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J.P. MORGAN 34TH ANNUAL HEALTHCARE CONFERENCE Mike Rousseau, President and Chief Executive Officer St. Jude Medical Jan. 13, 2016
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This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Such forward-looking statements include the expectations, plans and prospects for the Company, including potential clinical successes, anticipated regulatory approvals and future product launches, and projected revenues, margins, earnings and market shares. The statements made by the Company are based upon management’s current expectations and are subject to certain risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties include market conditions and other factors beyond the Company’s control and the risk factors and other cautionary statements described in the Company’s filings with the SEC, including those described in the Risk Factors and Cautionary Statements sections of the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2015 and Quarterly Report on Form 10-Q for the fiscal quarter ended October 3, 2015. The Company does not intend to update these statements and undertakes no duty to any person to provide any such update under any circumstance.
The Company will be using non-GAAP financial measures (e.g., constant currency sales growth, adjusted net earnings, etc.) in this presentation. Investors should consider non-GAAP measures in addition to, and not as a substitute for, financial performance measures prepared in accordance with GAAP. For a reconciliation of our non-GAAP financial measures to our GAAP results, please see the Company’s Current Report on Form 8-K furnished January 13, 2016.
FORWARD-LOOKING STATEMENTS AND DISCLOSURES
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Year-over-year constant currency sales increased approximately 7%, which includes Thoratec in Q4 2015, but not in Q4 2014 Total consolidated sales were within our guidance range for the quarter Comparable constant currency sales, which includes Thoratec in both comparable periods
decreased approximately 1% Currency had a negative $91 million impact year-over-year on Q4 2015 comparable sales Q4 2015 had five fewer days than year ago comparative quarter, which we estimate
decreased Q4 comparable sales growth rate 5 to 6 percentage points
Q4 adjusted EPS is now expected to be within the range of $1.01 to $1.02 versus previous guidance of $1.00 to $1.02
Will provide additional Q4 2015 results and 2016 guidance on Jan. 27 earnings call
PRELIMINARY Q4 2015 SALES APPROXIMATELY $1.447B
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AF and Neuromodulation product categories continue to perform at a high level due to new product launches
Thoratec Q4 sales were above the top end of the guidance range due to a successful first quarter launch of HeartMate 3 in Europe
CardioMEMS sales of $16 million were impacted by ongoing reimbursement challenges mentioned in October
Pressures in U.S. CRM were more severe than originally anticipated Total consolidated sales growth was within our guidance range for the quarter
PRELIMINARY Q4 2015 SALES BY PRODUCT CATEGORY
Dollars in Millions Q4 Sales Q4 Comparable
change* Normalized for fewer
selling days**
Atrial Fibrillation (AF) $276 4% 9 – 10% Neuromodulation $128 9% 14 – 15% Thoratec $136 15% 20 – 21% Cardiovascular $327 2% 7 – 8% CRM $580 (10)% (5) – (4)% Total $1,447 (1)% 4 – 5%
*Constant currency change, which also includes pre-acquisition Thoratec sales ** 5-6 percentage points due to five fewer selling days compared to Q4 2014
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Tailwinds Opportunity to expand our global leadership in Heart Failure, AF and Neuromodulation Expansion of HeartMate 3 launch in Europe Broadest product portfolio for Neuromodulation: proprietary St. Jude Medical Burst technology,
Proclaim™ Elite SCS System, U.S. DRG launch and Infinity™ DBS System Momentum in place to capture market share in worldwide AF market Full portfolio of MRI safe CRM devices in Japan Medical device tax suspension offers opportunity to invest in innovation
Headwinds Currency expected to negatively impact revenue approximately $125M to $145M or $0.20 to
$0.25 per share Mainly driven by non-hedged currencies (China, Australia, Brazil, Canada)
Product gap in U.S. CRM (LV MRI expected 1H:2016; HV MRI expected in 2017) Gross margin decline due to currency and U.S. CRM weakness (similar to 2H 2015) CardioMEMS reimbursement (tailwind possible with further data education)
2016 OUTLOOK
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NEW REVENUE REPORTING ALIGNED WITH BUSINESS
Cardiac Resynchronization Therapy (CRT) Devices Remote Hemodynamic Monitoring System
(CardioMEMS) Ventricular Assist Devices (VADs)
Advanced Mapping Systems Cardiac Monitors Catheters and Introducers Left Atrial Appendage (LAA) Closure Devices Single and Dual Chamber Implantable Cardiac
Defibrillators (ICDs) Single and Dual Chamber Pacemakers
Fractional Flow Reserve (FFR) Pressure Wire Optical Coherence Tomography (OCT) Imaging System Percutaneous Heart Pump (PHP) Renal Denervation System Vascular Closure Devices Vascular Plugs Surgical Heart Valves Transcatheter Aortic Heart Valves Patent Foramen Ovale (PFO) Closure Devices
Spinal Cord Stimulation Dorsal Root Ganglion Radio Frequency Ablation Deep Brain Stimulation System
HEART FAILURE
ATRIAL FIBRILLATION
TRADITIONAL CRM
CARDIOVASCULAR
NEUROMODULATION
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NEW REVENUE REPORTING STRUCTURE
25%
19% 8%
27%
21%
2015 Sales Mix*
Heart FailureAtrial FibrillationNeurmodulationTraditional CRMCardiovascular
Product Categories 2015 Growth*
Heart Failure 6%
Atrial Fibrillation 14%
Neuromodulation 14%
Traditional CRM (4%)
Cardiovascular 1%
*comparable constant currency
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OUR MARKETS FOR 2015 EXCEED $22 BILLION IN SIZE AND ARE GROWING MID-SINGLE DIGITS*
