Medtronic reorganizes its restorative therapies segment

Medtronic (NYSE:MDT) is shuffling the deck at its restorative therapies group as it looks to boost its ailing spine and neuromodulation businesses.

Fridley, Minn.-based Medtronic said yesterday that restorative therapies sales were up just 1% to $1.88 billion, including a -1% decline for its spine division at $737 million and a -5% slide to $494 million in neuromodulation.

Discussing the company’s fiscal 4th-quarter results with analysts yesterday, chairman & CEO Omar Ishrak said a “speed to scale” program in spine helped drive a steady cadence of new product launches, resulting in “a sequential improvement to our growth rate” for the business.

In neuromodulation, however, the picture is not as rosy. Drug-pump sales are in a double-digit top-line slide, Ishrak said, as Medtronic copes with an FDA consent decree issued in April 2015 that halted the manufacture of its SynchroMed II pump. Drug pump revenues are expected to be flat from now on, he said.

“In [deep-brain stimulation] and pain stim, we are facing increased competition, but as we look ahead we are optimistic,” Ishrak said, according to a Seeking Alpha transcript. “On balance, however, pain stim and DBS could be under some pressure for the next several quarters.”

CFO Gary Ellis, in his final earnings call before his retirement this month, noted that the sales decline in neuromodulation wasn’t helped by the loss of $7 million to $8 million in quarterly sales from the intrathecal baclofen drug it sold during the fiscal 3rd quarter.

Medtronic has been competing for a year in the neuromodulation space with Nevro Corp. (NYSE:NVRO) and its Senza chronic pain device; it also goes up against cross-town rival St. Jude Medical (NYSE:STJ) and Boston Scientific (NYSE:BSX) in the space.

To right the ship for the RTG business, Medtronic is taking a cue from its cardiac & vascular unit and adopting the latter’s general manager structure “that has proven very successful in driving a steady cadence with meaningful innovation” for the CVG segment. The changes include the RTG sales force, Ishrak said, “enabling the group to use its breadth to deliver solutions to hospital administrators and payers while maintaining focus on specialist physicians.”

“That gets to more execution and this is something that CVG has done over the last 4 years, 5 years, where you are having general managers that are 100% focused on the individual therapy segment that they serve … making your businesses more smaller, more focused and granular,” added Bryan Hanson, president of the minimally invasive therapies group.

Ishrak said the re-alignment of the restorative therapies group is designed to focus the business on diseases and conditions. The unit will now report 4 segments: Spine; brain therapies (encompassing both neuromodulation and neurosurgery devices and drug delivery products); pelvic health; and specialty therapies covering advanced energy and ear, nose & throat devices.

“Moving into these different reporting divisions is really putting the businesses, organizing them by disease, state or condition, versus technology,” Hanson added.

Although its overall sales and earnings numbers topped estimates on Wall Street, MDT shares closed down -1.5% yesterday at $80.49 apiece. The stock rebounded after hours, gaining 1.1% on its rise to $81.38 per share.

The world’s largest pure-play medical device maker said it swung to Q4 black for the 3 months ended April 29, after putting up a -$1 million loss during the same period last year. Profits for Q4 2016 were $1.10 billion, or 78¢ per share, on sales growth of 3.6% to $7.57 billion compared with Q4 2015. Adjusted to exclude 1-time items, earnings per share were 10¢ ahead of Wall Street at $1.37 for the quarter; analysts were also looking for Q4 sales of $7.48 billion.

Full-year profits surged 32.3% to $3.54 billion, or $2.48 per share, on sales growth of 42.3% compared with the last fiscal year, to $28.83 billion. Adjusted EPS were $4.84, 47¢ ahead of analysts’ consensus estimate, which put annual sales at $28.72 billion.

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