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MDT Progresses on TAVI Portfolio

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Leading medical devices player, Medtronic (MDT - Free Report) presented positive data from the pivotal trial of its Engager transcatheter aortic valve implantation (‘TAVI’) system at a recently held meeting. The data presented revealed safety and performance of the valve, which is delivered transapically. The valve, which is being reviewed for CE Mark approval in Europe, is meant to treat patients with severe aortic stenosis who are at high or extreme risk for surgical aortic valve replacement.

Over the past few quarters, Medtronic has been focusing on developing its transcatheter valve portfolio because of its immense potential. The market size is expected to grow to $2.5 billion by 2020 from $700 million last year. Though the Engager valve is in the investigational stage, the company has witnessed significant contribution from the transcatheter valve franchise to its Structural Heart business subsequent to the acquisition of CoreValve and release of the Melody products.

Although CoreValve is approved in Europe, the product is yet to get approval in the US. Medtronic has completed the enrollment of high-risk patients in the CoreValve US pivotal trial. More than 1,500 patients have been enrolled with severe aortic stenosis in two studies – high or extreme risk – for aortic valve surgery. Approximately two-thirds of the patients enrolled are in the high risk study.

The transcatheter valve market in Europe is competitive with the presence of Edwards Lifesciences’ (EW - Free Report) Sapien valve. Moreover, Edwards has the first mover advantage in the US with Sapien, which received approval in November 2011.

Medtronic has also begun enrollment in the US as part of the SURTAVI (CoreValve Surgical Replacement and Transcatheter Aortic Valve Implantation) trial. Within the SURTAVI trial, CoreValve implantation can be performed by transfemoral, subclavian or direct aortic access, depending on the needs of the intermediate risk patients for open-heart aortic valve replacement. Intermediate risk patients represent huge potential as estimates put the patient size in this category at almost double, compared to the existing patient population that has been studied so far in the pivotal study.

We are encouraged by Medtronic’s focus on portfolio expansion along with its aim to boost revenues from emerging markets. This becomes essential as sales from defibrillators and spinal implants have been on a declining trend over the past few quarters. Meanwhile, Medtronic continues to target returning 50% of free cash flow to shareholders. However, unfavorable currency and macroeconomic uncertainties in Southern Europe adversely affected sales during the recently reported first quarter.

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

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