Medtronic Inc. (MDT) Annual Shareholder Analyst Call October 29, 2012 7:00 AM ET
Jeff Warren - VP, IR
John Liddicoat - SVP
Mike Coyle - President, Cardiac and Vascular Group
Rhonda Robb - VP, Catheter Based Therapies
Joanne Wuensch - BMO Capital Markets
David Roman - Goldman Sachs
Brooks West - Piper Jaffray
Bob Hopkins - Bank of America
Matt Dodd - Citigroup
Kristen Stewart - Deutsche Bank
Welcome to the 2013 Medtronic TCT Investor Briefing, I am Jeff Warren, Vice President of Investor Relations at Medtronic. Before I turn the -- I am about to turn it over to John Liddicoat but I just wanted to cover a couple of housekeeping items first before we begin.
This slide you’ve all seen it before, so I will let you just take a second to look at it, I will walk through it but it look pretty familiar. But what I would add to this is that we are in our Q2 quiet period, because we ended the quarter last week and so we're not going to be -- today's going to be focused about the data, we're not going to be talking about anything related to the quarter, any type of revenue numbers or the such, so as you can understand.
The other thing I would tell you for those on the webcast the slides are available at medtronic.com under the investor relations portion of the website, so you can access the slides there.
A couple of other housekeeping items, in addition to this investor briefing similar to what we do at other conferences, there is going to be other opportunities for you to engage members of the management team at the booth. Tony Semedo from our Peripheral Endovascular business will be available tomorrow at 2 o' Clock; Sean Salmon from the Coronary and RDN Business will be available tomorrow at 3.30; and then for those of you that don't get to ask Rhonda all the questions you can think of today, we'll have her available again on Thursday.
And with that I am going to turn the call over to -- or turn the microphone over to John Liddicoat, who will give you some opening comments and walk you through the outline for the meeting.
I do notice that Jeff did not give me any more time with you over the course of the day, I am sure that was by omission not by intention. But I am also around tomorrow in the booth as well. Just to begin, it's been a great day for us; it's a day that we have looked forward to for a long time. I think the data are really exciting, they're really compelling, they are compelling to our customers, so it can be even more compelling to the patients. And one thing that a lot of us have had and shared together since we brought CoreValve in 2009, we have been on this journey and looking at Transcatheter Valves, watching the market develop in Western Europe, watching it develop here in the United States. And for us today really is the pinnacle of that as we really start to see the benefits of the CoreValve therapy here and demonstrated in this -- what I would consider to be just a fantastic clinical trial.
I want to thank Jeff Popma who is here and David Adams, both of them gave great presentations today, really demonstrating the data but really on behalf of 40 great clinical partners that we have had in terms of executing these trials.
So big day, lot of excitement, the course of this session is really going to be focused on the clinical data for CoreValve, that's Mike, just take the advantage of the fact that Mike is with us here at TCT to refresh some of the messages in terms of our cardiac and vascular group strategy for Medtronic, and so we take advantage of his presence here, I guess he can talk for about 10 minutes or so. Then Rhonda is going to walk through the current state of our catheter based therapies organization really focusing in on Transcatheter Valves you can highlight a number of things including the importance of the no-panel and what that means to our commercial efforts there.
And then we're not going to do anymore data presentations, I think Rhonda you may a slide or two but I don't think so. I think we did a good job today of laying out most of the data I think I have seen most of you at those sessions, but we're going to spend about 30 minutes then in Q&A, so last 30 minutes will be in Q&A. Obviously Jeff and David are both here to really drill down on some of the subtleties around the clinical data.
So with that Rhonda Robb -- Mike Coyle. [Multiple Speakers]
I actually just have a couple of slides up front, I wanted to put in context a bit of the overall strategy that we have both in Medtronic and CVG and how CoreValve fits into it, just to remind you since it's been a while since we did our cardiovascular analyst meeting. So Omar has done a good job I think of outlining that we're seeing very significant changes in the overall dynamics of our market. And I think I have been in this business for over 25 years and I think that last three to five years have seen more change than I have seen in the entire period before that.
And it's fundamental changes in the decision dynamics around how dirty decisions have been made -- made in terms of moving from specific physician only decisions to now group decision making which include administrative influence as well as the physician influence. A lot of focus on not just the clinical effectiveness of our technologies and the cost effectiveness of those technologies and the days of minor iterations on products and price increases going with those are by the board. That is resulting in some real changes in overall strategy. And I think Omar has done a nice job within Medtronic of taking the overall changing dynamics and fluidity of the marketplace and really focusing us all down on the universal need that makes sense no matter where you are in the world with healthcare, improving clinical outcomes, optimizing cost and efficiencies and expanding access to care.
