Medtronic’s Core Spine Flexing Muscle

Medtronic Inc.’s core spine business continued to stabilize in the third quarter of 2013. Revenue of $639 million was flat on a constant currency basis. Total spine sales of $753 million declined by 3% on a constant currency basis (-4% reported) as Infuse and kyphoplasty continue to drag down overall sales.

The U.S. core spine business, according to a February 19 company announcement, continued to stabilize, as new products and therapies are gaining broad surgeon acceptance. The company believes it is differentiating its spine business through its focus on enabling technologies, including imaging, navigation, and powered surgical instruments.

Bone morphogenetic protein (BMP-Infuse) revenue of $114 million declined 21% on a constant currency basis.

Wells Fargo analyst Larry Biegelsen said spine revenue was above consensus’ $750 million and his own $730 million estimate. Growth in spine, on a constant currency basis, accelerated to -3% from -5% in the previous quarter.

Ishrak: Gaining Share

Omar Ishrak, company CEO, told analysts on February 19 that core spine business gained share on both the sequential and year-over-year basis. “Our U.S. core business continues to stabilize as new products and procedures are rolling out and performing well. And our Solera system is generating strong surgeon interest.”

In cervical, Ishrak said the company was beginning to seeing growth in the U.S. as surgeon training is ramped up with the recently launched Bryan ACD cervical disc. He also noted newly launched Capstone Control interbody system was contributing to the stabilization of sales.

O-Arm Pull-Through

He also noted that other biologic products, Grafton and MagniFuse DVMs, continue to perform well. “We’re also differentiating our aspiring business from the competition to enabling technologies such as O-arm Imaging, StealthStation Navigation and powered surgical instruments. Hospitals are investing in our capital equipment for spine surgery as they see clear value from better outcomes and more efficient procedures. This is also resulting in significant pull through for navigation in powered and enabled spinal implants. In fact in accounts that have O-arms we’re seeing core spine revenues grow 10 points higher than non O-arm accounts this fiscal year.”

“There is a general stabilization in spine of volume and implants [that] has reached a level of stability that we haven’t seen for years I think with the practitioners getting comfortable with qualities in place. Now we expect to continue to work with them to drive further growth in that market, ” said Ishrak.

Changing Customer Base

Following on the theme of his predecessor who pronounced the end of the “Surgeon Champion Era, ” Ishrak talked about the company’s “transformational opportunity” to deliver economic value to customers supported by market leading technologies. “Healthcare payment models are becoming more complex with new paper value models becoming more important. In addition our customers are evolving and now include hospital system, suite executives, payers and governments. Within this changing environment we’re transforming our business to not only deliver clinical value but also deliver economic value. This transformation will include not only our existing products but also developing and piloting new economy value programs. We’re in the early stages of this transformation and Medtronic has specific competitive advantages to win in the new value oriented environment.”