Shares of Medtronic (MDT) are in the spotlight on Monday after the company said its SPYRAL HTN-ON MED clinical study of its Symplicity Renal Denervation System to lower blood pressure in typical hypertensive patients taking up to three anti-hypertensive medications was not stopped early based on the interim analysis and that the study would continue until completion. Following the news, Wells Fargo analyst Larry Biegelsen cut Medtronic's price target, citing an expectation that the trial would have been stopped early based on this interim analysis due to a positive outcome. While remaining bullish on the name, Piper Sandler analyst Matt O'Brien acknowledged that Medtronic's growth pathway is now "a little riskier."
CLINICAL STUDY TO CONTINUE: On Friday, Medtronic provided an update on its SPYRAL HTN-ON MED clinical study of its Symplicity Renal Denervation System to lower blood pressure in typical hypertensive patients taking up to three anti-hypertensive medications. The company noted that back on September 10, Medtronic announced that it was expecting a prespecified interim data analysis of its ON MED study in October. The company has now received notification from its ON MED study independent data safety monitoring board that it has conducted the prespecified interim data analysis and has recommended that clinical trial enrollment continue as planned, until the full, predefined sample size is reached. A prespecified interim analysis is designed to enable early stoppage of clinical trial enrollment should the results be significantly better than the planned clinical trial design assumptions. The trial was designed to follow 260 randomized patients for 6 months post procedure and is powered to detect a statistically significant and clinically relevant therapeutic benefit at the final analysis. The company estimates that the follow-up of the full cohort of patients will be complete in the second half of calendar year 2022.
The statistically significant results from the company's three previous sham-controlled SPYRAL studies, and the data from the company's Global Symplicity Registry of more than 3,000 real-world patients, give the company confidence in its renal denervation program, including ultimate approval of the therapy. These data, in addition to the full clinical cohort, will complete the company's robust premarket application to the U.S. FDA. The company expects renal denervation to become a multi-billion dollar market, with global market revenue now expected to exceed $500M by calendar year 2026 and $2B-$3B by calendar year 2030. Of note, Medtronic said the update does not impact the company's fiscal year 2022 revenue and earnings per share guidance, nor does it affect its long-range plan to deliver 5%-plus organic revenue growth and 8%-plus adjusted earnings per share growth.
PRICE TARGET LOWERED: Following the clinical study update, Wells Fargo analyst Larry Biegelsen lowered the firm's price target on Medtronic to $144 from $151, while keeping an Overweight rating on the shares. The analyst believes the base case for the Street and Medtronic was for the trial to be stopped early based on this interim analysis due to a positive outcome. Among the implication, the analyst sees the potential U.S. approval of the system being pushed out by at least a year, the likelihood of success of the ON MED trial now lower given the interim analyses were not positive, and the Medtronic pipeline story now losing some luster given that the system is expected to be an important growth driver. Big picture, the analyst still expects the renal denervation system to eventually be approved in the U.S., but believes the likelihood of the ON MED trial being positive is now about 40% and this could negatively impact adoption.
GROWTH PATHWAY NOW 'A LITTLE RISKIER': Piper Sandler analyst Matt O'Brien kept an Overweight rating on Medtronic with a $152 price target after the company noted that the data safety monitoring board for ON-MED, its key study of renal denervation, has recommended the study continue and not be stopped at the interim endpoint as it had hoped. Medtronic now expects the study to be completed in the second half of 2022 and has lowered its renal denervation revenue expectations from $1B to $500M in 2026 and from $3B to $2B-3B by 2030, O'Brien highlighted. The pathway to 5% sales growth for Medtronic "certainly appears a little riskier" but not impossible as long as the program is able to get back on track next year, O'Brien contended.
POSITIVE BIAS: ON APPROVAL: In a research note to investors following Medtronic's trial update, Morgan Stanley analyst Cecilia Furlong acknowledged that the results are "not optimal" and push out a potential approval to 2023. Nonetheless, the analyst maintains a positive bias on approval and doesn't view a trial continuation as a direct read-through to the long-term market opportunity. Furlong keeps an Overweight rating on Medtronic shares with a $154 price target.
PRICE ACTION: In Monday morning trading, shares of Medtronic have dropped about 5% to $121.31.