And we well those down at Medtronic and within CVG the three basic strategies, using innovations to drive these therapies, taking those therapies and focusing not just on clinical differentiation but also on economic value creation, so how they are effecting the hospital system, how they are effecting care in project selection, and then focusing on globalization. The idea of taking those two things of innovation and cost effectiveness economic value and customizing those to the individual dynamics taking place in our markets around the world.
The result of that really has been a refocusing of the entire organization; those strategies are going to work for all parts of Medtronic, but I think they are particularly valuable to us and the CVG group because of the fundamental breadth and scope of the businesses that we are in. And as I introduced a 1.5 years ago at the analyst meeting, we have fundamentally reorganized our businesses within CVG from approaching the market as individual separated businesses to now where we have physicians focused organizations in each of our business units -- cardiac business, the structural heart business, the coronary [indiscernible] business the endovascular peripheral business. And basically have had those businesses due three things. One is the breadth of product line and makes them not only important but really indispensable to the individual physician group they serve to have regular iterations of product features as well as services that address unmet significant needs both from a clinical and economic perspective and then most importantly to be looking out five plus years for their individual physician group and identifying what the next innovation is going to be for those patients being served by that physician group and making sure that they are seeing as being the ones bring that innovation to our physician groups and our administrative customers.
Then at the commercial level, we approach the market as a single CVG organization and that really is a difference from where Medtronic had been in the past. Now, if you look at the first two things I talked about, you can see that our product lines have seen regular innovation across each of the businesses and especially with the Resolute Integrity launch last year, we now have state of art technology in each of businesses, but we also have a full line of products that allow us to serve whatever the price point is as well as the clinical need is within that individual physician group and that really is something that's very different from not only the market historically but also our competitors currently.
But the other thing is that we have now advanced significantly those innovations in each of the businesses and I want to spend a little time talking about that here just a second, but that other piece the newest piece of this, the wrapping around is of solution and servicing could actually take our product and put them into the context of overall delivered services that input clinical outcomes but also economic outcomes is something we talked about a year and half ago with the idea of generating appropriate identification of patients with things like Know Your AHF and the AAA answers program with the endovascular with the idea of helping with the hospital efficiency by meeting our pacer clinics, meeting at the floor with patients with cath labs, it's also the identification of program that actually allow more efficient treatment of patients like our syncope program or our aortic stenosis program.
So those are more now significant wrap around services that we have been providing. And you saw in last two quarters, a significant upgrade in the focus in that area with two major moves strategically; one, in Europe, the hospital solutions activities where we're actually managing cath labs for certain hospital systems in Europe and then also the acquisition of Cardiocom, which allows us to now move downstream with patients and actually have different services to manage patients after they have been discharged from the hospital. So these are important strategic directions that we are taking as an organization that you can see the progress on. There will be other times our next Analyst Meeting certainly next year to drill in to know items and more specificity.
The only thing I wanted to touch on today is that when we were talking a year and half ago about innovations within each business, we were talking about timing of events that were in the middle to the out year of our five year final, that was a year and half ago. Now, as we look at innovations across each of our individual businesses, they are much more near term and specifically over the next let's call it six or seven quarters. Each of the business is going to be delivering major innovations into their marketplaces whether we're talking about the Symplicity spiral, which we expect the full seasonal with market release here in the fourth quarter of this year or our next-generation loop recorder would be a link, which will be coming to the market in the fourth quarter within Ron and John's business, the CoreValve data obviously the announcement today of the bifurcation of the extreme risk from the high risk and then the ability to bypass panel moves up the timelines on both of those.
So we are looking at the extreme risk release by the end of this fiscal year and then by the next year the release is to high risk of patient population. And then by the end next fiscal year, we will be talking about CE Mark for release of the MICRO Leadless Pacemaker as well as the Symplicity Flex product, the U.S. renal denervation product. And as we then look at our endovascular business, we expect by spring of next year we will be releasing data on the FDA application for the drug-eluting balloon, the Admiral drug-eluting balloon, which should result for an early part FY 16 release of that. So as you can see much going on across all of the business, strategically than this size and scale and breadth that we then bring to the marketplace.
The combination of the full product lines we currently have plus the innovated technology that I just talked about in this near term window and the wrap around services set us up to truly differentiate the overall Medtronic CVG program and everyone at these new innovation releases gives us an opportunity to refresh that messaging across all of our product line. One thing I also wanted to point out is that the ability to take the existing sales to the clinical support organization that currently have out in the field growth and we purpose them onto growth areas is a real advantage from my perspective.
