STJ ST. Jude Medical, Inc.

Leading medical devices player, Medtronic (MDT) has received approval from the US Food and Drug Administration (FDA) for iPro2, a next generation Professional continuous glucose monitoring (CGM) system. This product would better equip healthcare providers to assess the status of glucose control for the patients they treat. They will also be able to judge how diet, medication, and daily activities affect their patients’ glucose levels. 

Approval of iPro2 is significant as professional CGM is used by healthcare providers to reveal low (hypoglycemia) and high (hyperglycemia) glucose excursions that can worsen the condition of diabetic patients.  These excursions often go unnoticed with traditional A1C tests and standard glucose meter measurements.

The American Association of Clinical Endocrinologists (AACE) and the Endocrine Society have both recommended the use of Professional CGM on a broad range of diabetic patients.  They are of the opinion that Professional CGM is ideal for type 1 or type 2 diabetes patients who are not achieving target A1C levels, and for patients who have recurrent hypoglycemia or hypoglycemia unawareness. 

The last few quarters saw Medtronic reporting weaker sales from its two largest segments – defibrillators and spinal implants. The US ICD market has been affected by a number of challenges, namely the adverse article in the Journal of the American Medical Association published in January 2011 and the Department of Justice investigation of hospitals. The challenges witnessed in the US ICD market have also been felt across the board and impacted Medtronic’s competitors, Boston Scientific (BSX) and St Jude Medical (STJ).

To overcome these challenges, Medtronic is trying every means to revive growth. This includes penetration of international markets, portfolio expansion, focus on segments bearing potential and restructuring initiatives, which should benefit the company over the long term.

The Diabetes segment, in this case, has been a point of focus for the company and has been recording robust growth over the recent past. During the most recent quarter, this segment recorded $367 million in sales, up 13% year over year (10% at constant exchange rate or CER) driven by double-digit growth in insulin pumps and CGM. Moreover, Medtronic recorded 15% growth in Diabetes revenue derived from the international market with greater adoption of Veo pump and Enlite Sensor.

We currently have a Neutral recommendation on Medtronic, which also corresponds to the Zacks #3 Rank (Hold) in the short term.

 
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