Your heart, and Medtronic's warning system

NEW YORK (CNNMoney.com) -- The medical device maker Medtronic is planning three major product launches this year including an implanted device meant to be an early warning system for heart disease patients.

But will it work? Medtronic is heading into unfamiliar territory with its heart disease monitoring system, and industry analysts are having a hard time gauging whether the product will be a potential blockbuster - or a flop.

Medtronic (down $0.19 to $53.05, Charts), a maker of medical devices, is designing sensors that would be implanted in patients considered high risk for heart attacks. The devices, called Chronicle, would monitor vital signs like blood pressure, temperature and heart rate and send the information back to doctors via a wireless network. If the devices are successful, the doctors would recognize the signs of impending heart attacks and take preventative measures.

"We're able to track patients and get early warning," said Dr. Stephen Oesterle, senior vice president of medicine and technology for Medtronic. He said that someday, doctors in Minneapolis might be able to monitor patients as far away as Shanghai through the Chronicle system.

"We're anticipating millions of people walking around with these implantable devices," said Dr. Oesterle, who emphasized that such a future - if it happens - is still years away. "We already have millions of people walking around with pacemakers."

For its communications network, Minneapolis-based Medtronic would partner with a telecom giant like Verizon (up $0.14 to $38.22, Charts), Intel, Qualcomm or IBM (up $0.45 to $100.00, Charts), said Oesterle. Medtronic's president and chief operating officer William Hawkins said the Chronicle has potential for $1 billion in annual sales.

Chronicle is awaiting a decision from the Food and Drug Administration and an advisory panel is set to review the monitoring device in March. Also in 2007, Medtronic hopes to win FDA approval and launch its next-generation heart stent, the drug-coated Endeavor, as well as the artificial discs called Prestige that would be the first to support vertebrae in the upper portion of the spine.

Analysts have mixed opinions on Chronicle and were reluctant to provide sales estimates because of the lack of similar systems with which to compare the break-through technology.

Christopher Cooley, analyst for FTN Midwest Securities, was bullish on Chronicle, but emphasized that the device is still experimental. "I think [Chronicle] is going to be the norm for all manufacturers going forward," said Cooley. "In theory, it will give better peace of mind to the patients and eliminate additional visits to the doctor."

But Stephan Ogilvie of ThinkEquity Partners wasn't so sure. "I don't know if they're really solving an important problem instead of just providing neat technology," said Ogilvie.

Les Funtleyder, analyst for Miller Tabak, said the Chronicle "is where we're heading" in terms of medical technology, but it "remains to be seen whether doctors want to be monitoring patients at home."

"They're going to be getting reams and reams of data every day," said Funtleyder. "How are they going to be dealing with that?"

While analysts have a hard time coming up with projections for Chronicle, they're bullish on Medtronic as a whole. Analysts on average forecast a 10 percent gain in Medtronic's stock price over the next 12 months, according to Thomson Financial.

Medtronic could use a lift, considering that its stock price dipped 7 percent in 2006. Even with the decline, Medtronic is trading at about 23.4 times forecast earnings, above Johnson & Johnson's price-earnings ratio of 16.9 but below Boston Scientific, with a P-E of about 30.

In addition to Chronicle, Medtronic is expected to launch a drug-coated stent called Endeavor, along with the first-ever artificial discs for the cervical, or upper, part of the spine.

Medtronic hopes to launch Endeavor following a review from the advisory panel in May. The stent is already a big product in Europe, where it has captured 21 percent of the market, noted Tao Levy, analyst for Deutsche Bank, in a published report.

Ogilvie of ThinkEquity said Endeavor sales could reach $1 billion in its first full year on the market, the fiscal year ending in April 2008, assuming the product is approved for sale in the United States. Ogilvie wouldn't break out projections for the Endeavor, but he said that Medtronic's overall stent business, which includes bare metal stents, will notch up to $1.7 billion in the fiscal year ending in April and $1.9 billion the following year.

Stents are metal tubes used to prop open clogged arteries following angioplasty. The next-generation drug-coated stents, approved by the FDA in 2003, are covered with a blood-thinner and are designed to keep the arteries from re-closing. In 2006, a Cleveland Clinic study found that the new type of stents increased the risk of blood clots, but scientists don't know why. FDA experts held a panel meeting in December, but were undecided on what to do about drug-coated stent safety.

In the crowded market for drug-coated stents, Medtronic's competitors are Boston Scientific (down $0.22 to $17.28, Charts), maker of the Taxus stent, and Johnson & Johnson's (down $0.01 to $65.99, Charts) subsidiary Cordis Corp, maker of the Cypher stent. Abbott Laboratories (down $0.22 to $52.24, Charts) is also developing a drug-coated stent.

Dr. Oesterle of Medtronic said the Endeavor stent is safer than other drug-coated stents since it's covered with polymer mesh that reduces inflammation to the arteries.

"The marketing pitch for Endeavor is that it's safer than Cypher or Taxus," said Funtleyder. "Whether that's true remains to be seen."

Medtronic is also expected to get the artificial spine discs approved by the FDA and launched in 2007. Dr. Oesterle called the up-and-coming Prestige disc "the first artificial disc that would allow full mobility."

Like the Endeavor, these discs are successful products in Europe, noted Levy of Deutsche Bank. But Suraj Kalia, analyst for Rodman & Renshaw, said he was skeptical about the cervical discs, and a "lack of information" made it difficult to project sales.

"Based on our physician contacts, we have gotten mixed reviews about the need for cervical discs and about the market for cervical discs," said Kalia.

Despite the uncertainties, Medtronic is a diverse company with strong sales and earnings in its recent past, and analysts tend to be bullish going forward.

Sales for the fiscal year ended last April jumped 12 percent to $11.3 billion and earnings surged 43 percent to $2.5 billion, or $2.10 a share. According to Thomson Financial, analysts project an increase of 10 percent in sales and 7 percent in earnings for fiscal year 2007, and an increase of 12 percent in sales and 14 percent in earnings for fiscal year 2008.

The analysts quoted in this story do not own shares of company stocks mentioned here, but Deutsche Bank makes a market in Medtronic.

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