Staff Writer

Medtronic plc had never seen its market cap sustain itself at above $130 million. But this summer, the Dublin-based company saw its valuation soar well past that. The latest boost came as the company reported its first quarter 2020 earnings – and boosted its EPS expectations for the year to a range of $5.54 to $5.60 from the prior guidance of $5.44 to $5.50.

Medtronic shares (NYSE:MDT) tipped up 4% in early trading on the news, pushing the company to a market cap of more than $145 billion. That means the company has roughly tripled its market cap in the last five years, having added more than $30 billion thus far in 2019 alone. Medtronic is the eighth largest public health care company, just behind Abbott Laboratories, and larger than many pharma companies.

Wall Street seems confident in Medtronic's ability to keep performing, counting on continued momentum in strong double-digit growth businesses including transcatheter aortic valve replacement (TAVR), brain therapies and GI solutions. By contrast, heart failure and pain stimulation devices saw revenue declines in the teens last quarter. Several upcoming product launches are also seen as reasons for optimism.

Launching expectations

"We believe Medtronic is an accelerating growth story trading at a steep discount to its peers," summed up Larry Biegelsen of Wells Fargo. "Medtronic's organic growth will accelerate over the coming quarters due to new product launches such as Micra AV, the surgical robot, Linq 2.0, the 780G diabetes pump, and next generation Interstim."

Micra AV is an investigational algorithm that uses the accelerometer signal in the Micratranscatheter Pacing System to restore atrioventricular (AV) synchrony in cardiac function for patients with sinus rhythm and AV block. Medtronic is in the process of developing a soft tissue surgical robot, which it will further detail at an analyst day dedicated to the topic of robotics on Sept. 24. Its existing neurosurgery dedicated Mazor X Stealth navigated robotic system is said to be outpacing its competition and helping to boost the sales of other capital equipment.

"It's a big area of focus for us, both organically as well as inorganically, and one that we expect over the long-term, not just in one procedure," said Medtronic chairman and CEO Omar Ishrak regarding robotic surgery on the Sept. 20 call. "Because across all procedures, we can be the company who rewrites the way surgery is done in the next decade. So, make no mistake, this is a core area for us and we'll see much more about robots than just the two that you're looking at today in the future."

The launch of the Bluetooth-enabled Minimed 780G advanced hybrid closed loop system, a second-gen iteration of Medtronic's artificial pancreas system is slated for the second half of fiscal 2020. The company has already submitted to the FDA for the 780G with a non-adjunctive indication, meaning a fingerstick blood glucose test will not be required prior to treatment.

Medtronic is also working on a pair of new continuous glucose monitor sensors, Zeus and Synergy, that are designed, respectively, to reduce fingersticks dramatically and to work without a separate transmitter. They are expected to launch in the 2020 to 2021 time frame.

After an initial revenue explosion in the Diabetes Group, the segment has calmed considerably to 5.4% growth with $592 million revenue last quarter. Sales have slowed considerably in the U.S., where patients are likely awaiting the next-gen technology. International sales continue apace at almost 20% with the ongoing launch of the Minimed 670G hybrid closed loop insulin pump system with the Guardian Sensor 3.

The Linq 2.0 is the second-generation version of the smallest insertable cardiac monitor that has a five-year battery life. Finally, the next-gen, bladder control sacral neuromodulation implant Interstim Micro is smaller, only 3 cc in volume, and it's now rechargeable. It's expected to be approved by the FDA during the second half with a European launch in fiscal 2020 and a U.S. launch in late fiscal 2020 or early fiscal 2021.

Big drivers

Among the top performing groups last quarter was Coronary & Structural Heart at 5.2%, which was led by double-digit growth in transcatheter aortic valves. Last week, FDA approved Medtronic's Evolut Transcatheter Aortic Valve Replacement (TAVR) system for patients with symptomatic severe native aortic stenosis who are at a low risk of surgical mortality. Positive data were presented this spring at the American College of Cardiology (ACC) Conference on valves from Medtronic and competitor Edwards in a low risk population, which lifted the TAVR segment.

"In TAVR, we saw both the market and our growth accelerated to the mid-teens in Q1 on the back of the lower-risk data presentations at ACC," said Ishrak. "CMS published the final TAVR NCD (National Coverage Decision) memo in June, and we expect this will result in approximately 200 new TAVR centers in the U.S. We're already in active negotiations with about half of these centers, which are ready to start as we aim to become their preferred partner in TAVR devices."

Brain Therapies, part of the Restorative Therapies Group, grew 11.4% to $740 million last quarter. Within Brain Therapies, Neurovascular was particularly strong in the mid-teens, with high-teens growth specifically in stent retrievers and flow diversion. Medtronic also said it's seeing fast adoption of the Riptide aspiration system and React aspiration catheters. For its part, Neurosurgery was led by double-digit growth in Stealthstation S8 surgical navigation systems, O-arm surgical imaging systems, and Mazor X robotic guidance systems.

GI Solutions, within Respiratory, Gastrointestinal & Renal that accounted for $683 million in revenue last quarter with an increase of 6.1%, was driven to low double-digit growth based on the Pillcam systems, Emprint ablation systems, and Beacon endoscopic ultrasound products.

One of the worst performers, in Cardiac Rhythm & Heart Failure that brought in $1.382 billion and grew only 1.2%, was Heart Failure, which had high-forties declines in sales of left ventricular assist devices.

In addition, Pain Therapies saw $292 million in revenue during the quarter, a decline of 6.1%, largely attributed to channel destocking and the overall slowdown of the spinal cord stimulation market. The company noted that it's working on a next-gen Intellis pain neuromodulation device that it had not yet discussed in detail, but that it will further address later this year.

The stock closed on Tuesday up 2.62% to $106.91.

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