There's a chance that at some point in your life, you've either known, or will know, someone with a health condition that has an effect on their heart and endangers their well-being. Medtronic (MDT 0.62%) helps to solve these problems with its pipeline of pacemakers designed to regulate a patient's heart rate. In doing so, it's both advancing healthcare technology and providing opportunities for long-term investors.
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The stats
Health issues that result in the need for a pacemaker are often subtle. They can lead to fainting spells or other issues which, at the time, may seem "minor." A pacemaker implant can save lives and improve the quality of life for many patients. They're a big deal in medical technology (MedTech). According to Statista, there were 1.14 million pacemakers in use globally in 2016.
That number is expected to increase 25% by 2023. Implantable pacemakers made up approximately 63% of that market share as of 2019, with conventional -- under the skin -- devices accounting for nearly 52% in terms of revenue.
That rate should switch over to favor newer transcatheter devices as time goes on and advancements take hold. With an expected annual growth rate of 4.3% through 2027, revenues from pacemakers are expected to increase globally from $5 billion to $7.5 billion. The compound annual growth rate (CAGR) for North America alone, through 2026, is estimated to be as high as 10%.
Technological evolution
As one of the big names in the MedTech space -- and commonly synonymous with pacemakers -- Medtronic is actively developing new devices to provide more treatment options to more patients. The Micra transcatheter pacing system (Micra TPS) was approved in 2016. It's a breakthrough leadless pacemaker 93% smaller than conventional pacemakers.
The Micra houses its electronics and battery in a single self-contained capsule placed in the right ventricle of the heart, offering a smaller, less cumbersome device with no leads and a less invasive surgical procedure.
In early 2020, Medtronic took advancements a step further with the U.S. approval and launch of the Micra AV, the world's smallest pacemaker with Atrioventricular Synchrony (AV). The AV device is aimed at treating patients with AV block in order to improve coordinated pacing between the atrium and ventricle. By June, it had received the CE mark for Europe. And this past December, Medtronic followed that up with clearance in Canada.
With the arrival of the newer, sleeker Micra AV device, more pacemaker patients qualify for the treatment option. This opens the door for new patients, as well as for patients who currently have a traditional device. Conventional devices have a battery life of five to 15 years, and require surgery for replacement at some point.
Having a Micra device implanted for existing patients in lieu of a new battery should be an option for many patients. The Micra device also has a battery, but when its expiration is up, the system can be turned off and a new device easily inserted.
Preparing for the future
One obstacle Medtronic could face is that of the competition. Major players such as Abbott Laboratories (ABT 0.63%), EBR Systems, and Boston Scientific (BSX -0.12%) are working on continued advancements in pacemakers, including leadless devices. However, that concern doesn't appear to be front and center for Medtronic at this time.
On Medtronic's most recent earnings call in February, for the third quarter of fiscal year 2021, investors caught a glimpse of what the future may hold. As noted by Chairman and CEO Geoff Martha:
We continue to outperform our competitors in Cardiac Rhythm. We gained another point of share this past quarter on the strength of our Micra family of leadless pacemakers and our Cobalt and Crome high power devices. Micra continues to perform extremely well, with 64% growth globally, including 76% growth in the U.S.
Medtronic is looking forward to sales growth from Micra AV, noting the potential for a Micra target population from approximately 15% to 55% of pacemaker patients, driving market expansion and share gains. Following the earnings call, multiple analysts also noted the likelihood of strong growth for Medtronic and highlighted the Micra pacemakers as one of the drivers for the company's future growth.
Over the past 10 years, the stock has grown in tandem with the market, up 209% compared to the S&P 500's 215%. The stock currently trades at a price-to-earnings (P/E) ratio of about 57, which might seem lofty, but is in fact a bargain for Medtronic's growth opportunity. The rest of the healthcare product sector's businesses trade at an average of over 300 times earnings. With all of this in mind, I think it's a safe bet to let Medtronic play a role in your portfolio over the long term.
