Assessing The Impact: Medtronic’s MiniMed 670G Gets FDA Nod

by Trefis Team
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Medical technology player Medtronic (NYSE: MDT) recently received U.S. FDA nod for its MiniMed 670G system, which is the first Hybrid Closed Loop insulin delivery system. This is a significant news as far as the company’s diabetes segment is concerned. In an earlier article we had discussed how Medtronic plans to drive growth in this segment through strong product development and alliances. In this article we take a look at what this approval means for Medtronic’s diabetes business and why we are not changing our price estimates. While it is a significant technological advancement, we think that the incremental revenue addition will be small when seen in the context of the company’s large business.

Our price estimate of $94 for Medtronic is 8% higher than current market price

Diabetes Business On Right Track

International Diabetes Federation estimates about 415 million people worldwide suffer from diabetes, a number that is expected to increase. Of these, 5% – 10% have  Type I diabetes. According to a report by research firm Global Data, the size of Type I diabetes care market is about $7 billion and with expected CAGR of 7.6% over the next 5 years. The 670G is approved for Type I patients. With the launch of this device the company has gotten one step closer to designing an artificial pancreas which would be fully automated. We expect this device to be significant driver of revenue and earnings for diabetes segment. Medtronic at present serves 1 million diabetes patients and generates approximately $2 billion in revenue. With the new device, management plans to serve about 20 million patients and generate $4 billion in revenues by 2021. While these goals are achievable, with such a large pool of patient and Medtronic’s cutting edge technology solution, there is the possibility for the company to in fact exceed the present target of $4 billion in revenues.  Medtronic plans to make the new 670G to be available commercially by early 2017 and expects European approval by mid-2017. So, any significant impact on the divisions earnings, attributable to this device, is expected to occur only by Q4 of fiscal 2017.

Why Are We Not Changing Our Price Estimate?

The FDA approval of 670G is a quarter  earlier than expected. Our model already reflects the incremental value addition over the years from this device. Furthermore, Medtronic is a large organization with close to $30 billion in revenue. Diabetes segment contributes about 7% to the company’s revenue and close to 5% to its value as per our estimates. A 20% increase in revenue, over the coming years, from our present level will have less than 5% impact. You can use our widget embedded below to build your own scenario reflecting the impact on price.

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