with our IBI-1500 series Cardiac Ablation Generators, power can be effectively managed for the creation of longer ablation lines.
In addition to the standard non-irrigated tip ablation catheters, we also offer various open-irrigated ablation catheters which feature holes at the tip of the catheter to allow infused saline to circulate around the tip during therapy delivery. This irrigation allows the tip to be cooled and lessens the potential for char or thrombus to form during ablation. The Therapy™ Cool Path™ Duo (European CE Mark approval in October 2007) is an irrigated tip ablation catheter that features 12 infusion ports that allow for more uniform cooling of the ablation tip. In April 2011, the Safire™ BLU bi-directional irrigated ablation catheter and the Therapy™ Cool Path™ bi-directional ablation catheter received FDA approval. The Therapy™ Cool Flex™ irrigated ablation catheter (European CE Mark approval in June 2010) is a fully-irrigated, flexible tip ablation catheter that features a laser cut tip allowing it to bend and conform to the cardiac anatomy and provides for more fluid to be infused around the entire catheter tip electrode. In addition, we offer our EnSite Contact™ Technology (European CE Mark approval in June 2010) which is a diagnostic system consisting of ablation catheters, a hardware module and software that measures, analyzes and displays electrical coupling to determine the level of contact the ablation catheter tip has with endocardial tissue during cardiac ablation therapy procedures. Information regarding the catheter tip to tissue contact is displayed on the EnSite Velocity™ System screen.
Our surgical cardiac ablation product line, the Epicor Medical™ Cardiac Ablation System, creates cardiac ablation lesions by applying high intensity focused ultrasound to the outside of a beating heart without the need to put the patient on a heart-lung bypass machine. The primary components of the Epicor Medical™ Ablation System include the Epicor Medical™ Ablation Control System that generates and controls the ultrasound energy, the Epicor Medical™ UltraCinch™ LP Ablation Device (FDA approval in July 2008) that creates circumferential lesions in cardiac tissue and the Epicor Medical™ UltraWand™ LP Tissue Ablation Wand (FDA approval in July 2008) that allows for additional linear lesions to be created.
Neuromodulation: The neuromodulation market has two main categories of treatment: neurostimulation, in which an implantable device delivers electrical current directly to targeted nerve sites, and implantable drug infusion systems, in which an implanted pump delivers drugs through a catheter directly to targeted nerve sites. All of our Neuromodulation product offerings provide neurostimulation treatment.
Neurostimulation for the treatment of chronic pain involves delivering low-level electrical impulses via an implanted device (sometimes referred to as a “pacemaker for pain”) directly to the spinal cord or peripheral nerves. This stimulation interferes with the transmission of pain signals to the brain and inhibits or blocks the sensation of pain felt by the patient. The patient’s sensation of pain is replaced with a sensation called paresthesia, which is often described as a tingling or massaging sensation. Neurostimulation for chronic pain is generally used to manage sharp, intense and constant pain arising from nerve damage or nervous system disorders. A neurostimulation system typically consists of four components: a pulse generator/receiver that produces the electric current and is implanted under the patient’s skin; leads that carry the electrical impulses to the targeted nerve sites; a patient remote that enables the patient to control their therapy within prescribed ranges; and a clinician programmer that is used to program the power supply with individualized therapy for the patient. Clinical results demonstrate that many patients who are implanted with a neurostimulation system experience a substantial reduction in pain, an increase in activity level, a reduction in use of narcotics and a reduction in hospitalization.
We offer a wide array of neurostimulation systems including rechargeable implantable pulse generators (IPGs), primary cell IPGs and RF powered systems. We currently market three neurostimulation product platforms worldwide: the Eon™ IPG family, which include rechargeable and primary cell battery models, Genesis™ primary cell IPG systems and Renew™ RF systems.
The Eon™ family of IPGs includes the Eon™, Eon Mini™ and EonC™ IPG. The Eon™ rechargeable IPG is a 16-contact IPG with a high capacity battery. It offers a broad range of options to help the clinician maximize success in managing chronic pain. The Eon™ IPG provides enhanced longevity between recharges, allowing patients added flexibility in their recharging schedule. It is FDA approved to operate at least 24 hours between recharges for 10 years at high settings. The device is designed to provide consistent pain therapy.
The Eon Mini™ rechargeable 16-contact IPG’s small size offers the potential for alternative placement options, which helps clinicians treat a variety of patients. It is FDA approved to operate at least 24 hours between recharges for 10 years at high settings - a long battery life for its small size. The Eon Mini™ IPG is well-suited for patients with smaller body mass and low to high power requirements.
The EonC™ primary cell IPG features a large-capacity battery and constant current pulse delivery for consistent, low-maintenance therapy. It is well-suited for patients with low to medium power requirements and those who prefer the simplicity of a non-rechargeable IPG.
The Genesis™ IPG offers a high battery capacity-to-size ratio and flexibility in addressing diverse pain patterns. Conventional IPGs, such as Genesis™, are well-suited for patients with relatively simple pain or modest power requirements and for patients who would have difficulty managing a rechargeable system.
The Renew™ RF system features a small implanted RF receiver/pulse generator, leads and a transmitter containing a power source that is worn externally. The system is powered with the help of an antenna that is attached to the patient’s skin with a removable belt or an adhesive pad. As the Renew™ system has a rechargeable, external power source, it is best suited for patients with complex, changing or multi-extremity pain patterns that require higher power levels for treatment when battery management, even with a rechargeable system, is problematic.
Each of our generator systems work with a corresponding patient remote. The remote controller allows the patient to adjust their therapy intensity and location with simple adjustments, enabling the patient to control their pain. The controllers work by wirelessly communicating to the implanted generator to adjust the patient’s prescribed stimulation parameters.
In combination with our wide array of generators, we market a broad variety of leads which are intended to give clinicians the flexibility to meet a range of patient needs. Our leads can be divided into three types: percutaneous leads, paddle leads, and perc-paddle leads. Our percutaneous leads consist of the 8-contact Octrode™ and 4-contact Quattrode™ lead designs. Our paddle lead offering consists of the Lamitrode™ family of leads. This family includes single and dual column paddle leads that provide up to two vertebral segments of coverage; Tripole™ leads, which feature a three-column electrode array and are designed to focus stimulation more precisely for enhanced targeting of low back pain; C-Series™ leads, shaped to mimic the curve of the epidural space of the spine, that are are designed to facilitate lead placement and reduce lead migration; and the Penta™ lead, a five column lead, that is designed to provide enhanced stimulation control and specificity for focused stimulation therapy. Perc-paddle leads are a category of leads originated by St. Jude Medical with the advent of the Epiducer™ lead delivery system. The Epiducer™ system allows the percutaneous introduction of our small profile S-Series™ paddle leads and/or multiple leads through a single needle stick. S-Series leads are designed to have the focused stimulation and stability of a paddle lead yet with the Epiducer™ lead delivery system, can now be introduced via a minimally invasive percutaneous procedure like a percutaneous lead.
Our systems are programmed with our Rapid Programmer™ platform. This system enables clinicians to efficiently test patients intra-operatively and program patients post-operatively. The Rapid Programmer™ is a palm-sized programmer that features a touch screen interface clinicians can navigate to create multiple programs customized for the patient. Using the foundation of our Dynamic MultiStim™ technology for real time adjustments of multiple pain areas simultaneously, we simplified the programming of complex multi-focal pain by introducing MultiSteering™ technology,-an optimized current steering algorithm designed for more thorough and efficient programming sessions.
The neurostimulation market continues to develop with advances in deep brain stimulation (DBS) for movement disorders and peripheral nerve stimulation (PNS) for chronic migraine headache, and continuing investigation for potential new indications, such as DBS for major depressive disorder. We entered the DBS market in Europe with our Libra™ and LibraXP™ DBS systems for treating the symptoms of Parkinson’s disease, a neurological disorder that progressively diminishes a person’s control over his or her movements and speech. The Brio™ IPG, a small, long lasting rechargeable DBS device, and the Guardian™ burr hole cap were introduced to further enhance our DBS line in the European market. Our DBS systems are also marketed in Australia and certain Latin American countries.
In late 2011, we initiated a limited launch in Europe of the Genesis™ neurostimulation system for PNS of the occipital nerves for the management of the pain and disability associated with intractable chronic migraine. PNS therapy for this condition involves the delivery of mild electrical pulses to the occipital nerves that are located just beneath the skin at the back of the head. A small electrical lead or leads are placed under the skin and connected to the neurostimulator which produces the pulses of stimulation.
We have completed our Parkinson’s Disease and Chronic Migraine Headache pivotal trials in the United States and have publicly shared initial study results. Additionally, we continue to enroll patients in two other pivotal trials to investigate the safety and efficacy of the Libra™ DBS system for essential tremor and major depressive disorder in patients for whom current available treatments are not effective. The BROADEN™ (BROdmann Area 25 Deep brain Neuromodulation) depression study is currently enrolling at a limited number of sites. Other potential indications are in various stages of evaluation, regulatory review and trial.
Competition
The medical device market is intensely competitive and characterized by extensive research and development and rapid technological change. In addition, competitors have historically employed litigation to gain a competitive advantage. Our competitors range from small start-up companies to larger companies that have significantly greater resources and broader product offerings, and we anticipate that in the coming years, other large companies will enter certain markets in which we currently hold a strong position. We expect competition will continue to intensify with the increased use of strategies such as consigned inventory and reduced pricing.
Our customers consider many factors when choosing suppliers, including product reliability, clinical outcomes, product availability, inventory consignment, price and product services provided by the manufacturer. As a result, market share can shift due to technological innovation, product field actions and safety alerts as well as from other business factors.
We are one of the three principal manufacturers and suppliers in the global CRM market. Our primary competitors in this market are Medtronic, Inc. (Medtronic) and Boston Scientific Corporation (Boston Scientific). These two competitors have invested substantial amounts in CRM research and development (R&D) in a highly competitive market where rapid technological change is expected to continue, requiring us to invest heavily in R&D and effectively market our products.
The cardiovascular market is also highly competitive with numerous competitors. The majority of our sales are generated from our vascular products which include vascular closure devices, PCI optimization devices and peripheral embolization devices. We continue to hold the number one market position in the vascular closure device market; however, the market for vascular closure devices is highly competitive and there are several companies in addition to St. Jude Medical that manufacture and market these products worldwide. Our primary vascular closure device competitors are Abbott Laboratories, Cordis, a division of Johnson & Johnson, Inc (J&J), and AccessClosure, Inc. Additionally, we anticipate other companies will enter this market in the coming years, which will increase competition. The key competitors in the PCI optimization market (FFR and intravascular imaging) include Volcano Corporation, Boston Scientific and Terumo Cardiovascular Systems Corporation. Our primary competitors in the peripheral embolization market include Boston Scientific and Cook Medical, Inc. Our structural heart products include heart valve replacement and repair products and other structural heart defect devices. We are the world’s leading manufacturer and supplier in the mechanical heart valve market. Our principal competitors in the mechanical heart valve market are Sorin CarboMedics MV, Medtronic and several smaller manufacturers. In the tissue heart valve market, we compete against two principal tissue heart valve manufacturers - Edwards Lifesciences Corporation (Edwards Lifesciences) and Medtronic - as well as many other smaller manufacturers. Cardiac surgery therapies continue to shift from mechanical heart valves to tissue heart valves and repair products. Other competitors such as Edwards Lifesciences and Medtronic manufacture transcatheter heart valves that are marketed to patients who may be too frail for traditional heart valve surgery. The structural heart defect market has relatively few large competitors and high barriers to entry due to the intellectual property and clinical and regulatory processes required for product approval. Our primary competitors in the structural heart defect market include W.L. Gore & Associates and Boston Scientific.
