The move comes more than a year after Medtronic said it would spin off its Patient Monitoring and Respiratory Interventions businesses, part of its Medical Surgical portfolio. Reports last year claimed that other medtech companies, including GE HealthCare and ICU Medical, and the private equity firm Carlyle Group were among those considering a purchase of the businesses.
In the end, Medtronic’s leadership decided instead to end the ventilator business, combining what remains of Patient Monitoring and Respiratory Interventions into one business unit called Acute Care and Monitoring (ACM).
During an earnings call with analysts, CEO Geoff Martha cited increasing losses in the ventilators business over the past year and a market preference shift to lower acuity ventilators.
According to Martha, exiting the ventilators business enables Medtronic to invest more in its patient monitoring business to stay competitive against Masimo and leverage data- and AI-based innovations.
Martha added that Bob White, the EVP and president of the Medical Surgical portfolio for Medtronic, will be leaving as a result of the portfolio decisions.
The news and accompanying Street-beating Q3 results sent MDT shares up more than 2% to $86.30 apiece in morning trading. MassDevice’s MedTech 100 Index was down more than 3%.
Medtronic ventilators played an important role in the pandemic
Manufacturing ventilators placed Medtronic on the front lines of the COVID-19 pandemic. In 2020, the medtech giant announced partnerships to boost production and even publicly shared the design specifications of its Puritan Bennett 560 (PB 560) ventilator amid a global shortage.
Martha noted today that the ventilator business’ employees “played an incredible role during the pandemic to dramatically expand production to get ventilators to the communities around the world that needed them.”
Medtronic said that it will honor existing ventilator contracts. It said that other manufacturers, which account for most of the market, can meet health providers’ demand for new ventilators in the future.
Doing away with the ventilator business is another example of how Medtronic leaders are seeking to demonstrate a focus on profitability to investors. In January, Martha said the company was closing at least five manufacturing sites, consolidating distribution centers, and stopping doing business with approximately 200 suppliers as part of a push to improve its operations and supply chain.
Martha said this morning: “The comprehensive transformation that we’ve been working on … is also having an impact. These changes take time, and we’re certainly not done, but it’s very encouraging to see our progress and where we stand today.”
Medtronic beats The Street in Q3 and boosts guidance
Medtronic earned $1.3 billion, or 99¢ per share, off of $8.1 billion in sales for the quarter ended on Jan. 26, 2024. The bottom line was up 8.8% and the top line was up 4.7% compared with Q3 2023.
Adjusted to exclude one-time items, Medtronic’s EPS was $1.30. The result was 4¢ ahead of the consensus of Wall Street analysts, who expected EPS of $1.26 and revenue of $7.95 billion.
Medtronic’s Diabetes portfolio led the way with 12.3% growth year-over-year, to $640 million, as it continues to rebound nearly a year after it resolved an FDA warning letter and secured the agency’s approval of its MiniMed 780G infusion pump with Guardian 4 sensor. The Cardiovascular portfolio was up 6.4% to $2.9 billion, Neuroscience was up 4.8% to $2.4 billion, and Medical Surgical was up 3.9% to $2.1 billion.
Wins for the company in recent months include:
- The first U.S. commercial cases of its Symplicity Spyral renal denervation (RDN) system to treat hypertension;
- FDA approval of the Medtronic PulseSelect pulsed field ablation (PFA) system;
- CE mark approval for the next-generation Micra AV2 and Micra VR2 miniature, leadless pacemakers;
- FDA approval and a CE mark for the small Percept RC neurostimulation device;
- A CE mark for MiniMed 780G with Simplera Sync disposable, all-in-one CGM, with plans for a limited European release in the spring and a phased commercial launch in Europe over the summer.
Martha also said a limited launch has started for the Aurora EV-ICD MRI SureScan extravascular defibrillator, which the FDA approved in October 2023. He said he expects the new device — with a lead placed under the breastbone and outside the heart and veins — will accelerate Medtronic’s ICD sales growth.
“We’re building momentum, with another quarter of solid execution on our commitments. We continue to deliver durable revenue growth, with particular strength in multiple businesses, as well as in international markets as we expand access to our innovative healthcare technologies around the globe,” Martha said in a news release. “Our recent major product approvals — including transformative products in the diabetes, cardiac rhythm management, neuromodulation, hypertension, and pulsed field ablation spaces — increase our confidence in driving reliable growth over the coming quarters and years.”
The company boosted its full-year organic revenue growth guidance from the prior 4.75% to the new range of 4.75% to 5%. It also increased full-year non-GAAP EPS guidance from the prior range of $5.13 to $5.19 to the new range of $5.19 to $5.20.
BTIG maintained its Neutral rating on MDT shares as analysts questioned whether foreign exchange rates, inflation, taxes and increased R&D spending would affect profits. Said Ryan Zimmerman and Iseult McMahon at BTIG: “All in, we think MDT is performing decently but view shares as fairly valued for the top and bottom line growth profile on a multi-year basis.”
