- Medtronic CEO Geoff Martha said that while 14 out of the company's 20 businesses operated at or above pre-pandemic levels in its second quarter, the impact of both the delta and omicron variants is still creating uncertainty for the medtech giant.
- Martha, who spoke Monday at J.P. Morgan's annual healthcare conference, said the company expects to hit third-quarter guidance outlined on its November earnings call, but challenges from the pandemic such as hospital staff shortages are ongoing. "The potential impact of omicron is uncertain, and something that we're watching closely as we go into the final three weeks of our quarter," Martha said.
- The CEO also addressed recent setbacks in key product categories for the company, including a sales slowdown for its Hugo robotic surgery system, clinical trial struggles for its renal denervation business and an FDA warning letter for product safety issues in diabetes. Martha acknowledged the slip-ups but, ultimately, backed the units in the long term. "These are all disappointing to me and the team and, of course, to our shareholders. I feel a mix of disappointment and anger, and I feel deeply accountable for this," Martha said. "But it's important to reiterate that while these programs are delayed, they are still expected to be meaningful growth drivers going forward."
Medtronic is one of the first procedure-dependent medtechs to give a glimpse at how the omicron variant is impacting businesses. And while hospitals are filling up with COVID-19 patients and shutting down certain procedures, Medtronic is still on track to perform as expected before the omicron surge took off.
The medtech giant expects to hit guidance for its fiscal year 2022 third quarter, but there are still challenges to manage through.
"The recovery from delta has taken longer in the U.S. and Europe, due in part to an increase in staffing shortages. And the recent omicron variant is not helping when it comes to staffing shortages, with our hospital customers, with our suppliers and even within our own distribution centers and manufacturing sites," Martha said.
Furthermore, the company is still watching the omicron variant's impact in the final weeks of the company's quarter, which closes about a month later than most of the rest of the industry. For other medtechs, the omicron surge may not have as large of an effect in their most recent quarters as the timing came with just a few weeks left.
Shortly before the Monday presentation, Medtronic announced plans to acquire Affera, which makes cardiac ablation and cardiac mapping devices. According to Medtronic, the deal was for $925 million, including $250 million in contingent considerations.
Affera moves Medtronic into the advanced cardiac mapping space for the first time, Martha said, giving the company "a much more complete EP ablation portfolio and enhancing our ability to compete head-on in this important high growth market."
Medtronic expects the deal to close in the first half of its fiscal year 2023, which spans from approximately May to October.
Evercore ISI analysts backed the purchase, writing that while Johnson and Johnson and Abbott Laboratories dominate the electrophysiology space, the deal should clear a high-definition mapping "bottleneck" for Medtronic and make it "more competitive in this $8Bn, DD growing market."
The deal follows adds to the growing competition in the space. In June, Boston Scientific bought out the remaining shares of cardiac ablation device maker Farapulse for about $295 million, including $92 million in additional milestone payments.
Recalls, warning letter
At several points throughout the presentation, Martha addressed the list of recalls racked up by Medtronic over the past 18 months or so.
FDA posted 10 Class I recall notices for Medtronic in 2021, including an expanded recall of certain MiniMed insulin pumps and several recalls for the HeartWare ventricular assist device, which was eventually pulled from the market in June.
"Medtronic has had a number of recalls in the past year relating to issues that originated over the past decade. We take responsibility for this, and we're focused on getting this right," Martha said. "At the enterprise level, we're increasing accountability and aggressively accelerating plans to enhance patient safety and improve our quality performance. This is my top priority and the top priority of the leadership team."
Medtronic started off the new year with another Class I recall for its Synergy Cranial and StealthStation S7 Cranial software.
The company also received an FDA warning letter in December regarding numerous product safety issues with its diabetes group headquarters. The letter came from an inspection of the Northridge, California, facility following 2018 and 2019 recalls for several MiniMed insulin pump series.
One key question regarding the warning letter is whether the review of Medtronic's MiniMed 780G insulin pump will be delayed.
While Martha did not directly say a delay will happen, the CEO acknowledged that the warning letter "does introduce uncertainty into the approval timing for the 780G and Guardian 4 sensor in the U.S."