Medtronic Spine Sales Rising With Scale

Medtronic plc’s spine sales of $763 million for the quarter ending August 31, 2015, kept up with the general growth of global spine sales. But U.S. sales of $518 million lagged behind the market.

With an extra selling week, spine sales grew a reported 7%. On a constant currency basis, sales rose 3%. Sequentially, those sales accelerated from a negative 2% growth rate during the immediate past quarter.

Once again, Infuse was the star with sales growing in the low double digits. Core spine was flat globally and declined in the mid single digits in the U.S., and interventional spine declined in the mid single digits globally and high single digits in the U.S., adjusted for the extra week.

Affordable Care Act and Outlook

Omar Ishrak, the company’s president and CEO, told analysts on September 3, 2015, that credited for revenue growth was an increase in U.S. surgical procedural volumes driven by an improving economy and the Affordable Care Act.

The company said sales will improve in the upcoming quarters, resulting from recent realignment of the RTG (Restorative Therapies Group) commercial sales management and upcoming and recent product launches including; Elevate Expandable Cage, Solvera Voyager system, Prestige LP cervical disc, inner-body cage, anterior cervical plate system and the anatomic PTC (pure titanium coating) interbody spacer. Long term, the company is focused on using an “integrated strategy” that takes advantage of its capabilities in capital equipment and surgical tools.

Scale, Scale, Scale

In other words, a broad bag of products.

BMO Capital Market analyst, Joanne Wuensch said while it is clear that a broader bag of products will help in negotiating with hospital purchasing groups, “likely the more politically correct way to communicate the point is that it will provide incremental economic value to its customers, which will be the key to accessing customers. For example, while Medtronic does not have hip or knee products, management did laude CMS’s [Centers for Medicare and Medicaid Services] proposed bundled payments for these products, which likely bodes well for paving the way for more value-based health care in the U.S.”

Strategy for Growth

Wuensch noted that spine has been a “drag” on the company’s overall portfolio for some time. She added that while she and her analysts had anticipated that the company might spin out its spine division, “it seems to be hunkering down, investing, and redirecting, taking a page from the CVG [cardiac and vascular group] playbook to cross-sell and integrate technology opportunities for economic and clinical outcomes.”

She pointed to the company’s “tangible” changes to the spine group. Those changes include:

• Integrating the sales force in the U.S. and in Europe, increasing efficiency in cross-selling
• Focusing on the surgical synergy concept, including navigated procedures in spine, driving it more to a standard of care (management estimates that today only 14% of core spine procedures are navigated)
• Providing a ‘laser focus’ on improving innovation in spine and improving product release cadence

In short, Medtronic has a strategic plan to stop being a market share donor and getting back to competing for a bigger piece of the spine pie.