Medtronic Loses More Spine Market Share

Medtronic Inc.’s spine business lost more market share in the past quarter as spine revenue declined in a growing market.

While overall corporate sales were up 4% to $4.27 billion, spine sales of $743 million declined 3%. Declines in core spine and biologics were offset by growth in interventional spine. Core spine sales fell 2% to $552 million. Interventional spine revenue of $81 million grew 4% on a constant currency basis and was due to stabilizing trends in BKP (balloon kyphoplasty) and increasing penetration in other parts of the market (likely vertebroplasty).

BMP (bone morphogenetic proteins) revenue of $110 million declined 11% on a constant currency basis, although the company did see sequential stability in underlying demand for BMP.

Plan for Growth Intact

The company has had declining sales in four out of the last five quarters. One quarter sales were flat.

This quarter, the company said “temporary factors” such as pressure from U.S. inventory rebalancing and the timing of new products launches caused the decline in revenue. Management said the plan to return to growth in 2015 remains on track. The company also told analysts on August 19, 2014, that it expects to refresh its anterior cervical plate portfolio and launch new interbodies with advanced materials in the coming months. The FDA granted approval for the company’s Prestige LP cervical disc during the quarter.

Spine Market Up 2.9%

Piper Jaffray analyst Matt Miksic said with Medtronic’s results, we now have a relatively complete picture of spine market growth during the second quarter. He says “despite one or two ‘one-off’ events impacting the quarter, our favorite faster-growing spine innovators delivered another quarter of solid growth (up 11.4%) in a steady and improving overall worldwide spine market (up 2.9%). While larger legacy spine players continue to struggle to hold share, and below market growth rates, there are a handful of smaller, faster-moving innovators which have sustained above market growth rates for the past 8-9 years.” He specifically mentions “faster-growing pure-play innovators” like Globus Medical, LDR, NuVasive, and K2M, and turnaround companies like Alphatec and Baxano.

“Share-Gainers” Growing

Those “share-gainers” were up about 11% in the quarter, while larger legacy spine players were down about 1%, said Miksic. The gainers accounted for around 30% of the market, and continue to grow in the low teens as a group. He expects that trend to continue.

Miksic said the 2.9% growth rate during the second quarter compared to 2.5% in the first quarter and 3.0% in the last quarter of 2013.

Most spine manufacturers continue to see pricing pressure in the low to mid- single-digit range, with faster-growing innovators partially offsetting pricing pressure with 1-3% mix. “While payor pressure remains in effect for certain indications (e.g. lumbar low back pain with no leg pain), we continue to see this pressure as stable.”

Glenn Novarro of RBC Capital Markets expects the spine market to grow approximately 2.5% in 2014 (constant currency). In the U.S. he expects market growth in the very low-single-digits and international market growth in the mid-single digits (year-over-year, constant currency).