In the early 1990s, St. Jude Medical was the market leader in its sole product area: mechanical heart valves, which placed it among the most profitable of device companies. Demographics, however, limited heart valves' future growth opportunities and St. Jude needed to diversify, moving into cardiac rhythm management (CRM), cardiology catheters, and vascular access devices, while also expanding in cardiac surgery. The diversification process went anything but smoothly, the company missed its numbers, and investors were quick to punish St. Jude for its integration missteps. In the past year, however, the company has become one of Wall Street's few device darlings, ranking number one in 2000 for returns among device stocks. The company's growth is largely the result of sticking to a strategy that has St. Jude well-positioned in CRM's traditional markets, while also poised to pursue huge new opportunities in atrial fibrillation and, to a lesser degree, congestive heart failure. And St. Jude has not forgotten its base: cardiac surgery, where the company has introduced new sutureless anastomotic technology for minimally invasive coronary bypass surgery.
by Stephen Levin
In the early 1990s, St. Paul, MN-based St. Jude Medical Inc. was in its heyday. The company's business
was then confined to one product area, heart valves, in which it
was (and remains) the dominant player. When Larry Lemkuhl, then St.
Jude's president and CEO, addressed analysts' meetings, he took
great pride in announcing that the company was the most profitable
in the device industry, with net margins topping 42%. Inevitably,
recalls US Bancorp Piper Jaffray device analyst Thomas Gunderson,
some neophyte in the front row would raise his hand and ask whether
Lemkuhl meant 42% operating margins. And Lemkuhl would reply, "No,
I mean 42% net." To which the questioner would follow-up, "But you
mean 42% before taxes, don't you
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