08.04.23
Rank: #5 (Last year: #5)
$4.45 Billion ($31.23 Billion)
Prior Fiscal: $4.46 Billion
Percentage Change: -0.1%
R&D Expenditure: $2.7B (total)
Best FY23 Quarter: Q4 $1.20B
Latest Quarter: Q4 $1.20B
No. of Employees: 95,000 (total)
Global Headquarters: Dublin, Ireland
KEY EXECUTIVES:
Geoff Martha, Chairman & CEO
Karen Parkhill, Exec. VP & Chief Financial Officer
Brett Wall, Exec. VP & President Neuroscience Portfolio
Harry "Skip" Kiil, President, Cranial and Spinal Technologies (CST)
For some time now, there’s been speculation around Medtronic’s seemingly disparate business units and which would be best served separating from the company either through spinout or divestiture. The firm has its hands in cardiovascular, neurological, and surgical technologies, as well as business segments focused on diabetes and orthopedic spine, among others. The latter two have probably generated the most rumors with talk of spine being sent off as far back as 2011.
At the time, then-CEO Omar Ishrak told Reuters spinning out the Spine division [now integrated into the Cranial and Spinal Technologies (CST) business] offered “no advantage.” The segment, however, had been viewed by some as a drag on the growth of the overall organization. Several analysts speculated the firm would be better off dumping lower performing segments, such as Spine, to focus on those with seemingly more promise.
Fast-forward to Medtronic’s latest fiscal year and the firm is still offering orthopedic spine solutions for surgeons and their patients. Meanwhile, the company made an announcement regarding other business units and their eventual departure from Big Blue. It was revealed the organization would reduce the focus of its clinical scope with the decision to shed the combined Patient Monitoring and Respiratory Interventions units.
A part of the Medical Surgical unit, the Patient Monitoring and Respiratory Interventions businesses would be spun out into a new company entity (yet to be named), rendering parent Medtronic free to focus its attention on higher-growth markets and revenue acceleration.
The combined businesses would tally anticipated worldwide sales figures in the neighborhood of $2.2 billion, based on the firm’s 2022 fiscal. The units would be equipped with a number of recognizable brands upon which to build its future business. The Patient Monitoring portion includes Nellcor pulse oximetry, Microstream capnography, BIS brain monitoring, INVOS perfusion monitoring, and HealthCast connected care solutions. The robust portfolio of Respiratory Interventions boasts Puritan Bennett ventilators, Shiley airway portfolio, McGrath MAC video laryngoscopy, DAR breathing systems, as well as PAV+, NIV+, and IE Sync ventilation software solutions.
ANALYST INSIGHTS: As anticipated in my comments last year, MDT began to make portfolio moves by announcing the spin-off of its ~$2 billion Respiratory and Monitoring group. This business unit originally came from Covidien. Due to its ventilation products (capital equipment), this market segment was never a good strategic fit for one of the world’s largest disposable medical device companies. Look for a large strategic (e.g., GE, Siemens, Philips) to purchase this business unit. The only question is, “Will it be before or after it is spun out of MDT?”
“We are executing on our portfolio management strategy, taking action to create value for Medtronic and our shareholders. This separation will allow Medtronic to focus our company and our capital on opportunities better aligned with our long-term strategies to accelerate innovation-driven growth, and will position NewCo to unlock value. Independently, NewCo will be a leading connected care company with a compelling leadership position, attractive margins, and potential for growth acceleration with increased investment and dedicated capital allocation,” said Geoff Martha, chairman and CEO of Medtronic. “Looking ahead, we remain focused on active portfolio management with an ongoing process of evaluating potential additions and subtractions to further accelerate Medtronic’s growth over the long-term.”
At the time of the announcement, which was made in October 2022, it was anticipated the separation would be finalized in roughly 12 to 18 months. Whether the portfolio management strategy Martha mentioned still has plans for the CST business or even just the orthopedic spine portion remains to be seen.
While the spinout plan could ultimately be what materializes and the industry will bear witness to the formation of a new multi-billion dollar medtech firm, there could be another pathway for the two businesses.
