This could be a game-changer for type 1 diabetics: The FDA surprisingly approved Medtronic's (NYSE:MDT) "artificial pancreas" earlier than expected. Following that approval, Medtronic plans to begin selling the system to type 1 diabetes patients next spring. Medtronic's MiniMed 670G could significantly reduce patient burden and improve glycemic control, so analyst Kristine Harjes and contributor Todd Campbell discuss how it works, what it will cost, and what its potential impact may be on this disease in this episode of The Motley Fool's Industry Focus: Healthcare podcast.

Harjes and Campbell also discuss a recent study showing that medical marijuana may help seniors remain in the workforce longer and update investors on marijuana legalization efforts ahead of November's ballot.

A full transcript follows the video.

This podcast was recorded on Oct. 5, 2016. 

Kristine Harjes: This Motley Fool podcast is brought to you by Pearl Auto, which makes rearview cameras for your car that retrofit around your license plate and sync with your smartphone so you can drive more safely. Check it out at pearlauto.com/fool and get free two-day shipping applied at checkout.

Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every day. It's October 5th. My name is Kristine Harjes, and I have Motley Fool healthcare contributor Todd Campbell on the line. How are you, Todd?

Todd Campbell: I'm doing great. I'm getting excited with Halloween right around the corner.

Harjes: I can't believe it's already October. But it feels like it.

Campbell: Yeah, it's getting kind of chilly.

Harjes: I like it. This is my kind of weather.

Campbell: It's good sleeping weather.

Harjes: That's true. It's always good sleeping weather, though. (laughs) We have two topics to cover today. They really don't have anything in common. I was trying to think of a way to tie them to each other, and they're just different. The one we'll get to later in the show is about medical marijuana and some updates there. The first thing we want to talk about is Medtronic (NYSE:MDT), who had some exciting news recently.

Campbell: If you're trying to find a common thread, they both start with the letter M.

Harjes: They actually both start with "med," if you say medical marijuana. I thought of that and I was like, "That's great!" But I can't use that because we're the healthcare show -- everything starts with "med."

Campbell: Very good, yeah, M&M. The Medtronic news is potentially game-changing. This is something that diabetics have been looking for more than a decade. What we're talking about is the approval of the first so-called artificial pancreas or, basically, a system that will do more naturally or automatically the job of evaluating a patient's blood sugar, delivering insulin as necessary to that patient.

Harjes: Right. And the reason it's called an artificial pancreas is because your pancreas usually produces all the enzymes and the hormones that break down food. One of these is insulin, which most people secrete into the blood stream to help regulate your blood glucose levels. But if you're a type 1 diabetic, you have little or no insulin production from your pancreas.

Campbell: Right. We're talking about a small subset of the total diabetes population. A lot of times, when people think about diabetes, they think about late-onset diabetes that occurs later in life. We're actually talking about juvenile diabetes, or early onset diabetes. In these patients, there's roughly 1.25 million of them here in the United States, their pancreas, for one reason or another, just stops producing insulin at a very young age. As a result, these patients are faced with a very high burden throughout their entire life of evaluating their blood sugar, taking insulin as necessary. This is a serious disease. It can be life-shortening if it's not treated and taken care of appropriately. Unfortunately, because of, up until now, the drawbacks of limited technology, many of these patients, a majority of these patients, spend a majority of their day outside of their desired blood sugar ranges. That's worrisome because that can lead to comorbidities, things like heart disease, that can pose big problems later on in life. 

So, this is viewed as a significant advancement in the treatment of type 1 diabetes, period. It's kind of surprising. Medtronic did file for approval, and people were aware of the trial results evaluating this system. It's called the 670G, for people who are keeping track at home. So, it wasn't a surprise that it got approved. It was a surprise that it got approved as soon as it did. In fact, Medtronic hasn't even finished laying all the groundwork to be able to deliver this system to patients. They expected that they'll be able to do that at the beginning of next year.

