0
St. Jude Medical 2014
Investor Conference
February 7, 2014
22
Welcome and Opening Remarks
Dan Starks, Chairman, President and CEO
33
This presentation contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Ac...
44
Agenda
8:00 a.m. Overview of St. Jude Medical’s 2014 growth program.
 Dan Starks, Chairman, President and Chief Execut...
55
Overview of St. Jude Medical’s
2014 Growth Program
66
We accomplished our major growth goals in 2013.
 On a constant currency basis, we delivered adjusted EPS
growth of 12%...
77
Sales growth improvement was broad based due to
encouraging market dynamics and new products
launched in every business...
88
We view ourselves as a company that entered 2014
with sales growing at an annual rate of
approximately 4%.
 This is co...
99
Looking forward to our sales growth in 2014
1010
St. Jude Medical’s growth program is based on
innovation. We provide innovative medical
devices that help reduce the ...
1111
We estimate that the markets we participate in
exceed $20 billion in size and are growing at an
average rate of appro...
1212
We expect our growth rate to benefit from a
tailwind as our sales mix shifts to products in
faster growing markets.
L...
1313
We have the right products in the right markets to
accelerate our sales growth over time.
 We have plenty of opportu...
1414
The organizational and leadership changes we have
made since Q-4 2012 are helping us improve our
execution.
 Our cus...
1515
Our execution is focused on accomplishing all of the
following goals in 2014.
 Meet or exceed the guidance we gave o...
1616
Key execution milestones for 2014
1717
We expect to resolve our Sylmar FDA warning
letter and improve our flow of new product
launches in the U.S. for our C...
1818
We expect to resolve our Plano FDA warning
letter and accelerate neuromodulation sales
growth with new products.
 Pr...
1919
We expect to accelerate sales growth in our AF
franchise.
 The primary catalyst will be a successful ramp-up and
lau...
2020
We expect our Nanostim™ retrievable leadless
pacemaker product line launch to begin
impacting sales growth 2H 2014.
...
2121
Our Portico TAVR program is expected to
contribute higher sales each quarter of 2014.
 Our 23mm Portico™ heart valve...
2222
We are enthusiastic about the significant impact the
CardioMEMS™ wireless heart failure (HF) sensor
can provide to Cl...
2323
We expect new products and expanded programs
throughout our business to help maintain or
improve our sales growth rat...
24
Summary of our sales growth expectations.
 We entered 2014 with sales growing at an annual rate of
approximately 4%.
...
EPS leverage in 2014 and beyond
Don Zurbay, Vice President and Chief Financial Officer
2727
We are well positioned to continue delivering
EPS leverage in 2014 and beyond.
 Our 2014 guidance calls for sales gr...
28
We are well positioned to maintain or improve our
gross margin beyond 2014.
 Our gross margin is impacted by both posi...
2929
Opportunities to leverage our global operations and
supply chain
 Centralization of our world-wide manufacturing
org...
3030
Optimization of our cost structure
 From 2011 to 2013, S,G&A expenses have been reduced
by approximately 170 basis p...
3131
Optimization of our cost structure
 We estimate that we have already generated over $100
million in incremental cost...
32
OUS Manufacturing's effect on the Tax Rate
 The largest driver of our tax rate improvement is
expansion of manufacturi...
3333
We maintain a conservative balance sheet which
continues to benefit from strong and consistent cash
flow.
 Balances ...
3434
Dividends and Share Repurchases
 Since 2011, the Company has completed $2.8 billion of share
repurchases with an ave...
3535
Summary
 Our goal is to continue growing sales at a 3% to 5% rate
for full year 2014 and create the conditions to su...
Highlights of our CRM business
Eric S. Fain, M.D. – Group President
38
2013 CRM Highlights
 Core CRM markets stabilizing and showing signs of growth
 Acceleration of implant growth rates W...
39
Implantable Electronic Systems:
Leveraging Operational Synergies in 2013
 Capitalized on the combined strength of our ...
40
2014 WW CRM Market Dynamics
 Expect the 2013 global CRM market to be flat versus
2012 on a CC basis
 Renewed unit gro...
41
17%
19%
21%
23%
25%
27%
29%
31%
33%
2010 2011 2012 2013 2014 2015 2016 2017 2018
EstimatedMarketShare
2013 Year End De ...
CRM Portfolio Highlights
4343
Continued Innovation across Product Portfolios
Right Products at the Right Time
SJM Quadra family of
devices with
Mul...
4444
Quadripolar Pacing – Standard of Care in CRT
Strong clinical evidence driving continued CRT-D share gains
 U.S. De N...
45
Distal 1
Mid 3
Proximal 4
Mid 2
Common Pacing Complications with Bipolar CRT
Addressed with Quadripolar System
Four ele...
46
Quadripolar benefits can lower both the near-term
and long-term overall cost of care
Positive impact to hospitals, ACOs...
47
1. Tomassoni, G. et al. Post operative performance of a novel left ventricular quadripolar electrode lead. Heart Rhythm...
48
Clinical Superiority of Quadripolar Technology
 NCDR ICD Registry is a national, prospective database managed by the A...
49
Quadra Assura™ CRT-D MultiPoint™ Pacing (MPP):
Building clinical evidence with 2nd generation technology
 Two-site LV ...
5050
Allure Quadra™ CRT-P
 Strong demand and driving share capture
in Int’l markets
 Significant competitive advantage i...
51
 Expanding portfolio of quadripolar lead
options
 3 lead shape options
 2 electrode spacing options to
facilitate ba...
52
Leadership in Low Voltage Platform in 2014
Assurity™ and
Endurity™ Allure Quadra™ Accent MRI™
Nanostim™
Significant tec...
5353
Brady MRI Compatibility
 Industry best lead handling
 No scan zone/power restrictions
 Efficient workflow using th...
5454
Nanostim™ Leadless Pacemaker
 Specifically designed for repositioning and chronic
retrievability (catheter-based)
 ...
5555
Standard Pacemaker Leadless Pacemaker
Implant procedure Surgical pocket + lead Percutaneous femoral based
Implant tim...
5656
Complication Occurrence Leadless Advantage
Lead dislodgement 2.2% to 3.7% Not applicable/ No lead
Low risk of device ...
57
Launch Summary
 Initial launch feedback and enthusiasm in EU
has been even greater than anticipated
 Strong success w...
58
Clinical Summary
LEADLESS Study: First in Man
 Successful delivery in 32/33 patients (97%)
 Short Procedure Times
 I...
5959
Nanostim™ Dual Chamber Leadless Pacemaker
 Dual chamber pacemakers represent >70%
of worldwide pacing market
 Appro...
60
Summary of CRM Highlights for 2014
 The global CRM market has stabilized
 We expect to gain share in the high voltage...
The CardioMEMS™ HF System
can become a significant new
growth driver
Lisa Andrade – Vice President and Chief Marketing Off...
63
CardioMEMS™ HF System
 Sensor with Delivery Catheter System
 Permanent implant
 No batteries or components that
requ...
64
Heart Failure Burden in the United States1,2
 5.1M Americans suffer from HF
 >650,000 new HF diagnoses each year
 1 ...
65
Economic Burden of HF Admissions in the US
 Total cost of HF in the US
expected to double by 20301
 $31B/year in 2013...
66
New York Heart Association (NYHA) Class III
Leads HF Admissions
NYHA Class III patients have marked limitation in activ...
67
Economic Risks of HF Readmissions in the US
Medicare’s Hospital Readmissions Reduction (HRR) Program
 Program penalize...
6868
CardioMEMS™ HF System and Pressure Monitoring
Weight and
BP
Impedance
Pressure
No Reduction in HF
Hospitalizations
Po...
6969
COMPASS
HOMEOSTASIS™
CHAMPION
 Right Parameter – Pressure
 Right Patients – Class III
 Right Approach – Management...
7070
CumulativeNumberofHFRHospitalizations
0
20
40
60
80
100
120
140
160
180
200
220
240
260
Days from Implant
0 90 180 27...
7171
CHAMPION Trial: Principal Findings
Pulmonary Artery Pressure Monitoring
Medication Changes Based on PA Pressure p<0.0...
7272
 Nearly half of all HF
admissions are for patients
with preserved Ejection
Fraction1
 Limited treatment options
ava...
73
HF Management with CardioMEMS™ HF System
Reduced HF Hospitalization in Preserved EF Patients
0%
10%
20%
30%
40%
50%
HFr...
7474
Intervention Trial
Mean Duration
of
Randomized
Follow-Up
Annualized Reduction
in
HF Hospitalization
Rates
Number Need...
75
CardioMEMS™ HF System Reimbursement
 Hospital Inpatient
 Established ICD-9 procedure code for implant (38.26)
 Maps ...
76
CardioMEMS™ HF System Launch Readiness
 The manufacturing capacity and the inventory needed to
launch the CardioMEMS H...
77
CardioMEMS™ HF System Summary
 CardioMEMS HF system is the right product for the right
market at the right time
 We t...
7878
Panel for Question and Answer Session
Power of the EP Portfolio
Eric S. Fain, M.D. – Group President
8080
2014 Estimated Worldwide EP Market Size
Revenue in Millions
EP Ablation
Catheters
$1,000
35%EP Diagnostic
Catheters
$...
81
Treated
with
Catheter
Ablation
2.2%
2014
~$58 Billion
~12.9M
Symptomatic
AF
~$1.3B market
Treated
with
Catheter
Ablatio...
8282
Growth in AF Ablation Procedures
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
2011 2012 2013 est. 2014
21...
8383
Favorable STJ Dynamics In A Growing Market
 High interest in differentiated STJ technology
 MediGuide™ Technology
...
84
MediGuide™ Technology – Cornerstone of the
Integrated Lab
 Expand STJ presence through
our Integrated Lab offering
 R...
85
The MediGuide™ Technology Platform Continues to Grow
 Increasing adoption as we continue to build synergies with
STJ’s...
8686
2014 Advanced Ablation Solutions
St. Jude Medical
Advanced Ablation Solutions
TactiCath™
FlexAbility™
Catheter
EnSite...
87
 Extensive thought leader
involvement throughout design
and testing to result in best in
class workhorse catheter
 Fl...
TactiCath™ Quartz Ablation Catheter
 Irrigated ablation catheters
featuring contact force
technology
 Technology acquire...
8989
Ampere™ RF Ablation Generator
 Complete redesign of hardware
and software to improve
workflow and optimize the
integ...
WorkMate Claris™ Recording System
 Only fully integrated EP system
on the market with stimulation
 Redesigned hardware a...
9191
EP Summary
 AF is an expensive, epidemic disease
 The potential market for innovative medical devices that
help red...
A special focus on Endosense
Srijoy Mahapatra, M.D., FHRS - VP, Clinical, Medical & Scientific Affairs
9494
2014 Estimated Worldwide EP Market Size
Revenue in Millions
*Estimated current market share
2014 Market Revenue $2.9B...
95
Solution II: Flex Tip with best in
class maneuverability
Solution I: Leading the way with
Contact Force
2014: A New Era...
