Medtronic Takes Another Shot

Renal denervation is on the cusp of a resurrection on the back of Medtronic’s MDT most recent landmark studies. A decade ago, Medtronic, St. Jude Medical, Covidien, and Boston Scientific were in hot pursuit of this technology following stellar performance in significantly lowering high blood pressure in treatment-resistant patients in several small-scale studies. But deeply disappointing results from Medtronic’s first pivotal (randomized, blinded) trial against a sham procedure put a freeze on the technology in 2014. Since then, Medtronic has refined its technology, procedure technique, and trial design to address confounds in the first pivotal study, and its second pivotal trial definitively demonstrated in 2020 that renal denervation does work independently, without the aid of antihypertensive medications. Medtronic seems to be on track for regulatory approval and commercialization in late 2022.

Renal Denervation Could Be a Significant Therapeutic Change

Once the hottest pipeline prospect in the cardiac device market, renal denervation appeared to die a quick death in 2014 following disappointing results from Medtronic’s initial pivotal study, which failed to meet its primary endpoints. All the major competitors chasing this technology halted further investment. However, after a postmortem examination of that clinical trial, Medtronic decided to refine its study design to better control for confounds from inconsistent drug usage and invested in another pivotal study. Now, renal denervation is on the edge of a legitimate comeback.

Renal denervation offers an opportunity for cardiac devicemakers to take a swing at one of the largest cardiovascular disease states--hypertension--which is an area that has been dominated by medical therapies, with virtually no therapeutic alternatives from devicemakers. According to the World Health Organization, high blood pressure is one of the most common diseases, affecting an estimated 1.13 billion people worldwide, and less than 20% have their hypertension under control.

Although diagnosis and treatment is considerably more widespread in the developed countries, there remains much room for improvement. Even in the United States, there are approximately 78 million adults with hypertension (roughly 1 in every 3 adults), and only half have it under control.

Even though hypertension itself does not usually lead to death directly, it plays a significant role in elevating the risk of other health events that can and do lead to death. Further, we know that bringing hypertension levels down also lowers the risk of these complications.

Not surprisingly, hypertension exerts one of the most costly disease burdens, thanks to its widespread prevalence as well as the expensive conditions (and aftermaths) that it can lead to. Direct costs related to treatment and medical care for hypertension have been estimated at $51.2 billion-$70 billion per year in the U.S. Considering the pivotal role that hypertension plays in the development of other serious diseases, when including that wider range of related conditions, the incremental cost of high blood pressure is closer to $131 billion per year in the U.S. This makes hypertension a high-value target for practitioners and public health experts alike.

Despite how common hypertension is, especially among midlife adults and the elderly, it is particularly pernicious because it is often easy for patients to ignore. Most hypertensive patients feel no symptoms. By the time the small minority might experience blood pressure-related headaches, dizziness, or nosebleeds, the patient has already reached the stage of hypertensive crisis. The general absence of symptoms means patients may stop taking medication and be deluded into thinking their blood pressure is normal or nonharmful. Keeping these patients on a medication regimen is a perennial challenge for practitioners.

Another estimated 25%-30% of hypertensive patients are treatment-resistant--that is, blood pressure is not controlled even with optimal and compliant use of three or more antihypertensive medications. We estimate that the renal denervation market will reach $4.2 billion worldwide by 2030, assuming Medtronic’s landmark on-medication study outcomes are favorable and the therapy receives Food and Drug Administration approval for this segment of difficult-to-treat patients.

In addition, there’s the potential for indication expansion with renal denervation, which would increase the potential patient pool. Once the body of clinical evidence among the treatment-resistant segment accumulates and practitioners gain experience and familiarity with the procedure, we wouldn’t be surprised to see devicemakers initiate clinical trials among less severely afflicted hypertensive patients, especially if practitioners gain a better understanding of potential side effects of the procedure.

Novel Approach to Addressing Hypertension

The hypertension market has been dominated by a plethora of pharmaceutical therapies, with virtually no device-oriented products. We think this is largely reflective of the many medical options available to practitioners, including several well-established classes of drugs that work in various ways to either reduce the volume of blood or keep blood vessels from constricting and raising blood pressure. Most of these drugs have been around for so long that the estimated $23 billion-$25 billion global market is now dominated by generics.

Much of the medical therapy revolves around patients trying different combinations of antihypertensive drugs to incrementally lower blood pressure and achieve control. While there are generally no serious side effects associated with these classes of antihypertensives, some patients find the largely mild side effects--dizziness, headache--annoying. When coupled with the general lack of symptoms, it can be easy for patients to slack off on their medication.

