MEDTRONIC SPINE SALES DECLINE – WAITING FOR INFUSE AND KYPHOPLASTY (Orthopedics This Week)
Medtronic Inc.’s overall spine sales declined by 2% to $786 million during the company’s previous quarter.
During a call with Wall Street analysts on May 20, 2014, company leaders said with core spine sales growing, they are counting on the stabilization of kyphoplasty and Infuse to get them back to overall growth.
Core Spine Business Growing
Excluding sales of balloon kyphoplasty (BKP), company management reported that its core spine business grew by 1% to $662 million in a spine market that remained relatively flat on a year-over-year basis. Infuse sales of $124 million declined 11% due to difficult comparisons following the resolution of a supply disruption in the prior year. An Infuse liability settlement also impacted net earnings.
Core spine sales were driven by the company’s surgical Synergy program, which includes imaging, navigation and powered surgical instruments. Management said hospitals are leveraging surgical Synergy by adopting flexible integrated procedural solutions for spine surgery. “They see clear value from improved surgical precision and more efficient procedures. This is resulting in solid growth in capital equipment sales in our surgical technologies business, as well as increased spinal implants growth,” said company CFO Gary Ellis.
“In fact,” continue Ellis, “in accounts that have adopted our surgical Synergy program, core spine revenue growth is meaningfully higher. Outside of the U.S., our Kanghui acquisition continues to deliver solid revenue growth in the value segment of orthopedics, both in China and in other emerging markets.
Waiting for Infuse and Kyphoplasty
When will things get better for Medtronic spine sales?
Company Chairman and CEO Omar Ishrak said stabilizing Infuse is a “big, big driver” and then punted to Chris O’Connell, the head of the company’s restorative therapies business (which includes spine).
“We’ve obviously been suffering through some declines in Infuse and BKP over the past couple years…we’ve been working very hard to try to stabilize, and actually as we look forward, we think there is a very nice story developing,” said O’Connell.
“Obviously after the Yale publication on Infuse last summer, we saw some softening and confusion following that. But now that the market has digested that information, we’ve actually seen three quarters in a row of sequential stability, which we believe points to a pattern of stability heading into next fiscal year. And so, it’s our goal to see the overall Infuse program be somewhat flattish over the next year.”
O’Connell said he was seeing encouraging trends in BKP, principally in the U.S. As the company continues to diversify its spine product line and looks to build a bigger platform of interventional spine off the core Kyphon business, he expects to remain “flattish” into next year. He repeated that the Infuse and BKP businesses have been relatively stable sequentially for three or four quarters. “So if we get BMP and BKP to be flat, then you’re going to see the overall spine franchise lift.
Stable and Improving Markets
The markets are stable and gradually improving in core spine, according to O’Connell. “And so our expectation is that the overall spine franchise continues its transition to positive growth for the overall business. when we look across the last few quarters and see an overall spine market that’s up in the 1% to 2% range, with the U.S. being flattish and international up in the low-to mid-single digits…. That represents a somewhat of an improvement pattern over the last four to six quarters. We are seeing market conditions very stable.”
Ellis said both the global and U.S. core spine markets appear relatively flat on a year-over-year basis, a slight deceleration from the growth the market saw last quarter. He told analysts that this was principally driven by the U.S., where he believes some elective surgeries were pulled forward ahead of the changes from the Affordable Care Act at the beginning of the calendar year.
Medtronic made big bets on kyphoplasty and Infuse before Ishrak’s arrival. His predecessor took great criticism for those acquisitions and now his lieutenants are on the hot seat. The bets have been laid down. Let the wheel ride.