Harjes: Right, it came to six months ahead of schedule. You mentioned that it wasn't really surprising that it was approved. That makes sense if you look at some of the numbers from the trial. This received approval after being tested on 123 patients. There were no complications reported. Of those patients, they were kept within their desired range 73.4% of the time. This is as compared to 67.8% who were not using the system. This was actually even better at night, which is traditionally a very dangerous time. 

To really emphasize what this means for the patient, I want to describe a little bit about how it actually works. This is the first closed-loop system approved anywhere. What that means is, as opposed to an open loop, in which you have your continuous glucose monitor and you also have a pump, and there's no interaction, there's no automation there. This hybrid closed system means that the sensor and the infusion device can talk to each other. So, you could insulin pump continuously when you need it day and night, based on the data from the monitor, which is really, really cool and a tremendous boost in convenience for patients.

Campbell: It's very cool. Patients and investors should both remember that this isn't a fully automated system. There are still some things that patients are going to need to be responsible for. For example, setting up the system initially, the patient and the doctor or going to have to input information about how your body deals with carbohydrates. And prior to meals, you're going to have to tell the system, "I'm about to eat, this is the number of carbs I'm about to eat," so it knows to adjust your insulin to that specific pre-specified level. So, it's not completely hands-off. There's a sensor, the sensor is going to need to be changed every week. You have the pump itself for the insulin. You'll have to add insulin to that every three days or so. There's some recalibration that needs to be done. So it's not fully automated, that's why I call it a "so-called" artificial pancreas. There's still some human activities that needs to be going on here.

But it could be a big advance because anything that you can do to keep your blood sugar within the desired range is a plus, that could extend your life. If you can take that 70% out of range and turn it into in-range a majority of time, potentially, you're going to suffer from less health complications later on in life. This is a big issue, particularly for teenagers. Teens have a very hard time, traditionally, sticking to the regimen, making sure they have the appropriate insulin dosage from what it is that they're eating. While this device isn't approved yet for kids under 14, it is for 14 and up. If you look at adults, there's about a million type 1 patients that are adults over 18. About 200,000 are below 18. It'll serve a very large portion of this addressable population.

Harjes: And this device is also being tested on ages seven through 13. So, that population could also look forward to being able to use it as well.

Campbell: Right. We should probably also talk about the fact that there's going to be a cost associated with this.

Harjes: That's exactly where I was about to go. Go for it.

Campbell: It's not going to be a free device. Patients are going to have to pay for it. They're still ironing out all the details with payers. We don't know what the copayment or coinsurance might be for the device. But what Medtronic has said is that if you already own a prior-generation device, you can go in and order this device for next year now, turn in your other device, which costs about $500, and pay an additional $299. So, if you add all that together, you're looking at a price of about $799 list. That's not necessarily what the out of pocket would be for this device.

Harjes: Plus, there's also the disposable sensors.

Campbell: Yeah, then you have the ongoing cost of the sensors. Those can run hundreds of dollars per month. So, you have some consumables there that you're going to have to pay for as well. From an investment standpoint, it's that razor-blade model: You sell the system, you get the system in place with the patient, and then you can collect that ongoing annuity stream of the sensor revenue. I think that's important for investors to be looking at. It's not just a one-time buy. It could be a good source of additional revenue growth for Medtronic in the future. Time will tell how all those pay relationships get broken out, and how quickly people who feel like they're already been well controlled using continuous glucose monitor and those type of things now, how quickly they decide they want to switch to it.

Harjes: To expand upon how investors should look at this, Medtronic is the world's largest medical device maker. They make so much more than diabetes products. They have things in cardiac, spine, knee problems. They're all over the place in a really good, built-up way. What do you think about the stock? Does this make it more of a buy? What do you think?

Campbell: I think it's a very attractive market. Estimates are that this is a $14 billion market for type 1 diabetes healthcare spend annually.

Harjes: That's overall, that's not just for this product.

