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Medtronic Brain Therapies Make its Stock Attractive

Medical device maker Medtronic (NYSE: MDT) is tapping into the brain with its cutting-edge technology, and the strides it is making can help conditions that include Parkinson’s disease and aneurysms.

Medtronic has invested a considerable amount of money in the treatment of these brain conditions, including its $50 billion acquisition of Covidien in 2015. In this piece, we’ll examine challenges the company faces. We’ll also look at this large cap company’s fundamentals to determine if it makes for a solid investment.


 · Medtronic’s fundamentals


The company’s fundamentals reflect increases in its net income, positive cash flow, and reasonable debt levels and revenue growth.

When the company released its fourth quarter earnings for fiscal 2016, it reported a 4% increase in earnings compared to the same period in fiscal 2015. They rose to $7.6 billion compared to the $7.3 billion reported last year. That compared to analysts’ estimates for $7.49 billion.

Its earnings per share and net income also increased. Fourth quarter GAAP net income and EPS were $1.1 billion and $.78, respectively.


 · Parkinson’s disease addressed with Medtronic solutions


As noted above, there are two main areas in brain-related conditions where Medtronic’s devices are used. Its deep brain stimulation (DBS) therapy is used to help manage tremors, and rigidity that are associated with Parkinson’s disease. Its flow diversion devices treats aneurysms.

Fierce Medical Devices explains that DBS systems include a small pacemaker-like implant in the chest that is connected via lead wires to the brain and managed via an external controller. They provide regular electrical stimulation with a goal being to only offer stimulation as needed instead of continuously as it is now, according to Fierce. It noted that Medtronic has said its therapy has shown improvement in motor complications, quality of life, activities of daily living and reduction in medication usage in Parkinson’s patients.

Despite this, when Medtronic’s reported earnings for the last quarter, it said that there were declines in its DBS. The company’s chief executive Omar Ishrak acknowledged that there has been an increase in competition, and that its DBS therapy could be under some pressure “for the next several quarters” as a result.


 · Medtronic’s treatments for brain aneurysms are faring better


For the last quarter, Medtronic credited the growth in revenue from it neurovascular unit sales to its Pipeline Flex device in the U.S. and Japan and its Pipeline Shield in Europe that are used for the treatment of intracranial aneurysms. It said neurovascular fourth quarter revenue of $159 million increased 20%.

Last year, Medtronic’s became the first and only company to develop a flow diversion device to be approved by the Food & Drug Administration. Medtronic’s neurovascular products include the Pipeline Flex Embolization device, which is used to treat aneurysms.

Aneurysms are defined by the John Hopkins School of Medicine as bulging, weakened areas in the middle layer of the wall of a blood vessel in the brain. Flow diversion is a technique used to treat large or giant wide-necked brain aneurysms in which the device is placed in the parent blood vessel rather than in the aneurysm sac.

Medtronic’s treatment devices for aneurysms can restore original, natural blood circulation while providing permanent long-term occlusion. During the procedure, the Pipeline device, which is a braided cylindrical mesh, is implanted across the aneurysm neck. This slows the flow of blood into the aneurysm, which allows for the diseased vessel to heal.

However, observers have questioned the long-term viability of these flow diversion devices.

There simply may not be enough demand. Healthcare providers are increasingly using flow diversion devices. But the problem relates to supply outstripping demand as the rate of aneurysm ruptures is relatively low and the subsequent need for these devices may not be that great.

According to iData Research, the U.S. neurovascular market, which includes flow diversion devices, will grow to more than $600 million by 2020. The researcher found that the market will be driven by the conversion from surgical procedures to endovascular techniques.

The director of stroke and Cerebrovascular Center at Baptist Health in Jacksonville, Fla. Called flow diversion a major breakthrough therapy for large or giant wide-necked brain aneurysms that are complex and have considerably higher risk of rupture and higher rates of complication with conventional treatment.


 · What’s to come


Medtronic’s guidance for 2017 revenue is positive. The company’s baseline goal is to consistently grow revenue in the mid-single digits on a constant currency basis. In fiscal year 2017, given current trends, the company expects constant currency revenue growth to be in the upper-half of the mid-single digit range, which is in the range of 5% to 6%.

In fiscal year 2017, the company expects non-GAAP diluted EPS in the range of $4.60 to $4.70. Ishrak said this:

“As we enter our new fiscal year, we look forward to delivering on our robust pipeline of products and services, expanding our global reach to serve more patients, and partnering with others around the world to develop new value-based business models.

Investors should consider Medtronic as a solid investment. It market leading position in the area of brain treatment should continue to contribute to its top and bottom line growth. Just be prepared for some bumps in the road as it deals with headwinds, such as competition and a possible slowing in demand.

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