The atrial fibrillation therapy area is broadening to include multiple therapy methods and treatments which include drugs, percutaneous delivery of diagnostic and ablation catheters, external electrical cardioversion and defibrillation, implantable defibrillators and open-heart surgery. As a result, we have numerous competitors in the emerging atrial fibrillation market. Larger competitors, such as Medtronic, have started to extend their presence in the atrial fibrillation market through acquisitions or by leveraging their cardiac rhythm management capabilities. Our primary competitors include Biosense Webster, a division of J&J, C.R. Bard, Inc. and Boston Scientific.
The neuromodulation market is one of medical technology’s fastest growing segments. We are one of three principal manufacturers of neurostimulation devices. Competitive pressures will increase in the future as our primary competitors, Medtronic and Boston Scientific, attempt to secure and grow their positions in the neuromodulation market. Although we also compete against smaller competitors like publicly held Cyberonics, Inc. and privately held Nevro Corporation, barriers to entry for new competitors are high in the U.S. market, due to a long and expensive product development and regulatory approval process as well as the intellectual property and patent positions existing in the market. However, other larger medical device companies may be able to enter the neuromodulation market by leveraging their existing medical device capabilities, thereby decreasing the time and resources required to enter the market.
Patents, Licenses and Trademarks
Our policy is to protect our intellectual property rights related to our medical devices. Where appropriate, we apply for U.S. and foreign patents. We own or hold licenses to numerous U.S. and foreign patents. U.S. patents are typically granted for a term of twenty years from the date a patent application is filed. The actual protection afforded by a foreign patent, which can vary from country to country, depends upon the type of patent, the scope of its coverage and the availability of legal remedies in the country. In those instances where we have acquired technology from third parties, we have sought to obtain rights of ownership to the technology through the acquisition of underlying patents or licenses.
We also have obtained certain trademarks and tradenames for our products to distinguish our products from our competitors’ products. U.S. trademark registrations are for a term of ten years and are renewable every ten years as long as the trademarks are used in the regular course of trade. We register our trademarks in the U.S. and in a number of countries where we do business.
While we believe design, development, regulatory and marketing aspects of the medical device business represent the principal barriers to entry, we also recognize that our patents and license rights may make it more difficult for competitors to market products similar to those we produce. We can give no assurance that any of our patent rights, whether issued, subject to license or in process, will not be circumvented or invalidated. Furthermore, there are numerous existing and pending patents on medical products and biomaterials. There can be no assurance that our existing or planned products do not or will not infringe such rights or that others will not claim such infringement. No assurance can be given that we will be able to prevent competitors from challenging our patents or entering markets we currently serve.
Research and Development
We are focused on the development of new products and on improvements to existing products. R&D expense reflects the cost of these activities, as well as the costs to obtain regulatory approvals of certain new products and processes and to maintain the highest quality standards with respect to our existing products. Our R&D expenses were $705.1 million (12.6% of net sales) in 2011, $631.1 million (12.2% of net sales) in 2010 and $559.8 million (12.0% of net sales) in 2009. Although our R&D expenses have remained relatively flat as a percent of net sales in recent years, total R&D expense continues to increase each year, reflecting our continuing commitment to fund future long-term growth opportunities. We also recognized $4.4 million, $12.2 million and $5.8 million of purchased in-process research and development expense in 2011, 2010 and 2009, respectively, in connection with the purchase of certain intellectual property assets.
Acquisitions
In addition to generating growth internally through our own R&D activities, we also make strategic acquisitions and investments to access new technologies and therapy areas. We expect to continue to make acquisitions and investments in future periods to strengthen our business.
On November 18, 2010, we completed our acquisition of AGA Medical acquiring all of its outstanding shares for $20.80 per share in a cash and stock transaction valued at $1.1 billion (which consisted of $549.4 million in net cash consideration and 13.6 million shares of St. Jude Medical common stock). The transaction was consummated through an exchange offer followed by a merger. AGA Medical had been publicly traded on the NASDAQ Global Select Stock Market under the ticker symbol AGAM. The AGA Medical acquisition expanded our cardiovascular product portfolio and future product pipeline to treat structural heart defects and vascular abnormalities through minimally invasive transcatheter treatments. AGA Medical was based in Plymouth, Minnesota and has become part of our Cardiovascular division.
On July 6, 2010, we completed our acquisition of LightLab Imaging, Inc. (LightLab Imaging) for $92.8 million in net cash consideration. LightLab Imaging was based in Westford, Massachusetts and develops, manufactures and markets OCT for coronary imaging applications. The LightLab Imaging acquisition expanded our cardiovascular product portfolio and complements the FFR technology acquired as part of our Radi Medical Systems acquisition in December 2008. LightLab Imaging has become part of our Cardiovascular division.
Minority Investment
During 2010, we made an equity investment of $60.0 million in CardioMEMS, Inc. (CardioMEMS), a privately held company that is focused on the development of a wireless monitoring technology that can be placed directly into the pulmonary artery to assess cardiac performance via measurement of pulmonary artery pressure. The investment agreement resulted in a 19% ownership interest and provided us with the exclusive right, but not the obligation, to acquire CardioMEMS for an additional payment of $375 million during the period that extends through the completion of certain regulatory milestones.
Marketing and Distribution
Our products are sold in more than 100 countries throughout the world. No distributor organization or single customer accounted for more than 10% of 2011, 2010 or 2009 consolidated net sales.
In the United States, we sell directly to healthcare providers primarily through a direct sales force. In Europe, we have direct sales organizations selling in 24 countries. In Japan, we sell directly to healthcare providers through a direct sales force and we also continue to use longstanding independent distributor relationships. In Asia Pacific, we have direct sales organizations selling in eight countries, and we also utilize independent distributors. Throughout the rest of the world, we use a combination of independent distributors and direct sales forces.
Group purchasing organizations (GPO), independent delivery networks (IDN) and large single accounts such as the Veterans Administration in the United States continue to consolidate purchasing decisions for some of our healthcare provider customers. We have contracts in place with many of these organizations. In some circumstances, our inability to obtain a contract with a GPO or IDN could adversely affect our efforts to sell products to a particular healthcare provider.
International Operations
Our net sales and long-lived assets by significant geographic areas are presented in Note 14 of the Consolidated Financial Statements in the Financial Report included in St. Jude Medical’s 2011 Annual Report to Shareholders and filed as Exhibit 13 to this Form 10-K.
Our international business is subject to special risks such as: foreign currency exchange controls and fluctuations; the imposition of or increase in import or export duties, surtaxes, tariffs or customs duties; the imposition of import or export quotas or other trade restrictions; foreign tax laws and increased costs associated with overlapping tax structures; longer accounts receivable cycles; and other international regulatory, economic, legal and political problems. Such risks are further described in Item 1A, Risk Factors of this Form 10-K. Currency exchange rate fluctuations relative to the U.S. Dollar can affect our reported consolidated results of operations and financial position. See the Market Risk section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Financial Report included in St. Jude Medical’s 2011 Annual Report to Shareholders and filed as Exhibit 13 to this Form 10-K.
Seasonality
Our quarterly net sales are influenced by many factors, including new product introductions, acquisitions, regulatory approvals, patient and physician holiday schedules and other factors. Net sales in the third quarter are typically lower than other quarters of the year as a result of patient tendencies to defer, if possible, procedures during the summer months and from the seasonality of the U.S. and European markets, where summer vacation schedules normally result in fewer procedures.
Suppliers
We purchase raw materials and other products from numerous suppliers. Our manufacturing requirements comply with the rules and regulations of the FDA and comparable agencies in foreign countries, which mandate validation of materials prior to use in our products. We purchase certain supplies used in our manufacturing processes from single sources due to quality considerations, costs or constraints resulting from regulatory requirements. Agreements with certain suppliers are terminable by either party upon short notice and we have been advised periodically by some suppliers that, in an effort to reduce their potential product liability exposure, they may terminate sales of products to customers that manufacture implantable medical devices. While some of these suppliers have modified their positions and have indicated a willingness to continue to provide a product temporarily until an alternative vendor or product can be qualified (or even to reconsider the supply relationship), where a particular single-source supply relationship is terminated, we may not be able to establish additional or replacement suppliers for certain components or materials quickly. A reduction or interruption by a sole-source supplier of the supply of materials or key components used in the manufacturing of our products or an increase in the price of those materials or components could adversely affect our business, financial condition and results of operations.
Government Regulation
Our products, development activities and manufacturing processes are subject to extensive and rigorous regulation by the FDA pursuant to the Federal Food, Drug, and Cosmetic Act (FDCA), by comparable agencies in foreign countries and by other regulatory agencies and governing bodies. Under the FDCA and associated regulations, manufacturers of medical devices must comply with certain regulations that cover the composition, labeling, testing, clinical study, manufacturing, packaging and distribution of medical devices. Medical devices must receive FDA clearance or approval before they can be commercially marketed in the United States. The most comprehensive level of approval requires the completion of an FDA-approved clinical evaluation program and submission and approval of a pre-market approval (PMA) application before a device may be commercially marketed. Our vascular closure devices, mechanical and tissue heart valves, ICDs, pacemakers and certain leads, neurostimulation devices and EP catheter applications require a PMA application or supplement to a PMA. Other leads and lead delivery tools, annuloplasty ring products, other neurostimulation devices and other EP and cardiology products are currently marketed under the less rigorous 510(k) pre-market notification procedure of the FDCA.
Furthermore, our international business is subject to medical device laws in individual countries outside the United States. Most major markets for medical devices outside the United States require clearance, approval or compliance with certain standards before a product can be commercially marketed. The applicable laws range from extensive device approval requirements in some countries for all or some of our products, to requests for data or certifications in other countries. Generally, international regulatory requirements are increasing. In the European Union, the regulatory systems have been consolidated, and approval to market in all European Union countries (represented by the CE Mark) can be obtained through one agency. The process of obtaining marketing clearance from the FDA and foreign regulatory agencies for new products or with respect to enhancements or modifications to existing products can take a significant period of time, require the expenditure of substantial resources, involve rigorous pre-clinical and clinical testing, require changes to the products and result in limitations on the indicated uses of the products.
The FDA conducts inspections prior to approval of a PMA application to determine compliance with the quality system regulations that cover manufacturing and design. In addition, the FDA may require testing and surveillance programs to monitor the effects of approved products that have been commercialized, and may prevent or limit further marketing of products based on the results of these post-marketing programs. At any time after approval of a product, the FDA may conduct periodic inspections to determine compliance with both the FDA’s Quality System Regulation (QSR) requirements and/or current medical device reporting regulations. Product approvals by the FDA can be withdrawn due to failure to comply with regulatory standards or the occurrence of unforeseen problems following initial approval. The failure to comply with regulatory standards or the discovery of previously unknown problems with a product or manufacturer could result in fines, delays or suspensions of regulatory clearances, seizures or recalls of products (with the attendant expenses), the banning of a particular device, an order to replace or refund the cost of any device previously manufactured or distributed, operating restrictions and criminal prosecution, as well as decreased sales as a result of negative publicity and product liability claims.