9696
TactiCath™ Quartz Contact Force Ablation Catheter
Background (Force Sensing)
 Pioneering solution to give physicians...
97
Why Contact Force?
Safely create durable transmural lesions
Time. Power. Force.
98
Established Clinical Value for
TactiCath™ Contact Force Ablation Catheters
TOCCATA
• Safety and feasibility of Force Se...
99
 Optimal Force leads to reduced recurrence of AF
TactiCath™ Ablation Catheter Guidelines for Force
Sensing
1. Reddy et...
100
TactiCath™ Ablation Catheter Clinical Findings
Reddy et al.; The relationship between contact force and clinical outco...
101
TOCCASTAR Study
Study Design
 Prospective, multicenter (EU & US), IDE study
 Randomized TactiCath™ Ablation Catheter...
102102
TactiCath™ Quartz Ablation Catheter Advantages
TactiCath ablation catheter's proprietary optical sensor
technology ...
103103
Integration Update
 Functional transitions completed in Q4 2013
 Development, manufacturing, and quality function...
104
Part II: New Era for STJ Ablation Catheters
Solution: Flex Tip with best in class
maneuverability and signal quality
F...
105
 Flex Tip is a critical element
incorporated into design
 International Markets have the first
generation Flex Tip a...
106106
Ablation Catheter Summary
 One of the most significant new growth drivers in our AF
business for 2014 will be the ...
Executing on a robust CV portfolio
Eric S. Fain, M.D. – Group President
109109
STJ PCI Optimization™ Leadership in 2013
 We are the WW leader in the fast-growing market of FFR-guided
interventi...
110
FFR & OCT Markets Underpenetrated & Growing
0%
5%
10%
15%
20%
25%
30%
35%
40%
FFR OCT IVUS
 Revenue growth driven
by ...
111111
2014 PCI Optimization™ System Growth:
Driven by Workflow Enhancement, Technology Advancement,
and Clinical Outcomes...
112112
Nearly all hemodynamic/cath
lab systems sold today have
Aeris-compatible FFR pre-
installed, making every recipient...
113113
 STJ’s first cath lab-integrated
PCI optimization™ platform,
offering both anatomical (OCT)
and physiologic (FFR)
...
114114
Technology Advancement Drives Preference
 The only wireless FFR system on
the market
 Designed for quick access a...
115115
 Directly links OCT with
angiography-- the standard
of care imaging modality
 Provides for more accurate
lesion a...
116116
Clinical Outcome Drives Penetration
FAME Clinical Program Influenced Appropriate Use Criteria
FAME Clinical Program...
117
Left Atrial Appendage Closure
 We expect LAA closure to become an essential tool in the
tool box of full-service EP a...
118
LAA Closure – Amplatzer™ Amulet device
 2nd generation device
 Improves upon an already successful ACP device
 Pre-...
119
LAA Closure – Re-launch U.S. IDE Study
 The ACP IDE trial enrollment was stopped in December 2013
 Trial was an even...
120
Renal Denervation Update
 We remain optimistic about renal denervation as a potential
new growth driver
 Hypertensio...
121
Tissue Valves Represent a Growing Segment for STJ
2009 2010 2011 2012 2013 2014E
 TAVR has helped the surgical aortic...
122122
CV Summary
 PCI optimization™ is a large potential opportunity where
we lead in innovation, clinical development a...
A deeper dive into Portico™
Transcatheter Aortic Valve
Phil Ebeling – Sr. Vice President, R&D
Device referenced is approve...
125
Market Opportunity
Diagnosed Prevalence (Severe Aortic Stenosis): 500K
25% TAVR penetration
Patients (US/EMEAC/Japan) ...
126
Positive Market Dynamics for TAVR
Positive Dynamics
 650 WW TAVR centers today
 Favorable reimbursement in place in ...
127127
Portico™ Transcatheter Aortic Valve offers a design
alternative to many existing TAVR limitations and
challenges
 ...
128128
Portico™ Transcatheter Aortic Valve is designed to
be fully resheathable and repositionable*
 The unique valve and...
129
Portico™ Transcatheter Aortic Valve is designed to
mitigate heart block
 Designed to address conduction system interf...
130
Portico™ Transcatheter Aortic Valve is designed to
minimize PV Leak
Calcific
nodules
 Single porcine pericardium cuff...
131
Portico™ Transcatheter Aortic Valve is designed to
minimize coronary ostia obstruction post implant
 Large stent cell...
132
 Portico transcatheter aortic
valve is designed for leaflet
coaptation in round and
elliptical annulus
configurations...
133
* Manoharan, G., How New Designs Lead to Improved Clinical Results in TAVR, TCT 2013
134
Portico™ Transcatheter Aortic Valve
US IDE Pivotal Trial, CE Mark Update
 Full IDE approval using 23 & 25mm valves at...
135135
Next Generation Portico™ Transcatheter Aortic
Valve – Product Pipeline
 Delivery System Designs:
 Improved placem...
136136
Portico™ Transcatheter Aortic Valve Summary
 Positive clinical and economic evidence is driving the
growth of the ...
Growth through innovation in
Neuromodulation
Eric S. Fain, M.D. – Group President
139
Plano Warning Letter Resolution
 Completed all remediation activities associated with the
Plano site Form 483’s and w...
140
WW Neuromodulation Dynamics
 Approximately $2.0 billion market in 2014
 ~$1.5B chronic pain; ~$0.5B deep brain stimu...
141
SCS for Chronic Pain:
Need for alternative stimulation modes
 SCS for Neuropathic pain is an accepted
standard of car...
142
Evolution of Stimulation Modes to Tune Therapy
Tonic
 Standard waveform in today’s devices
 Relatively low energy
 ...
143
Lateral
Discriminatory
Pathway
Medial
Affective/Attentional
Pathway
Pain Perception
Attention to pain
Why Burst Stimul...
144
STJ Burst – Growing Body of Clinical Data*
Burst vs. Tonic Clinical Experience
 Consistent results across studies and...
145
 Smallest SCS device on the market (<18cc)
 Rechargeable with industry leading 10 years
longevity
 Only device capa...
146
Protégé™ SCS System with
Upgradeable Technology
 First and only upgradeable SCS system
 Smallest SCS device on the m...
147
SCS MRI Platform
Receive
Transmit
 Initial approval covers head and
extremity scans with few restrictions
 Addresses...
148
Delivering the Next Generation Implantable Platforms
 New redesigned SCS and DBS system families
 Common electronics...
149
Delivering the Next Generation External PlatformsIPG
Patient
Controller
Clinic
Programmer
Trial
Invisible
Trial
New
Pr...
150
SCS of the Dorsal Root Ganglion (DRG)
Traditional SCS
DRG Stimulation
 DRG is where the primary sensory
neurons (PSNs...
151
6%
4%
<1%
0%
2%
4%
6%
8%
10%
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
CRPS FBSS Peripheral
Neuropathies
SCSPene...
152
Head, back, leg and vascular
ONS (intractable chronic migraine)
RAP (refractory angina pectoris)
FBSS (with or without...
153
Spinal Modulation, Inc. Axium™ SCS System
Complements STJ Portfolio for Chronic Pain
 STJ traditional SCS is very eff...
154
DBS for Movement Disorders –
Pathway to Broad Indication Coverage
Parkinson’s Disease
 IDE clinical trial completed w...
155
Neuromodulation Summary
 We have completed all remediation activities associated
with the Plano site Form 483’s and w...
156156
Panel for Question and Answer Session
157157
Thank you for attending
St. Jude Medical’s
2014 Investor Meeting
2014 Investor Day Conference
2014 Investor Day Conference
2014 Investor Day Conference
2014 Investor Day Conference
2014 Investor Day Conference
2014 Investor Day Conference
2014 Investor Day Conference
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Transcript of "2014 Investor Day Conference"

  1. 1. St. Jude Medical 2014 Investor Conference February 7, 2014
  2. 2. 22 Welcome and Opening Remarks Dan Starks, Chairman, President and CEO
  3. 3. 33 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 December 29, 2012 and Quarterly Report on Form 10-Q for the fiscal quarter ended September 28, 2013. The Company does not intend to update these statements and undertakes no duty to any person to provide any such update under any circumstance. Forward-Looking Statements
  4. 4. 44 Agenda 8:00 a.m. Overview of St. Jude Medical’s 2014 growth program.  Dan Starks, Chairman, President and Chief Executive Officer EPS leverage in 2014 and beyond.  Don Zurbay, Vice President, Finance and Chief Financial Officer Highlights of our CRM business.  Eric Fain, M.D., Group President The CardioMEMS™ HF System can become a significant new growth driver.  Lisa Andrade, Vice President and Chief Marketing Officer Panel for Q&A 10:00 a.m. Break Power of the EP portfolio. Eric Fain, M.D., Group President A special focus on Endosense.  Srijoy Mahapatra, M.D., FHRS, Vice President, Clinical, Medical and Scientific Affairs Executing on a robust CV portfolio.  Eric Fain, M.D., Group President A deeper dive into Portico™ transcatheter aortic valve. Phil Ebeling, Senior Vice President, Research and Development Growth through innovation in neuromodulation.  Eric Fain, M.D., Group President Panel for Q&A Lunch Buffet 12:30 p.m. Meeting Ends
  5. 5. 55 Overview of St. Jude Medical’s 2014 Growth Program
  6. 6. 66 We accomplished our major growth goals in 2013.  On a constant currency basis, we delivered adjusted EPS growth of 12% on 2% growth in revenue.*  We accelerated our sales growth rate each quarter starting the year with a 3% decline in Q-1 and ending the year with a 6% increase in Q-4. * All sales growth values in this presentation are expressed on a constant currency, year-over-year basis.
  7. 7. 77 Sales growth improvement was broad based due to encouraging market dynamics and new products launched in every business. 1H 2013 2H 2013 High voltage (2%) 4% Low voltage (8%) 1% Vascular 1% 3% Structural Heart 2% 8% Neuro (1%) 2% AF 10% 9% Total (1%) 4%
  8. 8. 88 We view ourselves as a company that entered 2014 with sales growing at an annual rate of approximately 4%.  This is consistent with the guidance we gave on our Q-4 earnings call that sales would increase approximately 3- 5% in 2014.  It usually is more meaningful to consider sales rates based on at least two quarter’s results (4% increase 2H 2013) instead of on a single quarter’s results (6% increase Q-4 2013).
