Recent moves by Dublin, Ireland-based Medtronic plc (MDT 0.91%) demonstrate the range of the medical device giant’s reach and sophistication, from robotic surgery and cardiac health, to renal health and diabetes treatment, to stroke and neurological care.
In the three months ending Jan. 27, the third quarter of its fiscal year 2023, Medtronic reported GAAP diluted EPS of $0.92 per share, down 16% year-on-year, on revenue of $7.7 billion, a decline of 0.5% from the parallel quarter one year ago. Leaving out a $379 million negative effect from foreign currency translation and a $26 million contribution from the company's acquisition of chronic rhinosinusitis medical device treatment company Intersect ENT, revenues were up 4.1% year-on-year.
Neuroscience portfolio sees greatest growth
Among its various product lines, Medtronic saw the greatest revenue growth in neuroscience, up 4.9% to $2.2 billion year-on-year (8.5% at constant currency rates) in its fiscal third quarter, and the sharpest decline in surgical products, with revenues down 6.7% (a 1.6% decrease at constant currency rates) to $2.1 billion. The neuroscience portfolio includes cranial and spine technologies; specialty therapies, such as neurovascular products; and neuromodulation, such as pain therapies.
In the latter area, on March 24, 2022, the company said the first patient implants had been completed of its experimental implantable tibial neuromodulation therapy to treat bladder incontinence.
In a further sign of how important the neuroscience portfolio is to Medtronic, last October the company announced it was starting the "Medtronic Neurovascular Co-Lab Platform" to stimulate innovation in stroke care and treatment. Outside partners will be invited to contribute, including "innovators, entrepreneurs, and physicians."
Company reports advances in its other three product areas
Medtronic is also investing in its other three main product portfolios--surgical products, cardiovascular products, and diabetes care. The company’s surgical products include “surgical innovations,” such as robot-assisted surgery techniques, and respiratory, gastrointestinal, and renal surgery devices. Last July, Medtronic said it had received U.S. Food and Drug Administration (FDA) 510(k) clearance for its UNiD Spine Analyzer version 4.0 planning platform, which includes a new algorithm to help surgeons plan for degenerative spine procedures.
| (IN MILLIONS) | 3Q22 | YOY CHANGE | 3Q23 | YOY CHANGE |
|---|---|---|---|---|
| Cardiovascular | 2745 | +1.4% (+3.4%) | 2772 | +1% (+6.5%) |
| Surgical | 2290 | -1.0% (+1.2%) | 2137 | -6.7% (-1.6%) |
| Neuroscience | 2144 | +0.8% (+1.8%) | 2248 | +4.9% (+8.5%) |
| Diabetes | 584 | -7.3% (-5.4%) | 570 |
-2.4% (+3.3%) |
Data source: Medtronic press release. Chart by author. Values in USD. YOY= year over year. YOY change figures are first stated as reported, and then at constant exchange rates in parentheses.
Medtronic’s cardiovascular portfolio includes cardiac rhythm and heart failure devices, structural heart and aortic devices, and coronary and peripheral vascular devices. The company has been especially busy in this area lately. For example, on March 6, it announced that its PulseSelect Pulsed Field Ablation System exceeded its safety performance goal in a clinical trial, with an adverse event rate of 0.7%, and also exceeded its efficacy and clinical success goals, offering “freedom from recurrence of any symptomatic atrial arrhythmias… at least 80% for each patient cohort.” And on March 15, it announced it had received CE Mark approval in the European Union for its Affera Mapping and Ablation System to treat atrial arrhythmias.
In a fourth portfolio, diabetes treatments, Medtronic manufactures such products as insulin pumps. On Feb. 24, Medtronic said its MiniMed 780G automated insulin pump had demonstrated superiority over multiple daily injections with continuous glucose monitoring for managing type 1 (childhood onset) diabetes at the one-year mark in a clinical trial.
High number of recalls may be a drag, but EPS growth is steady
Recalls may be acting as a significant brake on Medtronic’s further growth. Last year, the FDA reported 10 of them by the company, and the agency only passes along information that device manufacturers provide. Among the most significant, and a chronic headache for the company, was its June 28 recall of 23,373 HeartWare Ventricular Assist Device (HVAD) System batteries. This device is used as a bridge to heart transplants, and because it is critical to preserving patients’ lives, the FDA deemed the recall a Class I category, the highest level. One person died as a result of the faulty batteries, and there were also six injuries and 1,159 complaints.
Medtronic had bought the rights to the HVAD System in 2016, and it was associated with more than 20,000 patient injuries and 3,000 deaths by June 2021, Rep. Raja Krishnamoorthi (D-Ill.), chairman of the House subcommittee on economic and consumer policy, said last year.
How serious a problem are recalls of this system and other Medtronic devices? Not enough to cancel out the company’s profitability so far. Medtronic is estimating that when it concludes its fiscal year 2023, diluted non-GAAP EPS will be in the range of $5.28 to $5.30. The lower figure is the same as the average analyst estimate for the year; for fiscal 2024, analysts are anticipating $5.25 in diluted EPS.
Compared with three other leading device companies, Stryker Corp., Royal Philips, and GE Healthcare, Medtronic has been unexciting in its EPS performance over the past decade, but has produced steady dividends, most recently of $2.72 in its fiscal 2022 compared to $2.52 the prior year.
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For dividend hunters and other investors in it for the long haul, this is one to hold onto.