We are required to register with the FDA as a device manufacturer and, as a result, we are subject to periodic inspection by the FDA for compliance with the FDA’s QSR requirements, which require manufacturers of medical devices to adhere to certain regulations, including testing, quality control and documentation procedures. In addition, the federal Medical Device Reporting regulations require us to provide information to the FDA whenever there is evidence that reasonably suggests that a device may have caused or contributed to a death or serious injury or, if a malfunction were to occur, could cause or contribute to a death or serious injury. Compliance with applicable regulatory requirements is subject to continual review and is rigorously monitored through periodic inspections by the FDA. In the European Community, we are required to maintain certain International Organization for Standardization (ISO) certifications in order to sell products, and we undergo periodic inspections by notified bodies to obtain and maintain these certifications.
The FDA also regulates recordkeeping for medical devices and reviews hospital and manufacturers’ required reports of adverse experiences to identify potential problems with FDA-authorized devices. Regulatory actions may be taken by the FDA due to adverse experience reports.
In addition, the FDCA permits device manufacturers to promote products solely for the uses and indications set forth in the approved product labeling. A number of enforcement actions have been taken against manufacturers that promote products for “off-label” uses. The failure to comply with “off-label” promotion restrictions can result in significant financial penalties and a required corporate integrity agreement with the federal government imposing significant administrative obligations and costs.
Diagnostic-related group (DRG) and Ambulatory Patient Classification (APC) reimbursement schedules dictate the amount that the U.S. government, through the CMS, will reimburse hospitals for care of persons covered by Medicare. In response to rising Medicare and Medicaid costs, from time to time Congress and state legislatures consider legislation that would restrict funding for these programs. Changes in current DRG and APC reimbursement levels could have an adverse effect on market demand and our domestic pricing flexibility. In the United States, Medicare payment to providers is based on prospectively set rates. CMS, which administers the Medicare and Medicaid programs, uses separate Prospective Payment Systems for reimbursement to acute inpatient hospitals, hospital outpatient departments and ambulatory surgery centers. In response to rising Medicare costs, from time to time Congress considers proposals that would reduce the annual update in federal payments to hospitals. Reduced funding could have an adverse effect on market demand and our domestic pricing flexibility.
More generally, major third-party payors for hospital services in the United States and abroad continue to work to contain healthcare costs. The introduction of cost containment incentives, combined with closer scrutiny of healthcare expenditures by both private health insurers and employers, has resulted in increased discounts and contractual adjustments to hospital charges for services performed and in the shifting of services between inpatient and outpatient settings. From time to time, initiatives to limit the growth of healthcare costs, including price regulation, are underway in several countries in which we do business. Implementation of healthcare reforms in the United States and in significant overseas markets may limit the price of or the level at which reimbursement is provided for our products.
The United States Anti-kickback law generally prohibits payments to physicians or other purchasers of medical products under federal health care programs, including Medicare and Medicaid, as an inducement to purchase a product. Many states and foreign countries have similar laws. We subscribe to the AdvaMed Code of Ethics (AdvaMed is a U.S. medical device industry trade association) which limits certain marketing and other practices in our relationships with product purchasers. We also adhere to many similar codes in countries outside the United States. In addition, we have in place and are continuously improving our internal business integrity and compliance program and policies.
On December 19, 2011, the Centers for Medicare and Medicaid Services (CMS) proposed regulations to implement the Physician Payment Sunshine Act enacted as part of the U.S. healthcare reform legislation. This proposed rule would require us to report annually to CMS beginning in 2013 all payments and other transfers of value to physicians and teaching hospitals for certain products payable under Medicare, Medicaid, or the Children’s Health Insurance Program, as well as certain ownership or investments held by physicians or their family members.
Federal and state laws protect the confidentiality of certain patient health information, including patient records, and restrict the use and disclosure of such information. In particular, the U.S. Department of Health and Human Services has issued patient privacy and security standards for electronic health information under the Health Insurance Portability and Accountability Act of 1996 and its implementing regulations (HIPAA). These HIPAA privacy and security standards govern the use and disclosure of protected health information by “covered entities,” which are healthcare providers that submit electronic claims, health plans and healthcare clearinghouses. Our employee health benefit plans are considered ‘covered entities’ and therefore are subject and adhere to the HIPAA privacy and security standards. Additionally, our Merlin.net Patient Care Network system adheres to the privacy and security standards set forth in HIPAA. Failure to comply with HIPAA or any state or foreign laws regarding personal data protection may result in significant fines or penalties and/or negative publicity.
Some medical device regulatory agencies have considered and are considering whether to continue to permit the sale of medical devices that incorporate any bovine material because of concerns about Bovine Spongiform Encephalopathy (BSE), sometimes referred to as “mad cow disease,” a disease which has sometimes been transmitted to humans through the consumption of beef. We are not aware of any reported cases of transmission of BSE through medical products. Some of our products such as Angio-Seal™ use bovine collagen. In addition, some of the tissue heart valves we market incorporate bovine pericardial material. We are cooperating with the regulatory agencies regarding these issues.
Product Liability
The design, manufacture and marketing of our medical devices entail an inherent risk of product liability claims. Our products are often used in intensive care settings with seriously ill patients, and many of the medical devices we manufacture and sell are designed to be implanted in the human body for long periods of time or indefinitely. There are a number of factors that could result in an unsafe condition or injury to, or death of, a patient with respect to these or other products which we manufacture or sell, including component failures, manufacturing flaws, design defects or inadequate disclosure of product-related risks or product-related information. Product liability claims may be brought by individuals or by groups seeking to represent a class.
We are currently the subject of various product liability claims, including several lawsuits which may be allowed to proceed as class actions in Canada. The outcome of litigation, particularly class action lawsuits, is difficult to assess or quantify. Plaintiffs in these types of lawsuits often seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods of time. In addition, product liability claims may be asserted against us in the future, relative to events that are not known to management at the present time.
Insurance
Prior to June 15, 2009, we maintained product liability policies which provided $350 million of insurance coverage, with a $50 million per occurrence deductible or a $100 million deductible if the claims were deemed an integrated occurrence under the policies. However, we allowed such product liability policies to lapse, and consistent with industry practice, do not currently maintain or intend to maintain any insurance policies with respect to product liability in the future. This decision was made based on current conditions in the insurance marketplace that have led to increasingly higher levels of self-insured retentions, increasing number of coverage limitations and high insurance premium rates. We will continue to monitor the insurance marketplace to evaluate the value to us of obtaining insurance coverage in the future. We believe that our self-insurance program, which is based on historical loss trends, will be adequate to cover future losses, although we can provide no assurances that this will remain true as historical trends may not be indicative of future losses. These losses could have a material adverse impact on our consolidated earnings, financial condition or cash flows.
Our facilities could be materially damaged by earthquakes, hurricanes and other natural disasters or catastrophic circumstances. Earthquake insurance is currently difficult to obtain, extremely costly, and restrictive with respect to scope of coverage. Our earthquake insurance for our significant facilities located in Sylmar and Sunnyvale, California; Puerto Rico and Costa Rica, provides $10 million of insurance coverage in the aggregate, with a deductible equal to 5% of the total value of the facility and contents involved in the claim. Consequently, despite this insurance coverage, we could incur uninsured losses and liabilities arising from an earthquake near our California, Puerto Rico or Costa Rica facilities as a result of various factors, including the severity and location of the earthquake, the extent of any damage to our facilities, the impact of an earthquake on our workforce and on the infrastructure of the surrounding communities and the extent of damage to our inventory and work in process. While we believe that our exposure to significant losses from an earthquake could be partially mitigated by our ability to manufacture some of our products at our other manufacturing facilities, the losses could have a material adverse effect on our business for an indeterminate period of time before this manufacturing transition is complete and operates without significant disruption. Furthermore, our manufacturing facilities in Puerto Rico may suffer damage as a result of hurricanes which are frequent in the Caribbean and could result in lost production and additional expenses to us to the extent any such damage is not fully covered by our hurricane and business interruption insurance.
Employees
As of December 31, 2011, we had over 16,000 employees worldwide. Our employees are not represented by any labor organizations, with the exception of certain employees in Sweden and France. We have never experienced a work stoppage as a result of labor disputes. We believe that our relationship with our employees is generally good.
Executive Officers of the Registrant
The following is a list of our executive officers as of February 24, 2012. For each position, the date in parentheses indicates the year during which each executive officer began serving in such capacity.
Name
Age
Position
Daniel J. Starks
Chairman (2004), President (2001) and Chief Executive Officer (2004)
John C. Heinmiller
Executive Vice President (2004) and Chief Financial Officer (1998)
Michael T. Rousseau
Group President (2008)
Joel D. Becker
President, U.S. Division (2011)
Frank J. Callaghan
President, Cardiovascular (2008)
Eric S. Fain, M.D.
President, Cardiac Rhythm Management (2007)
Denis M. Gestin
President, International (2008)
Rohan J. Hoare
President, Neuromodulation (2011)
Jane J. Song
President, Atrial Fibrillation (2004)
Angela D. Craig
Vice President, Corporate Relations (2006) and Vice President, Human Resources (2010)
Jeff A. Fecho
Vice President, Global Quality (2012)
Thomas R. Northenscold
Vice President, Information Technology and Chief Information Officer (2007)
Jason A. Zellers
Vice President, General Counsel and Corporate Secretary (2011); Vice President and General Counsel, International (2006)
Donald J. Zurbay
Vice President (2006) and Corporate Controller (2004)
Mr. Starks has served on St. Jude Medical’s Board of Directors since 1996 and has been Chairman, President and Chief Executive Officer of St. Jude Medical since May 2004. Previously, Mr. Starks was President and Chief Operating Officer of St. Jude Medical from February 2001 to May 2004. From April 1998 to February 2001, he was President and Chief Executive Officer of our Cardiac Rhythm Management Division, and prior to that, Mr. Starks was Chief Executive Officer and President of Daig Corporation, a wholly-owned subsidiary of St. Jude Medical.
Mr. Heinmiller joined St. Jude Medical in May 1996 as a part of our acquisition of Daig Corporation, where Mr. Heinmiller had served as Vice President of Finance and Administration since 1995. In May 1998, he was named Vice President of Corporate Business Development. In September 1998, he was appointed Vice President, Finance and Chief Financial Officer and in May 2004 was promoted to Executive Vice President.
Mr. Rousseau joined St. Jude Medical in 1999 as Senior Vice President, Cardiac Rhythm Management Global Marketing. In August 1999, Cardiac Rhythm Management Marketing and Sales were combined under his leadership. In January 2001, he was named President, U.S. Cardiac Rhythm Management Sales, and in July 2001, he was named President, U.S. Division, a position Mr. Rousseau held until January 2008, when he was promoted to Group President, initially responsible for the Company’s four product divisions. In November 2009, Mr. Rousseau’s Group President responsibilities were realigned, with the Company’s Cardiac Rhythm Management Division and U.S. Division reporting directly to him. Mr. Rousseau served as President, U.S. Division from November 2009 to October 2011. Mr. Rousseau continues to serve as Group President over the Cardiac Rhythm Management and Neuromodulation product divisions as well as the U.S. division.
Mr. Becker joined St. Jude Medical in 1993 as Senior Associate in Corporate Development. In 1999, he left the company to join Myocor, Inc., a venture-backed heart failure company, as Senior Vice President. Mr. Becker returned to St. Jude Medical in 2002 where he held numerous leadership positions in both Cardiovascular and Atrial Fibrillation divisions. Prior to his promotion to President, U.S. Division in October 2011, Mr. Becker served as Senior Vice President, Marketing for the U.S. Division from February 2011 to October 2011. Prior to February 2011, Mr. Becker served as Vice President, Program Management & Business Development for the Atrial Fibrillation Division since 2004.