  9. 9. 99 Looking forward to our sales growth in 2014
  10. 10. 1010 St. Jude Medical’s growth program is based on innovation. We provide innovative medical devices that help reduce the cost of health care and improve patient outcomes for some of our most expensive, epidemic diseases.  Heart rhythm disorders  Atrial fibrillation  Heart failure  Hypertension  Chronic pain  Stroke  Coronary artery disease  Structural heart defects
  11. 11. 1111 We estimate that the markets we participate in exceed $20 billion in size and are growing at an average rate of approximately 4%. Potential markets (CardioMEMS™ HF System, renal denervation) provide upside. Size Market $ billions Growth % CRM 10.8 - 0 - Structural Heart 3.1 9% AF 2.9 9% Vascular 1.8 6% Neuro 2.0 5% 20.6
  12. 12. 1212 We expect our growth rate to benefit from a tailwind as our sales mix shifts to products in faster growing markets. Legacy markets Growth driver markets CRM* AF Mechanical heart valves Tissue and TAVR heart valves Vascular closure Fractional flow reserve (FFR) Third party Japan Optical coherence tomography (OCT) Chronic Pain CardioMEMS™ HF System Left atrial appendage closure (LAA) Deep brain stimulation Renal denervation * Revenue from CRM products was 59% of our sales mix in 2010 compared with 51% in 2013.
  13. 13. 1313 We have the right products in the right markets to accelerate our sales growth over time.  We have plenty of opportunity.  Our primary focus therefore is execution.
  14. 14. 1414 The organizational and leadership changes we have made since Q-4 2012 are helping us improve our execution.  Our customers are changing. We are changing with them.  It no longer makes sense to organize by physician specialty in a decentralized structure.  Our transition to a centralized structure helps us leverage our scale, align our priorities, capture technology synergies, improve our quality, and strengthen our focus on the new customer profile that is emerging as a result of health care reform and structural changes to the health care market.
  15. 15. 1515 Our execution is focused on accomplishing all of the following goals in 2014.  Meet or exceed the guidance we gave on our Q-4 earnings call.  Accelerate our sales growth rate during the year.  Exit 2014 capable of delivering both EPS leverage and mid to high single digit sales growth in 2015.* * We are not yet issuing guidance for 2015.
  16. 16. 1616 Key execution milestones for 2014
  17. 17. 1717 We expect to resolve our Sylmar FDA warning letter and improve our flow of new product launches in the U.S. for our CRM business.  Allure Quadra™ CRT-P and our next generation low voltage platform of devices (Endurity™ and Assurity™ pacemakers) have been launched in Europe in 2013 and are approvable in the U.S. pending resolution of the warning letter.
  18. 18. 1818 We expect to resolve our Plano FDA warning letter and accelerate neuromodulation sales growth with new products.  Prodigy™ spinal cord stimulation (SCS) with SJM Burst technology in Europe.  Protégé™ spinal cord stimulation (SCS) platform in the U.S.  Submit our PMA for deep brain stimulation (DBS) for Parkinson’s disease and Essential Tremor indications in the U.S.
  19. 19. 1919 We expect to accelerate sales growth in our AF franchise.  The primary catalyst will be a successful ramp-up and launch of our TactiCath™ line of contact force sensing ablation catheters (our Endosense acquisition). Impact should be visible 2H 2014 as manufacturing ramp-up is completed.  A secondary catalyst will be the expanded roll out of our MediGuide™ technology together with the effect this has on adoption of our complete AF and CRM bundles.
  20. 20. 2020 We expect our Nanostim™ retrievable leadless pacemaker product line launch to begin impacting sales growth 2H 2014.  Manufacturing ramp-up is underway and should be completed by mid 2014.  Early KOL feedback encourages us that the Nanostim™ leadless pacemaker platform can evolve into a significant new growth driver.  This is a disruptive technology.
  21. 21. 2121 Our Portico TAVR program is expected to contribute higher sales each quarter of 2014.  Our 23mm Portico™ heart valve with a transfemoral (TF) delivery system was on the market in Europe in 2013 but addressed less than 10% of the market.  We received CE mark for our 25mm Portico™ heart valve with a TF delivery system in December 2013. Launch in Europe already is underway.  We expect to launch our 27mm and 29mm Portico™ heart valve products with TF delivery systems in Europe during 2H 2014.
  22. 22. 2222 We are enthusiastic about the significant impact the CardioMEMS™ wireless heart failure (HF) sensor can provide to Class III HF patients.  CHAMPION trial 1. 28% reduction in hospital readmissions at 6 months. 2. 37% reduction in heart failure hospital readmissions at 17 months.  This technology has the potential to provide significant clinical and economic benefits for patients who suffer from Class III heart failure and become a major new growth driver. * CardioMEMS is an independent, privately held company in which STJ holds an equity interest and an exclusive option to acquire the company.
  23. 23. 2323 We expect new products and expanded programs throughout our business to help maintain or improve our sales growth rate in 2014.  Continued role out of the dorsal root ganglion stimulation (DRG) technology for chronic pain.  Expansion of our FFR, OCT, and LAA closure programs.  We remain optimistic about renal denervation as a potential new growth driver. We look forward to reviewing the SYMPLICITY HTN-3 clinical trial results and incorporating lessons learned into our renal denervation program.
  24. 24. 24 Summary of our sales growth expectations.  We entered 2014 with sales growing at an annual rate of approximately 4%.  Our sales growth rate should improve as our product mix continues to shift to faster growing markets.  We expect to launch multiple new growth drivers in 2014, including CRM products in the U.S., Nanostim™ leadless pacemaker, TactiCath™ ablation catheter, CardioMEMS™ HF system, 25mm-29mm sizes of Portico™ heart valve, Prodigy™ SCS with Burst, Protégé™ SCS with upgradeability, and more.  Our goal is to accelerate our sales growth rate during the year and exit 2014 capable of delivering mid to high single digit sales growth in 2015.
  25. 25. EPS leverage in 2014 and beyond Don Zurbay, Vice President and Chief Financial Officer
  26. 26. 2727 We are well positioned to continue delivering EPS leverage in 2014 and beyond.  Our 2014 guidance calls for sales growth of 3 – 5% and EPS growth of 6 – 8%.  We are continuing to expand manufacturing in cost advantaged locations.  We see significant opportunity to continue taking costs out of our business with our on-going restructuring programs.  We expect economies of scale to evolve for each of our new growth drivers.
  27. 27. 28 We are well positioned to maintain or improve our gross margin beyond 2014.  Our gross margin is impacted by both positive and negative factors.  Excise taxes provide a 50 basis point headwind to our gross profit margin in 2014.  Additionally, we are negatively impacted by geographic and product mix shifts and lower average selling prices.  We expect to offset the negative factors through continued expansion of our manufacturing in cost advantaged locations and other continuous improvement initiatives.  The negative gross margin impact of our growth drivers will improve as volumes increase and manufacturing improvements are realized.
  28. 28. 2929 Opportunities to leverage our global operations and supply chain  Centralization of our world-wide manufacturing organization will further enable us to optimize our $1.6 billion in global operations spending.  We are currently manufacturing approximately 60% of our worldwide volume in cost advantaged locations with an internal goal of reaching 80%.  Our cost advantaged facilities are at varying stages of utilization and we have ample capacity to support our revenue growth over the next five years.
  29. 29. 3030 Optimization of our cost structure  From 2011 to 2013, S,G&A expenses have been reduced by approximately 170 basis points as a percentage of sales in a low sales growth environment.  Acceleration of sales growth provides a natural leverage point to the fixed component of our cost structure  Our current organization has ample capacity to support our increased sales.  Growth drivers require investment similar to a start up company and our ratios will improve as we start to generate meaningful sales.  Moving forward the negative impact of variable interest entity accounting will ease.
  30. 30. 3131 Optimization of our cost structure  We estimate that we have already generated over $100 million in incremental cost savings as a result of the restructuring actions announced in 2012 .  We expect additional leverage and productivity improvements in 2014 and beyond as a result of these actions as well as the changes announced last week.  The optimization of our cost structure allows us to remain committed to our innovation-based growth strategy with our investment in R&D consistently being greater than 12% of sales.
  31. 31. 32 OUS Manufacturing's effect on the Tax Rate  The largest driver of our tax rate improvement is expansion of manufacturing in cost advantaged locations. 24.5% 22.0% 21.6% 20.9% 18.5% 16.0% 18.0% 20.0% 22.0% 24.0% 26.0% 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 24.5% 22.0% 21.6% 20.9% 18.5%
  32. 32. 3333 We maintain a conservative balance sheet which continues to benefit from strong and consistent cash flow.  Balances as of December 31, 2013:  Cash on hand $1.4 billion  Debt outstanding $3.6 billion Current credit ratings: Moody’s – Baa1, S&P – A, Fitch – A  For the three years ended 2013, we have generated cash flow from operations of approximately $3.6 billion, 22% of net sales.  We have ample capacity to continue returning capital to shareholders while maintaining the capacity to augment our growth strategy with disciplined acquisitions.
  33. 33. 3434 Dividends and Share Repurchases  Since 2011, the Company has completed $2.8 billion of share repurchases with an average purchase price of $43.47 per share.  Share repurchases will manage the dilutive impact of our stock based compensation.  In February of 2011, the Company initiated a dividend and we have increased our dividend an average of 9% annually.  The share repurchases and growth in dividend reflects the strong confidence our management team and our board of directors have in our long-term growth and success.
  34. 34. 3535 Summary  Our goal is to continue growing sales at a 3% to 5% rate for full year 2014 and create the conditions to support faster sales growth in 2015.  We expect to continue delivering EPS leverage in 2014 and beyond.  We have a conservative balance sheet and strong cash flow to continue to repurchase stock, increase our dividend, and fund disciplined acquisitions as appropriate.
