Medtronic: A Shining Pharma Investment

| About: Medtronic plc (MDT)

Recently, Medtronic (MDT) received FDA approval for its innovative artificial pancreas, which automatically regulates insulin delivery for Type-1 diabetes patients. The device is already available in the European market as MiniMed Veo. Medtronic is the world leader in both pump and glucose monitoring device sales, and it is the first company to combine a pump and glucose monitor in a single automated device.

Its diabetes division contributed about 9% of its total revenue for fiscal year 2013, and geographically, it generates 55% of its revenue from the U.S. market. Medtronic is witnessing a low quarter over quarter revenue growth of 1% from its diabetes division for the quarter ended in July 2013.

Type-1 Diabetics' pain

In order to maintain blood sugar, people with Type-1 diabetes are required to monitor their blood sugar several times a day. Conventionally, blood sugar is checked using a pin-prick method and insulin is injected using a needle or insulin injection pen, which can be a painful process for patients. To avoid the use of needles several times a day, drug manufacturers introduced insulin pumps, which require injection only once every three days. The pump provided an alternative to needles, but requires proper education to administer because excess insulin may cause hypoglycemia; which occurs when the blood sugar level falls too low. Targeting this problem, Medtronic developed a combination device with an insulin pump and sugar monitoring sensor that works as an artificial pancreas system.

Medtronic's innovation

On September 27, 2013, Medtronic received FDA approval for "MiniMed 530G" with "Enlite", a first-generation artificial pancreas system. The device is a combination of an insulin pump, MiniMed530G, with a sensor, Enlite, which stops insulin infusion if the patient's blood sugar falls below the threshold levels. It works as an artificial pancreas which automatically adjusts insulin levels by continuously monitoring the changes in the patient's blood glucose levels.

The MiniMed 530G has two features that can attract customer interest. First is the Enlite sensor, which is an improved version of Medtronic's Guardian sensor. A patient can wear Enlite for a longer duration of six days versus three days for Guardian. The second advantage is the pump's "threshold suspend automation technology" that infuses insulin, when blood glucose readings reaches a designated level.

Medtronic is the first U.S. player to market a product with an automatic insulin delivery mechanism.

Competition in diabetes-care device market

Medtronic's artificial pancreas can pose a major threat for companies that specialize in manufacturing glucose monitoring devices and insulin delivery pumps. DexCom (DXCM) is one such manufacturer that focuses on the development of continuous glucose monitoring systems. It has witnessed a revenue growth of 20.9% in the latest quarter ended in June 2013, while Medtronic's diabetic division witnessed a growth of only 1% in the latest quarter ended in July 2013. We expect Medtronic's insulin pump with Enlite sensor will provide new growth to Medtronic's Diabetes division and negatively affect DexCom's revenue.

Meanwhile, Johnson & Johnson's (JNJ) diabetes division, Animas, in collaboration with DexCom, is also seeking FDA approval for a device similar to Medtronic's artificial pancreas. Johnson & Johnson is currently conducting a second feasibility study on its insulin pump connected to DexCom's continuous glucose monitor. It is an automated device that can adjust insulin delivery according to the patient's needs. If the FDA approves the device it can give serious competition to Medtronic's artificial pancreas.

Medtronic's automatic infusion technology provides a competitive edge over the conventional insulin pumps. Conventional insulin pumps cannot regulate the delivery of insulin to avoid acute problems like hypoglycemia. Hence, the manufacturers like Insulet (PODD), which offers OmniPod, an insulin delivery pump, will also experience serious competition from Medtronic's innovation. Insulet has generated revenue of approximately $60 million in the quarter ended in June 2013.

Market opportunity

Medtronic's device is a combination of glucose monitor and insulin pump, so it will gain value from both market categories. The U.S. glucose measurement devices' market was estimated to be worth more than $4 billion in 2010, and the global market is expected to reach $10.9 billion in 2017. On the other hand, the U.S. insulin pump market was at $518.5 million in 2010, and it is expected to grow at a CAGR of 8.5%, reaching $915.4 million by 2017.

In 2012, Medtronic's share in the global insulin delivery device market was 67%. Given the potential of MiniMed 530G with Enlite and the company's leadership position, we expect fast adoption of the device among Type-1 diabetics, which will further increase Medtronic's market share. At the same time, the bundling of the device with its Enlite sensor will help the company to increase its share in the glucose monitoring device market.


The MiniMed 530G and Enlite combination of glucose sensor and insulin pump not only helps the patient avoid insulin needles, but it also automatically stops insulin infusion if the patient's blood sugar falls below the threshold levels. Medtronic, the global leader in the diabetes-care device market, was witnessing slow growth in its diabetes division. Medtronic's artificial pancreas has immense market potential, and we expect FDA approval in the U.S. for MiniMed 530G will bring long waited growth to Medtronic's diabetes division, which contributed revenue of $1.526 billion in fiscal year 2013.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Fusion Research is a team of equity analysts. This article was written by Satya Prakash, one of our research analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.

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