Mr. Callaghan joined St. Jude Medical as Vice President of Research and Development for the Atrial Fibrillation Division in January 2005 as part of the ESI acquisition. From 1995 to 2005, Mr. Callaghan served as Vice President of Research and Development for ESI. In January 2008, he was promoted to President, Cardiovascular Division.
Dr. Fain joined St. Jude Medical in 1997 as a part of our acquisition of Ventritex, Inc., where he had served since 1987. In 1998, he was named Senior Vice President, Clinical Engineering and Regulatory Affairs, Cardiac Rhythm Management. In 2002 he was appointed Senior Vice President for Development and Clinical/Regulatory Affairs for Cardiac Rhythm Management and was promoted to Executive Vice President over those functions in 2005. In July 2007, Dr. Fain became President, Cardiac Rhythm Management Division.
Mr. Gestin joined St. Jude Medical in 1997 as manager of cardiac rhythm management and catheter product sales in France. He was named Managing Director of St. Jude Medical France in 1999 and was promoted to Vice President, Northern Europe & Africa in 2002. He was named President of SJM Europe, Middle East, Africa and Canada in August 2004, and in January 2008, Mr. Gestin was promoted to President, International Division.
Mr. Hoare joined St. Jude Medical in 2005 as Vice President of Corporate Strategy and Development, as part of the Advanced Neuromodulation Systems, Inc. (ANS) acquisition and served in that position until 2006. From 2006 to 2008, Mr. Hoare was appointed Vice President, Strategy and Emerging Therapies for the Neuromodulation division. From 2008 to 2011, Mr. Hoare served as Vice President, Research and Development for the Neuromodulation Division. In October 2011, Mr. Hoare was appointed President, Neuromodulation Division.
Ms. Song joined St. Jude Medical in 1998 as Senior Vice President, Cardiac Rhythm Management Operations. In May 2002, she was appointed President, Cardiac Surgery Division, and in August 2004, was appointed President, Atrial Fibrillation Division.
Ms. Craig joined St. Jude Medical in May 2005 as Vice President of Communications and served in that position until being named Vice President, Corporate Relations, in January 2006. Ms. Craig was also named Vice President, Human Resources in August 2010. Prior to joining St. Jude Medical, Ms. Craig spent 12 years with Smith & Nephew plc, a medical device company headquartered in London, England,.
Mr. Fecho joined St. Jude Medical in 2005 as Director of Quality for the Cardiovascular Division, served as Vice President of Quality for the Cardiovascular Division from 2008 to 2012 and became Vice President Global Quality in January 2012. Prior to joining St. Jude Medical, he worked in research and development and quality operations for Boston Scientific, Inc.
Mr. Northenscold joined St. Jude Medical in 2001 as Vice President, Finance and Administration of Daig Corporation, a wholly-owned subsidiary of St. Jude Medical. In March 2003, he was named Vice President, Administration and in November 2007 was promoted to Vice President, Information Technology and Chief Information Officer.
Mr. Zellers joined St. Jude Medical in 2006 as Vice President and General Counsel for the International Division. In October 2011, he was appointed St. Jude Medical’s Vice President, General Counsel and Corporate Secretary. Before joining St. Jude Medical, he was a partner at Armstrong Teasdale LLP and Schiff Hardin LLP and served as Senior Counsel at GE Healthcare.
Mr. Zurbay joined St. Jude Medical in 2003 as Director of Corporate Finance. In 2004, Mr. Zurbay was named Corporate Controller, and in January 2006 he was named Vice President and Corporate Controller.
Availability of SEC Reports
We make available, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the Exchange Act) as soon as reasonably practical after they are filed or furnished to the U.S. Securities and Exchange Commission (SEC). Such reports are available on our website (http://www.sjm.com) under Investor Relations - SEC Filings. Information included on our website is not deemed to be incorporated into this Form 10-K.
Item 1A.
RISK FACTORS
Our business faces many risks. Any of the risks discussed below, or elsewhere in this Form 10-K or our other SEC filings, could have a material impact on our business, financial condition or results of operations.
We face intense competition and may not be able to keep pace with the rapid technological changes in the medical devices industry.
The medical device market is intensely competitive and is characterized by extensive research and development and rapid technological change. Our customers consider many factors when choosing suppliers, including product reliability, clinical outcomes, product availability, inventory consignment, price and product services provided by the manufacturer, and market share can shift as a result of technological innovation and other business factors. Major shifts in industry market share have occurred in connection with product problems, physician advisories and safety alerts, reflecting the importance of product quality in the medical device industry. Our competitors range from small start-up companies to larger companies which have significantly greater resources and broader product offerings than us, and we anticipate that in the coming years, other large companies will enter certain markets in which we currently hold a strong position. In addition, we expect that competition will continue to intensify with the increased use of strategies such as consigned inventory, and we have seen increasing price competition as a result of managed care, consolidation among healthcare providers, increased competition and declining reimbursement rates. Product introductions or enhancements by competitors which have advanced technology, better features or lower pricing may make our products or proposed products obsolete or less competitive. As a result, we will be required to devote continued efforts and financial resources to bring our products under development to market, enhance our existing products and develop new products for the medical marketplace. If we fail to develop new products, enhance existing products or compete effectively, our business, financial condition and results of operations will be adversely affected.
We are subject to stringent domestic and foreign medical device regulation and any adverse regulatory action may materially adversely affect our financial condition and business operations.
Our products, development activities and manufacturing processes are subject to extensive and rigorous regulation by numerous government agencies, including the FDA and comparable foreign agencies. To varying degrees, each of these agencies monitors and enforces our compliance with laws and regulations governing the development, testing, manufacturing, labeling, marketing and distribution of our medical devices. The process of obtaining marketing approval or clearance from the FDA and comparable foreign bodies for new products, or for enhancements or modifications to existing products, could:
•
take a significant amount of time,
•
require the expenditure of substantial resources,
•
involve rigorous pre-clinical and clinical testing, as well as increased post-market surveillance,
•
involve modifications, repairs or replacements of our products, and
•
result in limitations on the indicated uses of our products.
We cannot be certain that we will receive required approval or clearance from the FDA and foreign regulatory agencies for new products or modifications to existing products on a timely basis. The failure to receive approval or clearance for significant new products or modifications to existing products on a timely basis could have a material adverse effect on our financial condition and results of operations.
Both before and after a product is commercially released, we have ongoing responsibilities under FDA regulations. For example, we are required to comply with the FDA’s Quality System Regulation (QSR), which mandates that manufacturers of medical devices adhere to certain quality assurance requirements pertaining to, among other things, validation of manufacturing processes, controls for purchasing product components, and documentation practices. As another example, the Federal Medical Device Reporting regulation requires us to provide information to the FDA whenever there is evidence that reasonably suggests that a device may have caused or contributed to a death or serious injury or, that a malfunction occurred which would be likely to cause or contribute to a death or serious injury upon recurrence. Compliance with applicable regulatory requirements is subject to continual review and is monitored rigorously through periodic inspections by the FDA, which may result in observations on Form 483, and in some cases warning letters, that require corrective action. If the FDA were to conclude that we are not in compliance with applicable laws or regulations, or that any of our medical devices are ineffective or pose an unreasonable health risk, the FDA could ban such medical devices, detain or seize such medical devices, order a recall, repair, replacement, or refund of such devices, or require us to notify health professionals and others that the devices present unreasonable risks of substantial harm to the public health. The FDA has recently been increasing its scrutiny of the medical device industry and the government should be expected to continue to scrutinize the industry closely with inspections, and possibly enforcement actions, by the FDA or other agencies. Additionally, the FDA may restrict manufacturing and impose other operating restrictions, enjoin and restrain certain violations of applicable law pertaining to medical devices, and assess civil or criminal penalties against our officers, employees, or us. The FDA may also recommend prosecution to the Department of Justice. Any adverse regulatory action, depending on its magnitude, may restrict us from effectively manufacturing, marketing and selling our products. In addition, negative publicity and product liability claims resulting from any adverse regulatory action could have a material adverse effect on our financial condition and results of operations.
In addition, the FDCA permits device manufacturers to promote products solely for the uses and indications set forth in the approved product labeling. A number of enforcement actions have been taken against manufacturers that promote products for “off-label” uses. The failure to comply with “off-label” promotion restrictions can result in significant financial penalties and a required corporate integrity agreement with the federal government imposing significant administrative obligations and costs.
Foreign governmental regulations have become increasingly stringent and more common, and we may become subject to even more rigorous regulation by foreign governmental authorities in the future. Penalties for a company’s noncompliance with foreign governmental regulation could be severe, including revocation or suspension of a company’s business license and criminal sanctions. Any domestic or foreign governmental medical device law or regulation imposed in the future may have a material adverse effect on our financial condition and business operations.
Our products are continually the subject of clinical trials conducted by us, our competitors or other third parties, the results of which may be unfavorable, or perceived as unfavorable by the market, and could have a material adverse effect on our business, financial condition and results of operations.
As a part of the regulatory process of obtaining marketing clearance for new products and new indications for existing products, we conduct and participate in numerous clinical trials with a variety of study designs, patient populations and trial endpoints. Unfavorable or inconsistent clinical data from existing or future clinical trials conducted by us, by our competitors or by third parties, or the market’s or FDA’s perception of this clinical data, may adversely impact our ability to obtain product approvals, the size of the markets in which we participate, our position in, and share of, the markets in which we participate and our business, financial condition and results of operations.
If we are unable to protect our intellectual property effectively, our financial condition and results of operations could be adversely affected.
Patents and other proprietary rights are essential to our business and our ability to compete effectively with other companies is dependent upon the proprietary nature of our technologies. We also rely upon trade secrets, know-how, continuing technological innovations and licensing opportunities to develop, maintain and strengthen our competitive position. We seek to protect these, in part, through confidentiality agreements with certain employees, consultants and other parties. We pursue a policy of generally obtaining patent protection in both the United States and in key foreign countries for patentable subject matter in our proprietary devices and also attempt to review third-party patents and patent applications to the extent publicly available to develop an effective patent strategy, avoid infringement of third-party patents, identify licensing opportunities and monitor the patent claims of others. We currently own numerous United States and foreign patents and have numerous patent applications pending. We are also a party to various license agreements pursuant to which patent rights have been obtained or granted in consideration for cash, cross-licensing rights or royalty payments. We cannot be certain that any pending or future patent applications will result in issued patents, that any current or future patents issued to or licensed by us will not be challenged, invalidated or circumvented or that the rights granted thereunder will provide a competitive advantage to us or prevent competitors from entering markets which we currently serve. Any required license may not be available to us on acceptable terms, if at all. In addition, some licenses may be non-exclusive, and therefore our competitors may have access to the same technologies as us. In addition, we may have to take legal action in the future to protect our trade secrets or know-how or to defend them against claimed infringement of the rights of others. Any legal action of that type could be costly and time consuming to us and we cannot be certain of the outcome. The invalidation of key patents or proprietary rights which we own or an unsuccessful outcome in lawsuits to protect our intellectual property could have a material adverse effect on our financial condition and results of operations.
Pending and future patent litigation could be costly and disruptive to us and may have an adverse effect on our financial condition and results of operations.