  35. 35. Highlights of our CRM business Eric S. Fain, M.D. – Group President
  36. 36. 38 2013 CRM Highlights  Core CRM markets stabilizing and showing signs of growth  Acceleration of implant growth rates WW throughout the year  Stabilizing ASP trends  Accelerated our sales growth each quarter:  Exited year with share capture in both LV and HV  Market Share leader in U.S. De Novo CRT-D  Third party analysis of STJ data as well as independent large hospital system experience confirmed the strong performance of Durata™ lead  Over 425,000 leads implanted WW and >6 years of follow-up  De Novo lead-to-port ratio returned to parity with device sales  Expanded our Industry leading product portfolio  Launched new ICD (WW) and pacemaker (Int’l) platforms  Extended our quadripolar leadership with MPP and CRT-P (Int’l)  Significant progress in remediation of Sylmar warning letter  We anticipate FDA re-inspection by the end of 1H 2014
  37. 37. 39 Implantable Electronic Systems: Leveraging Operational Synergies in 2013  Capitalized on the combined strength of our organization and rapidly achieved functional integration:  Reduced costs and improved effectiveness by leveraging a single integrated R&D organization and associated core competencies  Began implementing operational synergies that enhance quality and improve cost structure while also leveraging our existing cost advantaged manufacturing locations  Leveraged integrated clinical study and field clinical engineering organizations to improve execution and timelines  Additional opportunities in the future as we move to common electronics and externals platforms
  38. 38. 40 2014 WW CRM Market Dynamics  Expect the 2013 global CRM market to be flat versus 2012 on a CC basis  Renewed unit growth but continued ASP pressure  2H 2013 likely up about 2% vs. 2H 2012 on a CC basis  The mid-point of our guidance range assumes the CRM market is flat in 2014 vs. 2013 (on an “as reported” basis)  Our model assumes a CRM market of $10.8 billion in 2014  We expect to gain 50 bps of CRM share in 2014:  Differentiated product portfolio  HV replacement tailwind
  39. 39. 41 17% 19% 21% 23% 25% 27% 29% 31% 33% 2010 2011 2012 2013 2014 2015 2016 2017 2018 EstimatedMarketShare 2013 Year End De Novo Share (Est.) Year End Replacement Share (Est.) Linear Trend to Current De Novo Share 2012 Year End De Novo Share (Est.) Replacement Share Share Delta of ~6.5% Est. +2.0% in 2013 2012 De Novo Share 2013 De Novo Share U.S. HV Replacement Market Dynamics Our replacements tailwind will continue to support market share capture
  40. 40. CRM Portfolio Highlights
  41. 41. 4343 Continued Innovation across Product Portfolios Right Products at the Right Time SJM Quadra family of devices with MultiPoint™ Pacing Nanostim™ Leadless Pacemaker CardioMEMS™ HF System Allure Quadra™ CRT-P
  42. 42. 4444 Quadripolar Pacing – Standard of Care in CRT Strong clinical evidence driving continued CRT-D share gains  U.S. De Novo market share leader in CRT-D  Will remain the only quadripolar system available in U.S. in 2014  Only next generation MPP system in International markets  Over 100 publications provide broad clinical evidence supporting the benefits of the quadripolar system at implant and follow-up  Clinical benefits also translate into healthcare economic benefits Estimated U.S. CRT-D De Novo Market Share 27% 29% 31% 33% 35% 37% 39% 41% 2011 2012 2013
  43. 43. 45 Distal 1 Mid 3 Proximal 4 Mid 2 Common Pacing Complications with Bipolar CRT Addressed with Quadripolar System Four electrodes and 10 pacing vectors Allows implant without trading off stability for electrical performance
  44. 44. 46 Quadripolar benefits can lower both the near-term and long-term overall cost of care Positive impact to hospitals, ACOs, bundled payment sites and payers More pacing options to manage implant complications 100% Resolution of Phrenic Nerve Stimulation without surgical lead revision (SLR)1 Significant reduction in surgical lead revisions when compared to bipolar leads2 Better device longevity3 Patients with high LV thresholds could see significant longevity improvement of up to 17 months using unique quadripolar vectors Proven efficacy on both objective and subjective measures of HF improvement4 LV volumes, EF and 6-minute walking distance / MN Quality of Life score4 Overall, 66% of patients improved at least 1 class on NYHA scale Lowered rate of LV lead deactivation/ replacement5 53% of patients programmed to a unique quadripolar vector to avoid pacing complication and possible surgical lead replacement pic 1. Zanon et al. Heart Rhythm, Vol. 10, No 5, May 2013. New Onset of Phrenic Nerve Stimulation During Left Ventricular Pacing at Mid-Term Follow Up: A Multicenter Clinical Experience. 2. Viani SM, et al. A new quadripolar lead for left ventricular pacing: short term reliability and future opportunities. Europace. 2011; 13(3), Abstract P408 3. Manyam et al. Heart Rhythm, Vol. 10, No 5, May 2013. Quadripolar Left Ventricular Leads Yield Lower Capture Thresholds With Expected Increase In Battery Longevity. 4. Forleo GB, et al. Heart Rhythm 2012; 9 (11), 1822-1828.e3 5. Turakhia et al. Heart Rhythm, Vol.10, No 5, May 2013. Decreased Risk of Left Ventricular Lead Deactivation and Replacement Associated With Quadripolar LV Leads.
  45. 45. 47 1. Tomassoni, G. et al. Post operative performance of a novel left ventricular quadripolar electrode lead. Heart Rhythm. 2011;8(5):S119 (Abs. PO1-43). 2. Thibault B, et al. Electrode Selection to Avoid Phrenic Stimulation with a Quadripolar Left Heart Lead. Heart Rhythm. 2011;8(5):S68 (Abs. AB30-3). 3. Dänschel W, et al. Initial Clinical Experience with a Novel Left Ventricular Quadripolar Lead. Oral Session 183/5. Europace, 2010; 12 (suppl 1): i127. 4. Osca J, et al. Initial Experience with a New Quadripolar Cable for Left Ventricular Stimulation. Impact Over Phrenic Nerve Stimulation and Pacing Thresholds. Heart Rhythm. 2011;8(5):S359 (Abs. Po5-14). 5. Mehta PA, Shetty AK, Squirrel M, et al. Elimination of phrenic nerve stimulation occurring during CRT : Follow-up in patients implanted with a novel quadripolar pacing lead. J Interv Card Electrophysiol 2011 Jul 21. 6. Viani SM, et al. A New Quadripolar Lead For Left Ventricular Pacing: Short Term Reliability and Future Opportunities. Europace 2011 (Abstract). Clinical results show consistently strong performance Reduction in RevisionsPNS Resolution Tomassoni1 Thibault2 Danschel3 Osca4 Mehta5 6
  46. 46. 48 Clinical Superiority of Quadripolar Technology  NCDR ICD Registry is a national, prospective database managed by the ACC in collaboration with HRS  Updated analysis used NCDR ICD Registry data for implants performed from January 1, 2012 through June 30, 2013  STJ quadripolar CRT Technology demonstrated an 89% reduction of failed implants over non-quadripolar LV leads from all manufacturers  Additional publications expected in 2015 highlighting improved outcomes and mortality Non-Quad STJ Quadra P-value 1H 2012 4.20% 0. 51% <0.0001 2H 2012 4.53% 0.49% < 0.0001 1H 2013 4.20% 0.49% < 0.0001 Total (N=56,656) 4.30% 0.49% < 0.0001 NCDR ICD Registry Failed LV Lead Implants* * Reasons LV leads were not implanted include diaphragmatic stimulation, unacceptable thresholds, and target vein/coronary sinus access
  47. 47. 49 Quadra Assura™ CRT-D MultiPoint™ Pacing (MPP): Building clinical evidence with 2nd generation technology  Two-site LV stimulation extends the capabilities of Quadripolar technology platform with a focus on further improved patient outcomes  Studies demonstrate significant improvement compared to conventional biventricular pacing  Improved acute hemodynamics with an MPP configuration in large majority of patients1-4  Equivalent improvement seen in both ischemic and non-ischemic patients3,4  No difference between quadripolar lead and multi-branch (2 leads)5  Reduced rate of CRT non-responders  26% more CRT responders (ESV >15% reduction) after 3-month of MPP6  IDE enrollments expected to complete in 2014 1. Rinaldi et al. Acute hemodynamic benefits of multisite LV pacing in CRT recipients. Abstract ACC 2012 2. Thibault et al. Acute hemodynamic comparison of multisite and biventricular pacing with a quadripolar LV lead. Europace 2013 ;15:984-991 3. Pappone et al. Multipoint LV pacing improves acute hemodynamic response assessed with pressure-volume loops in CRT patients. Heart Rhythm 2014 (in press) 4. Rinaldi et al. Acute effects of multisite LV pacing on mechanical dyssynchrony in patients receiving CRT. J Cardiac Failure 2013;19:731-738 5. Shetty et al. A comparison of LV endocardial, multisite and multipolar epicardial cardiac resynchronization: An acute hemodynamic and electro-anatomical study. Europace 2014 (in press) 6. Pappone et al. Multipoint LV pacing in a single coronary sinus branch Improves 3-month echocardiographic and clinical response to CRT. Abstract HFSA 2013
  48. 48. 5050 Allure Quadra™ CRT-P  Strong demand and driving share capture in Int’l markets  Significant competitive advantage in an estimated $420M WW CRT-P market  Expands quadripolar portfolio to fastest growing CRM segment  Market size expected to double in the next 5 years with new indications  No known competitive quadripolar pacemakers in pipeline  Capitalize on rapid growth in the CRT-P segment driven by BLOCK HF results (AHA 2012) and BIOPACE (2H 2014)  Significant appeal to pacer implanters who begin implanting CRT-P  Leverages new LV platform for improved cost structure $200 $250 $300 $350 $400 $450 2011 2012 2013 2014 $MM Estimated CRT-P Market Revenue WW Market Size 11% CAGR
  49. 49. 51  Expanding portfolio of quadripolar lead options  3 lead shape options  2 electrode spacing options to facilitate basal pacing  All spacing options maintain 4 discrete electrode locations for pacing vector selection  Smaller diameter for easier access to tortuous anatomy  Designed for MRI compatibility Quartet™ NXT LV Leads Extending Quadripolar Leadership with 2nd generation technology
  50. 50. 52 Leadership in Low Voltage Platform in 2014 Assurity™ and Endurity™ Allure Quadra™ Accent MRI™ Nanostim™ Significant technology advantages to drive share gains in ~$4B low voltage market
  51. 51. 5353 Brady MRI Compatibility  Industry best lead handling  No scan zone/power restrictions  Efficient workflow using the STJ MRI activator  Continued success in Int’l markets  Strong adoption following launch in Japan  Accent MRI IDE Study: Expect to complete MRI scans and follow-up in 2H 2014  Will continue to expand product portfolio of MRI compatible devices  Expect to launch restricted MRI models in Int’l markets in 2014 for tiering
  52. 52. 5454 Nanostim™ Leadless Pacemaker  Specifically designed for repositioning and chronic retrievability (catheter-based)  Energy efficient design  High-capacity battery  No losses due to lead conductor resistance  Proprietary low-power “conducted communication”  Designed to prevent dislodgement  Double fixation: single turn helix (x 2 pull-strength) plus angled nylon sutures  Radiographic indicator to ensure proper number of turns  Tethered test mode for intraoperative evaluation  Delivered via 18F introducer  Supported by Merlin™ Patient Care System First and only commercially available leadless pacing system
  53. 53. 5555 Standard Pacemaker Leadless Pacemaker Implant procedure Surgical pocket + lead Percutaneous femoral based Implant time 30 – 45 minutes 15-20 minutes Cosmetics Scar, Visible Device No Scar, No Visible Device Post-Implant Restrictions Limited arm movements Wound care/ sutures No heavy lifting Minimal (faster patient recovery) Connections Lead-can connectors None Chronic tricuspid valve interference Yes (lead) No (leadless) Longevity 9-13 years 9-19 years Battery Replacement Pocket access Femoral access MRI compatibility Conditional – image impact Inherently MRI compatible Comparison with Conventional Lead-Based System
  54. 54. 5656 Complication Occurrence Leadless Advantage Lead dislodgement 2.2% to 3.7% Not applicable/ No lead Low risk of device dislodgement Pneumothorax 1.6% to 2.6% No Risk - Not applicable Lead perforation 0.5%-1% Not applicable – No Lead Low risk of device perforation Venous thrombosis 1%-3% No Risk – Not applicable Chronic Lead failure 2%-4% of pts at 5 years Not applicable – No Lead Hematoma requiring surgical evacuation <0.5% Reduced Risk Skin erosion (generator change) 0.8-0.9% No Risk – No Pocket Pocket Infection • < 1% for single- chamber • 3-5% for generator change No Risk – No Pocket Complications Associated with Pacemakers
  55. 55. 57 Launch Summary  Initial launch feedback and enthusiasm in EU has been even greater than anticipated  Strong success with initial implants driving continued demand  Strong interest from historically non-STJ customers  Unprecedented interest in U.S. IDE study  Strong interest in Japan/Asia due to lack of scar/visible device  Significant media attention and coverage driving patient awareness  Significant market opportunity in ~$700M single-chamber pacemaker segment
  56. 56. 58 Clinical Summary LEADLESS Study: First in Man  Successful delivery in 32/33 patients (97%)  Short Procedure Times  Introducer in/out: 28 minutes  Catheter in/out: 16 minutes  Excellent pacing and sensing performance LEADLESS II IDE Study  PMA Submission requirement: 300 patients followed for 6 months  First implants Feb 2014 Leadless Pacemaker Observational Study (International)  1000 patients at ~100 sites followed for 5 years  Enrollment underway
  57. 57. 5959 Nanostim™ Dual Chamber Leadless Pacemaker  Dual chamber pacemakers represent >70% of worldwide pacing market  Approximately $3B market in 2014  Development work underway to expand Nanostim technology  Single chamber development helps validate delivery and dual chamber feasibility  Low power conducted telemetry scheme can be leveraged for device-to-device communication resulting in low impact to device longevity  Communication between devices demonstrated in animal studies
  58. 58. 60 Summary of CRM Highlights for 2014  The global CRM market has stabilized  We expect to gain share in the high voltage segment due to replacement market dynamics and leadership in quadripolar CRT-D  The Nanostim™ leadless pacemaker and our Allure Quadra™ CRT-P product lines give us clear leadership in a $1 billion component of the low voltage segment  The midpoint of guidance that assumes we will gain approximately 50 basis points of share in a stable market is well supported and may be conservative  We have completed all remediation activities associated with the Sylmar site Form 483 and warning letter and we anticipate FDA re-inspection by the end of 1H 2014
  59. 59. The CardioMEMS™ HF System can become a significant new growth driver Lisa Andrade – Vice President and Chief Marketing Officer * CardioMEMS is an independent, privately held company in which STJ holds an equity interest and an exclusive option to acquire the company.
