UPDATE: Medtronic Resolves FDA Letters, Clears Way For Approvals

Medtronic Inc. (MDT) has resolved issues at two manufacturing facilities cited in Food and Drug Administration warning letters, clearing they way for important product approvals, including a new type of defibrillator.

The medical device maker has been in a holding pattern awaiting the lifting of the FDA letters, both issued in 2009, that related to problems found at its Mounds View, Minn., facility and another site in Juncos, Puerto Rico. The company has received "approvable letters" from the FDA for a number of products pending the resolution of the warning letters.

"We are optimistic approvals are imminent," spokesman Brian Henry said. Shares of Medtronic recently rose 33 cents to $39.96.

Although the warning letters have been an issue, the FDA did approve a Medtronic pacemaker designed to work safely during MRI scans last month, citing an unmet need in the U.S.

"It's very positive for the company. It should speed new product approvals and modestly lower remediation costs," said Gabelli & Co. analyst Jeff Jonas. He noted that several products awaiting approval are important to accelerating growth at the respective divisions of the company.

Jonas said the news is a "modest positive" for sales and earnings in fiscal 2012, but it wouldn't move the "financial needle" a lot because of Medtronic's large size. The company's fiscal year ends on April 30, and it had third-quarter revenue of about $4 billion.

The Juncos plant makes neuromodulation, diabetes and heart-rhythm related products, while the Mounds View site is the company's heart-rhythm device headquarters.

The Minnesota resolution should allow for the approval of Protecta defibrillators, which have technology that minimizes inappropriate shocks in patients.

Collins Stewart analyst Tao Levy said the Protecta devices should be launched with a "premium price" and could help further stabilize pricing for such devices. That could be positive for other companies in the implantable defibrillator market, including St. Jude Medical Inc. (STJ) and Boston Scientific Corp. (BSX).

The lifting of the Juncos warning letter will allow for potential approval of Interstim for fecal incontinence. The nerve stimulation system is already approved to treat overactive bladder. Levy said annual sales in the new use could reach $200 million to $300 million.

Morningstar analyst Debbie Wang said the letters were expected to be lifted this year, but the actual timing of the resolution was unknown.

Chief Executive Bill Hawkins recently said that he was optimistic the solution would come "sooner rather than later."

Medtronic is facing common pressures in the $200 billion U.S. medical-devices industry: slow growth in key markets and downward pressure on product prices. New products that garner higher prices can offset these pressures, but the industry is also dealing with a tougher regulatory environment at the FDA.

While the resolutions lift one hurdle to the FDA approval process, Wang said that broader issues remain. She pointed to increased risk aversion after several high-profile recalls and high turnover at the agency.

"We don't expect the removal of these warning letters will do anything to change some of the more institutional aspects of the FDA that have been slowing down the approval process," Wang said.

-By Thomas Gryta, Dow Jones Newswires; 212-416-2169; thomas.gryta@dowjones.com

-Melodie Warner contributed to this report

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