Medtronic Spine Sales Flat – Improvement Expected

On December 3, 2015, Medtronic plc’s spinal division reported another quarter of flat revenue with sales of $719 million.

Overall, the company reported a 6% rise in sales, while the company’s Restorative Therapies Group (RTG) rose 5%. The company’s other divisions had analysts swooning over results. The company generated $1.1 billion in free cash flow and expects to generate nearly $40 billion in free cash flow over the next five years.

But spine, which is part of the RTG, declined around 4% on a reported basis. Outside the U.S., spine sales rose 5%.

Spine had strong double-digit growth in Japan, in the Middle East and Africa and solid mid-single digit growth in Canada and Latin America.

BMP had flat international sales in the quarter due to the impact of stop shipment in Europe. Management said the issue is limited to a third-party manufacturing facility that only supplies the European market. While the supplier has identified the remediation plan, management does expect to be off market for the remainder of the fiscal year, reducing expected international BMP revenue by approximately $7 million per quarter.

Mike Sheffield of the Memphis Business Journal reported that the last few quarters of decreased spine revenue had led analysts to predict an end to the decreases after new products were launched. He wrote that Edward Jones analyst John Boyland said, “One quarter doesn’t make a trend, but we’re starting to see some positives out of spinal. It’s basically because competition is intense, and that will continue. But, we think we’re starting to see evidence of things starting to turn.”

Needham & Co. analyst Mike Matson said that Medtronic lost share in a slow growth spine market. Spine sales were $7 million short of consensus. He estimates that Medtronic’s core spine declined 1%, interventional spine decline 4%, and BMP (Infuse) grew 8%, all on a constant currency basis. According to Matson, on a constant currency basis, the global spine market grew by 1% in the third quarter of 2015, a decrease from 2% in the second quarter. Year-over-year, he estimates that Medtronic lost 0.6% of spine market share.

Improvement Expected

Management told analysts on December 3, 2015, that new product launches, the realigned RTG sales management, and surgical synergy programs are expected to drive improved spine growth.

Specifically, management expects core spine results to improve as numerous recent and upcoming product launches reach scale, including the Elevate Expandable Cage and Solera Voyager System in thoracolumbar as well as the Divergence Stand-Alone Interbody Cage the ZEVO Anterior Cervical Plate System, the Prestige LP Cervical Disc and Anatomic PTC interbody spacer in cervical.

Company Chairman and CEO Omar Ishrak didn’t have much to say about the company’s spine performance. He did, however, note that the new integrated RTG sales management structure has already finalized several new contracts in a program that combines O-arm placements with increased spine implant commitments. “While still early, our expectation is that strategies like this will result in improved performance.”