With investments in drug development moving further toward orphan and rare diseases, targeted therapies for oncology, and immunology, there’s been less interest in new drugs for hypertension for a few reasons.

• The innovation in treating hypertension has been anemic, with fewer scientific advancements compared with oncology and immunology.
• Drug pricing tends to be considerably lower in hypertension as pharmacy benefit managers and international governments generally push back on pricing because the affected patient population is so large.
• It is expensive to market hypertension drugs to the large group of primary care physicians.

This leaves the door open for renal denervation.

Renal denervation is based on a curious phenomenon observed roughly a century ago, when surgeons found that surgically severing sympathetic nerves in the renal artery could lead to lasting drops in blood pressure. There is a generally recognized connection between the kidneys and the brain, though even medical experts have yet to fully understand that dynamic in the sympathetic nervous system that allows the two organs to communicate. However, this relationship does play a key role in resistant hypertension.

The surgery was an imprecise tool and would commonly result in complications such as bladder and bowel dysfunction, orthostatic low blood pressure (patients would faint when they stood up quickly), and high perioperative mortality. By 1940, this surgery had been abandoned.

The percutaneous approach to disrupting the renal nerves is intended to elicit the same drop in blood pressure in a minimally invasive manner, with greater predictability and fewer complications than with the surgical approach. The concept is to use energy on the renal artery to interrupt the sympathetic nerve activity in that area that plays a critical role in regulating blood pressure.

Medtronic’s Taking Its Second Shot

Currently, as with the last time around, Medtronic is in the lead with its pivotal trial. However, in this redux, there are only two, much smaller competitors: ReCor Medical/Otsuka and Handok Kalos. The dearth of competition bodes well for Medtronic if the data from the on-medication large-scale study is favorable. Preliminary data may be shared as early as fall 2021. We remain confident that Medtronic’s technology can receive FDA approval on the strength of its pivotal HTN Off-Med trial results. However, we think it will be more commercially valuable for the company to receive a label that allows the use of renal denervation in combination with more traditional antihypertensive drugs. This is what the additional HTN On-Med study is designed to address, and if outcomes are positive, this would put Medtronic’s Symplicity Spyral on track for FDA approval in late 2022. On the other hand, the general reluctance among competitors to invest further in this platform only underscores the perceived risk associated with the technology.

As we lead up to the initial results from the HTN On-Med trial in the fall, several positive signs in the recent past have made us more optimistic about Symplicity Spyral and its chances for commercialization.

• In all of Medtronic's small- and large-scale studies, there have been very few issues with the safety of the procedure. In general, mortality and major adverse outcomes have been low in the absolute, which bolsters our confidence in the safety of this technology--a key hurdle for practitioner adoption.
• Initial data from the HTN Off-Med trial was positive. The trial demonstrated that renal denervation does significantly lower systolic blood pressure compared with the sham procedure among uncontrolled hypertensive patients in the absence of any medication.
• Although the magnitude of the decrease is significantly lower than that of the small-scale trials from 2010-13 that generated so much excitement, the second pivotal trial definitively establishes that renal denervation is significantly more efficacious than the sham procedure, without any help from antihypertensive medication.
• Separate from the HTN Off-Med study, the most recent data from the global Symplicity registry, which tracks earlier renal denervation patients, suggests the favorable effects are durable out to three years. Not only are the effects long-lasting, but there's some suggestion that results improve over time. If this is borne out by the accumulation of data going forward, we think this will also contribute to practitioner comfort with the procedure. This registry covers more than 2,800 patients who have had Medtronic's renal denervation over the years.
• Considering that most of the trials sponsored by Medtronic have focused on the six-month time frame for its primary endpoints, we think this long-term data is a particularly powerful indicator of the safety and durability of renal denervation. At present, Medtronic is the only competitor that has conducted that many procedures and tracked the patients.
• Initial data from the small-scale proof-of-concept HTN On-Med study (more or less a pilot for the current landmark trial) also suggests renal denervation significantly lowered blood pressure compared with the sham procedure among uncontrolled patients who were already taking one to three antihypertensive medications.

The consistency in clinical results since the first Symplicity HTN-3 trial leads us to believe that similarly favorable outcomes will be revealed from the landmark HTN On-Med study in November. This would put Medtronic on track for FDA approval in late 2022. In another positive sign, the FDA has already designated Symplicity Spyral for its breakthrough device program, which includes expedited review.

