US Approval for Medtronic's Stent - Analyst Blog

Medtronic (MDT) has received approval from the US Food and Drug Administration (FDA) for its Integrity coronary stent system, which is based on advanced sinusoid technology. In February the system received CE Mark approval, subsequent to which Medtronic reached the lead position for bare metal stents (BMS) in Western Europe and Central Asia. The company's cardiovascular portfolio consists of bare metal and drug-eluting stents (DES) to treat patients suffering from coronary artery diseases.

Medtronic earned 19% of its revenues from the cardiovascular segment, with annualized growth of 4.1%, during the first quarter of fiscal 2011. The company's Resolute DES represents 70% of its international DES mix. This is to some extent driven by the favorable outcome of the Resolute All Comers trial presented at the EuroPCR meet in May 2010.

The company has launched Resolute Integrity stents in the international market on receiving CE Mark approval. During the latest quarter, Medtronic gained market share of nearly 300 basis points in BMS banking on the strength of Integrity BMS. Following the recent FDA approval, the company will be able to launch this product in the US. We expect Medtronic to record robust growth in this segment based on a strong portfolio and pipeline of products.

Medtronic's cardiovascular segment has witnessed several acquisitions in the recent past. In August 2010, the company acquired ATS Medical for $370 million including its debt burden. ATS Medical is focused on cardiac surgery, including heart valves and cryoablation technology. Earlier in April 2010, Medtronic had acquired Invatec, a medical technology player focused on the interventional treatment of cardiovascular diseases for $350 million. We note that Invatec's portfolio consisting of stents, angioplasty balloons and accessory products will complement Medtronic's cardiovascular business along with strengthening its coronary and peripheral product offering.

The company has posted a disappointing first quarter with sales declining in two of its largest segments, CRDM and Spinal. However, we are encouraged by the growth of the Cardiovascular and Diabetes segment. Medtronic is increasing its focus on emerging markets and is targeting at increasing revenue contribution from this region. Besides, acquisitions should enable the company to record higher revenues in the forthcoming period. However, the company operates in a highly competitive environment and is exposed to the risk of currency movement.

We maintain our Neutral recommendation on the stock.