Medtronic Holds Analyst Day
BY JOHN MCCORMICK, JUNE 3, 2009
Yesterday, medical device giant Medtronic, Inc. held an "analyst day" in Minneapolis for equity analysts to comb over numbers and get a hearing with management on new strategies and technologies. The key theme was innovation.
Given Medtronic's multi-dimensional nature, the company gave a wide versus deep product pipeline perspective on how they hope to maintain or re-establish market leadership in its core markets including cardiovascular, spine, diabetes, neuromodulation and other surgical technologies.
A number of analysts went away encouraged citing an "impressive" display of pipeline technologies, good cash flows and reasonableness in management's 5-8% sales growth assumptions.
A number of concerns were raised, however. Analysts cited the potential for execution risk, integration of recent acquisitions, regulatory delays and unexpected slowdown in key markets to get in the way of such growth targets.
Notably in spine, Medtronic management came out and stated that they expect to lose market share through fiscal year 2012. While management is looking forward to robust growth of 9-10% growth in the spine market going forward, they don't expect to catch up to that growth for at least two years. Aside from smaller companies agressively taking share, management noted that their launch of two new thoracolumbar fixation system platforms (the the G5 and 3Dx) is expected in FY10-FY11. These will be the first new fixation platforms launched in the last six years.
Understandably, Medtronic's rollout of its recently approved complex Bryan cervical disc will be deliberative and selective. Although recently approved by the FDA, rollout isn't expected until the back half of this year. The Prestige artificial disc is slated for launch in a year.
The view on Kyphoplasty is that this year's phased launch of a NextGen kyphoplasty system and 2011 launch in Japan should help restore growth after a challenging merger integration. Medtronic stated that its Bone Morphogenic Protein (InFuse) losses should stabilize given the potential for expanded indications for the product.
Morgan Stanley pegs growth for the company in spine at approximately 5% for the upcoming year.
Therefore, new acquisitions in diabetes and cardiovascular and a virtual monopoly in neuromodulation are expected to have a more central role for Medtronic's revenue growth in the next few years. Each of these sectors are going to get a higher portion of the company's R&D budget, according to management.
While overall revenue growth of 5-8% for Medtronic seems reasonable, Medtronic is going to have to overcome execution challenges to achieve that.
