Medtronic (MDT), one of the largest medical devices companies, has received conditional approval from the US Food and Drug Administration (FDA) for studying its CoreValve system for transcatheter aortic valve implantation (TAVI). The device is meant for patients suffering from symptomatic, severe aortic stenosis who are too weak to undergo open-heart surgery. The CoreValve system has been implanted in more than 12,000 patients outside the US since it received CE Mark approval in March 2007.
It is estimated that about 300,000 people are diagnosed with the disease globally, of which one-third are unfit to undergo open-heart surgery. Consequently, huge potential exists in the TAVI market. However, Edwards Lifesciences (EW) is a major competitor in this segment. Subsequent to encouraging data presented last month, Edwards expects to receive approval of its Sapien heart valves in the US by the end of 2011.
Earlier in September, Medtronic received CE Mark approval for its next generation CoreValve delivery system, which is AccuTrak technology-enabled. Subsequent to this approval, the company launched the product. This technology provides physicians to conveniently place the device, which is crucial for implant procedures.
Revenues of the CardioVacular segment during the first quarter of fiscal 2011 were $717 million, up 4.1% year over year driven by growth from all three divisions – Coronary & Peripheral (up 5.4% at $372 million), Structural Heart (up 2.8% at $224 million) and Endovascular (up 2.5% at $121 million). While revenues from Coronary & Peripheral division included $35 million from the Invatec acquisition, a 13.5% growth in the international market driven by the continued adoption of Endurant abdominal and Valiant Captivia thoracic stent grafts led to the growth of Endovascular revenues.
Our Recommendation
Medtronic has posted a disappointing first quarter with sales declining in two of its largest segments, CRDM and Spinal. However, the growth of the CardioVascular and Diabetes segment is encouraging. Successful commercialization of CoreValve in the US, though will take time, should further strengthen the CRDM segment. The company is increasing its focus on emerging markets and is targeting higher revenues from this region. Besides, acquisitions should enable the company to increase revenues in the forthcoming period. However, the company operates in a highly competitive environment and is exposed to the risk of currency movement.
We have a Neutral recommendation on the stock.
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