The long-awaited results of the review by Yale University of Medtronic’s Infuse bone morphogenic protein turned out to be disappointing. Analysts have revised projections for Infuse sales to reflect continued declines, rather than eventual stabilization. We note that even though this reanalysis of the clinical data is likely a death knell for the Infuse product, Medtronic remains a powerhouse when it comes to device innovation across many therapeutic applications, and its moat is as wide as ever.
While the independent review of Infuse clinical data confirmed that the product is generally safe and effective for promoting bone growth, there was little evidence of superiority over traditional bone grafts usually taken from the hip for use in spinal fusion procedures. This was definitely a letdown as the product seemed like it would give patients a way to avoid the painful bone grafting process. Indeed, the reanalysis found that Infuse did not significantly reduce pain associated with the spinal fusion procedure. We suspect this finding may also fly in the face of perceptions that spinal surgeons hold of the product based on their own experience using it with patients. Nonetheless, we think this reanalysis of the robust clinical data will likely convince many spine surgeons to reduce their usage of Infuse.
Analysts now assume that Infuse sales will dwindle to nothing by 2017. Infuse reached peak sales of $884 million in 2011 but has suffered double-digit declines over the last two years as more evidence built up around the potential danger of off-label usage. Last year, Infuse only contributed 3% of Medtronic’s total revenue, and its continued decline will not significantly hurt the firm’s prospects. The new study suggest there are few benefits to Infuse even for on-label usage, which is why we are modeling a dramatic decline.
Many investors are disturbed by the suggestion that Medtronic displayed biased reporting when it came to presenting the benefits of Infuse and minimizing the risks associated with the product. Considering company-sponsored studies make up the bulk of evidence that is used to garner regulatory approval and reimbursement, straying from any reasonably objective interpretation of the clinical data could spell trouble. In particular, Medtronic risks losing the confidence of physicians when it presents findings from new studies, which over the longer term, could damage one of the intangible assets that contributes to Medtronic’s moat.
Nevertheless, we applaud Medtronic for pursuing this independent review and handing over all its clinical data in the first place. Given how common it is for pharmaceutical and device companies to publicize only the studies that are favorable to their products, we think this kind of approach to independent analysis of trial data could become far more common, as payers and providers now have a larger stake in determining which procedures and innovations are worthwhile.
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