According to a December Bloomberg article, which cited “people familiar with the matter,” Siemens Healthineers and GE HealthCare both expressed interest in acquiring the units. Further, multiple private equity firms have also inquired about the availability of the spun-out segments. It was reported Medtronic was open to such discussions, but nothing has been made public to indicate the original plan was not still in place. If such a sale was to occur, the Bloomberg article put the value of the transaction at around $7 billion.
Such a sale would represent a greater dollar figure than any of the recent M&A moves Medtronic made to bring in firms and technologies in recent years, including those during its latest fiscal. One such deal within the Neuroscience segment (the parent business of CST) involved the completion of the Intersect ENT purchase, which was originally announced August 2021. The buy included the firm’s PROPEL and SINUVA sinus implant product lines and technology, intellectual property, and Menlo Park, Calif., facility. At the time of the close, Intersect ENT’s Fiagon brand (which includes the Cube navigation system and VenSure balloon sinus dilation system) was divested to Hemostasis LLC as required by the FTC.
Medtronic was involved with other M&A transactions and forged partnerships with organizations presumably to spur revenue growth, as the company experienced a relatively mediocre fiscal. In fact, the 2020 pandemic year aside, it was the first year-over-year percentage loss for the organization in quite some time. While many of those previous fiscals reported modest, single-digit gains, they were still heading in the right direction. Big Blue’s overall 2023 fiscal decrease of 1.4% did not.
Still, the firm’s $31.23 billion in total net sales keeps it in rare territory, as it remains one of only two medtech companies to crack the $30 billion mark (with Abbott joining the club during its 2021 fiscal period, thanks primarily to the gains from COVID-19 diagnostic test sales). Further, it remains a leader in a number of clinical segments and is unlikely to remain as quiet as it was during its latest fiscal year (relatively speaking).
The company’s largest business segment, Cardiovascular, saw a small 1% bump to tally $11.57 billion for the 12 month period, credited primarily to strong sales of Micra, TAVR, and diagnostics. The Diabetes business saw a loss (-3%) compared to the company’s prior fiscal, closing its books at $2.26 billion. Within the Medical Surgical segment, unfortunately all aspects saw diminished sales figures with the overall unit down by 8%, which was reflected in a $8.43 billion total.
The last of Medtronic’s four segments, Neuroscience—home to CST—presented an up-and-down financial tale. On the whole, the business was up 2% to add $8.96 billion to the company’s coffers. The net sales increase was primarily due to growth in U.S. Core Spine, Neurovascular, ENT, and continued supply risk mitigation. Individually, however, the three sub-sectors all provided different results. Cranial & Spinal Technologies was flat year-over-year to post a contribution of $4.45 billion. Specialty Therapies gained 9% over the prior fiscal, reflected by a $2.82 billion figure. In contrast, Neuromodulation shrank by 2% for a $1.69 billion tally.
Product news originating from the CST business involved FDA clearance of the UNiD Spine Analyzer v4.0 planning platform, which includes a new Degen Algorithm for degenerative spine procedures. The algorithm leverages machine learning to help surgeons plan and personalize procedures for patients undergoing lower lumbar spine surgery and predicts spinal compensation mechanisms six months after the operation.
The update also included enhancements to the pediatric and adult deformity algorithms predicting compensatory changes to the spine. According to the company, the announcement identified Medtronic as the first and only company to have FDA cleared predictive models for spine surgery. In addition, the release came with a new UNiD Hub patient-centric platform that enables surgeons to track patients throughout the perioperative care pathway and assess surgical results through long-term radiographic and patient-reported outcomes data collection.
Big Blue also announced the FDA clearance and Breakthrough Device designation for its novel LigaPASS 2.0 Ligament Augmentation System. According to the company, LigaPASS is the first and only FDA-cleared device with indication for ligament augmentation in spine surgery.
The system can also be paired with the UNiD Adaptive Spine Intelligence (ASI) platform. UNiD ASI leverages data science and artificial intelligence to help surgeons plan, execute, and analyze their procedures. The LigaPASS 2.0 system connectors and bands may also be used in conjunction with the CD Horizon Solera spinal system.
