Medtronic: Good Symplicity Test Results But FDA Approval Not Close

Medtronic (NYSE:MDT) has reported impressive one-year results from its Symplicity HTN-2 study for its renal denervation device (a radiotherapy-based system to treat high blood pressure), Symplicity. According to the medical device maker, hypertensive patients experienced a significant drop in blood pressure without any safety issues like device-related adverse events, late vascular complications or major declines in kidney function. ^[1] This comes amidst growing competition in a huge potential market as rivals catch up with Medtronic. Recently, Boston Scientific (NYSE:BSX) announced a $425 million ($125 million up-front and up to $300 million in milestone payments) acquisition of Vessix Vascular, a developer of similar devices. ^[2]

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About The Market And Opportunity

More than 75 million people in the U.S. and about 1.2 billion people worldwide suffer from hypertension (high blood pressure). While there are drugs available to control blood pressure, an estimated 10% of the patients get no relief from currently available drugs and until recently, doctors had few choices outside of prescribing more drugs. ^[3]

However, new renal denervation (RDN) devices like Symplicity have shown to be effective for patients with high blood pressure who haven’t been helped by standard drugs. In hypertension patients, the renal nerves (that carry information from the kidneys to the brain and vice versa) are overactive, which in turn raises blood pressure. RDN calms hyperactive nerves in the kidneys and reduces their production of hormones that affect blood pressure. ^[3]

Competitive Landscape Changing

Sensing the huge opportunity, the market has witnessed significant R&D activity and several acquisitions of late. An estimated 30 companies, including Medtronic, St. Jude and Covidien, are currently developing such devices. ^[3] As of now, Medtronic is the current leader in the market with its Symplicity RDN, which it inherited with its $800+ million acquisition of Ardian in January 2011. Until recently, Boston Scientific was lagging behind its competitors, but the Vessix Vascular acquisition should allow it to gain some ground.

Symplicity was approved in Europe in 2010, before its rivals could enter the market. This gave Medtronic a huge competitive advantage. Competition, however, is lining up in Europe and other markets as other medical devices makers have already launched their RDNs in these regions or plan to do so soon. Further, there have been concerns about whether Medtronic can sustain the competitive advantage it has had up until now. Symplicity is a first generation RDN device, and improved devices have begun to hit the market. ^[4]

FDA Approval Will Be Key

The HTN-2 study results should certainly strengthen Medtronic’s case to secure FDA approval for its device. The FDA, however, will likely wait for the outcome of another study called Symplicity HTN-3, the results of which are expected in 2013. ^[3] As of now, no such device is approved in the U.S., so if Medtronic is able to pull off the pending approval on time (which could arrive as late as 2015), it will benefit greatly from that first mover advantage.

Symplicity is a part of Medtronic’s cardiovascular business in our model, which has various devices to treat coronary and peripheral vascular diseases that can lead to strokes, high blood pressure and kidney problems. Going forward, we expect a gradual increase in the company’s market share mainly on the back of innovative products like Symplicity and Resolute Integrity Drug-Eluting Stents. The segment is the second largest revenue contributor and constitutes close to 25% of our price estimate. Therefore, even a small out-performance / under-performance with respect to our expectations will have a material impact on the company’s valuation.

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1. One-Year Results from the Symplicity HTN-2 Randomized Controlled Trial Published in Circulation, Medtronic, Dec 17 2012 [↩]
2. Boston Scientific to Acquire Vessix Vascular Inc., Boston Scientific Press Release, Nov 8 2012 [↩]
3. Medtronic’s Revolutionary Device To Control High Blood Pressure, Seeking Alpha, Oct 23 2012 [↩] [↩] [↩] [↩]
4. Medtronic: ‘Symplicity’ And The Renal Denervation Market, Seeking Alpha, Oct 24 2012 [↩]