Medtronic Inc. (NYSE:MDT) resolved two Food & Drug Administration warning letters over issues at two manufacturing facilities.
The Fridley, Minn.-based company is also continuing to show Wall Street that it can play tough with healthcare providers by going toe-to-toe with group purchasing organizations, and this week announced the opening of its new regional headquarters in China.
The warning letters involved Medtronic’s Mounds View, Minn., location, the headquarters of the company’s Cardiac Rhythm Disease Management business, and its Juncos, Puerto Rico, plant, which is a Neuromodulation, Diabetes and Cardiac Rhythm Disease Management manufacturing location. The warning letters resulted from FDA inspections of the facilities in late 2008 and 2009.
Resolving the warning letters clears the way for FDA approvals and subsequent product launches, which Medtronic spokesman Brian Henry said are expected to be imminent.
Analysts were reporting last year that the warning letters were holding up launches of products including the Revo MRI-friendly pacemaker and Protecta implantable cardioverter defibrillator. The FDA approved the Revo last month, clearing the way for its launch.
The Protecta ICD has been under an "approvable letter," which means the FDA expected to approve the product once it resolved the warning letter issues with Medtronic, said Henry. Three other Medtronic devices have also been under similar approvable letters: InterStim Therapy for Bowel Control, a nerve stimulation system meant to treat severe fecal incontinence, the Consulta/Syncra pacemaker, and the Attain Ability Plus left ventricular cardiac vein lead.
The company told Leerink Swann analyst Rick Wise that it does not expect approval of the Protecta and InterStim devices to "take months." Any immediate effect on the company’s earnings, however, would be minimal, Wise wrote in a note to investors.
"Given that we are now just 6 weeks away from MDT’s end of FY11, we expect upside to our our current $3.40 FY11 EPS estimate — and management’s $3.38-$3.40 2011 EPS guidance — to be minimal. But resolution of these warning letters resolution does position MDT for a potential full -year benefit from these new products in FY2012, which could drive some modest upside to our current $3.65 EPS estimate and consensus at $3.63," Wise wrote.
"MDT believes its Protecta… could help alleviate some pricing pressure going forward, in addition to helping the company maintain — or best case gain — ICD market share in the U.S. For CY2011, we currently project low-single-digit U.S. ICD market growth, with low-to-mid single digit pricing pressure partially offset by modest volume growth," he wrote.
The news sent Medtronic stock up 46 cents per share, or 1.16 percent, to $40.10 in Wednesday morning trading, even as the Dow Jones Industrial Average was slightly down. MDT shares are currently going for $39.83, up about a half percent.
Medtronic says break from GPOs is about competition, but hospitals aren’t convinced
Hospital systems across the country join the group purchasing organizations as a way to band together and collectively boost their negotiating power as they seek better prices for medical devices and other supplies.
But Medtronic has argued in recent weeks that it could save money for the healthcare system if it went around the purchasing associations and negotiated with health providers directly. When asked how this could work when the whole point of the purchasing associations is to keep prices down, Medtronic spokesman Christopher Garland responded in an e-mail that medical device makers such as Medtronic "operate in a highly competitive market."
"That competitive environment keeps the pricing field relatively level," Garland said.
Medtronic in February canceled a $2 billion contract with Irving, Texas-based Novation LLC, which is owned by VHA Inc. and the University HealthSystem Consortium in addition to another contract with Charlotte, N.C.-based Premier Inc. in March.
Many hospital systems appear concerned about Medtronic’s actions.
Purchasing managers representing 16 health providers across the country, including Rochester, Minnesota-based Mayo Clinic, sent a letter to Medtronic’s Hawkins last month that expressed "extreme disappointment" over the company canceling its Novation contracts.
"Your decision affects our institutions’ ability to deliver the best-possible medical care in the most cost-effective manner possible. As we and other hospitals across the country brace for the impact of federal healthcare reform, it is imperative that Medtronic understand the value we place on our partnerships with healthcare group purchasing organizations like Novation," the healthcare executives said in the letter.
Medtronic cuts the ribbon on China headquarters
Medtronic inaugurated its new Chinese headquarters in Shanghai. The new facility, which the company called "a symbol of a permanent home of Medtronic in China," is a step towards further localization in China, including product development and manufacturing.
"I am very glad to see Medtronic has a permanent home in China, which means we will have a higher-level platform for future development in the region. We are in China in a position to even better fulfill the company’s mission of alleviating pain, restoring health, and extending life in China," Hawkins said in prepared remarks.
Last August, Medtronic opened a new patient care center in Beijing, a symbol of the increasing clout of China and the rest of the company’s global operations. Over 40 percent of Medtronic’s yearly revenue now originates overseas, led by China. As of November, China generates about $1.2 billion in annualized sales (about the equivalent of its quarterly CRDM revenue) and is growing about 20 percent a year.
Material from MedCity News was used in this report.