  60. 60. 63 CardioMEMS™ HF System  Sensor with Delivery Catheter System  Permanent implant  No batteries or components that require replacement  Implanted into pulmonary artery  Uses a safe, well-understood right heart catheterization procedure  Electronics  Patient configuration  Hospital/clinic version  Website  PA pressure readings and trends  Systolic, Diastolic and Mean  PA pressure waveforms  Heart rate At-home In-hospital
  61. 61. 64 Heart Failure Burden in the United States1,2  5.1M Americans suffer from HF  >650,000 new HF diagnoses each year  1 in 2 HF patients die in 5 years  Burden on healthcare system is high  2.8M office and ED visits each year  1.0M HF hospitalizations each year  Leading cause of hospitalizations among >65 years old patients  Every 30 seconds, someone is hospitalized for HF 1 Go A, et al. Heart Disease and Stroke Statistics 2013 Update: A Report from the American Heart Association. Circulation. Published online December 12, 2012. 2 Blecker, S, Paul, M et al. Heart failure-associated hospitalizations in the United States. JACC 2013 61:12 (1259-1267) Heart Failure is a growing and expensive public health issue of HF patients die in 5 years1 50% 5.1M
  62. 62. 65 Economic Burden of HF Admissions in the US  Total cost of HF in the US expected to double by 20301  $31B/year in 2013, $70B/year in 2030  >1/2 of costs spent on hospitalizations2  5.1 day average hospital length of stay4  High readmission rates  25% readmission within 30 days2  50% readmission within 6 months3  1/5th of all Medicare admissions in the US have a diagnosis of heart failure5  Most HF patients suffer re-congestion within 60 days  Even at the best hospitals6 1 Go A, et al. Heart Disease and Stroke Statistics 2013 Update: A Report from the American Heart Association. Circulation. Published online December 12, 2012. 2 2013 ACCF/AHA Guideline for the Management of Heart Failure: A report of the ACC/AHA Task Force on Practice Guidelines. Circulation. Published online June 5, 2013. 3 Focus Update Incorporated into the ACC/AHA 2005 Guidelines for the Diagnosis and Management of Heart Failure in Adults: Circulation 2009;119; e391-e479(e437) 4 National Health Statistics, National Hospital Discharge Survey: 2007 Summary October 26,2010 5 Emory Healthcare. Heart Failure Statistics. Emory Healthcare [serial online]. Published 2013. Accessed April 2, 2013. 6 Lala, et al. for H-FAN. HFSA 2013 7 MEDPAC, Report to Congress: Promoting Greater Efficiency in Medicare, June 2007. Advisory Board Cardiovascular Roundtable Research & Analysis as reported in Publication 20286C entitled “Transformative Care Delivery, Part II: Reducing Preventable Readmissions.” $31 Billon annual Cost of HF in US1 5.1 days average hospital length of stay4 $600M spent annually on preventable Medicare HF patient readmissions7
  63. 63. 66 New York Heart Association (NYHA) Class III Leads HF Admissions NYHA Class III patients have marked limitation in activity even during minimal activity. They are comfortable only at rest. 1 CVRG, 2007; McCullough, 2002; McAllister, 1999 [41-43} 2 Fonarow G, et al. Overview of Acutely Decompensated Congestive Heart Failure (ADHF): A Report from the ADHERE Registry. Heart Failure Reviews 9, 179-185, 2004 Approximately 1 in 3 HF Patients are NHYA Class III. These patients comprise almost half of the HF admissions. 29% 44% 0% 20% 40% 60% 80% 100% % of HF patients % of HF admissions NYHA I NYHA II NYHA III NYHA IV 1 2
  64. 64. 67 Economic Risks of HF Readmissions in the US Medicare’s Hospital Readmissions Reduction (HRR) Program  Program penalizes hospitals who have above average risk adjusted all-cause readmissions within 30 days following HF, Acute MI, Pneumonia discharge  Withholding of all inpatient Medicare payments  Up to 2% in 2014  Up to 3% by 2015 and beyond2  Total 2013 impact3  $280M withheld  2,217 hospitals impacted 1 Dharmarajan K, Hsieh AF, Lin Z, et al. Diagnoses and Timing of 30-Day Readmissions After Hospitalization for Heart Failure, Acute Myocardial Infarction, or Pneumonia. JAMA. 2013;309(4):355-363. Linden A, Adler-Milstein J. Medicare disease management in policy context. Health Care Finance Rev. 2008;29(3):1-11. 2 CMS Hospitals Readmissions Reductions Program of the Patient Protection and Affordable Care Act (PPACA), 2010. 3 - http://www.kaiserhealthnews.org/stories/2012/october/03/medicare-revises-hospitals-readmissions- penalties.aspx?referrer=search 2014 CMS Benchmark Target 30-day Readmissions Rate1
  65. 65. 6868 CardioMEMS™ HF System and Pressure Monitoring Weight and BP Impedance Pressure No Reduction in HF Hospitalizations Poor Marker (TIM-HF, TELE-HF) No Reduction in HF Hospitalizations High false positives (DOT-HF) Significant Reduction in HF Hospitalizations Right marker, Right management approach (COMPASS, CHAMPION, HOMEOSTASIS™) CardioMEMS PA Pressure The Right Approach to Management of HF
  66. 66. 6969 COMPASS HOMEOSTASIS™ CHAMPION  Right Parameter – Pressure  Right Patients – Class III  Right Approach – Management to target pressures and physician directed patient self management  Right Parameter – Pressure  Right Patients – Class III  Right Approach – Management to target pressures  Right Parameter – Pressure  Right Patients – Class III showed significant benefit Wrong Patients – Including Class IV resulted in no benefit Wrong Approach – Management to pressure spikes X X Multiple Studies have Shown that Pressure Monitoring is the Right Strategy to Reduce HF Hospitalization
  67. 67. 7070 CumulativeNumberofHFRHospitalizations 0 20 40 60 80 100 120 140 160 180 200 220 240 260 Days from Implant 0 90 180 270 360 450 540 630 720 810 900 270 262 244 210 169 131 108 82 29 5 1 280 267 252 215 179 137 105 67 25 10 0 No. at Risk Treatment Control Primary Endpoint Treatment Control CHAMPION Trial: Primary Endpoint Met Cumulative HF Hospitalizations Reduced At 6 Months and Full Duration Abraham WT, Adamson PB, Bourge, RC et al. Wireless pulmonary artery hemodynamic monitoring in chronic heart failure: a randomized controlled trial. The Lancet. 2011:377;658-66. 28% Reduction at 6 months 37% Reduction at Full Duration
  68. 68. 7171 CHAMPION Trial: Principal Findings Pulmonary Artery Pressure Monitoring Medication Changes Based on PA Pressure p<0.0001 <1 medication change per patient per month Pulmonary Artery Pressure Reduction p=0.0077 Heart Failure Hospitalization Reduction p=0.0002 Quality of Life Improvement p=0.0236 *p values for Treatment vs Control Group Abraham WT, Adamson PB, Bourge, RC et al. Wireless pulmonary artery hemodynamic monitoring in chronic heart failure: a randomized controlled trial. The Lancet. 2011:377;658-66.