$4.45 Billion ($31.23 Billion)
Prior Fiscal: $4.46 Billion
Percentage Change: -0.1%
R&D Expenditure: $2.7B (total)
Best FY23 Quarter: Q4 $1.20B
Latest Quarter: Q4 $1.20B
No. of Employees: 95,000 (total)
Global Headquarters: Dublin, Ireland
KEY EXECUTIVES:
Geoff Martha, Chairman & CEO
Karen Parkhill, Exec. VP & Chief Financial Officer
Brett Wall, Exec. VP & President Neuroscience Portfolio
Harry "Skip" Kiil, President, Cranial and Spinal Technologies (CST)
For some time now, there’s been speculation around Medtronic’s seemingly disparate business units and which would be best served separating from the company either through spinout or divestiture. The firm has its hands in cardiovascular, neurological, and surgical technologies, as well as business segments focused on diabetes and orthopedic spine, among others. The latter two have probably generated the most rumors with talk of spine being sent off as far back as 2011.
At the time, then-CEO Omar Ishrak told Reuters spinning out the Spine division [now integrated into the Cranial and Spinal Technologies (CST) business] offered “no advantage.” The segment, however, had been viewed by some as a drag on the growth of the overall organization. Several analysts speculated the firm would be better off dumping lower performing segments, such as Spine, to focus on those with seemingly more promise.
Fast-forward to Medtronic’s latest fiscal year and the firm is still offering orthopedic spine solutions for surgeons and their patients. Meanwhile, the company made an announcement regarding other business units and their eventual departure from Big Blue. It was revealed the organization would reduce the focus of its clinical scope with the decision to shed the combined Patient Monitoring and Respiratory Interventions units.
A part of the Medical Surgical unit, the Patient Monitoring and Respiratory Interventions businesses would be spun out into a new company entity (yet to be named), rendering parent Medtronic free to focus its attention on higher-growth markets and revenue acceleration.
The combined businesses would tally anticipated worldwide sales figures in the neighborhood of $2.2 billion, based on the firm’s 2022 fiscal. The units would be equipped with a number of recognizable brands upon which to build its future business. The Patient Monitoring portion includes Nellcor pulse oximetry, Microstream capnography, BIS brain monitoring, INVOS perfusion monitoring, and HealthCast connected care solutions. The robust portfolio of Respiratory Interventions boasts Puritan Bennett ventilators, Shiley airway portfolio, McGrath MAC video laryngoscopy, DAR breathing systems, as well as PAV+, NIV+, and IE Sync ventilation software solutions.
ANALYST INSIGHTS: As anticipated in my comments last year, MDT began to make portfolio moves by announcing the spin-off of its ~$2 billion Respiratory and Monitoring group. This business unit originally came from Covidien. Due to its ventilation products (capital equipment), this market segment was never a good strategic fit for one of the world’s largest disposable medical device companies. Look for a large strategic (e.g., GE, Siemens, Philips) to purchase this business unit. The only question is, “Will it be before or after it is spun out of MDT?”
—Dave Sheppard, Co-Founder and Managing Director, MedWorld Advisors
“We are executing on our portfolio management strategy, taking action to create value for Medtronic and our shareholders. This separation will allow Medtronic to focus our company and our capital on opportunities better aligned with our long-term strategies to accelerate innovation-driven growth, and will position NewCo to unlock value. Independently, NewCo will be a leading connected care company with a compelling leadership position, attractive margins, and potential for growth acceleration with increased investment and dedicated capital allocation,” said Geoff Martha, chairman and CEO of Medtronic. “Looking ahead, we remain focused on active portfolio management with an ongoing process of evaluating potential additions and subtractions to further accelerate Medtronic’s growth over the long-term.”
At the time of the announcement, which was made in October 2022, it was anticipated the separation would be finalized in roughly 12 to 18 months. Whether the portfolio management strategy Martha mentioned still has plans for the CST business or even just the orthopedic spine portion remains to be seen.
While the spinout plan could ultimately be what materializes and the industry will bear witness to the formation of a new multi-billion dollar medtech firm, there could be another pathway for the two businesses.
