Despite facing various challenges like declining demand, intense competition and pricing pressure in many of its businesses, Medtronic (NYSE:MDT) has fared relatively better than most of its peers. This is due to strong growth exhibited by its cardiovascular franchise, which includes devices to treat coronary and peripheral vascular diseases that can lead to strokes, high blood pressure and kidney problems.
With its new and improved products, including the Resolute Integrity drug-eluting stent that is seeing a strong uptick in demand, Medtronic has been consistently gaining cardiovascular market share for the last couple of years. The medical device maker currently commands around 23% market share in the $16 billion cardiovascular market, well above its 2008 market share of 18%. Going forward, we expect a gradual increase in the company’s market share mainly on the launch of its renal denervation device (RDN), Symplicity, in the U.S.
Renal Denervation: Huge Market Potential
New renal denervation (RDN) devices like Symplicity have shown to be effective for patients with high blood pressure who haven’t been helped by standard drugs. In hypertension patients, renal nerves (that carry information from the kidneys to the brain and vice versa) are overactive which in turn raises blood pressure. RDN calms hyperactive nerves in the kidneys and reduces their production of hormones that affect blood pressure.  More than 75 million people in the U.S. and about 1.2 billion people worldwide suffer from hypertension (high blood pressure). An estimated 10% of the patients get no relief from currently available drugs, which presents an opportunity for RDN devices. 
Sensing the huge opportunity, the market has seen significant R&D activity and several acquisitions of late. An estimated 30 companies, including Medtronic, St. Jude and Covidien, are currently developing such devices. However, as of now, Medtronic is the current leader in the market with its Symplicity RDN, which it inherited with its $800+ million acquisition of Ardian in January 2011.
Symplicity: FDA Approval Will Be The Key
Symplicity was approved in Europe in 2010 before its rivals could enter the market. This gave Medtronic a huge competitive advantage in the region, driving sales growth. We, however, believe that most of the expected growth will come from its awaited launch in the large U.S. market where Symplicity still remains an investigational device. Recently, the medical device maker reported impressive one-year results from its Symplicity HTN-2 study.  The HTN-2 study results will certainly strengthen Medtronic’s case to secure FDA approval for its device. The FDA, however, will likely wait for the outcome of another study called Symplicity HTN-3, the results of which are expected in 2013.  Nonetheless, no such device is approved in the U.S. and Medtronic is ahead of its competitors. Therefore, once approved, we expect Symplicity and Medtronic to benefit greatly from that first mover advantage.
There are some caveats to our expectations. Competition is lining up in Europe and other markets as many competitors have already launched their RDNs in these regions or plan to do so soon.  Symplicity is a first generation RDN device and the launch of new and improved devices will hurt Medtronic’s ability to sustain its competitive advantage.  The segment is the second largest revenue contributor and constitutes close to 25% of our price estimate. Therefore, even a small outperformance/underperformance with respect to our expectations will have a material impact on the company’s valuation.Notes:
- Medtronic’s Revolutionary Device To Control High Blood Pressure, Seeking Alpha, Oct 23 2012 [↩] [↩] [↩] [↩]
- One-Year Results from the Symplicity HTN-2 Randomized Controlled Trial Published in Circulation, Medtronic, Dec 17 2012 [↩]
- Medtronic: ‘Symplicity’ And The Renal Denervation Market, Seeking Alpha, Oct 24 2012 [↩]