Campbell: Right, overall. So, it's an attractive market, but Medtronic is a huge company. So, is this going to move the needle significantly for the company? No. But will it provide another tailwind that will help it deliver on its single-digit revenue growth? Yes. So, investors shouldn't be going out and buying this company because they think that all of a sudden they'll see 20-30% revenue growth. That's not going to happen. They're too big and too diversified. So, it's a huge potential advance for patients. And it's a nice tailwind for investors who want to go out and own a medical device company like Medtronic.

Harjes: Sounds good. This podcast is brought to you by Pearl Auto, which makes wireless rearview cameras for your car that retrofit around your license plate. It syncs with your smartphone so you can drive more safely. You can check it out at pearlauto.com/fool and get free two-day shipping applied at checkout. I recently got to test out the product, and I was actually really impressed with the quality of the image. It's pretty cool. It's very quick and easy to install, and it's solar powered, which is super cool. And it'll even warn you when there are obstacles in your way. You can learn more about it at pearlauto.com/fool. Thanks again to Pearl Auto for supporting our show.

As alluded to in the beginning of the episode, the second half of the show today, we wanted to do a little bit of an update about some recent findings about medical marijuana and maybe touch base, since we're almost heading into November, about what the election landscape could look like surrounding this issue.

Campbell: Yeah. We've talked about, in the past, using the states as a laboratory for being able to evaluate the role that marijuana may play in healthcare and what its impact may be on state populations and being able to extrapolate that to the national population. You go back in time, things like cigarettes, we didn't really realize all the health drawbacks to cigarettes until later on. Opponents to medical marijuana jumping in with both feet would be saying, "We don't fully understand all the impact of approving marijuana, having marijuana use become more mainstream." So, let's look at the states that have already approved medical marijuana, and see what kind of outcomes they're getting. Fortunately, we've had enough years go by since the first states started to approve medical marijuana that you can take a look at health data and be able to overlay that in the states that approve medical marijuana and see if you can draw any conclusions.

What I found it really interesting was, last month, one study that was done as part of the National Bureau of Economic Research funded grant that came out of Johns Hopkins and Temple, looked at the impacts on the elderly as far as workforce participation. What they found is that in states that passed medical marijuana legislation, there was a higher percentage of elderly workers, seniors, older workers that remained in the workforce. And those people who did remain in the workforce, worked more hours. I think that's interesting.

Harjes: They also reported that they thought they were in better health. This is a really interesting study. As you mentioned, we have enough data now that you can look at states pre and post-legalization and compare them with similar non-legally approved states and compare the trajectories and see what you get. In this study, they found that people age 50 or older were more likely to be employed in the marijuana-legal states. Men were likely to say that they were in very good or excellent health, and were reportedly in less pain. That stood out to me as particularly interesting, because it was actually just for men. There was another study that showed, recently, that marijuana provides more pain relief for men than women. They're not really sure why. That was a head-scratcher for me.

Campbell: Yeah. Again, this is what we're trying to figure out. We're trying to figure out, in real-world applications, what is the impact of medical marijuana? It's a holistic look at things. It's not just saying, "Do you feel better because you have less chronic pain?" It's "Do you feel better and are actually able to go out into the workforce and contribute to society rather than sitting in your house in pain?" One of the other things that came out of this study was that they determined that there's some switching that goes on in states the pass medical marijuana legislation, where patients are now switching from drugs for anxiety or nausea medications or psychosis medications to medical marijuana treatment. That's something to keep an eye on as well, because there's good and bad to that. The good part could be you're reducing use of drugs that could expose you to more side effects, like opiates for pain. Maybe you would prefer to have medical marijuana that could control your pain better, rather than exposing yourself to the risks associated with opiates.

Harjes: Just to play devil's advocate there, it's kind of an unknown vs. a known thing to worry about. If you have a drug that you know for a fact has some side effects but it has a track record and you know more or less what you're getting yourself into, is that better or worse than taking medical marijuana, where we don't think there are any side effects, but it really doesn't have the robust, long-term studies?