  69. 69. 7272  Nearly half of all HF admissions are for patients with preserved Ejection Fraction1  Limited treatment options available  Currently not candidates for ICD or CRT therapy CMS ADHF Admissions1 HF-pEF HF-rEF not assessed 43.6% 38.8% 17.6% 1 Kociol et al AHJ 2010 HF Patients with Preserved EF – An Even Bigger Challenge to Manage
  70. 70. 73 HF Management with CardioMEMS™ HF System Reduced HF Hospitalization in Preserved EF Patients 0% 10% 20% 30% 40% 50% HFrEF HFpEF P<0.0001 vs control P=0.0085 vs control RelativeRiskReduction HF Hospitalization Reduction (6 mos follow-up) reduced EF (<40%) preserved EF (>40%) 1Kociol et al AHJ 2010 2 Adamson PB et al. CardioMEMS Heart Sensor Allows Monitoring of Pressures to Improve Outcomes in NYHA Class III Heart Failure Patients (CHAMPION) Trial: Impact of Hemodynamic Guided Care on Patients with Preserved Ejection Fraction. Additional updated data on file.  In the US, nearly half of HF admissions are for patients with preserved EF1  HF management guided by the CardioMEMS HF System reduced HF hospitalizations in patients with either preserved or reduced EF2  The CHAMPION trial is one of the first successful management strategies to reduce HF hospitalization in this patient population
  71. 71. 7474 Intervention Trial Mean Duration of Randomized Follow-Up Annualized Reduction in HF Hospitalization Rates Number Needed to Treat (NNT) per year to Prevent 1 HF Hospitalization Beta-blocker COPERNICUS 10 months 33% 7 Aldosterone antagonist RALES 24 months 36% 7 Cardiac resynchronization CARE-HF 29 months 52% 7 Beta-blocker MERIT-HF 12 months 29% 15 ACE inhibitor SOLVD 41 months 30% 15 Aldosterone antagonist EMPHASIS-HF 21 months 38% 16 Digoxin DIG 37 months 24% 17 Angiotensin receptor blocker Val-HeFT 23 months 23% 18 Angiotensin receptor blocker CHARM 40 months 27% 19 Pulmonary artery pressure monitoring at home CHAMPION 17 months 33% 4 Clinical Significance of CHAMPION Results
  72. 72. 75 CardioMEMS™ HF System Reimbursement  Hospital Inpatient  Established ICD-9 procedure code for implant (38.26)  Maps to DRG 264 – average base payment with adjustments of $17,820  CardioMEMS™ HF System has applied for New Technology DRG Add-On Payment  1 of 7 applications CMS will review  If approved, effective October 1, 2014 for 2-3 years  If approved, provides up to 50% of cost of device + DRG payment  Physician  Implant  Physician may bill for right heart catheterization + pulmonary angiography (established codes) + sensor implant (unlisted CPT code)  For unlisted codes physician uses a comparable procedure  Remote Monitoring  Current coding applies (same as CRM) – Monthly
  73. 73. 76 CardioMEMS™ HF System Launch Readiness  The manufacturing capacity and the inventory needed to launch the CardioMEMS HF system product line in the U.S. are already in place  We do not need to add sales representatives to support this launch  Market development will take time, but we are ready to begin launching the CardioMEMS HF system product line in the U.S. after the product is approved by the FDA
  74. 74. 77 CardioMEMS™ HF System Summary  CardioMEMS HF system is the right product for the right market at the right time  We think the CardioMEMS HF system product line can become a significant new growth driver for St. Jude Medical
  75. 75. 7878 Panel for Question and Answer Session
  76. 76. Power of the EP Portfolio Eric S. Fain, M.D. – Group President
  77. 77. 8080 2014 Estimated Worldwide EP Market Size Revenue in Millions EP Ablation Catheters $1,000 35%EP Diagnostic Catheters $680 23% Mapping/ Navigation/ Recording $550 19% Access $370 13% ICE/Other $300 10% 2014 Market Revenue $2.9B Market Growth: 9% - 11%
  78. 78. 81 Treated with Catheter Ablation 2.2% 2014 ~$58 Billion ~12.9M Symptomatic AF ~$1.3B market Treated with Catheter Ablation 1.9% 2013 ~$56 Billion ~12.5M Symptomatic AF Estimated WW AF Market Opportunity AF is the fastest growing market segment within the EP space Treated Population ~3% CAGR (Sources: MRG, HRI, Miyasaka – Circ 2006, WHO 2002, US Census Bureau, STJ estimates) ~$4,500/case 19% Growth Diagnosed Symptomatic AF Population ~$1.1B market AF Diagnosed Symptomatic AF Population AF Population treated w/ Catheter Ablation
  79. 79. 8282 Growth in AF Ablation Procedures - 50,000 100,000 150,000 200,000 250,000 300,000 350,000 2011 2012 2013 est. 2014 210,000 250,000 295,000 350,000 ’11 - ’14 CAGR = 19% WW AF Ablation Procedures Catheter and Surgical
  80. 80. 8383 Favorable STJ Dynamics In A Growing Market  High interest in differentiated STJ technology  MediGuide™ Technology  TactiCath™ Quartz Contact Force Ablation Catheter (Endosense)  Advanced portfolio of ablation solutions  Building foundational clinical data  CABANA  EAST  STAR VT  Toccata/Efficas/Toccastar  Unmet need for optimized workflow and procedural efficiencies
  81. 81. 84 MediGuide™ Technology – Cornerstone of the Integrated Lab  Expand STJ presence through our Integrated Lab offering  Reducing radiation  Increasing workflow efficiency and reducing healthcare costs  Potential for improving patient outcomes  MediGuide Technology  3D visualization and precise navigation platform across EP and CRT procedures  Enables navigation of devices on pre-recorded fluoroscopy and enhances performance of EnSite™ Contact Force Module
  82. 82. 85 The MediGuide™ Technology Platform Continues to Grow  Increasing adoption as we continue to build synergies with STJ’s broad portfolio of catheters and tools  Additional CRT tool options 2H 2014  Strong clinical evidence demonstrating radiation reduction for increased patient and laboratory staff safety  Numerous Single Center and Multi-Center studies published in 2013  Potential for increased procedural/economic efficiencies and improved patient outcomes
  83. 83. 8686 2014 Advanced Ablation Solutions St. Jude Medical Advanced Ablation Solutions TactiCath™ FlexAbility™ Catheter EnSite™ Precision™ Ampere™ WorkMate Claris™ Agilis™
  84. 84. 87  Extensive thought leader involvement throughout design and testing to result in best in class workhorse catheter  Flex irrigated electrode tip  Full portfolio of curve shapes, including asymmetric options FlexAbility™ Ablation Catheter  Handle and shaft that performs across the range of EP procedures, including transeptal and retrograde approaches  Platform for future MediGuide™ sensors  CE Mark and FDA approval anticipated 2H 2014
  85. 85. TactiCath™ Quartz Ablation Catheter  Irrigated ablation catheters featuring contact force technology  Technology acquired in 2013 from the Endosense acquisition  Commercially available today in Europe and other International markets  FDA approval with AF indication anticipated 2H 2014
  86. 86. 8989 Ampere™ RF Ablation Generator  Complete redesign of hardware and software to improve workflow and optimize the integrated lab experience with:  Intuitive design and adjustable settings  High fidelity signals  New features, including power control mode and remote control  CE Mark approved end 2013 and FDA approval anticipated 2H 2014
  87. 87. WorkMate Claris™ Recording System  Only fully integrated EP system on the market with stimulation  Redesigned hardware and software for exceptional signal clarity  Easier, more efficient analysis of patient data, including Application Control software for protection and compliance  Enhanced productivity through system integration and data workflow integration for one, electronic patient record  First commercial availability in Europe and the US end 2013
  88. 88. 9191 EP Summary  AF is an expensive, epidemic disease  The potential market for innovative medical devices that help reduce the cost of care and improve outcomes for patients who suffer from AF is only 2% penetrated  We expect revenue from our AF business to continue to grow at a high single digit or low double digit rate in 2014 driven by our product innovation
  89. 89. A special focus on Endosense Srijoy Mahapatra, M.D., FHRS - VP, Clinical, Medical & Scientific Affairs
  90. 90. 9494 2014 Estimated Worldwide EP Market Size Revenue in Millions *Estimated current market share 2014 Market Revenue $2.9B Market Growth: 9% - 11% EP Ablation Catheters $1,000 35% EP Diagnostic Catheters $680 23% Mapping/ Navigation/ Recording $550 19% Access $370 13% ICE/Other $300 10% STJ 14%*
  91. 91. 95 Solution II: Flex Tip with best in class maneuverability Solution I: Leading the way with Contact Force 2014: A New Era for STJ Ablation Catheters TactiCath™ Quartz Ablation Catheter Commercial in International Markets FDA Approval Anticipated 2H 2014 FlexAbility™ Ablation Catheter CE Mark Anticipated 2H 2014 FDA approval Anticipated 2H 2014
  92. 92. 9696 TactiCath™ Quartz Contact Force Ablation Catheter Background (Force Sensing)  Pioneering solution to give physicians a real-time, objective measure of the force they apply to the heart wall during a catheter ablation procedure  CE Mark approved for AF and supra ventricular tachycardia (SVT) ablation  U.S. IDE clinical trial complete; anticipating FDA approval with an AF indication in 2H 2014
  93. 93. 97 Why Contact Force? Safely create durable transmural lesions Time. Power. Force.
  94. 94. 98 Established Clinical Value for TactiCath™ Contact Force Ablation Catheters TOCCATA • Safety and feasibility of Force Sensing EFFICAS I • Contact Force parameters on minimum values and Force Time Integral EFFICAS II • Significantly better outcome using Contact Force TOCCASTAR • IDE clinical data
  95. 95. 99  Optimal Force leads to reduced recurrence of AF TactiCath™ Ablation Catheter Guidelines for Force Sensing 1. Reddy et al.; The relationship between contact force and clinical outcome during radiofrequency catheter ablation of atrial fibrillation in the TOCCATA study. Heart Rhythm, 2012 Nov;9(11):1789-95. 2. Neuzil et al. Electrical reconnection after pulmonary vein isolation is contingent on contact force during initial treatment: results from the EFFICAS I study. Circ Arrhythm Electrophysiology. 2013 Apr;6(2):327-33.
