New Products And Global Expansion To Drive Medtronic’s CRDM Sales

by Trefis Team
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Cardiac Rhythm Disease Management (CRDM) is Medtronic‘s (NYSE: MDT) largest division, contributing about 30% of its sales. This division primarily deals with pacemakers and defibrillators for the diagnosis, treatment, and management of heart rhythm disorders and heart failure. In the third quarter of fiscal 2014, CRDM’s sales grew about 2% year-over-year (y-o-y) to $1.18 billion. While the growth rate is low in absolute terms, it is important to note that this business has improved significantly over the past few quarters.

Going forward, we expect CRDM sales to continue improving as the company launches new products and expands in new global markets. The CRDM business, much like the medtech industry in general, is driven by research and innovation as the market constantly demands new and improved products. In this article, we take a look at this segment’s new products and their respective competition.

Our price estimate for Medtronic’s stock is currently around $59, which is in line with the current market price.

See our full analysis for Medtronic

International Markets Likely To Drive Implantable Cardioverter Defibrillator (ICD) Sales

The ICD business contributes more than 55% of total CRDM sales, half of which come from outside the U.S. Weak demand for defibrillators in the U.S. had a noticeable impact on the division’s results in recent quarters. However, its sales are gradually stabilizing as macroeconomic headwinds weaken and new products gain acceptance. Medtronic’s worldwide ICD sales grew about 1.7% y-o-y on a constant currency basis in the first nine months of fiscal 2014, on account of strong performance in international markets.

ICD sales have recently improved because of growing acceptance of the company’s new products, such as Evera ICD, Viva XT CRTD (ICD with pacing capabilities) and Attain Performa Quadripolar (APQ) leads. While Medtronic lost some share in the U.S. market owing to overall weak demand and increasing competition, robust sales of Viva XT CRTD and APQ leads in Europe and Japan helped the company add 50 basis points to its international market share.

Medtronic faces serious competition in this business from Boston Scientific‘s (NYSE:BSX) subcutaneous ICDs (S-ICD), as well as St. Jude Medical’s (NYSE:STJ) Ellipse and Assura lines of ICDs. As demand in the U.S. ICD market remains sluggish, international markets such as Europe, Japan and China are likely to be the key growth regions for the company.

New Products And Emerging Markets Can Turn Around Pacemaker Sales

The pacemaker business, contributing about 38% of total CRDM sales, has remained under pressure in the last couple of quarters with operational sales declining in low single digits. This is attributable to sluggishness in the U.S. market and increased competition from global players such as St. Jude Medical and Boston Scientific.

Medtronic is banking on new products such as the Advisa MRI safe pacemaker for sales growth in the near term. Other products, such as the Adapta pacing system and EnRhythm pacing system, are also expected to contribute to future growth as the company explores new emerging markets such as Greater China, Africa and South Asia. Last week, it announced the commencement of clinical trials of the ‘world’s smallest pacemaker’-the Micra Transcatheter Pacing System (TPS) – in the U.S., thus positioning itself as a leader in pacemaker innovation. Medtronic’s pacemaker sales are also expected to gain from certain positive independent trial results published recently. According to the trial, done with 1,166 randomized patients with an average age of 74 years, Medtronic’s pacemakers were found to be superior in helping patients reduce progression to permanent atrial fibrillation (fast and irregular heartbeat) because of its unique anti-tachycardia pacing (ATP) and managed ventricular pacing (MVP) technologies. [1]

Going forward, we expect pacemaker sales to return to growth on the back of new product sales, expanding global markets and improving market sentiment for the company’s products. However, rival product launches, such as St. Jude’s Nanostim leadless pacemaker and its Quartet NXT leads, could provide resistance to Medtronic’s growth plans in this segment in the near term.

Atrial Fibrillation Sales Set For Rapid Growth

In the recently reported third quarter results, Atrial Fibrillation (AF) was the fastest growing business for Medtronic, with revenues growing at 25% y-o-y on a constant currency basis. Although AF currently contributes only a small fraction of total CRDM sales (~6%), it is a high-growth business for Medtronic.

The AF business performed well in recent quarters, driven by robust sales of its Arctic Front cryoablation system. The company is relying on its new product launches- Reveal XT Insertable Cardiac Monitor (ICM) and Reveal LINQ ICM System – to boost sales in the U.S. as well in international markets. [2] In a recent study, the Reveal XT ICM system was concluded to be better in diagnosing heartbeat irregularity in patients with a history of stroke from unknown causes. It was also found to be favorable to traditional diagnostic tools such as ECGs and Holter monitors in diagnosing atrial fibrillation in patients. [3] Going forward, we expect the AF business to continue its robust growth on account of increasing acceptance of its products.

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Notes:
  1. Trial Summary Minerva Randomized Study, CardioSource, Nov 18, 2013 []
  2. Press Release, Medtronic, Feb 19,2014 []
  3. Press Release, Medtronic, Feb 14, 2104 []
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