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Leading medical devices player, Medtronic (MDT - Analyst Report), recently presented positive data from the Symplicity HTN-2 clinical trial that is evaluating the safety and efficacy of renel denervation. The 18-month data demonstrated that the Symplicity system continues to provide superior and sustained blood pressure reduction in patients with treatment-resistant hypertension. In addition, the safety of renal denervation with this particular system was also maintained at 18 months, without any device-related serious adverse events and no newly reported vascular complications from 12−18 months.

The company has been witnessing disappointing performance from defibrillators and spinal implants in the US market. However, we are optimistic that over the long term, stability in the US defibrillator and spinal market along with a deep pipeline/portfolio − which includes CoreValve, Resolute Integrity, Atrial Fibrillation, renal denervation and peripheral businesses − will be the driving factors for the company. This strategy of portfolio diversification has been followed by its peers such as St Jude Medical (STJ - Analyst Report) and Boston Scientific (BSX - Analyst Report) as well.

Of these driving factors, renal denervation, serving a significant unmet clinical need in uncontrolled hypertension, deserves special mention given its immense market potential. Hypertension is a primary risk factor for stroke and is costing the global health care economy $500 billion a year. The company estimated that with optimal drug therapy, 30% of the patients remain uncontrolled. Consequently, approximately 300 million patients would need some sort of additional therapy by 2020.

According to Medtronic, this indication alone holds a $2−$2.5 billion market opportunity by 2020, excluding the other potential applications of renal denervation. The Symplicity system was inducted in the company’s portfolio with the acquisition of privately-held Ardian, in January 2011. During fiscal 2013, revenue from this business is expected to almost double to $60−$70 million.

While the Symplicity system has received both CE Mark and Australia’s Therapeutic Goods Administration (TGA) listing, it is yet to receive approval in the US. However, adoption of the device depends on the reimbursement status, which in turn depends on positive clinical data. We expect the company to benefit from the 18-month positive data. Medtronic’s enrollment process for the Symplicity HTN-3 US pivotal trial is in progress, and is expected to be complete during the first calendar quarter of 2013.

We have a Neutral recommendation on Medtronic. The stock retains a Zacks #3 Rank (Hold) in the short term.

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