Zacks_Analysts' Blog : Medtronic Grows DBS Portfolio - Analyst Blog

Medtronic (MDT) has strengthened its deep brain stimulation (DBS) portfolio with the launch of Activa SC neurostimulator in both the US and Europe. This product enhances the Activa portfolio of DBS systems, which consists of Activa PC, the smallest and most advanced primary cell battery and Activa RC, the only rechargeable DBS device. The DBS devices are meant to deal with symptoms of advanced Parkinson’s disease.

More than 80,000 patients worldwide have received Medtronic DBS Therapy, which delivers electrical stimulation from a surgically implanted neurostimulator to targeted areas within the brain. Through this process, individuals may achieve greater control over their body movements.

Medtronic’s Neuromodulation segment, accounting for 10% of total revenue, caters to neurological, urological, and gastroenterological disorders. In the third quarter of fiscal 2011, this segment generated $401 million in sales, up 2% from the year-ago period.

Results were driven by mid-teens growth in InterStim and high single-digit growth in DBS therapies, partially offset by declines in drug pumps and pain stimulation market, which experienced softness in demand.

Medtronic’s market share had been marred in the neurostimulation market during the last reported quarter. However, the company is confident that based on new product launches such as RestoreSensor, it could improve its position.

While RestoreSensor was launched in Europe during the fourth quarter of fiscal year 2010, it was launched in Canada and Australia in the last reported quarter. Medtronic is also working to get the product approved in the US, which should help it grow its market share. Moreover, the latest product launch of the DBS system should further boost revenues.

Recommendation

Medtronic recorded a 3% growth in revenues during the third quarter although sales continued to decline from its largest segment, CRDM. However, breaking the trend of the past few quarters, the Spinal segment recorded higher revenues in this quarter.

This segment should benefit gradually from the recent product launches and an improvement in economic scenario. Besides, acquisitions should enable the company to record higher revenues in the forthcoming period. However, the company operates in a highly competitive environment with players such as Boston Scientific (BSX) and St Jude Medical (STJ) and is exposed to the risk of currency movement.

We are currently Neutral on the stock.