Medtronic Spine’s Boring Quarter

Medtronic, Inc.’s latest quarterly results in spine could best be summed up by saying it was, well, a boring quarter.

Overall spine sales of $782 million, on a constant currency basis, were down 5%, while core spine sales of $649 million were down 2% and biologics (Infuse) sales of $133 showed another steep 19% decline. Management stated the Yale study is expected in the first quarter of 2013.

*constant currency
Source: Medtronic, Inc.

During a conference call with Wall Street analysts on November 20, Omar Ishrak, Medtronic’s chairman and CEO said the overall spine market in the U.S. saw a modest decline “without any fundamental shift sequentially in the underlying dynamics, ” during the quarter.

He said the company was affected by the timing of the North American Spine Society’s Annual Meeting, which occurred during the last week of the quarter. “Despite these headwinds, it is worth noting that our U.S. core spine business was sequentially flat and delivered modest share gains. Our business continues to stabilize, driven by the increasing broad surgeon acceptance of our new products and procedures. We’re also differentiating our spine business to enabling technologies, such as O-Arm imaging, StealthStation navigation and Powerease powered surgical instruments. This is also evidenced by the strong growth in our U.S. navigation business, which grew over 35%.”

Hospitals continue to invest in the company’s capital equipment for spine surgery, as, according to Ishrak, they see “clear value from better outcomes in more efficient procedures. This is also resulting in significant pull through from navigation in power-enabled spinal implants. We believe that there’s progress, but [are] still only on the leading edge of this large opportunity, and we need to continue to drive navigation to become the standard of care in spine procedures.”

New Products, Procedures

Gary Ellis, the company’s CFO said he was seeing signs of improvement in business, as new products and procedures continue to perform well.

He noted the Solera system rolled out its core capability, and is now at 70% of set capacity. “Solera, with its advanced biomechanics and new capabilities, including its attractive combination of navigation and powered instruments, is generating strong surgeon interest. In cervical, we launched our Bryan [cervical disc] and based on its acceptance in other countries, we believe this disc will allow us to capture significant share in a growing $100 million-plus U.S. market. In interbody, we launched our AMT implants, as well as the Capstone Control, and we believe that in addition to improving our interbody growth, these innovative implants will generate pull-through revenue for the rest of our thoracolumbar portfolio.”

China Ortho Peek-A-Boo

Ishrak teased analysts with a peek of the broader orthopedic opportunities with the company’s Kanghui acquisition in China. “Large joint reconstruction is actually, at this stage, a pretty small element of what we’re going to get with Kanghui. And we’re more focused on the spine and trauma businesses…But you got to remember that we’ve got a series of other products that do impress the orthopedics market, and we have a good sales channel into that market. So when these types of products do come along and…reach the appropriate critical mass and breadth as well as quality, we’ll have an opportunity. But it’s very, very early for us to either depend on it or even comment on it in too much detail.”

There was one piece of exciting news. Medtronic overtook Duke Energy to take over the 63rd spot on the S&P 500 list of largest market capitalized companies. Go team.