Campbell: Right. Hopefully, we're going to get those over time. You're correct that what we've seen so far in placebo-controlled studies has been limited, and when we've tried to study it in larger populations involving thousands of patients, it's been kind of a toss-up vs. placebo. However, what we're saying here, I don't know if it's the placebo effect or what the effect is, but what we're seeing here is that people feel good enough where they are transitioning from some of these prescription drugs to medical marijuana. And, obviously, the outcomes are solid enough that they feel like they can return to the workforce. The other devil's advocate end of this would be, if someone feels better and they discontinue a treatment for a chronic disease, medical marijuana is treating the symptom and not the cause. None of these decisions should be made in a vacuum, period. They should all be made with the help of a doctor, so that you know you're not causing yourself long-term harm by discontinuing treatment that's addressing the cause of your problem rather than the symptoms. That being said, this is still a very intriguing study and hints at some of the things we may see as far as information coming out of all of these approvals that are occurring throughout the nation.

Harjes: Right. And we're looking at a few more potential approvals. Right now, recreational marijuana is legal in a handful of states, there's four of them and also Washington DC. Five more States could join after November elections. There's California, Maine, Nevada, Massachusetts and Arizona. Meanwhile, medical marijuana is legal in 25 states, and four more could be joining in November. Those are Montana, North Dakota, Florida, and Arkansas. Going back to the recreational legalization, I think California, to me, at least, is the most interesting of those five that could potentially be joining the list of full recreational-legal states with their Prop 64.

Campbell: Yeah, they were really at the forefront of adopting medical marijuana legislation. They have not yet approved recreational. A lot of people think this will be the year they do it. If it's approved, California already has a very robust infrastructure, they have hundreds of dispensaries already set up because of the medical marijuana legislation that passed years ago. And they're also one of the largest production centers for marijuana in the United States.

Harjes: As a stand-alone economy, they're huge. When you look at the scale that we're talking about here, it's enormous. Supposedly, the passage of this bill could lead to $1 billion a year in tax revenue.

Campbell: Yeah. Honestly, that might be conservative. We're seeing very big numbers coming out of places like Colorado. It remains to be seen how this plays out. But it wouldn't shock me if, down the road, the peak number was a lot higher than that. If you look at the five states considering the recreational front -- Arizona, California, Maine, Massachusetts, and Nevada, I think -- California probably has the best shot. Maine, maybe. Arizona, eh. Massachusetts, eh. Nevada, maybe.

Harjes: If you're looking at latest approval percentage is, you have California 60%, Nevada is 57%, Maine and Massachusetts are both 53%, and Arizona is at 50% in favor of approval.

Campbell: Right. You also have to look at the percentage conviction opposed. When you get a place like Massachusetts when you have that number around 47%, that's pretty high.

Harjes: Right, the margin of difference is big.

Campbell: Especially compared to some other states where it's in the 30s.

Harjes: Yeah. So, when you look at the medical legalization side of things, which states stand out to you there?

Campbell: We have 25 states already. Like you mentioned, we have Florida, Arkansas, Montana, North Dakota all considering various medical marijuana things on their ballots. Florida is the biggie, without a doubt. It's the largest population. It has a huge population of seniors who would have chronic conditions that would benefit from medical marijuana, conceivably. In 2014, there was a vote that unfortunately did not pass -- in Florida, you have to change the Constitution and you need a 60% vote to do that. So, it's not just a simple majority -- you have to get over 60%. They fell shy by about 2% in 2014. But most of the studies and polls out now are pegging way more than 60%. So, I think Florida has a very good shot of getting medical marijuana on the books this year.

Harjes: Right. And as more and more states get added to this list, hopefully, we will continue to get more detailed studies and a longer-term profile for how exactly marijuana works. Todd, thank you so much, as always, for your thoughts today. Folks, thanks for listening! 

As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against stocks mentioned, so don't buy or sell anything based solely on what you hear. For Todd Campbell, I'm Kristine Harjes. Thanks for listening and Fool on!

Kristine Harjes has no position in any stocks mentioned. Todd Campbell has no position in any stocks mentioned. The Motley Fool owns shares of Medtronic. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.