Although three major pipelines at Medtronic (NYSE:MDT) have hit recent speed bumps, CEO Geoff Martha reiterated his belief that they will be significant growth drivers.
Speaking at the 40th Annual J.P. Morgan Healthcare Conference today, Martha expressed his disappointment with the hitches in important businesses.
“I feel a mix of disappointment and anger,” Martha said. “And, I feel deeply accountable for this. … But, it’s important to reiterate that, while these programs are delayed, they are still expected to be meaningful growth drivers going forward.”
In October, the medtech giant announced that the clinical study of its Symplicity Spyral renal denervation (RDN) system for hypertension would continue into next year after lacking the positive results needed to end enrollment early. The following month, supply chain and manufacturing issues resulted in the announcement that Medtronic’s much-anticipated Hugo surgical robot launch was off-schedule.
The third setback for Medtronic came last month when the company received an FDA warning letter focused on the inadequacy of specific medical device quality system requirements at its diabetes business’ Northridge, California, facility.
Martha acknowledged that Medtronic had to continue its renal denervation trial when it had planned to report results and accelerate the track to market launch. But company officials remain confident that renal denervation is still a multi-billion dollar market opportunity.
The company intends to run the trial to completion and expects follow-up with completion in the second half of this calendar year, followed by submitting data to the FDA for approval, Martha said.
Hugo’s delays resulted in an adjustment in revenue expectations, which Martha labeled “disappointing.” Still, he expressed optimism over the surgical robotic platform that aims to challenge Intuitive’s da Vinci platform as the industry leader.
Medtronic anticipates the first surgery in a U.S. trial for Hugo soon, with double-digit millions in sales for the platform this year and a meaningful increase next fiscal year.
“Customer interest is extremely high,” Martha said. “Our order book continues to fill. We’re installing systems and new accounts and surgeons are using the system to perform complex surgeries.”
Finally, Martha admitted that the FDA warning letter over Medtronic’s diabetes business introduces uncertainty into the approval timing for the MiniMed 780G insulin pump and the Guardian 4 continuous glucose monitoring (CGM) sensor in the U.S.
Martha said that the company has remediation efforts underway and intends to resolve the warning letter as quickly as possible.
“Improving the performance of our diabetes business, including the quality system, is something we’ve been working on for the past couple of years,” Martha said. “We’ve committed increased investment to drive competitiveness, drive remediation to our quality system and take advantage of our strong platform. We remain confident in our turnaround for diabetes, one of the most attractive high-growth markets in medtech.”
BTIG analyst Ryan Zimmerman labeled Medtronic as a “Neutral” option, downgrading it from “Buy” amid the setbacks. However, those setbacks could potentially limit upside in results in Medtronic’s upcoming calendar year based on when they eventually come to market, Zimmerman wrote.
“We think there is limited upside as a result of the impact to the pipeline coupled with a longer recovery in procedures from COVID,” the analyst wrote. “Lastly, we believe that the warning letter received on the diabetes facility is likely to hurt margins.”