We operate in an industry that is susceptible to significant patent litigation and, in recent years, it has been common for companies in the medical device field to aggressively challenge the rights of other companies to prevent the marketing of new devices. Companies that obtain patents for products or processes that are necessary for or useful to the development of our products may bring legal actions against us claiming infringement and at any given time, we generally are involved as both a plaintiff and a defendant in a number of patent infringement and other intellectual property-related actions. Defending intellectual property litigation is expensive and complex and outcomes are difficult to predict. Any pending or future patent litigation may result in significant royalty or other payments or injunctions that can prevent the sale of products and may cause a significant diversion of the efforts of our technical and management personnel. While we intend to defend any such lawsuits vigorously, we cannot be certain that we will be successful. In the event that our right to market any of our products is successfully challenged or if we fail to obtain a required license or are unable to design around a patent, our financial condition and results of operations could be materially adversely affected.
Pending and future product liability claims and litigation may adversely affect our financial condition and results of operations.
The design, manufacture and marketing of the medical devices we produce entail an inherent risk of product liability claims. Our products are often used in intensive care settings with seriously ill patients, and many of the medical devices we manufacture and sell are designed to be implanted in the human body for long periods of time or indefinitely. There are a number of factors that could result in an unsafe condition or injury to, or death of, a patient with respect to these or other products which we manufacture or sell, including component failures, manufacturing flaws, design defects or inadequate disclosure of product-related risks or product-related information. Product liability claims may be brought by individuals or by groups seeking to represent a class.
We are currently the subject of various product liability claims, including several lawsuits in the United States and a lawsuit being allowed to proceed as a class action in Canada relating to products incorporating Silzone® coating. The outcome of litigation, particularly class action lawsuits, is difficult to assess or quantify. Plaintiffs in these types of lawsuits often seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods of time. We believe that the final resolution of the Silzone litigation matters may take a number of years and cannot reasonably estimate the time frame in which any potential settlements or judgments would be paid out or the amounts of any such settlements or judgments. In addition, the cost to defend any future litigation, whether Silzone-related or not, may be significant. We believe that many settlements and judgments relating to the Silzone litigation and our other litigation may be covered in whole or in part under our previously-issued product liability insurance policies and existing reserves. Any costs (the material components of which are settlements, judgments, legal fees and other related defense costs) not covered under our previously-issued product liability insurance policies and existing litigation reserves could have a material adverse effect on our consolidated earnings, financial position and cash flows.
Our product liability insurers may refuse to cover certain losses on the grounds that such losses are outside the scope of our product liability insurance policies.
Our legacy product liability insurers may seek to deny coverage of Silzone-related claims and other past and/or future losses relating to our products on the grounds that such losses are outside the scope of coverage of those previously-issued insurance policies. To the extent that we suffer losses that are outside of the scope or range of coverage of those previously-issued product liability insurance policies, those losses may have a material adverse effect on our consolidated earnings, financial position and cash flows.
Our self-insurance program may not be adequate to cover future losses.
Consistent with the predominant practice in our industry, we do not currently maintain or intend to maintain any insurance policies with respect to product liability in the future. This decision was made based on current conditions in the insurance marketplace that have led to increasingly higher levels of self-insured retentions, increasing number of coverage limitations and high insurance premium rates. We will continue to monitor the insurance marketplace to evaluate the value to us of obtaining insurance coverage in the future. We believe that our self-insurance program, which is based on historical loss trends, will be adequate to cover future losses, although we can provide no assurances that this will remain true as historical trends may not be indicative of future losses. These losses could have a material adverse impact on our consolidated earnings, financial condition and cash flows.
The loss of any of our sole-source suppliers or an increase in the price of inventory supplied to us could have an adverse effect on our business, financial condition and results of operations.
We purchase certain supplies used in our manufacturing processes from single sources due to quality considerations, costs or constraints resulting from regulatory requirements. Agreements with certain suppliers are terminable by either party upon short notice and we have been advised periodically by some suppliers that in an effort to reduce their potential product liability exposure, they may terminate sales of products to customers that manufacture implantable medical devices. While some of these suppliers have modified their positions and have indicated a willingness to continue to provide a product temporarily until an alternative vendor or product can be qualified (or even to reconsider the supply relationship), where a particular single-source supply relationship is terminated, we may not be able to establish additional or replacement suppliers for certain components or materials quickly. This is largely due to the FDA approval system, which mandates validation of materials prior to use in our products, and the complex nature of manufacturing processes employed by many suppliers. In addition, we may lose a sole-source supplier due to, among other things, the acquisition of such a supplier by a competitor (which may cause the supplier to stop selling its products to us) or the bankruptcy of such a supplier, which may cause the supplier to cease operations. A reduction or interruption by a sole-source supplier of the supply of materials or key components used in the manufacturing of our products or an increase in the price of those materials or components could adversely affect our business, financial condition and results of operations.
Cost containment pressures and domestic and foreign legislative or administrative reforms resulting in restrictive reimbursement practices of third-party payors or preferences for alternate therapies could decrease the demand for products purchased by our customers, the prices which they are willing to pay for those products and the number of procedures using our devices.
Our products are purchased principally by healthcare providers that typically bill various third-party payors, such as governmental programs (e.g., Medicare and Medicaid), private insurance plans and managed care plans, for the healthcare services provided to their patients. The ability of customers to obtain appropriate reimbursement for their services and the products they provide from government and third-party payors is critical to the success of medical technology companies. The availability of reimbursement affects which products customers purchase and the prices they are willing to pay. Reimbursement varies from country to country and can significantly impact the acceptance of new technology. After we develop a promising new product, we may find limited demand for the product unless reimbursement approval is obtained from private and governmental third-party payors.
Major third-party payors for healthcare provider services in the United States and abroad continue to work to contain healthcare costs. The introduction of cost containment incentives, combined with closer scrutiny of healthcare expenditures by both private health insurers and employers, has resulted in increased discounts and contractual adjustments to healthcare provider charges for services performed and in the shifting of services between inpatient and outpatient settings. Initiatives to limit the growth of healthcare costs, including price regulation, are also underway in several countries in which we do business. Implementation of healthcare reforms in the United States and in significant overseas markets such as Germany, Japan and other countries may limit the price of, or the level at which, reimbursement is provided for our products and adversely affect both our pricing flexibility and the demand for our products. Healthcare providers may respond to such cost-containment pressures by substituting lower cost products or other therapies for our products.
In March 2010, the Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act of 2010 were enacted into law in the United States, which included a number of provisions aimed at improving quality and decreasing costs. It is uncertain what consequences these provisions will have on patient access to new technologies and what impacts these provisions will have on Medicare reimbursement rates. Legislative or administrative reforms to the U.S. or international reimbursement systems that significantly reduce reimbursement for procedures using our medical devices or deny coverage for such procedures, or adverse decisions relating to our products by administrators of such systems in coverage or reimbursement issues, would have an adverse impact on the products, including clinical products, purchased by our customers and the prices our customers are willing to pay for them. This in turn would have an adverse effect on our financial condition and results of operations.
Our failure to comply with restrictions relating to reimbursement and regulation of healthcare goods and services may subject us to penalties and adversely affect our financial condition and results of operations.
Our devices are subject to regulation regarding quality and cost by the United States Department of Health and Human Services, including the Centers for Medicare and Medicaid Services (CMS), as well as comparable state and foreign agencies responsible for reimbursement and regulation of healthcare goods and services. Foreign governments also impose regulations in connection with their healthcare reimbursement programs and the delivery of healthcare goods and services. U.S. federal government healthcare laws apply when we submit a claim on behalf of a U.S. federal healthcare program beneficiary, or when a customer submits a claim for an item or service that is reimbursed under a U.S. federal government funded healthcare program, such as Medicare or Medicaid. The principal U.S. federal laws implicated include those that prohibit the filing of false or improper claims for federal payment, those that prohibit unlawful inducements for the referral of business reimbursable under federally-funded healthcare programs, known as the anti-kickback laws, and those that prohibit healthcare service providers seeking reimbursement for providing certain services to a patient who was referred by a physician that has certain types of direct or indirect financial relationships with the service provider, known as the Stark law.
The laws applicable to us are subject to evolving interpretations. If a governmental authority were to conclude that we are not in compliance with applicable laws and regulations, we and our officers and employees could be subject to severe criminal and civil penalties, including, for example, exclusion from participation as a supplier of product to beneficiaries covered by CMS. If we are excluded from participation based on such an interpretation, it could adversely affect our financial condition and results of operations.
Consolidation in the healthcare industry could lead to demands for price concessions or limit or eliminate our ability to sell to certain of our significant market segments.
The cost of healthcare has risen significantly over the past decade and numerous initiatives and reforms initiated by legislators, regulators and third-party payors to curb these costs have resulted in a consolidation trend in the medical device industry as well as among our customers, including healthcare providers. This in turn has resulted in greater pricing pressures and limitations on our ability to sell to important market segments, as group purchasing organizations, independent delivery networks and large single accounts, such as the Veterans Administration in the United States, continue to consolidate purchasing decisions for some of our healthcare provider customers. We expect that market demand, government regulation, third-party reimbursement policies and societal pressures will continue to change the worldwide healthcare industry, resulting in further business consolidations and alliances which may exert further downward pressure on the prices of our products and adversely impact our business, financial condition and results of operations.
Failure to integrate acquired businesses into our operations successfully could adversely affect our business.
As part of our strategy to develop and identify new products and technologies, we have made several acquisitions in recent years and may make additional acquisitions in the future. Our integration of the operations of acquired businesses requires significant efforts, including the coordination of information technologies, research and development, sales and marketing, operations, manufacturing and finance. These efforts result in additional expenses and involve significant amounts of management’s time that cannot then be dedicated to other projects. Our failure to manage successfully and coordinate the growth of the combined company could also have an adverse impact on our business. In addition, we cannot be certain that the businesses we acquire will become profitable or remain so. If our acquisitions are not successful, we may record unexpected impairment charges. Factors that will affect the success of our acquisitions include:
•
the presence or absence of adequate internal controls and/or significant fraud in the financial systems of acquired companies;
•
adverse developments arising out of investigations by governmental entities of the business practices of acquired companies;
•
any decrease in customer loyalty and product orders caused by dissatisfaction with the combined companies’ product lines and sales and marketing practices, including price increases;
•
our ability to retain key employees; and
•
the ability of the combined company to achieve synergies among its constituent companies, such as increasing sales of the combined company’s products, achieving cost savings and effectively combining technologies to develop new products.
The success of many of our products depends upon strong relationships with physicians.
If we fail to maintain our working relationships with physicians, many of our products may not be developed and marketed in line with the needs and expectations of the professionals who use and support our products. The research, development, marketing and sales of many of our new and improved products is dependent upon our maintaining working relationships with physicians. We rely on these professionals to provide us with considerable knowledge and experience regarding our products and the marketing of our products. Physicians assist us as researchers, marketing consultants, product consultants, inventors and as public speakers. If we are unable to maintain our strong relationships with these professionals and continue to receive their advice and input, the development and marketing of our products could suffer, which could have a material adverse effect on our financial condition and results of operations.
Instability in international markets or foreign currency fluctuations could adversely affect our results of operations.
