The Downside of Early FDA Approval

Earlier-than-expected FDA approval of a new medical device seems like it should be a win on all counts. But as Medtronic's latest earnings report shows, an early approval can slow sales--at least temporarily.

Medtronic's MiniMed 670G insulin pump system received FDA approval ahead of schedule.

Medtronic has set a fast pace for regulatory approvals in its diabetes business.

In August, the company announced the U.S. launch of its MiniMed 630G insulin pump system. Then, just a few weeks later, in late September, FDA approved Medtronic's next-generation MiniMed 670G insulin pump system. That approval, which came earlier than anticipated, was hailed as a milestone because of the system's more accurate sensor and SmartGuard HCL algorithm, intended to maintain glucose levels within a target range for as much of the day as possible. 

Still, a surprise early approval can mean that the device isn't immediately planned for commercial launch. Medtronic plans to release the MiniMed 670G system in spring 2017. The gap between the 630G launch and 670G launch has apparently led to a gap in sales too, as many patients seem to be waiting for the 670G, the first hybrid closed loop system for insulin delivery and the closest offering to an artificial pancreas available. 

This dynamic was one reason Medtronic posted disappointing revenue for its diabetes business when it reported second quarter earnings for fiscal 2017 on November 22. Diabetes sales of $462 million missed the analyst consensus estimate by more than $20 million.

According to a Seeking Alpha transcript of the earnings call, Omar Ishrak, Medtronic chairman and CEO, said, "The earlier than expected approval has created a bigger than expected gap between product approval and shipment."

Another factor impacting sales has been Medtronic's Priority Access program. The program allows patients to buy a MiniMed 630G system and be among the first to receive the 670G system once it is available. However, some revenue from the sale of these 630G systems is being deferred, as the program includes the option for a $500 exchange if patients return their 630G pump and transmitted upon upgrade.

"We are seeing strong demand for this program primarily from early adopters," Ishrak said.

Joanne Wuensch, analyst at BMO Capital Markets, wrote in a Nov. 22 research note following the earnings call, "The remaining customer base will most likely wait until the 670G launch to upgrade and we expect this trend to persist with a ramp up in FY3Q to FY4Q."

Hooman Hakami, president of Medtronic's Diabetes group, said on the earnings call, "In less than two months, we had two major product approvals in the same geography. And there is operational transition that comes with this and there is a degree of, I would say, perhaps confusion and disruption to demand because of that and that was really the biggest catalyst."

Medtronic's diabetes sales are expected to recover as the MiniMed 670G system launches.

"Because we do not expect the 670G to be on the market until the end of this fiscal year, we expect growth in diabetes to ramp through the back half, with stronger growth in the fourth quarter than the third," Karen Parkhill, Medtronic's chief financial officer, explained on the earnings call. "We continue to expect diabetes to ultimately reach double-digit revenue growth as signaled in the past once the 670G is fully on the market next fiscal year."

[Image courtesy of MEDTRONIC]