Heart Failure Atrial Fibrillation
Neuromodulation Traditional CRM
Cardiovascular
~$4B
>$3.5B
>$2B ~$7B
~$6B Growth*
Heart Failure Mid-SD
Atrial Fibrillation Low/Mid-teens
Neuromodulation Mid/High-SD
Traditional CRM Flat to up
Cardiovascular Mid-SD
All dollar market sizes are based on estimated revenues St. Jude Medical market estimates
* excludes the impact from currency Flat to up: 0% to 2% growth Mid/SD – Middle-single digit percentage growth Mid/HSD: Middle to high-single digit percentage growth Low/Mid-teens: low to middle teens percentage growth
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ATRIAL FIBRILLATION – THE MARKET
Market Dynamics
Strong growth in ablation driven by catheter ablation and advanced technology adoption
WW ablation procedures projected to reach almost 950K in 2016 (double digit growth)
Market remains underpenetrated at approximately 10%
Force-sensing catheters quickly becoming standard of care
Continued steady catheter ablation growth expected for U.S. patients diagnosed with AF
31%
18% 15% 15%
11% 8%
2%
EP AblationEP DiagnosticEP Mapping & Recording SystemsCardiac MonitorsAccessICE/OtherLAA Closure
2015 Market Revenue >$3.5B Market Growth*: Low to mid-teens
* excludes the impact from currency All dollar market sizes are based on estimated revenues
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One of the best growth stories in MedTech and we are well positioned in the AF market
FlexAbilityTM and TactiCathTM ablation catheters continue to accelerate growth and capture share globally, addressing historical gap in our portfolio
Expect 1H 2016 launch of new EnSite PrecisionTM Cardiac Mapping System – biggest launch in the history of our AF portfolio
Market leading technology and most comprehensive EP portfolio
SURROUNDING ATRIAL FIBRILLATION
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80%
2% 18%
CRTs
CardioMEMS
Ventricular AssistDevices (VADs)
HEART FAILURE – MARKET OVERVIEW
Market Dynamics
Destination therapy continues to be primary growth driver WW for VADs
Establishing reimbursement market for remote hemodynamic monitoring
Continued shift in U.S. to CRT, increase in de novo mix, and a premium for new technologies
2015 Market Revenue ~$4B Market Growth*: Mid-single digits
* excludes the impact from currency All dollar market sizes are based on estimated revenues
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On the front lines developing multi-billion dollar heart failure device market
Focus on CardioMEMS clinical evidence to drive adoption and reimbursement globally
Recent The Lancet publication: 48% reduction in HF hospitalizations at 31 months
Launch of HeartMate 3TM in Europe; Recapturing share internationally
Opportunity to develop “smart” pump: HeartMate + CardioMEMS
Continue to lead in CRT-D and CRT-P markets with quadripolar pacing
STJ MultiPoint Pacing (MPP) offers physicians alternative means to reach non-responders
Market leading technology and most comprehensive HF portfolio
SURROUNDING HEART FAILURE
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Business momentum continues with revenue growth ahead of plan for Q3 and Q4
Continue to expect adjusted diluted earnings per share accretion in 2016
We have an integration plan in place focused on people, processes and technology and we are effectively executing on this plan
Added the broadest portfolio of mechanical circulatory support devices to treat the full range of clinical needs for patients suffering from advanced heart failure
THORATEC INTEGRATION UPDATE
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NEUROMODULATION – THE MARKET
Market Dynamics
Market remains underpenetrated
Replacement cycle driving new units
Stable ASPs
Intensifying competition expected to drive market growth as awareness is raised
68% 8%
1% 23%
Traditional Spinal Cord Stimulation (SCS)
Radio Frequency Ablation (RFA)
Dorsal Root Ganglion (DRG)
Deep Brain Stimulation (DBS)
2015 Market Revenue >$2B Market Growth*: Mid to high-single digits
* excludes the impact from currency All dollar market sizes are based on estimated revenues
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Only company able to treat chronic pain patients through the pain continuum
Radio frequency ablation: Interventional pain therapy offering potential relief earlier in the chronic pain continuum
Multiple offerings for spinal cord stimulation (SCS):
Establish St. Jude Medical Burst therapy as the market dominant SCS waveform to achieve superior pain relief
Launch Dorsal Root Ganglion as standard of care for targeted pain syndromes
Proclaim™ Elite SCS System can shift non-rechargeable mix in the market
Launch of InfinityTM DBS System will end U.S. monopoly
Market leading technology and most comprehensive neuromodulation portfolio
SURROUNDING NEUROMODULATION
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INNOVATION
TECHNOLOGIES ON THE HORIZON Portico™
Transcatheter Aortic Valve
EnligHTN™ multi-electrode renal denervation system
Nanostim™ leadless pacemaker
HeartMate PHP™ System
AMPLATZER™ Amulet™ LAA
AMPLATZER™ PFO Occluder
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Intensify our FOCUS by surrounding disease states Heart Failure, Atrial Fibrillation, Neuromodulation
Prioritizing programs and resources to surround care continuum
Continue to invest in INNOVATION to raise standards of care Innovation leadership is our competitive advantage
Leverage Cardiac Rhythm Management technology portfolio and expertise
Further develop ONE SJM CULTURE to mobilize employees In support of our mission; driving productivity, commitment and teamwork
Strengthen EXECUTION and grow markets and sales Product launches, market development and operating leverage
Deliver on EXPECTATIONS of our stakeholders Doing what we say we are going to do
INCREASING SHAREHOLDER VALUE
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