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Heart of the matter

St. Jude Medical

Headquarters: St. Paul
Employees: 16,000
The business: Developing medical technologies and services for cardiac, neurological, and chronic-pain patients. The company makes pacemakers as well as several other devices for vascular diseases.

Lifesaving devices for the heart are the economic blood pumping through the veins of St. Jude Medical. The St. Paul firm was founded in 1976 and rose to become one of the world’s top sellers of heart valves. In 1994, St. Jude, under pressure to diversify, completed a $500 million deal with Siemens to purchase Pacesetter, then the world’s second-largest producer of pacemakers. St. Jude’s stock was trading at just under $6 at the time and has since jumped more than 950%, to $55, far outpacing the S&P 500 over that same period. The company is a leading manufacturer of implantable heart devices and has a market capitalization of $16.1 billion. The drive to lower health care costs and a sluggish economy have created headwinds across the medical-device sector. After a tough 2012 that included scrapes with FDA regulators over the quality of the wires that connect the heart to devices, St. Jude has returned to growth, thanks to a focus on products and some timely acquisitions.

Playing defense

After a 2011 recall of St. Jude’s Riata leads — wires that connect implantable devices to the heart — CEO Daniel Starks pushed back firmly when a subsequent report questioned the safety of the firm’s updated lead product, the Durata. Earnings are back on track, jumping 49% to $262 million for the quarter that ended Sept. 30. “He defended their platform, their business, and their technology, and it looks like he was correct,” says Joshua Jennings, a medical-device analyst.

Acquisitions

Starks first joined St. Jude in 1996 as part of the firm’s purchase of another corporation, took over as CEO and president in 2004, and has acquired a string of smaller companies since. The company saw its stock price jump recently on the news it had purchased Nanostim, the maker of a tiny wireless pacemaker that has won approval for use in Europe, and has an option to buy CardioMEMS, a wireless heart-monitoring system that now appears closer to FDA approval.

Research and development

St. Jude has shown a steady focus on research and development, spending more than 12% of its revenue on R&D each year from 2010 to 2012. The company picks up key innovations through acquisitions but has also developed top products in-house. “These guys have been an innovation company,” says Raj Denjoy, an analyst at Jefferies and Co. St. Jude’s Quadra defibrillator, which uses four electrodes, was the first product of its kind on the market.

This story is from the November 18, 2013 issue of Fortune.