Leading medical devices player, Medtronic (MDT) has strengthened its Spinal business with the launch of two products – Vertex Select Chromaloy Plus Rods and the Atlantis Vision Elite Anterior cervical plate system. The former is a supplement to the Vertex Select reconstruction system, which is meant to treat patients suffering from several conditions such as degenerative disc disease, spinal stenosis, fracture, tumors, and/or spondylolisthesis.
The Atlantis Vision Elite Anterior cervical plate system is used to treat patients who suffer from degenerative disc disease that affects the neck (cervical spine). There is immense market potential in this area as it is estimated that 180,000 cervical fusion procedures are performed in the US each year to relieve compression on the spinal cord or nerve roots. The latest product in the Atlantis franchisee is designed to provide stability during spinal fusion, a procedure that joins two bones together.
The good news surrounding the launch of these two products was tempered by the setback of another. The company has been seeking approval from the US Food and Drug Administration (FDA) for its Amplify rhBMP-2 Matrix for spinal fusion procedures. However, in the third quarter of fiscal 2011, the FDA declined to approve the product without some additional information. This surprises us since in July, 2010, the product had received positive feedback from the FDA’s advisory panel regarding its safety, effectiveness and benefits over risks. Medtronic is hopeful about the approval of Amplify and is working with the agency to provide the required information.
The Spinal segment is the second largest at Medtronic contributing 21% of total revenues during the last reported quarter. The segment has struggled over the past few quarters before returning to growth in the third quarter. During the reported quarter, this segment generated $861 million in sales compared with $842 million in the year-ago period, up 2%. Revenues from Core Spinal and Biologics were a respective $626 million (down 0.6%) and $235 million (up 10.8%). Metal constructs’ revenues recorded a 2% growth during the quarter.
As regards the global spinal market, Medtronic witnessed some stability with growth remaining in the range of 3%−4%, at par with the previous two quarters. Several products are slated to be launched in the Spinal segment, which should ensure higher revenues going ahead. However, we note that the market for spinal products is competitive with the presence of players such as Zimmer Holdings (ZMH) and Johnson and Johnson (JNJ) in the fray.
We are currently ‘Neutral’ on the stock, which also corresponds to the Zacks #3 Rank (hold) in the short-term.
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