STJ ST. Jude Medical, Inc.

According to a recent announcement by the Justice Department, Medtronic (MDT) has agreed to pay $23.5 million to settle allegations regarding kickbacks paid to doctors in post-market studies and device registries to implant its pacemakers and defibrillators.  

Post-market studies are intended to assess the clinical performance of a medical device or drug after its approval by the Food and Drug Administration. Registries are collections of data maintained by a device manufacturer concerning its products that have been sold and implanted in patients. According to the government, Medtronic submitted false claims to Medicare and Medicaid by using two post-market studies and two device registries as mediums to pay illegal kickbacks to participating physicians.  

Each of the studies and registries required a new or previous implant of a Medtronic device in each patient. In each case, the company had paid participating physicians a fee ranging from $1,000−$2,000 per patient. The government also argued that Medtronic had asked physicians to convert to its devices for the sake of the studies.

Medtronic, however, claimed innocence and did not admit to any wrongdoing on its part. Nevertheless, the company is happy with the resolution of the issue.

The resolution comes at a time when Medtronic is witnessing several headwinds affecting its top line. The company’s two biggest segments, Cardiac Rhythm Disease Management (CRDM) and Spinal have been recording lower sales for the past few quarters.

The downside in the US ICD market issued mainly from negative publicity from an article published in the Journal of the American Medical Association on ICD utilization that affected implant volume. Medtronic’s competitors, Boston Scientific (BSX) and St Jude Medical (STJ), also face a similar situation and are trying to increase their respective market share amidst declining ICD market growth.

However, the company is undertaking several steps to revive its top line. This includes penetration of international markets, portfolio expansion and restructuring initiatives, which should benefit the company over the long term. Moreover, we consider Medtronic’s recent decision to divest the low-margined Physio-Control business a good move as it will help it to focus on its core segments.

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

 
BOSTON SCIENTIF (BSX): Free Stock Analysis Report
 
MEDTRONIC (MDT): Free Stock Analysis Report
 
ST JUDE MEDICAL (STJ): Free Stock Analysis Report
 
Zacks Investment Research