St. Jude Medical STJ released solid second-quarter results, and the firm remains on track to meet full-year projections. On the whole, the performance across St. Jude’s product segments are pleasing, and many are particularly heartened to see stability in implantable cardioverter defibrillator sales. After two years of soft demand following a published study that suggested overuse of ICDs, domestic demand fell off and we saw consecutive quarters of midsingle- digit declines in U.S. ICD sales.

In St. Jude’s case, this market decline was exacerbated by concerns about the performance of its Durata lead. However, in the last two quarters Medtronic MDT has also seen its ICD business stabilize and we are reassured to see St. Jude’s quarterly ICD revenue grow at 1% in the U.S. While this does not necessarily bring them closer to addressing the long-standing issue of developing a diagnostic that will more accurately identify which patients would ultimately benefit from ICD implantation, at least the market is no longer shrinking. Additionally, the most recent data on Durata presented in May give more confidence that this product is not plagued by the performance issues that have dogged the earlier-generation Riata lead.

At five years out, Durata seems to be just as reliable as Spring Quattro, which sports a clean long-term record for non-failure. The latest data goes a long way toward lifting the Durata cloud that has hovered over St. Jude. Putting to rest worries about early Durata failure should help grease the skids for St. Jude to optimize the recent launches of its new cardiac rhythm management products. We expect to see more positive growth in St. Jude’s ICD business as it rolls out the new Ellipse and Assura products in Europe and the U.S. St. Jude’s pacemaker unit continues to display weakness, with quarterly revenue falling 6% in constant currency, and we note that Medtronic has made an aggressive push that allowed the firm to capture considerable pacemaker share from both St. Jude and Boston Scientific last quarter.

We think the launch of St. Jude’s new Endurity and Assurity pacemakers in Europe could help fend off Medtronic. Aside from the stability in ICD sales, management also mentioned that pricing has been typical, which we interpret as the usual 2% annual decline in average selling price that has characterized CRM. We take this as a good sign, and expect St. Jude should be able to shore up its pricing thanks to the launches of new products this year. We remain comfortable that St. Jude can meet our estimate for 26% operating margin in 2013.