  96. 96. 100 TactiCath™ Ablation Catheter Clinical Findings Reddy et al.; The relationship between contact force and clinical outcome during radiofrequency catheter ablation of atrial fibrillation in the TOCCATA study. Heart Rhythm, 2012 Nov;9(11):1789-95. 0 20 40 60 80 100 0-10 g 10-20 g 20+ g 100% 53% 80% 47% 20% No successSuccess 100% 80% 60% 40% 20% 0% Using Force less than 10g leads to AF recurrence; Greater than 20g for each lesion is good target
  97. 97. 101 TOCCASTAR Study Study Design  Prospective, multicenter (EU & US), IDE study  Randomized TactiCath™ Ablation Catheter vs. Biosense Webster ThermoCool™; non-inferiority comparison  Safety and effectiveness study, 12 months follow-up post PVI  317 patients with paroxysmal AF  Expect results to be presented at HRS; intend to publish findings in a leading medical journal  Trial completed, PMA submitted  Anticipate FDA approval 2H 2014 (AF indication)
  98. 98. 102102 TactiCath™ Quartz Ablation Catheter Advantages TactiCath ablation catheter's proprietary optical sensor technology leads to potential clinical advantages over other sensing alternatives Technical Feature Potential Clinical Advantage Fiber optic sensing Force measured closer to tip Force measured where power applied 50Hz sampling rate (vs. 20Hz) Higher rates allow visualization of transient peaks with cardiac movement and increase the feeling of real-time feedback No calibration required Saves time and shortens procedure Other sensor needs recalibration as often as every 15 min due to temperature changes
  99. 99. 103103 Integration Update  Functional transitions completed in Q4 2013  Development, manufacturing, and quality functions have been integrated into St. Jude Medical  European sales teams are fully commercial  FDA PMA Submission Complete  Submitted Continued Access Protocol  Expect CAP cases 1H 2014  Anticipated FDA approval 2H 2014 (AF indication)
  100. 100. 104 Part II: New Era for STJ Ablation Catheters Solution: Flex Tip with best in class maneuverability and signal quality FlexAbility™ Ablation Catheter CE Mark and FDA approval anticipated 2H 2014  Internal STJ Development Project  Elite KOLs supporting efforts with pre-clinical evaluations to ensure steady stream of feedback throughout the process  Share gaining opportunity with workhorse device that is complementary with TactiCath™ ablation catheter with premium contact force technology
  101. 101. 105  Flex Tip is a critical element incorporated into design  International Markets have the first generation Flex Tip available; it is the best selling STJ ablation catheter in both Europe and Japan  To achieve best in class maneuverability, we launched a collaborative effort between clinical, R&D, and external physicians  Features targeted for optimized performance include: durability, signal quality, handling, and lesion quality  22 EP’s have validated multiple design iterations over the past 6-months via pre-clinical effort FlexAbility™ Ablation Catheter
  102. 102. 106106 Ablation Catheter Summary  One of the most significant new growth drivers in our AF business for 2014 will be the launch of our TactiCath contact force sensing line of ablation catheters  Physician feedback leads us to believe that contact force sensing catheters may help improve the safety and efficacy of AF ablation procedures  During 2014, we expect to launch both TactiCath™ and FlexAbility™ lines of ablation catheters and gain share in the $1 billion ablation catheter segment of the EP market
  103. 103. Executing on a robust CV portfolio Eric S. Fain, M.D. – Group President
  104. 104. 109109 STJ PCI Optimization™ Leadership in 2013  We are the WW leader in the fast-growing market of FFR-guided interventions for coronary artery disease  The global market for FFR products exceeded $250 million in 2013 with strong double digit growth  We believe we will take share and continue to grow the FFR market in 2014  We are driving OCT market expansion  We grew our OCT disposables revenue double digit as customers switched from IVUS to OCT  We are advancing the field of imaging with even higher resolution, new stent planning tools and 3D reconstruction  We are the leader in clinical evidence development for FFR and OCT  FAME I, FAME II, FAME III, ILUMIEN I
  105. 105. 110 FFR & OCT Markets Underpenetrated & Growing 0% 5% 10% 15% 20% 25% 30% 35% 40% FFR OCT IVUS  Revenue growth driven by STJ technologies: FFR & OCT  Growth in OCT at the expense of IVUS  Even at today’s low penetration rates, the current combined market for IVUS, FFR and OCT is ~$800 million 2012 2013 2014* FFR, OCT & IVUS Penetration - WW * 2014 penetration rates are projected 2012 2013 2014* 2012 2013 2014*
  106. 106. 111111 2014 PCI Optimization™ System Growth: Driven by Workflow Enhancement, Technology Advancement, and Clinical Outcomes Workflow • Pre-installed, ready to use FFR into all new cath lab systems • Fully integrated OPTIS™ systems • Leverage growing install base of ILUMIEN™ OPTIS™ system and QUANTIEN™ platform Technology • Launch new PressureWire Aeris™ system • Roll out automated stent planning tools & 3D reconstruction • Introduce angio co-Registration with OCT Outcomes • Adoption of appropriate use criteria • Leverage FAME clinical programs • Now funding FAME III • Build upon ILUMIEN™ OCT clinical program
  107. 107. 112112 Nearly all hemodynamic/cath lab systems sold today have Aeris-compatible FFR pre- installed, making every recipient a potential customer with no capital purchasing barrier Pre-installed FFR into Nearly All New Cath Lab Systems Workflow Enhancement Drives Penetration
  108. 108. 113113  STJ’s first cath lab-integrated PCI optimization™ platform, offering both anatomical (OCT) and physiologic (FFR) assessment  Always there, always on, no barriers for usage  Provides competitive advantage  Limited launch anticipated 2H 2014 Workflow Enhancement Drives Penetration Fully Integrated OPTIS PCI Optimization™ System
  109. 109. 114114 Technology Advancement Drives Preference  The only wireless FFR system on the market  Designed for quick access and smooth stent delivery  Near 1:1 torque response matching frontline workhorse guidewires  Incorporates new miniaturized radio transmitter for better maneuverability and margin improvement  Launch ongoing 9th Generation PressureWire Aeris™ System PressureWire Aeris 9th generation PressureWire
  110. 110. 115115  Directly links OCT with angiography-- the standard of care imaging modality  Provides for more accurate lesion assessment and stent deployment compared to angio or OCT alone  Accelerates the OCT learning curve  Limited launch anticipated 2H 2014 Technology Advancement Drives Preference Angio Co-Registration with OCT
  111. 111. 116116 Clinical Outcome Drives Penetration FAME Clinical Program Influenced Appropriate Use Criteria FAME Clinical Program AUC & Expert Consensus supports the use of FFR
  112. 112. 117 Left Atrial Appendage Closure  We expect LAA closure to become an essential tool in the tool box of full-service EP and interventional practices  STJ has wide access to AF patients through existing sales channels  Full commercialization of the AMPLATZER™ Cardiac Plug (ACP) is underway in approved markets  Stable market share in a market with strong double digit growth  LAA closure device inclusion in ESC guidelines has helped contribute to market growth
  113. 113. 118 LAA Closure – Amplatzer™ Amulet device  2nd generation device  Improves upon an already successful ACP device  Pre-loaded in catheter sheath to improve ease-of-use  Addresses a broader range of patient anatomies  Expect European launch in 2H 2014 AMPLATZER™ Amulet Disc and Proximal End Screw
  114. 114. 119 LAA Closure – Re-launch U.S. IDE Study  The ACP IDE trial enrollment was stopped in December 2013  Trial was an event-driven design comparing LAA to OAC and requiring up to 3000 patients  Made decision to stop enrollment due to expected near-term approval of a competitive device and potential enrollment challenges  No safety or efficacy issues  Currently working with FDA on a revised trial design which should result in an accelerated time to market  Expect to start enrollment in 2H 2014
  115. 115. 120 Renal Denervation Update  We remain optimistic about renal denervation as a potential new growth driver  Hypertension is an expensive, epidemic disease that has significant clinical and cost implications for physicians, hospitals, payers and patients  Like many early stage therapies, we recognize there is a lot to learn – at this time there are more questions than answers  What we do know is that renal denervation has consistently been shown to be safe  We also know that STJ has a strong history with RF ablation technologies  The internally developed EnligHTN™ system uses a multi- electrode system that differs from the competitive system  We look forward to reviewing the SYMPLICITY HTN-3 clinical trial results with our Global Renal Denervation Advisory Board and the EnligHTNment Clinical Trial Steering Committee and will incorporate lessons learned into our program
  116. 116. 121 Tissue Valves Represent a Growing Segment for STJ 2009 2010 2011 2012 2013 2014E  TAVR has helped the surgical aortic valve replacement (SAVR) market to grow through increased patient referrals  Since the launch of the Trifecta™ valve, STJ has almost doubled tissue valve revenue through market growth and share gains STJ Tissue Heart Valve Market Share STJ Tissue Heart Valve Revenue $0 $50 $100 $150 $200 $250 $300 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E Millions Trifecta Milestones: CE Mark 2010 FDA 2011 PMDA 2012
  117. 117. 122122 CV Summary  PCI optimization™ is a large potential opportunity where we lead in innovation, clinical development and market expansion  We expect a steady improvement in our growth rate as we continue to transition our sales mix from legacy products to growth drivers  We are optimistic that in 2014 our tissue heart valves, FFR, OCT and LAA will continue to grow at a high single digit or low double digit rate
  118. 118. A deeper dive into Portico™ Transcatheter Aortic Valve Phil Ebeling – Sr. Vice President, R&D Device referenced is approved for CE Mark. Not available for sale in the U.S.
  119. 119. 125 Market Opportunity Diagnosed Prevalence (Severe Aortic Stenosis): 500K 25% TAVR penetration Patients (US/EMEAC/Japan) 125K Estimated 2013 Market Size ~$1.0B Forward 5 Year CAGR 17% Market Opportunity $2.5-3.0B Transcatheter Aortic Valve Replacement (TAVR)
  120. 120. 126 Positive Market Dynamics for TAVR Positive Dynamics  650 WW TAVR centers today  Favorable reimbursement in place in 8 OUS geographies  Long term clinical and economic evidence is available and supports TAVR  Improving overall TAVR outcomes (improved patient selection, lower profile devices)  TAVR moving into lower-risk patients (SURTAVI, PARTNER II) $329.1 $470.6 $648.5 $738.3 $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 2013 2014 RevenueinThousands ID U.S. $978 $1,209
  121. 121. 127127 Portico™ Transcatheter Aortic Valve offers a design alternative to many existing TAVR limitations and challenges  Designed to be fully resheathable and repositionable  Designed to mitigate heart block  Designed to minimize PV Leak  Designed to minimize coronary ostia blockage post implantation  Designed for maximum durability
  122. 122. 128128 Portico™ Transcatheter Aortic Valve is designed to be fully resheathable and repositionable*  The unique valve and delivery system design of Portico heart valve allows the ability to fully reposition the valve:  Resheath the valve proximally or distally*, in situ  Retrieve the valve, if necessary  Resheathability is designed to enable optimized valve positioning during implantation and helps insure better outcomes (ex: PV Leak) *Until fully deployed Manoharan, G., St. Jude Medical Portico™ Transcatheter Aortic Valve Clinical Experience, EuroPCR, 05/17/2012.
