Freshly minted Medtronic CEO Geoff Martha addressed an unprecedented business environment during his first earnings call in the top seat Thursday. Quarterly revenues fell 26%, and execs don't see the growth rate improving again until next quarter.
Still, some of Martha's priorities revealed in the lead-up to Medtronic's changing of the guard are evidently unchanged despite circumstances created by the pandemic.
When Martha's promotion was announced in November, he told investors he planned to get "more aggressive" with tuck-in M&A, comments he echoed at the J.P. Morgan Healthcare Conference, where he noted the company hoped to execute "a healthy cadence" of such deals.
Despite the vastly different economic landscape just a few months later, M&A was again top of mind for Martha on Thursday. Updates on diabetes, Medtronic's robot Hugo and other product launches were among other topics addressed. Here's a snapshot of the key takeaways.
Eyeing deal opportunities in the coronavirus landscape
Despite the negative financial impacts of COVID-19 on its revenue in the latest quarter, Medtronic has its strongest balance sheet in years and is looking to take advantage of the potential opportunities created in the medtech industry for acquisitions.
Martha told investors on Thursday's earnings call that Medtronic is poised to increase its merger-and-acquisition activities amid the uncertain environment, indicating financial pressures on smaller medtech companies could present buying opportunities.
"There are some opportunities that — at least I felt personally, were out of our reach, too expensive before this, and now are kind of more in line with what we think are reasonable returns for those investments," Martha said.
With asset prices down across the industry, Martha said Medtronic is looking to "play offense" with tuck-in acquisitions that could bolster the company's long-term growth.
While Martha said the company is looking for deals of all sizes, he said he prefers acquisitions in the "medium, billion-dollar" range because they have a bigger impact on Medtronic's growth rate.
Medtronic has the means at its disposal to execute on such a strategy. As of the end of its fiscal fourth quarter, the company has $10.9 billion in cash and investments as well as an undrawn $3.5 billion credit facility, with no public debt maturing until March 2021.
"We don't buy growth, we grow what we buy and so that's what we're focused on," Martha added.
In particular, Martha said Medtronic is looking to make more investments in remote capabilities for its products, including remote programming and monitoring of devices. That goal doesn't necessarily have to be achieved through M&A, Martha said, citing potential "organic investments and partnerships with large and small technology companies."
Soft tissue robot timeline faces delay
Eight months ago, Medtronic shared a first look at its soft tissue robot, dubbed Hugo, being developed to rival Intuitive Surgical's da Vinci. At the time, Medtronic told analysts to expect a CE mark submission for the system in the first quarter of fiscal 2021, with approval coming in the second half of the fiscal year. In the U.S., the company anticipated filing for an investigational device exemption in the first half of fiscal 2021 and launching the product in the U.S. around fall of 2022.
But progress on the surgical robot, which former CEO Omar Ishrak believed could add between 2% and 2.5% to the Minimally Invasive Therapies Group's growth rate in the next two to three years, is set back due to remote work and other disruptions driven by COVID-19.
"Our ability to finalize system and pre-clinical testing has been delayed, and given the uncertainty of the pandemic, it’s too early to update you on timelines," Medtronic’s Bob White, head of MITG, told investors Thursday.
White said engineers have had limited access to the robotic systems' hardware while working remotely, surgeons and OR staff aren't able to travel and participate in lab testing, and external sites involved in testing have also been disrupted.
Other product disruptions, launch delays
Medtronic is experiencing a host of other disruptions and delays for some of its new products in various phases of regulatory review and those in development, Martha told investors on Thursday's earnings call.
"We think about the impact of COVID-19 in three categories: products that just received regulatory approvals over the past few months; products under regulatory review; and products that are in clinical trials or preparing to enter clinical trials," he said.
In particular, the pandemic has interrupted some of Medtronic's recent launches through delays in procedures, including the European launch of its Percept PC deep brain stimulator; InterStim Micro rechargeable sacral nerve stimulator; and cobalt and chrome high-power CRM devices, as well as the DiamondTemp ablation catheter.
U.S. launches of Medtronic products have also been slowed by COVID-19, according to Martha, including the company's AV fistula indication in its IN.PACT Admiral drug-coated balloon, DTM therapy in pain stimulation, and Micro AV Pacemaker.
"The good news is that as procedures come back we expect these launches to pick up steam," Martha said.
The CEO said COVID-19 doesn't appear to be currently impacting the regulatory approval process. As a result, Medtronic is expecting a number of approvals this quarter, including U.S. approvals for the company's InterStim Micro sacral nerve stimulator, Percept PC deep brain stimulator, and Reveal Linq 2 heart monitor.
New diabetes tech results coming at ADA
Over the past several quarters, Medtronic has built anticipation for the 780G device, its next advanced hybrid closed loop system for managing diabetes. The company will present pivotal results of the system's algorithm in adults at the American Diabetes Association's virtual meeting — now just three weeks away.
But before 780G launches later this fiscal year, the company noted Thursday it first expects U.S. approval of MiniMed 770G this summer, which it says will be the first hybrid closed loop system for patients between the ages of 2 and 6 years old. The product allows for remote software upgrades, so 770G customers will be able to upgrade to the 780G algorithm once it’s approved.
On the continuous glucose monitoring front, certain CGM sensors are among Medtronic's products facing clinical trial disruptions. Still, the company is trying to "close the competitive gap" on sensor technology, Martha said. Dexcom and Abbott have each accelerated market share gains in recent years.
"We intend to submit data to regulatory agencies on our Zeus transmitter at the end of the summer, and we have completed verification of our Synergy sensor that will enable our IDE submission within the next few weeks," Martha said.
According to a Medtronic Diabetes Group presentation last summer, the Zeus product would meet iCGM criteria and reduce 95% of finger sticks. The Synergy sensor is designed to be disposable and smaller in size than Medtronic's Guardian 3 model