Our products are currently marketed in more than 100 countries around the world, with our largest geographic markets outside of the United States being Europe, Japan and Asia Pacific. As a result, we face currency and other risks associated with our international sales. We are exposed to foreign currency exchange rate fluctuations due to transactions denominated primarily in Euros, Japanese Yen, Canadian Dollars, Australian Dollars, Brazilian Reals, British Pounds and Swedish Kronor, which may potentially reduce the U.S. Dollars we receive for sales denominated in any of these foreign currencies and/or increase the U.S. Dollars we report as expenses in these currencies, thereby affecting our reported consolidated revenues and net earnings. Fluctuations between the currencies in which we do business have caused and will continue to cause foreign currency transaction gains and losses. We cannot predict the effects of currency exchange rate fluctuations upon our future operating results because of the number of currencies involved, the variability of currency exposures and the volatility of currency exchange rates.
In addition to foreign currency exchange rate fluctuations, there are a number of additional risks associated with our international operations, including those related to:
•
the imposition of or increase in import or export duties, surtaxes, tariffs or customs duties;
•
the imposition of import or export quotas or other trade restrictions;
•
foreign tax laws and potential increased costs associated with overlapping tax structures;
•
compliance with import/export laws;
•
longer accounts receivable cycles in certain foreign countries, whether due to cultural, exchange rate or other factors;
•
changes in regulatory requirements in international markets in which we operate; and
•
economic and political instability in foreign countries, including concerns over excessive levels of national debt and budget deficits in countries where we market our products that could result in an inability to pay or timely pay outstanding payables.
The medical device industry and its customers are the subject of numerous governmental investigations into marketing and other business practices. Investigations against us could result in the commencement of civil and/or criminal proceedings, substantial fines, penalties and/or administrative remedies, divert the attention of our management and have an adverse effect on our financial condition and results of operations. Investigations of our customers may adversely affect the size of our markets.
We are subject to rigorous regulation by the FDA and numerous other federal, state and foreign governmental authorities. These authorities have been increasing their scrutiny of our industry. We have received subpoenas and other requests for information from state and federal governmental agencies, including, among others, the U.S. Department of Justice and the Office of Inspector General of the Department of Health and Human Services. These investigations have related primarily to financial arrangements with health care providers, regulatory compliance and product promotional practices. In December 2008, the U.S. Attorney’s Office in Boston delivered a subpoena issued by the U.S. Department of Health and Human Services, Office of the Inspector General (OIG) requesting the production of documents relating to implantable cardiac rhythm device and pacemaker warranty claims. The Company has cooperated with the investigation and has produced documents as requested. In March 2010, we received a Civil Investigative Demand (CID) from the Civil Division of the U.S. Department of Justice. The CID requests documents and sets forth interrogatories related to communications by and within our company on various indications for ICDs and a National Coverage Decision issued by Centers for Medicare and Medicaid Services. Similar requests were made of our major competitors.
We are fully cooperating with these investigations and are responding to these requests. However, we cannot predict when these investigations will be resolved, the outcome of these investigations or their impact on the company. An adverse outcome in one or more of these investigations could include the commencement of civil and/or criminal proceedings, substantial fines, penalties and/or administrative remedies, including exclusion from government reimbursement programs. In addition, resolution of any of these matters could involve the imposition of additional and costly compliance obligations. Finally, if these investigations continue over a long period of time, they could divert the attention of management from the day-to-day operations of our business and impose significant administrative burdens on us. These potential consequences, as well as any adverse outcome from these investigations or other investigations initiated by the government at any time, could have a material adverse effect on our financial condition and results of operations.
Further, governmental investigations involving our customers, such as the U.S. Department of Justice investigation of hospitals related to ICD utilization, may have a negative impact on the size of the CRM market. Our U.S. ICD sales represented approximately 19% of our worldwide consolidated net sales in 2011, and any changes in this market could have a material adverse effect on our financial condition and results of operations.
Regulatory actions arising from the concern over Bovine Spongiform Encephalopathy may limit our ability to market products containing bovine material.
Our Angio-Seal™ vascular closure device, as well as our vascular graft products, contain bovine collagen. In addition, some of the tissue heart valves we market, such as our Biocor®, Epic™ and Trifecta™ tissue heart valves, incorporate bovine pericardial material. Certain medical device regulatory agencies may prohibit the sale of medical devices that incorporate any bovine material because of concerns over BSE, sometimes referred to as “mad cow disease,” a disease which may be transmitted to humans through the consumption of beef. While we are not aware of any reported cases of transmission of BSE through medical products and are cooperating with regulatory agencies considering these issues, the suspension or revocation of authority to manufacture, market or distribute products containing bovine material, or the imposition of a regulatory requirement that we procure material for these products from alternate sources, could result in lost market opportunities, harm the continued commercialization and distribution of such products and impose additional costs on us. Any of these consequences could in turn have a material adverse effect on our financial condition and results of operations.
We are not insured against all potential losses. Natural disasters or other catastrophes could adversely affect our business, financial condition and results of operations.
The occurrence of one or more natural disasters, such as hurricanes, cyclones, typhoons, tropical storms, floods, earthquakes and tsunamis, severe changes in climate and geo-political events, such as acts of war, civil unrest or terrorist attacks, in a country in which we operate or in which our suppliers are located could adversely affect our operations and financial performance. For example, we have significant CRM facilities located in Sylmar and Sunnyvale, California, Puerto Rico and Costa Rica. Earthquake insurance is currently difficult to obtain, extremely costly and restrictive with respect to scope of coverage. Our earthquake insurance for our California facilities provides $10 million of insurance coverage in the aggregate, with a deductible equal to 5% of the total value of the facility and contents involved in the claim. Consequently, despite this insurance coverage, we could incur uninsured losses and liabilities arising from an earthquake near one or both of our California facilities as a result of various factors, including the severity and location of the earthquake, the extent of any damage to our facilities, the impact of an earthquake on our California workforce and on the infrastructure of the surrounding communities and the extent of damage to our inventory and work in process. While we believe that our exposure to significant losses from an earthquake could be partially mitigated by our ability to manufacture some of our CRM products at our other manufacturing facilities, the losses could have a material adverse effect on our business for an indeterminate period of time before this manufacturing transition is complete and operates without significant problems. Furthermore, our manufacturing facilities in Puerto Rico may suffer damage as a result of hurricanes which are frequent in the Caribbean and which could result in lost production and additional expenses to us to the extent any such damage is not fully covered by our hurricane and business interruption insurance. Even with insurance coverage, natural disasters or other catastrophic events, including acts of war, could cause us to suffer substantial losses in our operational capacity and could also lead to a loss of opportunity and to a potential adverse impact on our relationships with our existing customers resulting from our inability to produce products for them, for which we would not be compensated by existing insurance. This in turn could have a material adverse effect on our financial condition and results of operations.
Further, when natural disasters, result in wide-spread destruction, the adverse impact on the operations of our customers in those affected locations could result in a material adverse effect on our results of operations in that region or on the consolidated operations of our business.
Our operations are subject to environmental, health and safety laws and regulations that could require us to incur material costs.
Our operations are subject to environmental, health and safety laws and regulations concerning, among other things, the generation, handling, transportation and disposal of hazardous substances or wastes, particularly ethylene oxide, the cleanup of hazardous substance releases, and emissions or discharges into the air or water. We have incurred and expect to incur expenditures in the future in connection with compliance with environmental, health and safety laws and regulations. New laws and regulations, violations of these laws or regulations, stricter enforcement of existing requirements, or the discovery of previously unknown contamination could require us to incur costs or become the basis for new or increased liabilities that could be material.
Failure to successfully implement a new enterprise resource planning (ERP) system could adversely affect our business.
We are in the process of converting to a new ERP system. Failure to smoothly execute the implementation of the ERP system could adversely affect the Company’s business, financial condition and results of operations.
Current economic conditions could adversely affect our results of operations.
The global financial crisis that began in late 2007 caused extreme disruption in the financial markets, including severely diminished liquidity and credit availability. There can be no assurance that there will not be further deterioration in the global economy, and these and other factors beyond our control may adversely affect our ability to borrow money in the credit markets and to obtain financing for acquisitions or other general corporate and commercial purposes. The global recession and disruption of the financial markets has further led to concerns over the solvency of certain European Union member states, including Greece, Ireland, Italy, Portugal and Spain. On August 5, 2011, Standard & Poor’s downgraded the U.S. credit rating to AA+ from its top rank of AAA. The current budget deficit concerns have increased the possibility of other credit rating agency downgrades which could have a material adverse effect on the financial markets and economic conditions in the United States and throughout the world.
Upheaval in the financial markets can affect our business through its effects on general levels of economic activity, employment and customer behavior. The recovery from the recent recession in the United States has been below historic averages and the unemployment rate is expected to remain high for some time. Inflation has fallen over the last several years, but is now rising, and Central Banks around the world have begun tightening monetary conditions to attempt to control inflation. Proposed cuts in federal spending over the next decade could result in cuts to, and restructuring of, entitlement programs such as Medicare and aid to states for Medicaid programs. Our hospital customers rely heavily on Medicare and Medicaid programs to fund their operations. Any cuts to these programs could negatively affect the business of our customers and our business. As a result of recent or future poor economic conditions, our customers may experience financial difficulties or be unable to borrow money to fund their operations which may adversely impact their ability or decision to purchase our products or to pay for products they do purchase or have purchased on a timely basis, if at all. While the economic environment has begun to show signs of improvement, the strength and timing of any economic recovery remains uncertain, and we cannot predict to what extent the global economic slowdown may negatively impact our average selling prices, net sales, profit margins, procedural volumes and reimbursement rates from third party payors. In addition, the current economic conditions may adversely affect our suppliers, leading them to experience financial difficulties or to be unable to borrow money to fund their operations, which could cause disruptions in our ability to produce our products.
On February 21, 2012, an agreement was reached between the Greek government and the European Union and International Monetary Fund whereby creditors would swap existing Greek government bonds for new bonds with a significant reduction in face value, a longer term and lower interest rates. This agreement, among other macroeconomic and factors specific to the distributor, negatively impacted the solvency and liquidity of the Company’s Greek distributor, raising significant doubt regarding the collectability of our outstanding accounts receivable balance of approximately $56 million. We have also experienced delays in the collectability of receivables in certain European member states, particularly in Southern Europe. Although we still expect to fully collect these receivables, there can be no assurances that additional negative economic disruptions and slowdowns in Europe may result in us not fully collecting these receivables, adversely affecting our cash flows, financial position and results of operations. Additional prolongation of the economic disruptions in Europe may negatively impact reimbursement rates and procedural volumes and adversely affect our business and results of operations.
Our business, financial condition, results of operations and cash flows could be significantly and adversely affected by recent healthcare reform legislation and other administration and legislative proposals.
The Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act of 2010 were enacted into law in March 2010. As a U.S. headquartered company with significant sales in the United States, this health care reform law will materially impact us as well as the U.S. economy. Certain provisions of the law will not be effective for a number of years and there are many programs and requirements for which the details have not yet been fully established or consequences not fully understood, and it is unclear what the full impacts will be from the law. The law does levy a 2.3% excise tax on the majority of our U.S. medical device sales beginning in 2013. Our U.S. net sales represented approximately 47% of our worldwide consolidated net sales in 2011 and we still expect the new tax will materially and adversely affect our business, cash flows and results of operations. The law also focuses on a number of Medicare provisions aimed at improving quality and decreasing costs. It is uncertain at this point what negative unintended consequences these provisions will have on patient access to new technologies. The Medicare provisions include value-based payment programs, increased funding of comparative effectiveness research, reduced hospital payments for avoidable readmissions and hospital acquired conditions, and pilot programs to evaluate alternative payment methodologies that promote care coordination (such as bundled physician and hospital payments). Additionally, the law includes a reduction in the annual rate of inflation for hospitals that began in 2011 and the establishment of an independent payment advisory board to recommend ways of reducing the rate of growth in Medicare spending beginning in 2014. We cannot predict what healthcare programs and regulations will be ultimately implemented at the federal or state level, or the effect of any future legislation or regulation. However, any changes that lower reimbursement for our products or reduce medical procedure volumes could adversely affect our business and results of operations.
