Medtronic (MDT) received approval from the US Food and Drug Administration (FDA) for its Protecta portfolio of implantable cardioverter-defibrillators (ICDs) and cardiac resynchronization therapy-defibrillators (CRT-Ds).
The new products are equipped with SmartShock technology. Findings reveal that 98% of patients will be free of inappropriate shocks after one year with the implant. Meanwhile, 92% of patients will be free of inappropriate shocks after five years with the implant. Medtronic expects to begin shipment of the product immediately.
The approval of Protecta will boost Medtronic’s Cardiac Rhythm Disease Management (CRDM), its largest segment contributing 30% of total sales. However, for the past few quarters, this segment has been recording lower revenues due to slower market growth and pricing pressure.
In the third quarter of fiscal 2011, the CRDM segment generated $1,221 million in sales, down 1.8% compared to the year-ago quarter. Revenues derived from Pacing Systems and Defibrillation Systems, were at $450 million (down 2.0% year over year) and $735 million (down 2.8%), respectively.
The company recorded ICD sales of $458 million (down 3.6% annually) in the US while the international market contributed $277 million (down 1.42%). The US ICD market declined in low-single digits as pricing pressure was stable. Pricing pressure recorded mid-single digit decline due to the company’s inability to launch new products because of unresolved manufacturing issues.
However, earlier this month, the long-awaited issue of warnings letters in relation to its Mounds View facility (received in November 2009) and manufacturing facility in Juncos, Puerto Rico (June 2009) was resolved.
The resolution of the warning letters is significant for Medtronic as this paved the way for the US launch of Revo MRI SureScan pacemaker and Protecta ICDs. The Mounds View manufacturing facility is taken as the headquarters of the company’s CRDM business.
The FDA approval of Revo MRI SureScan pacemaker in February 2011 coupled with the recent approval for Protecta should enable Medtronic to record some improvement in pricing. The initial launch of the Revo MRI SureScan pacemaker has been going on well, which is expected to drive market share in addition to improvement in pricing.
Medtronic expects its fourth quarter CRDM growth rate to come down by 500 basis points based on difficult comparison. In the fourth quarter of last year, Medtronic benefited from the shipment halt of its competitor, Boston Scientific (BSX).
We maintain our ‘Neutral’ recommendation on the stock, which also corresponds to the Zacks #3 Rank (hold).
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