STJ ST. Jude Medical, Inc.

Leading medical devices player,  Medtronic (MDT) announced the CE Mark approval and subsequent launch of the CapSure Sense MRI SureScan pacing leads, for use during Magnetic Resonance Imaging (“MRI”). This lead is the smallest MR-conditional lead available in the world. The CapSure Sense MRI leads have been tested in more than 400,000 scenarios to ensure the safety and effectiveness of the treatment.

In February last year, the company received US approval for its Revo MRI SureScan pacemaker, designed to ensure safety in certain MRI scans. The device was already available in the world market since 2008.

The latest approval will come to the aid of a huge patient population, as approximately 60 million MRI procedures are performed every year. Accordingly, there was an urgent requirement for MR–Conditional pacing systems.

The approval of CapSure Sense can bring some relief, though not significantly, to Medtronic’s biggest segment, Cardiac Rhythm Disease Management (“CRDM”). The CRDM business continues to disappoint with few signs of recovery from the lackluster trends seen in the past few quarters.

During the most recent quarter, this segment recorded a 3% decline in sales at constant exchange rate (“CER”) to $1.192 billion. Although pacing systems increased 3% at CER to $467 million, defibrillator sales declined 9% at CER to $674 million. CRDM sales were affected by declining procedure volume, partially offset by growth in AF solutions.

Recommendation

We were disappointed with the company’s performance on the revenue front during the latest quarter. Having witnessed disappointing performance from the two biggest segments – CRDM and Spinal – Medtronic is trying every means to revive growth. This includes penetration of international markets, portfolio expansion and restructuring initiatives, which should benefit the company over the long term. Moreover, acquisitions done over the past few years are contributing to total revenues, a positive trend that is expected to continue. Meanwhile, Medtronic has increased its focus on the emerging markets that have been garnering significant growth.

Despite these measures, economic uncertainty is impacting procedure volume. Medtronic’s competitors, Boston Scientific (BSX) and St Jude Medical (STJ), also face a similar situation. Longer term, we have a Neutral recommendation on Medtronic.

The stock retains a Zacks #3 Rank (“Hold”) in the short term.

 
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