Changes in tax laws or exposure to additional income tax liabilities could have a material impact on our financial condition and results of operations.
We are subject to income taxes as well as non-income based taxes, in both the United States and various foreign jurisdictions. We are subject to ongoing tax audits in various jurisdictions. Tax authorities may disagree with certain positions we have taken and assess additional taxes. We regularly assess the likely outcomes of these audits in order to determine the appropriateness of our tax provision. However, there can be no assurance that we will accurately predict the outcomes of these audits, and the actual outcomes of these audits could have a material impact on our net earnings or financial condition. Additionally, changes in tax laws or tax rulings could materially impact our effective tax rate. For example, proposals for fundamental U.S. international tax reform, such as past proposals by the Obama administration, if enacted, could have a significant adverse impact on our future results of operations. In addition, recent health care legislation levies a 2.3% excise tax on the majority of our U.S. medical device sales beginning in 2013.
Item 1B.
UNRESOLVED STAFF COMMENTS
None.
Item 2.
PROPERTIES
We own our principal executive offices, which are located in St. Paul, Minnesota. Our manufacturing facilities currently operating are located in California, Minnesota, Arizona, South Carolina, Texas, New Jersey, Oregon, Massachusetts, Brazil, Puerto Rico, Sweden, Costa Rica, Malaysia and Thailand. We own approximately 63%, or 680,000 square feet, of our total manufacturing space. We also maintain sales and administrative offices in the United States at 36 locations in 18 states and outside the United States at 110 locations in 40 countries. With the exception of 16 locations, all of these locations are leased.
We believe that all buildings, machinery and equipment are in good condition, suitable for their purposes and are maintained on a basis consistent with sound operations. During 2011, we completed the first phase of construction (approximately 227,000 square feet) on our 400,000 square foot facility located in Costa Rica. Currently our CV division is utilizing the finished portion of the facility for manufacturing, laboratory, office and support areas. During 2012, we expect to complete another 115,000 square feet to house manufacturing, research and development and office space. The expansion of our Brazil facility located in Pampula was completed in the first quarter of 2011, which is primarily being utilized by our CV division to support manufacturing efforts and also includes warehouse and office space. Our Malaysia facility began initial operating and manufacturing of CRM product in January 2011. The 342,000 square foot facility houses manufacturing, warehouse and general office space. During 2011, we also began preparing land to construct a 130,000 square foot CRM office in Sunnyvale, California. We expect construction of the new facility to begin in 2012. The site has the potential to expand by another 100,000 square feet of office space, if future expansion is needed. During the first quarter of 2012, we will begin construction of an expansion project, adding on 275,000 square feet to the former AGA Medical headquarters in Plymouth, Minnesota, to house manufacturing, research and development and office space to streamline CV operations and create business synergies. We believe that we have sufficient space for our current operations and for foreseeable expansion in the next few years.
Item 3.
LEGAL PROCEEDINGS
We are the subject of various pending or threatened legal actions and proceedings, including those that arise in the ordinary course of our business. Such matters are subject to many uncertainties and to outcomes that are not predictable with assurance and that may not be known for extended periods of time. We record a liability in our consolidated financial statements for costs related to claims, including future legal costs, settlements and judgments, where we have assessed that a loss is probable and an amount can be reasonably estimated. Our significant legal proceedings are discussed in Note 5 of the Consolidated Financial Statements in the Financial Report included in St. Jude Medical’s 2011 Annual Report to Shareholders and filed as Exhibit 13 to this Form 10-K and incorporated herein by reference. While it is not possible to predict the outcome for most of the legal proceedings discussed in Note 5, the costs associated with such proceedings could have a material adverse effect on our consolidated results of operations, financial position and cash flows of a future period.
Item 4.
MINE SAFETY DISCLOSURES
Not applicable.
PART II
Item 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
There were no sales of unregistered securities during the 2011 fiscal year. The information set forth under the Stock Exchange Listings caption in the Financial Report included in St. Jude Medical’s 2011 Annual Report to Shareholders and filed as Exhibit 13 to this Form 10-K is incorporated herein by reference. The following table provides information about the shares we repurchased during the fourth quarter of 2011:
(a)
The shares in this column represent shares that were surrendered to us by plan participants to satisfy withholding tax obligations related to the vesting of restricted stock awards. The shares were not repurchased on the open market.
(b)
On December 13, 2011, our Board of Directors announced a share repurchase program of up to $300.0 million of our outstanding common stock with no expiration date. No shares were repurchased under this program during the fourth quarter of 2011.
Item 6.
SELECTED FINANCIAL DATA
The information set forth under the caption Five-Year Summary Financial Data in the Financial Report included in St. Jude Medical’s 2011 Annual Report to Shareholders and filed as Exhibit 13 to this Form 10-K is incorporated herein by reference.
Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information set forth under Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Financial Report included in St. Jude Medical’s 2011 Annual Report to Shareholders and filed as Exhibit 13 to this Form 10-K is incorporated herein by reference.
Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information set forth under the Market Risk section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Financial Report included in St. Jude Medical’s 2011 Annual Report to Shareholders and filed as Exhibit 13 to this Form 10-K is incorporated herein by reference.
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and Notes thereto and the Reports of Independent Registered Public Accounting Firm set forth in the Financial Report included in St. Jude Medical’s 2011 Annual Report to Shareholders and filed as Exhibit 13 to this Form 10-K are incorporated herein by reference.
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A.
CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act of 1934). Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of December 31, 2011.
Management’s annual report on our internal control over financial reporting is provided in the Financial Report included in St. Jude Medical’s 2011 Annual Report to Shareholders and filed as Exhibit 13 to this Form 10-K and incorporated herein by reference. The effectiveness of our internal control over financial reporting as of December 31, 2011 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is provided in the Financial Report included in St. Jude Medical’s 2011 Annual Report to Shareholders and filed as Exhibit 13 to this Form 10-K and incorporated herein by reference.
During the fiscal quarter ended December 31, 2011, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.
OTHER INFORMATION
None.
PART III
Item 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information set forth under the captions Proposal to Elect Directors, Director Qualifications, Director Nomination Process, Director Independence and Audit Committee Financial Literacy and Expertise, Committees of the Board of Directors and Section 16(a) Beneficial Ownership Reporting Compliance in St. Jude Medical’s Proxy Statement for the 2012 Annual Meeting of Shareholders is incorporated herein by reference. The information set forth under the caption Executive Officers of the Registrant in Part I, Item 1 of this Form 10-K is incorporated herein by reference.
We have adopted a Code of Business Conduct for our principal executive officer, principal financial officer, principal accounting officer, corporate controller and all other employees. We have made our Code of Business Conduct available on our website (http://www.sjm.com) under About Us - Business Integrity - Code of Business Conduct. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of our Code of Business Conduct by posting such information on our website at the web address and location specified above. Information included on our website is not deemed to be incorporated into this Form 10-K.
Item 11.
EXECUTIVE COMPENSATION
The information set forth under the captions Compensation of Directors, Director Compensation Table, Executive Compensation and Compensation Committee Interlocks and Insider Participation in St. Jude Medical’s Proxy Statement for the 2012 Annual Meeting of Shareholders is incorporated herein by reference.
Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information set forth under the captions Share Ownership of Management and Directors and Certain Beneficial Owners and Equity Compensation Plan Information in St. Jude Medical’s Proxy Statement for the 2012 Annual Meeting of Shareholders is incorporated herein by reference.
Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information set forth under the captions Related Person Transactions and Director Independence and Audit Committee Financial Literacy and Expertise in St. Jude Medical’s Proxy Statement for the 2012 Annual Meeting of Shareholders is incorporated herein by reference.
Item 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information set forth under the caption Proposal to Ratify the Appointment of Independent Registered Public Accounting Firm in St. Jude Medical’s Proxy Statement for the 2012 Annual Meeting of Shareholders is incorporated herein by reference.
PART IV
Item 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
List of documents filed as part of this Report
(1)
Financial Statements
The following Consolidated Financial Statements of St. Jude Medical and Reports of Independent Registered Public Accounting Firm as set forth in the Financial Report included in St. Jude Medical’s 2011 Annual Report to Shareholders are incorporated herein by reference from Exhibit 13 attached hereto:
Reports of Independent Registered Public Accounting Firm
Consolidated Statements of Earnings - Fiscal Years ended December 31, 2011, January 1, 2011 and January 2, 2010
Consolidated Balance Sheets - December 31, 2011 and January 1, 2011
Consolidated Statements of Shareholders’ Equity - Fiscal Years ended December 31, 2011, January 1, 2011 and January 2, 2010
Consolidated Statements of Cash Flows - Fiscal Years ended December 31, 2011, January 1, 2011 and January 2, 2010
Notes to the Consolidated Financial Statements
(2)
Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts, is filed as part of this Form 10-K (see Item 15(c)).
All other financial statement schedules not listed above have been omitted because the required information is included in the Consolidated Financial Statements or Notes thereto, or is not applicable.
(3)
Exhibits
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, copies of certain instruments defining the rights of holders of certain long-term debt of St. Jude Medical are not filed, and in lieu thereof, we agree to furnish copies thereof to the SEC upon request.
Exhibit
Exhibit Index
2.1
Agreement and Plan of Merger and Reorganization, dated as of October 15, 2010, among St. Jude Medical, Inc, Asteroid Subsidiary Corporation and AGA Medical Holdings, Inc., is incorporated by reference to Exhibit 2.1 to St. Jude Medical’s Registration Statement on Form S-4 filed on October 20, 2010 (Commission File No. 333-170045).
3.1
Articles of Incorporation, as amended on May 9, 2008, are incorporated by reference to Exhibit 3.1 of St. Jude Medical’s Quarterly Report on Form 10-Q for the quarter ended June 28, 2008.
3.2
Bylaws, as amended and restated as of February 25, 2005, are incorporated by reference to Exhibit 3.1 to St. Jude Medical’s Current Report on Form 8-K filed on March 2, 2005.
4.1
Specimen Common Stock Certificate is incorporated by reference to Exhibit 4.1 to St. Jude Medical’s Registration Statement on Form S-4 filed October 20, 2010 (Commission File No. 333-170045).
Exhibit
Exhibit Index
4.2
Indenture, dated as of July 28, 2009, between St. Jude Medical, Inc. and U.S. Bank National Association, as Trustee, is incorporated by reference to Exhibit 4.1 to St. Jude Medical’s Current Report on Form 8-K filed on July 28, 2009.
4.3
First Supplemental Indenture, dated as of July 28, 2009, between St. Jude Medical, Inc. and U.S. Bank National Association, as Trustee, is incorporated by reference to Exhibit 4.2 to St. Jude Medical’s Current Report on Form 8-K filed on July 28, 2009.
4.4
Second Supplemental Indenture, dated as of March 17, 2010, between the Company and U.S. Bank National Association, as Trustee, is incorporated by reference to Exhibit 4.1 to St. Jude Medical’s Current Report on Form 8-K filed on March 19, 2010.
4.5
Third Supplemental Indenture, dated as of December 6, 2010, between the Company and U.S. Bank National Association, as Trustee, is incorporated by reference to Exhibit 4.1 to St. Jude Medical’s Current Report on Form 8-K filed on December 6, 2010.