We saw with the Resolute Integrity launch in the U.S. how we use our reference scale for drive share there, we expect and able to repurpose people with every one of these launches to basically not only drive growth but also allow us to deal with the overall SG&G in burden in a market that obviously sees price declines in some of larger segments. So the key to all of this is being able to have each one of these new innovation get delivered with world-class clinical both from clinical outcome and economical outcome perspective and a well sort out plan for how now we put in our existing sales and service infrastructure, which you going to see today from Ronda is how that's being applied to CoreValve, but you can view it as a model to be apply to all of the innovation we're bringing more.
So with that, let me turn it over to specifically talk about CoreValve.
All right, thank you. Good afternoon everybody. I am really excited to be here, given the day events to talk you about some of the specifics of what's happening in the market as well as with the CoreValve's launch and we've announced some significant new developments to accelerate U.S. commercialization today and I'll detail some of the specific plans and try to anticipate some of the questions that you may have. We still see this is a fabulous market representing $2 billion to $2.5 billion global market opportunity by 20:20.
I will talk to you a little bit about how we're making those estimates and where we are going with them. We are investing significantly in next-generation technologies and have made announcements and some things happening today that I'll insight into as well and then obviously the day has all been about data and certainly there is clear patient benefit shown with CoreValve and the extreme risk and continued to access data more than 1200 patients that we reported on today.
Okay just a little bit on extreme risk, Mike already said and you read the announcements that we do have a separate review path to a very significant development, this is something you all have been asking about us for quite some time and this is really just new information and conformation that we received from the FDA last week along with the fact that they waived the panel requirement for the extreme risk data, so really exciting and it's been a huge question and certainly now we have conformation and what that mean is that we will have an expected FDA approval by the end of FY14 and we have aggressive launch preparations underway as we speak.
I think what's also important for context you all have had some questions about what do we expect to have available at the time of launch and at this point in time we are pursuing our full valve-size metrics for approval that will include the Evolut smaller device all the way up to our 31 millimeter device so that will serve a patient annular range between 18 and 29 millimeters so very important in terms of overall patient access. We will also have alternate access that will be an important part and you saw David's presentation this afternoon about how do we take these benefits significantly it's a very meaningful part our overall trial almost 20% of the patients that were enrolled overall in this trial.
And then in addition the delivery system Accutrak was the delivery system we set again this trial as well at anti-calcification treatment so as we look forward to launch those other things that we're looking to forward to in terms of having available by the end of FY14. And then just quickly on high risk this is following quickly thereafter we just completed our one year patient follow up this past week. We're targeting ACC which is in March for the approval of that data -- for the release of that data. We are still anticipating an FDA panel for this portion of our trial so this is baked into the time lines that we're showing which we then put us into an expected approval time frame by mid FY15.
So just talk a little bit about launch and some of the expectations that we have for Varian this is just a view of the world of the centers and potentially some of the timing you are all well aware that we have 45 US IDE sites that were part of 40 that enrolled in the pivotal and additional five that were part of the Continued Access trial. We have started SURTAVI, the global trial. We have also added 15 new experienced TAVI sites into the SURTAVI trial for a total of 60 sites that will be experienced with the CoreValve program. As we look to the total market, we see approximately 350 to 400 total sites that potentially meet the NCD criteria. Based on market information another 190 of those are already existing trained TAVI sites that is where we will start our focus for launch, so we think it's most efficient to go after TAVI trained sites first and that will be our top priority. From now there are somewhere between 100 and 150 future sites.
We haven't started TAVI yet but we'll be starting in the future as they meet the NCD criteria, so just a little bit on the ramp. It's a little conceptual obviously. It will take us some time to reach all of these sites given the training process the proctoring et cetera but this is just a high level view of what we're anticipating in our goal and certainly our plans are lining up to have a dedicated and fully trained team at the time of launch. So we will have a dedicated organization. We think it's very important for the therapy to do so and they will be in place at the time of launch.
Significant market opportunity, our market estimates really have not changed for the last several years but we see a 20-20 market size between $2 billion-$2.5 billion really represented in the following areas. This gives a little bit more insight in terms of how we get there. We have our existing patient populations and the right blue at the bottom is the U.S. and Western Europe is our developed markets we see over this time frame growing in 6% to 10% range but then as we add on new geographies particularly Japan this grows much-much more significantly in the 35% to 40% range as well as new patient group intermediate risk valves and valves bicuspid, potentially aortic insufficiency. So it's important to look at what the drivers of some of the growth are and just helpfully this is helpful for you all but meaningfully the access to new geographies, the access to new patients, contribute significantly to the proportion of total revenue as we look to the out years.