According to a December Bloomberg article, which cited “people familiar with the matter,” Siemens Healthineers and GE HealthCare both expressed interest in acquiring the units. Further, multiple private equity firms have also inquired about the availability of the spun-out segments. It was reported Medtronic was open to such discussions, but nothing has been made public to indicate the original plan was not still in place. If such a sale was to occur, the Bloomberg article put the value of the transaction at around $7 billion.
Such a sale would represent a greater dollar figure than any of the recent M&A moves Medtronic made to bring in firms and technologies in recent years, including those during its latest fiscal. One such deal within the Neuroscience segment (the parent business of CST) involved the completion of the Intersect ENT purchase, which was originally announced August 2021. The buy included the firm’s PROPEL and SINUVA sinus implant product lines and technology, intellectual property, and Menlo Park, Calif., facility. At the time of the close, Intersect ENT’s Fiagon brand (which includes the Cube navigation system and VenSure balloon sinus dilation system) was divested to Hemostasis LLC as required by the FTC.
Medtronic was involved with other M&A transactions and forged partnerships with organizations presumably to spur revenue growth, as the company experienced a relatively mediocre fiscal. In fact, the 2020 pandemic year aside, it was the first year-over-year percentage loss for the organization in quite some time. While many of those previous fiscals reported modest, single-digit gains, they were still heading in the right direction. Big Blue’s overall 2023 fiscal decrease of 1.4% did not.
Still, the firm’s $31.23 billion in total net sales keeps it in rare territory, as it remains one of only two medtech companies to crack the $30 billion mark (with Abbott joining the club during its 2021 fiscal period, thanks primarily to the gains from COVID-19 diagnostic test sales). Further, it remains a leader in a number of clinical segments and is unlikely to remain as quiet as it was during its latest fiscal year (relatively speaking).
The company’s largest business segment, Cardiovascular, saw a small 1% bump to tally $11.57 billion for the 12 month period, credited primarily to strong sales of Micra, TAVR, and diagnostics. The Diabetes business saw a loss (-3%) compared to the company’s prior fiscal, closing its books at $2.26 billion. Within the Medical Surgical segment, unfortunately all aspects saw diminished sales figures with the overall unit down by 8%, which was reflected in a $8.43 billion total.
The last of Medtronic’s four segments, Neuroscience—home to CST—presented an up-and-down financial tale. On the whole, the business was up 2% to add $8.96 billion to the company’s coffers. The net sales increase was primarily due to growth in U.S. Core Spine, Neurovascular, ENT, and continued supply risk mitigation. Individually, however, the three sub-sectors all provided different results. Cranial & Spinal Technologies was flat year-over-year to post a contribution of $4.45 billion. Specialty Therapies gained 9% over the prior fiscal, reflected by a $2.82 billion figure. In contrast, Neuromodulation shrank by 2% for a $1.69 billion tally.
Product news originating from the CST business involved FDA clearance of the UNiD Spine Analyzer v4.0 planning platform, which includes a new Degen Algorithm for degenerative spine procedures. The algorithm leverages machine learning to help surgeons plan and personalize procedures for patients undergoing lower lumbar spine surgery and predicts spinal compensation mechanisms six months after the operation.
The update also included enhancements to the pediatric and adult deformity algorithms predicting compensatory changes to the spine. According to the company, the announcement identified Medtronic as the first and only company to have FDA cleared predictive models for spine surgery. In addition, the release came with a new UNiD Hub patient-centric platform that enables surgeons to track patients throughout the perioperative care pathway and assess surgical results through long-term radiographic and patient-reported outcomes data collection.
Big Blue also announced the FDA clearance and Breakthrough Device designation for its novel LigaPASS 2.0 Ligament Augmentation System. According to the company, LigaPASS is the first and only FDA-cleared device with indication for ligament augmentation in spine surgery.
The system can also be paired with the UNiD Adaptive Spine Intelligence (ASI) platform. UNiD ASI leverages data science and artificial intelligence to help surgeons plan, execute, and analyze their procedures. The LigaPASS 2.0 system connectors and bands may also be used in conjunction with the CD Horizon Solera spinal system.