10.1
Form of Indemnification Agreement that St. Jude Medical has entered into with executive officers is incorporated by reference to Exhibit 10.1 to St. Jude Medical’s Annual Report on Form 10K for the year ended January 1, 2011.
10.2
Form of Indemnification Agreement that St. Jude Medical has entered into with directors is incorporated by reference to Exhibit 10.2 to St. Jude Medical’s Annual Report on Form 10K for the year ended January 1, 2011.
10.3
St. Jude Medical, Inc. Management Incentive Compensation Plan is incorporated by reference to Exhibit 10.1 to St. Jude Medical’s Current Report on Form 8-K filed on May 11, 2009. *
10.4
St. Jude Medical, Inc. Management Savings Plan, restated effective January 1, 2008, is incorporated by reference to Exhibit 10.1 of St. Jude Medical’s Current Report on Form 8-K filed on October 29, 2008. *
10.5
Retirement Plan for members of the Board of Directors, as amended on March 15, 1995, is incorporated by reference to Exhibit 10.6 of St. Jude Medical’s Annual Report on Form 10-K for the year ended December 31, 1994. *
10.6
St. Jude Medical, Inc. 2007 Employee Stock Purchase Plan is incorporated by reference to Exhibit 10.4 to St. Jude Medical’s Current Report on Form 8-K filed on May 18, 2007. *
10.7
St. Jude Medical, Inc. 1994 Stock Option Plan is incorporated by reference to Exhibit 4(a) of St. Jude Medical’s Registration Statement on Form S-8 filed July 1, 1994 (Commission File No. 33-54435). *
10.8
Amendment, dated as of October 23, 2008, to the St. Jude Medical, Inc. 1994 Stock Option Plan is incorporated by reference to Exhibit 10.1 of St. Jude Medical’s Quarterly Report on Form 10-Q for the quarter ended September 27, 2008. *
10.9
St. Jude Medical, Inc. 1997 Stock Option Plan is incorporated by reference to Exhibit 4.1 of St. Jude Medical’s Registration Statement on Form S-8 filed December 22, 1997 (Commission File No. 333-42945). *
10.10
Amendment, dated as of October 23, 2008, to the St. Jude Medical, Inc. 1997 Stock Option Plan is incorporated by reference to Exhibit 10.2 of St. Jude Medical’s Quarterly Report on Form 10-Q for the quarter ended September 27, 2008. *
10.11
St. Jude Medical, Inc. 2000 Stock Plan, as amended, is incorporated by reference to Exhibit 10.4 of St. Jude Medical’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006. *
10.12
Amendment, dated as of October 23, 2008, to the St. Jude Medical, Inc. 2000 Stock Plan is incorporated by reference to Exhibit 10.3 of St. Jude Medical’s Quarterly Report on Form 10-Q for the quarter ended September 27, 2008. *
Exhibit
Exhibit Index
10.13
St. Jude Medical, Inc. 2002 Stock Plan, as amended, is incorporated by reference to Exhibit 10.5 of St. Jude Medical’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006. *
10.14
Amendment, dated as of October 23, 2008, to the St. Jude Medical, Inc. 2002 Stock Plan is incorporated by reference to Exhibit 10.4 of St. Jude Medical’s Quarterly Report on Form 10-Q for the quarter ended September 27, 2008. *
10.15
Form of Non-Qualified Stock Option Agreement (amended 2011) and related Notice of Non-Qualified Stock Option Grant under the St. Jude Medical, Inc. 2002 Stock Plan, as amended, is incorporated by reference to Exhibit 10.1 to St. Jude Medical’s Quarterly Report on Form 10-Q for the quarter ended July 2, 2011.*
10.16
St. Jude Medical, Inc. 2006 Stock Plan is incorporated by reference to Exhibit 10.1 to St. Jude Medical’s Current Report on Form 8-K filed on May 16, 2006. *
10.17
Amendment, dated as of October 23, 2008, to the St. Jude Medical, Inc. 2006 Stock Plan is incorporated by reference to Exhibit 10.5 of St. Jude Medical’s Quarterly Report on Form 10-Q for the quarter ended September 27, 2008. *
10.18
Form of Non-Qualified Stock Option Agreement for Non-Employee Directors (amended 2011) and related Notice of Non-Qualified Stock Option Grant under the St. Jude Medical, Inc. 2006 Stock Plan is incorporated by reference to Exhibit 10.2 to St. Jude Medical’s Quarterly Report on Form 10-Q for the quarter ended July 2, 2011. *
10.19
Form of Non-Qualified Stock Option Agreement for Employees (amended 2011) and the related Notice of Non-Qualified Stock Option Grant under the St. Jude Medical, Inc. 2006 Stock Plan is incorporated by reference to Exhibit 10.3 of St. Jude Medical’s Quarterly Report on Form 10-Q for the quarter ended July 2, 2011. *
10.20
St. Jude Medical, Inc. 2007 Stock Incentive Plan, as amended and restated (2011), is incorporated by reference to Exhibit 10.1 to St. Jude Medical’s Current Report on Form 8-K filed on May 13, 2011. *
10.21
Form of Non-Qualified Stock Option Agreement (amended 2011) and related Notice of Non-Qualified Stock Option Grant under the St. Jude Medical, Inc. 2007 Stock Incentive Plan, is incorporated by reference to Exhibit 10.4 of St. Jude Medical’s Quarterly Report on Form 10-Q for the quarter ended July 2, 2011. *
10.22
Form of Non-Qualified Stock Option Agreement for Non-Employee Directors (amended 2011) and related Notice of Non-Qualified Stock Option Grant under the St. Jude Medical, Inc. 2007 Stock Incentive Plan, is incorporated by reference to Exhibit 10.5 of St. Jude Medical’s Quarterly Report on Form 10-Q for the quarter ended July 2, 2011. *
10.23
Form of Restricted Stock Award Agreement (amended 2011) and related Restricted Stock Award Certificate under the St. Jude Medical, Inc. 2007 Stock Incentive Plan, is incorporated by reference to Exhibit 10.6 to St. Jude Medical’s Quarterly Report on Form 10-Q for the quarter ended July 2, 2011. *
10.24
Form of Restricted Stock Units Award Agreement (amended 2011) and related Restricted Stock Units Award Certificate under the St. Jude Medical, Inc. 2007 Stock Incentive Plan, is incorporated by reference to Exhibit 10.7 to St. Jude Medical’s Quarterly Report on Form 10-Q for the quarter ended July 2, 2011 *
10.25
St. Jude Medical, Inc. Amended and Restated 1995 Stock Option Plan (formerly the Quest Medical, Inc. 1995 Stock Option Plan) is incorporated by reference to Exhibit 10.12 of St. Jude Medical’s Annual Report on Form 10-K for the year ended December 31, 2005. *
10.26
St. Jude Medical, Inc. Amended and Restated 1998 Stock Option Plan (formerly the Quest Medical, Inc. 1998 Stock Option Plan) is incorporated by reference to Exhibit 10.13 of St. Jude Medical’s Annual Report on Form 10-K for the year ended December 31, 2005. *
Exhibit
Exhibit Index
10.27
St. Jude Medical, Inc. Amended and Restated 2000 Stock Option Plan (formerly the Advanced Neuromodulation Systems, Inc. 2000 Stock Option Plan) is incorporated by reference to Exhibit 10.14 of St. Jude Medical’s Annual Report on Form 10-K for the year ended December 31, 2005. *
10.28
St. Jude Medical, Inc. Amended and Restated 2001 Employee Stock Option Plan (formerly the Advanced Neuromodulation Systems, Inc. 2001 Employee Stock Option Plan) is incorporated by reference to Exhibit 10.15 of St. Jude Medical’s Annual Report on Form 10-K for the year ended December 31, 2005. *
10.29
St. Jude Medical, Inc. Amended and Restated 2002 Stock Option Plan (formerly the Advanced Neuromodulation Systems, Inc. 2002 Stock Option Plan) is incorporated by reference to Exhibit 10.16 of St. Jude Medical’s Annual Report on Form 10-K for the year ended December 31, 2005. *
10.30
St. Jude Medical, Inc. Amended and Restated 2004 Stock Incentive Plan (formerly the Advanced Neuromodulation Systems, Inc. 2004 Stock Incentive Plan) is incorporated by reference to Exhibit 10.17 of St. Jude Medical’s Annual Report on Form 10-K for the year ended December 31, 2005. *
10.31
Form of Severance Agreement between St. Jude Medical, Inc. and executive officers is incorporated by reference to Exhibit 10.1 to St. Jude Medical’s Current Report on Form 8-K filed on January 7, 2009. *
10.32
Employment Agreement, dated as of April 1, 2002, between Advanced Neuromodulation Systems, Inc. and Christopher G. Chavez is incorporated by reference to Exhibit 10.16 of Advanced Neuromodulation Systems’ Quarterly Report on Form 10-Q for the quarter ended March 31, 2002. *
10.33
Amendment, dated as of July 27, 2006, between Advanced Neuromodulation Systems, Inc. and Christopher G. Chavez, to Employment Agreement, effective as of April 1, 2002, between Advanced Neuromodulation Systems, Inc. and Christopher G. Chavez is incorporated by reference to Exhibit 10.2 to St. Jude Medical’s Current Report on Form 8-K filed on August 2, 2006. *
10.34
Multi-Year $1,500,000,000 Credit Agreement dated as of December 22, 2010 among St. Jude Medical, Inc., as the Borrower, Bank of America, N.A., as Administrative Agent, L/C Issuer and Lender, and the other Lenders party thereto, is incorporated by reference to Exhibit 10.1 to St. Jude Medical’s Current Report on Form 8-K filed on December 29, 2010.
Computation of Ratio of Earnings to Fixed Charges. #
Portions of St. Jude Medical’s 2011 Annual Report to Shareholders. #
Subsidiaries of the Registrant. #
Consent of Independent Registered Public Accounting Firm. #
Power of Attorney. #
31.1
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. #
31.2
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. #
32.1
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. #
32.2
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. #
Financial statements from the Annual Report on Form 10-K of St. Jude Medical, Inc. for the year ended December 31, 2011, formatted in XBRL: (i) the Consolidated Statements of Earnings, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Shareholders’ Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements. ##
*
Management contract or compensatory plan or arrangement.
#
Filed as an exhibit to this Annual Report on Form 10-K.
##
Furnished herewith.
(b)
Exhibits: Reference is made to Item 15(a)(3).
(c)
Schedules:
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
(1)
Uncollectible accounts written off, net of recoveries.
(2)
In 2011, 2010 and 2009 $(2,699), $2,276 and $640, respectively, of “other” represents the effects of changes in foreign currency translation.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ST. JUDE MEDICAL, INC.
Date:
February 29,
By
/s/ DANIEL J. STARKS
Daniel J. Starks
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
By
/s/ JOHN C. HEINMILLER
John C. Heinmiller
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated, on the 29th day of February, 2012.
/s/ DANIEL J. STARKS
Chairman of the Board
Daniel J. Starks
*
Director
John W. Brown
*
Director
Richard R. Devenuti
*
Director
Stuart M. Essig
*
Director
Thomas H. Garrett III
*
Director
Barbara B. Hill
*
Director
Michael A. Rocca
*
Director
Wendy L. Yarno
* By: /s/ JASON A. ZELLERS
Jason A. Zellers
Attorney-in-Fact