Don't let it get away!
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A funny thing happened on the way to Medtronic's (NYSE: MDT ) presumed domination of the emerging $3 billion-a-year renal denervation (RDN) market. RDN might not work ... or at least not nearly as well as initially thought.
While the potential loss of a chunk of that $3 billion pie is not a model-breaker for Medtronic, St. Jude Medical (NYSE: STJ ) , Boston Scientific (NYSE: BSX ) , or Covidien (NYSE: COV ) , it is a good reminder that pilot studies and European approval don't always tell the whole story.
A Surprising Failure
The Street widely expected Medtronic to announce positive results from the U.S. pivotal study of its Symplicity renal denervation device (the HTN-3 study) in the first half of this year, with FDA approval following in 2015. On Thursday morning, though, Medtronic threw that all into chaos with news that the trial failed to reach its endpoint – a 10mmHG (or better) reduction in blood pressure versus a control group. While the device met the expected safety standards, that really doesn't matter in the face of inadequate efficacy.
With this result, Medtronic acknowledged that they do not expect to secure U.S. approval on the basis of this study. Moreover, the company has suspended three other studies, including another pivotal U.S. study (HTN-4) in less serious hypertension patients.
Prior studies of Symplicity had shown reductions of 28mmHG to 33mmHG at six-month, 12-month, 24-month, and 36-month follow-up, with more than three-quarters of patients seeing a reduction of 10mmHG or better (the benchmark for a successful response). That was good enough to get European approval and stoke expectations that Medtronic's $800 million acquisition of Ardian in 2010 had opened a path to more than $1 billion in incremental annual revenue.
Part of the trouble, and one of the reasons I don't put much stock in EU approval, is that prior studies were uncontrolled, unblinded, and used office-based monitoring instead of ambulatory monitoring (the gold standard) as the primary endpoint. As Dr. James Howard noted in the journal Heart in September of 2013 (and covered by Larry Husten at Forbes), that can be a problem with blood pressure trials. Non-randomized, non-blinded trials of drugs for hypertension using office measurements were consistently higher (by 5.6mmHG) than those using ambulatory measurements, and blinding and randomization brought those results in line with the ambulatory measurement.
Likewise, office visits in unblinded renal denervation studies showed an 11 to 12 mmHG advantage with office measurements over ambulatory measurements, and the Medtronic HTN-2 trial showed a reduction in ambulatory measurements of just 10mmHG. Considering the reversion seen in the drug studies cited by Dr. Howard, it is apparently not so surprising that the benefit disappeared in a controlled, blinded study and the renal denervation approach couldn't hit that 10mmHG improvement threshold.
Broadly speaking, the St. Jude EnligHTN and Boston Scientific Vessix device showed similar reductions to the Symplicity device in earlier studies, making it questionable as to whether they could exceed that 10mmHG improvement threshold. Covidien's OneShot showed a much stronger result (42mmHG) in a pilot study, but the study was so small (eight patients) that I don't believe investors can really say that this will emerge as the superior platform.
A consistent reduction of 10mmHG to 15mmHG would likely be sufficient to get these devices approved, particularly as the side effect profiles have been clean, but it could meaningfully impact the price that the companies can charge and the addressable market potential. At a minimum, I would say that the idea of RDN therapy as a major med-tech revenue-driver is in serious trouble for the time being.
The Bottom Line
If the RDN opportunity goes away, Medtronic will certainly miss out on some of the revenue and cash flow that analysts had forecast over the next 10 years, but the net impact is likely to be less than 5%. Likewise for St. Jude, Boston Scientific, and Covidien, though St. Jude can at least take solace in the fact that their program was internally developed and didn't require a major multi-hundred million dollar M&A deal.
There's a good lesson here about not counting chickens until they are hatched. Just as the U.S. acceptance of Edwards Lifesciences' transcatheter heart values has proven disappointing, so too could other much-awaited opportunities like Medtronic's transcatheter valves and drug-coated balloons, as well as LAA devices from St. Jude, Boston Scientific, and Abbott. That's even truer for smaller companies, and Fools would do well to remember that clinical trials and product launches are not the risk-free events that bulls often like to imagine.
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