  123. 123. 129 Portico™ Transcatheter Aortic Valve is designed to mitigate heart block  Designed to address conduction system interference  Ability to fully reposition the valve in situ for improved placement accuracy  Valve placed low within the stent frame allows for sealing without the valve extending deep into the LVOT  Nonflared annulus section of the stent frame Valve placed low within the stent frame Nonflared annulus section of the stent
  124. 124. 130 Portico™ Transcatheter Aortic Valve is designed to minimize PV Leak Calcific nodules  Single porcine pericardium cuff seam  The large cells in the annulus section of the stent are designed to minimize the risk of PV leak  Less metal — minimizing the potential of a stent strut resting against a calcific nodule  More tissue — allowing the tissue to conform around calcific nodules Paravalvular Leak Simulation
  125. 125. 131 Portico™ Transcatheter Aortic Valve is designed to minimize coronary ostia obstruction post implant  Large stent cells in the aortic section of the stent, allows access to coronary ostia post-implant Manoharan, G., St. Jude Medical Portico™ Transcatheter Aortic Valve Clinical Experience, EuroPCR, 05/17/2012. Aortic Section Annulus Section
  126. 126. 132  Portico transcatheter aortic valve is designed for leaflet coaptation in round and elliptical annulus configurations  In vitro testing is completed over the valve’s use range and in various annulus configurations to assess durability and hemodynamic performance Circular Configuration Ellipse 0° Ellipse 90° Portico™ Transcatheter Aortic Valve is designed for maximum durability and hemodynamic performance
  127. 127. 133 * Manoharan, G., How New Designs Lead to Improved Clinical Results in TAVR, TCT 2013
  128. 128. 134 Portico™ Transcatheter Aortic Valve US IDE Pivotal Trial, CE Mark Update  Full IDE approval using 23 & 25mm valves at 40 US sites in a head to head trial with other TAVR valves  ~1610 patients split into high and extreme risk cohorts  Randomized against commercially available TAVR valves  Primary non-inferiority endpoint for all-cause mortality and disabling stroke at one year  27 & 29mm will be added in the trial in 2H 2014  FDA has indicated that TAVR is now considered established rather than novel  FDA has recently engaged STJ on alternative trial designs that should significantly reduce the size and duration of the trial  STJ will start enrollment under current design and use patients toward future analysis  On track for the first implants in 1H 2014  CE Mark  23, 25mm valves - market released  27, 29mm valves - enrollment to begin 1H 2014, commercialize 2H 2014
  129. 129. 135135 Next Generation Portico™ Transcatheter Aortic Valve – Product Pipeline  Delivery System Designs:  Improved placement accuracy (co-axial alignment of the valve)  Reduction in vascular complications (further profile reduction)  Improved user interface (ergonomics)  Valve Designs:  Further minimization of PV Leaks (integrated solutions)  Broader range of valve sizes
  130. 130. 136136 Portico™ Transcatheter Aortic Valve Summary  Positive clinical and economic evidence is driving the growth of the TAVR market  Portico transcatheter aortic valve is a next generation product line that addresses many existing TAVR limitations and challenges and is expected to become a competitive new growth driver for St. Jude Medical
  131. 131. Growth through innovation in Neuromodulation Eric S. Fain, M.D. – Group President
  132. 132. 139 Plano Warning Letter Resolution  Completed all remediation activities associated with the Plano site Form 483’s and warning letter  Anticipate FDA re-inspection by end of 1H 2014
  133. 133. 140 WW Neuromodulation Dynamics  Approximately $2.0 billion market in 2014  ~$1.5B chronic pain; ~$0.5B deep brain stimulation  Expect both the US and International markets will grow at a mid to high single digit rate in 2014  Payers increased focus on clinical outcomes  Market fundamentals support continued strong growth  Severely under penetrated market  Increasing stigma and impact from long-term opioid use  Growing evidence for improved outcomes and healthcare economics with earlier intervention  Opportunities for share capture through innovation  Leverage innovation resident in CRM devices and bring to SCS/DBS systems  Create novel stimulation modes and explore anatomical targets  Expand indications
  134. 134. 141 SCS for Chronic Pain: Need for alternative stimulation modes  SCS for Neuropathic pain is an accepted standard of care in the treatment of chronic pain  However, as therapy adoption grows there is increasing awareness of SCS non- responders or patients who become non- responders over time  Anecdotal evidence suggests as high as 20- 30% of CP market (over time)  Little predictive evidence to say who will respond/not respond  Increasing market need for an alternative stimulation mode to address non- responders
  135. 135. 142 Evolution of Stimulation Modes to Tune Therapy Tonic  Standard waveform in today’s devices  Relatively low energy  Recharge ~1-2 hours, ~2 times per week High Frequency  Reduces paresthesia  Rapid battery drain  Recharge ~4-6 hours, 1-2 times daily STJ Burst  Reduces paresthesia  Minimal battery drain  Recharge ~1-2 hours, ~2 times per week
  136. 136. 143 Lateral Discriminatory Pathway Medial Affective/Attentional Pathway Pain Perception Attention to pain Why Burst Stimulation? Pain processing patterns and pathways  Lateral discriminatory pathway – controls pain perception  Medial affective/attentional pathway – controls emotional response and attention to pain stimuli IPG stimulation patterns and pathways  Tonic – Modulates only the lateral pathway  Burst – Modulates both the lateral and medial pathways to maximize effectiveness 1. Jahnsen H, Llinás R. : Voltage-dependent burst-to-tonic switching of thalamic 2. Harvey A. Swadlow1 & Alexander G. Gusev : The impact of 'bursting' thalamic impulses at a neocortical synapse. Nature Neuroscience 4, 402 - 408 (2001). 3. Sherman SM : A wake-up call from the thalamus. Nature neuroscience, 2001 cell activity: an in vitro study. Arch Ital Biol. 1984 Mar;122(1):73-82. 4. DeRidder D, Plazier M, Kamerling N, Menovsky T, Vanneste S. (2013) Burst Spinal Cord Stimulation for Limb and Back Pain. World Neurosurg. 2013 Jan 12. pii: S1878-8750. 5. DeRidder D., Vanneste S., Plazier M., van der Loo E., & Menovsky T. (2010). Burst Spinal Cord Stimulation: Toward Paresthesia-Free Pain Suppression. Neurosurgery, 66(5): 986-990. 1-3 5 4-5
  137. 137. 144 STJ Burst – Growing Body of Clinical Data* Burst vs. Tonic Clinical Experience  Consistent results across studies and sites  Patient preference for Burst over Tonic  Reduced paresthesia  Improved activity levels  Reduced attention to pain 0 1 2 3 4 5 6 7 8 9 Belgium The Netherlands Total VisualanalogScale A Multicenter Study on Tonic and Burst Spinal Cord Stimulation (N=102) baseline tonic stimulation burst stimulation * Data on file 0 2 4 6 8 10 12 14 16 18 Pain intensity Impact on life (affective) Patient preference VisualanalogScale A Randomized Double-blind, Placebo- controlled Study: FBSS (N=20) Placebo Tonic (500Hz) Burst 0 1 2 3 4 5 6 7 Overall Pain Limb Pain Trunk Pain VisualanalogScale Burst in Patients with Chronic Tonic Stimulation (N=21) Tonic Burst
  138. 138. 145  Smallest SCS device on the market (<18cc)  Rechargeable with industry leading 10 years longevity  Only device capable of bi-modal stimulation patterns of both Burst and tonic  Compatible with all legacy leads to include percutaneous, paddle and perc-paddle types  Lower power requirements vs. high frequency  Reduced paresthesia sensation  Expect CE mark and European launch 1H 2014 Prodigy™ SCS System with Burst Technology SUNBurst IDE Study  Burst vs. tonic  First patient enrolled 2014
  139. 139. 146 Protégé™ SCS System with Upgradeable Technology  First and only upgradeable SCS system  Smallest SCS device on the market (<18cc)  Longest warranty in its class  Compatible with legacy leads to include percutaneous, paddle and perc-paddle types  New features can be introduced to the Protégé system via software updates allowing for upgraded technology to be used  Anticipate U.S. launch 2H 2014 ID: H1’14 ´´
  140. 140. 147 SCS MRI Platform Receive Transmit  Initial approval covers head and extremity scans with few restrictions  Addresses the majority of scan procedures performed  Includes percutaneous and paddle leads  Paddle lead MRI scan capability is unique to STJ and represents largest and fastest growing portion of our business  Anticipate EU and U.S. launch in 2H 2014 Providing STJ SCS patients access to diagnostics capabilities of the MRI technology
  141. 141. 148 Delivering the Next Generation Implantable Platforms  New redesigned SCS and DBS system families  Common electronics platform leveraging CRM experience to impact the following attributes:  Size - New smaller size/shape to address implanter and patient needs  Programmability - Expanded stimulation modes  Configurability – Compatible with legacy and new lead constructs to serve novel anatomical target sites (DRG)  Longevity - Improved longevity and features to meet global requirements  MRI compatibility - Designed for maximum patient safety and practice efficiency in the MRI environment  Manufacturability - Improved manufacturability to achieve high quality and reduce manufacturing costs  Platform design to be completed 2014 Rechargeable Current New Primary Cell Current New
  142. 142. 149 Delivering the Next Generation External PlatformsIPG Patient Controller Clinic Programmer Trial Invisible Trial New Programmer Wireless Patient Controller Current 2014 2015
  143. 143. 150 SCS of the Dorsal Root Ganglion (DRG) Traditional SCS DRG Stimulation  DRG is where the primary sensory neurons (PSNs) are located  PSNs serve as a primary source of information and important “pain” processing point  DRG is consistently located from person to person making targeting reliable and repeatable  Requires ~95% less power  Less positional variation in stimulation  Targets both focal and broad areas of intractable chronic pain that traditional SCS therapy has low rates of success such as:  Peripheral neuropathy  Groin pain  Abdominal pain  CRPS CAUTION: Investigational Device. Limited by Federal Law to investigational use. Not available for sale in the US.
  144. 144. 151 6% 4% <1% 0% 2% 4% 6% 8% 10% 0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 CRPS FBSS Peripheral Neuropathies SCSPenetration Prevalence(Thousands) SCS of the DRG  Peripheral Neuropathies  Highest prevalence of all pain syndromes with lowest SCS penetration rate  Lowest traditional SCS success rate at 54%  Highest DRG stimulation success rate at 90% CAUTION: Investigational Device. Limited by Federal Law to investigational use. Not available for sale in the US.
  145. 145. 152 Head, back, leg and vascular ONS (intractable chronic migraine) RAP (refractory angina pectoris) FBSS (with or without prior surgery) PVD (peripheral vascular disease) Thorax and focal lower extremity Thoracic Neuropathies (Post-mastectomy, thoracotomy) Abdominal and Visceral Pain Post-Surgical Pain (i.e. hip, knee, foot, etc.) Groin and Testicular Pain Phantom and Stump Pain (Post Amputation) CRPS (localized foot/ knee/hand/) Distally Located Neuropathies Traditional SCS focus SCS of the DRG focus CAUTION: Investigational Device. Limited by Federal Law to investigational use. Not available for sale in the US. SCS of the DRG Addresses a Unique and Complementary Patient Population
  146. 146. 153 Spinal Modulation, Inc. Axium™ SCS System Complements STJ Portfolio for Chronic Pain  STJ traditional SCS is very effective for back pain  SMI Axium SCS system is ideal for difficult-to- treat anatomies including the groin, abdomen, foot and lower limb  Together we offer the broadest portfolio of products to treat chronic pain  STJ distribution in Europe and Australia  STJ sales reps trained  STJ has exclusive option to acquire SMI based on regulatory and revenue milestones  Axium U.S. IDE study ongoing CAUTION: Investigational Device. Limited by Federal Law to investigational use. Not available for sale in the US.
  147. 147. 154 DBS for Movement Disorders – Pathway to Broad Indication Coverage Parkinson’s Disease  IDE clinical trial completed with all effectiveness and safety endpoints met (results published in Lancet Neurol 2012: 11:140-149)  Related device quality systems improvements being implemented  FDA PMA submission 1H 2014 Essential Tremor  IDE clinical trial completed with all effectiveness and safety endpoints met  FDA PMA submission 1H 2014  CE submission 1H 2014 Dystonia  CE mark approval 2H 2013
  148. 148. 155 Neuromodulation Summary  We have completed all remediation activities associated with the Plano site Form 483’s and warning letter and we anticipate FDA re-inspection by the end of 1H 2014  We expect the combined U.S. and Int’l market of $2 billion to grow at a mid to high single digit rate in 2014  We are leveraging our CRM experience to launch redesigned, next generation SCS and DBS system families  We expect revenue for our neuromodulation business to accelerate during 2014 due to the impact of new products
  149. 149. 156156 Panel for Question and Answer Session
  150. 150. 157157 Thank you for attending St. Jude Medical’s 2014 Investor Meeting
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