Renal Denervation Adds to Moat but Doesn’t Shift Valuation Much

Medtronic has dug a wide economic moat based primarily on intangible assets and secondarily on switching costs, in our opinion. We think Medtronic’s emerging renal denervation platform should add to its mass of intangible assets in terms of intellectual property, clinical data, and differentiated features. We suspect the renal denervation operator training provided by Medtronic and its sales reps well versed in this technology should also reinforce those intangible assets.

We think there is still considerable uncertainty around whether there would be switching costs involved with this technology. Based on Medtronic’s earlier trials, there were few concerns raised about a practitioner learning curve or notable differences in how operators conducted the procedures. Although the trial results varied in terms of demonstrating efficacy, we speculate that this is more likely related to the evolving understanding of how renal nerve structures vary within the patient population.

At this point, we expect the switching costs for renal denervation could fall somewhere in the middle, with lower switching costs than transcatheter aortic valve replacement, but higher than coronary stents.

We raised our fair value estimate for Medtronic to $129 per share from $118 after adjusting our estimates for the resumption of non-pandemic-related procedure volume in fiscal 2022 and incorporating our projections for the adoption of Symplicity Spyral over the longer term. The renal denervation impact on valuation remains fairly modest, but that’s generally the case for Medtronic, which has now grown so big that any single product usually is not enough to move the valuation needle. Our estimates assume that the HTN On-Med study delivers favorable data in late calendar 2021 followed by filing with the FDA and regulatory approval for uncontrolled hypertensive patients in late 2022, that reimbursement conditions improve by late 2024, and that the Spyral is priced at $5,000 per procedure.

Risks and Challenges Remain Present

One major challenge of renal denervation is that we still don’t know that much about the renal artery, the sympathetic nervous system, or the communication between the kidneys and the brain. As a result, we have yet to close in on the sweet spot of exactly where and how much to ablate. Medtronic has been moving forward to address this issue. In early 2020, the company initiated a small-scale trial that seeks to reduce the number of ablations (compared with HTN Off-Med) but concentrate them on the far ends of the main arteries and into the smaller branches where we now think more of the nerves are.

Another lingering risk comes from renal artery stenosis, which can contribute to hypertension and lead the patient back to where he or she started. Thus far, the available data suggests this is an uncommon side effect, though patients haven’t necessarily been monitored in any consistent way for this condition.

Nonetheless, we expect that further refinement of the technology and accumulation of clinical data should help practitioners address both of these issues, contributing to more accurate ablation, greater efficacy, and better patient selection, as well as a better sense of the incidence of stenosis and how large that risk is.

We think two other sources of significant uncertainty could weigh on the early stages of commercialization. First, it’s not clear what magnitude of efficacy would help practitioners feel comfortable moving forward with this more invasive approach to treating hypertension. The most recent trial data has been less eye-poppingly impressive than the earliest days of renal denervation, even though it clearly demonstrates a significant advantage over a sham procedure. In other words, renal denervation has been proved to bring down hypertension, and the therapy is legitimate. However, its efficacy isn’t nearly as strong as we’d anticipated when this therapy first emerged more than a decade ago. Having said that, interventional cardiologists tend to be among the more adventurous and innovative specialists, which could be a factor in favor of adoption, especially if the safety profile of renal denervation remains strong.

Second, as with any new medical technology, it’s not clear when reimbursement will be established. This is crucial for widespread adoption, especially in the U.S., which often takes the lead on reimbursement while European countries follow much more slowly. Considering the prevalence of hypertension and its link to other serious cardiovascular diseases, we anticipate the Centers for Medicare & Medicaid Services will likely move in the direction of a national coverage determination. The NCD would establish a consistent reimbursement nationally instead of leaving the decision up to each Medicare contractor.

On one hand, the NCD process is far more rigorous and data-intensive than approaching the Medicare contractors individually. Medtronic’s large-scale, randomized, blinded trials should provide that data. On the other hand, once reimbursement is set nationally, it opens the door for extensive adoption of the procedure more quickly. CMS accepted Medtronic’s earlier Symplicity device into its process for the NCD in 2013. We expect a similar approach this time around.

Finally, both Boston Scientific BSX and Abbott ABT have put their renal denervation systems on the back burner. However, if Medtronic’s trial with patients using antihypertensive drugs turns out favorably, then we’d expect both of these rivals to seriously consider resurrecting their renal denervation programs. Johnson & Johnson JNJ may also revitalize its Renlane program, but it would be highly unlikely to commercialize before Abbott or Boston Scientific. If J&J were serious about this market, it would be easier to jump to the head of the line by purchasing ReCor Medical, for example. Either way, Medtronic has a head start of two to four years, as its large competitors would have to begin designing and enrolling pivotal studies and amassing clinical data.