I've been asked a lot about Japan, and so we wanted to provide a greater level of specificity today in terms of what we expect. And we will submit our [Shonen] in Q4 FY14 and we are leveraging data from the U.S. pivotal trial. So the agreement going in was extreme and high risk but be used for the [Shonen] submission so timing to Q4 FY14 the process for this takes approximately one year so we expect approval in the Q4 to Q1 time frame we'll provide a range and now titrate that down as we have more specificity. And then of course reimbursement typically lags from there. So we'll look to the following Q1 FY16 or Q2 FY16 for Japan approval and ultimately reimbursement approval to be able to commercialize there.
Let's move a little bit to some of our new product developments and innovation. And certainly there is a lot to talk about. And again as we talk today CoreValve is a spectacular platform. We couldn't be more excited to commercialize in the United States. The dates today are consistent with what you've seen previously. CoreValve Evolut as you know is part of our US IDE and CAS and already mentioned that we intent to seek approval along with the extreme risk group.
Engager has been a great development outside the United States this is a transapical device soon to be direct aortic device. We are in the midst of launching this throughout Western Europe with focus on Germany first as it's the largest transapical market in the world. And we are pursuing a direct aortic delivery system as well that we anticipate will be CE marks by the end of FY14.
Importantly CoreValve Evolut are as really kind of the next step for the CoreValve platform. We expect CE mark for this in FY15-16 time frame that's broad we are in the midst of conducting our clinical trial right now as we complete enrollment on that and get through that clinical trial we'll be able to provide more specificity in terms of the timing but we wanted to be aware of that.
We did have some important new developments in the programs just for those of you that don't have familiarity with CoreValve Evolut R and we have made some modifications to device, device is certainly part of the CoreValve platform you can see that by looking at it. But we've learned a lot about patient anatomical characteristics through all of the work and CTs that we've collected and have made some modifications to the frame and putting a reduction in the height by about 10 millimeters.
We've really titrated the inflow of the device to provide a better fit and interference for ceiling and PDL reduction, pacemaker reduction, et cetera. And then again anticipate to have a full size range and I note there are 18 to 29 plus. We still have a number of patients who are larger than the 29 size annulus that fall out because they just don't meet the existing guidelines. And so we are pursuing an even larger valve as part of this platform as well to be able to serve all the patients who could benefit.
One of the exciting new things is the EnVeo R delivery system. This is really what allows recapture and the goal here is to really deliver the valve precisely. First, we don't want to have to recapture, so that the system has really been developed to that very, very well. We've also developed a new InLine Sheath and one of the things that certainly you're here at the meetings and you hear as the dialog even today is the need to further reduce that's sort of complications and overall bleeding and we think movement to '14 French dedicated InLine Sheath will have a meaningful reduction in overall that sort of complications and ease of placement and for those of you that may have seen that two live cases the back-to-back Evolut R cases this morning from Bonn there was some commentary on that and we see it performing spectacularly well.
So, we just think it's going to be a huge difference to the delivery. We did our first in man at Monash Medical Centers couple weeks ago, we three implants in Melbourne, Australia with Dr. Ian Meredith so all of the implant so far have gone just extremely well and we couldn't be more pleased and we're working with the FDA to define the path to the U.S. They don't have more specifics today to provide on that but suffice to say we are very anxious to move this forward into the U.S. as well and are working on a clear path to do that.
The last development I want to touch on is the Medtronic mitral replacement project and I think you guys have seen this picture before we communicated on this device at EuroPCR. Nicolo Piazza gave an important update yesterday afternoon on the status of this device but as you can see it, it looks a little bit like core valve, its looks little bit like an engager importantly with those arms. This is a self-expanding nitinol frame. We are very committed to this platform and think it's extremely important for the mitral valve space. Fixation to the need of mitral apparatus will occur with those arms. Those arms really enable the device to fix it into place and then subsequently preserve it the need of mitral apparatus.
The cylindrical tri-leaflet pericardial valve that has a flexible inflow with minimal extension into the LV and importantly Nicolo Piazza mentioned yesterday in his presentation that we are targeting recaptureable system for this as well to provide that as needed. Acute animal studies complete chronic studies ongoing no update day on first in man.
So, let us get through some additional work and then we'll provide an update on down the road as we closer but we couldn't be more excited about this. And the big finale is really be extreme risk data and so I just want to close on this and turn it over for Q&A but again we couldn't be more please and I just personally want to thank Drs. Popma and Adams for their leadership in the trial it has been incredible and just the results are shown here. Achievement to the primary endpoint of all-cause mortality, major stroke via clear shot low rates of major stroke at 30 days and one year, low rates of moderate severe aortic regurgitation and important new insight that has not been presented transcatheter valves before in terms of seen it actually improve over time for moderate, I'm sure there may be some question on that. No association of mild and moderate on late-term motility and then further improved outcomes in more than 800 patients reported on in the continued access study.
So with that I think we will move, Jeff, to Q&A.
Earnings Call Part 2: