Medtronic looks beyond Type 1 with a diabetes reorg

Medtronic's ($MDT) fastest growing business is in diabetes, which gained 10% to $430 million in the most recent quarter over a year ago. Now the medical device giant is looking to expand beyond its dominance in Type 1 diabetes that is based on the success of its insulin pump MiniMed. During an earnings call, Medtronic disclosed that it reorganized its diabetes group last quarter.

The new diabetes structure includes three components: an intensive insulin management business encompassing its Type 1 and intensive Type 2 diabetes products, a nonintensive business focused on Type 2 solutions, as well as a services and solutions business.

Hooman Hakami, EVP and president of the Diabetes Group

"The genesis of the structure is really for us to become a much more holistic diabetes company not just a Type 1 pump and sensor company but a truly global diabetes care organization and that is the emphasis behind the organizational changes," Hooman Hakami, EVP and president of the Diabetes Group, said on the conference call. He was hired in May to lead the franchise and was previously president and CEO of GE Healthcare's Detection and Guidance Solutions business.

Hakami sees the recent Medtronic partnership with Sanofi ($SNY) as core to its nonintensive therapies business, while the acquisition of Cardiocom for $200 million in August 2013 undergirds the service and solutions segment. Cardiocom is a developer and provider of telehealth and patient services for chronic disease management. In June, Medtronic and Sanofi entered into a strategic alliance to develop drug-device combinations and delivery of care management services that improve patient adherence, simplify insulin treatment and enhance disease management.

Medtronic chairman and CEO Omar Ishrak detailed the basis for the MiniMed-driven revenue growth, "In our diabetes group, the strong ongoing U.S. launch of the MiniMed 530G system with the Enlite sensor is driving not only solid growth in insulin pumps but outstanding growth in CGM (continuous glucose management). Our focus in selling and supporting the pump and sensor is an integrated system. It continues to translate into global share gains in insulin pumps and U.S. share gains in CGM."

He continued, "The MiniMed 530G is the only system on the market that automatically stops insulin delivery when glucose levels fall below a predetermined threshold, an important step toward our goal of developing a fully automated artificial pancreas." Ishrak said the next-generation version of MiniMed, 640G and 620G would launch in international markets later in the current fiscal year, which ends in October 2015.

The worst performing business of the trio at Medtronic was Restorative Therapies, which includes spine, neuromodulation and surgical technologies. It grew 4% to $1.65 billion last quarter over a year prior. Splitting the difference on growth was the Cardiac and Vascular Group, which grew 5% to $2.27 billion.

The weakest segment within Restorative Therapies is spinal products, which grew only 1% to $746 million. Medtronic EVP and CFO Gary Ellis said that the launch of a number of new products should "return the overall Spine business to modest growth" in fiscal 2015.

Medtronic narrowed its expectations for overall fiscal 2015 revenue growth to the higher end of its previously stated range, to 4% to 5% in constant currency from 3% to 5%. It also reiterated its non-GAAP EPS guidance of $4.00 to $4.10, which would be a 7% to 10% increase.

On the emerging markets front, where it has faced some weakness lately, Ishrak said the company should be able to get to a "mid-teens" revenue growth rate. In fiscal 2014, it was 12%. Shoring up international growth is a key part of the company's overarching commitment to "innovation, globalization and economic value," its key growth drivers as outlined by Ishrak.

Medtronic reaffirmed its commitment to the merger with Covidien ($COV) that's expected to close in early 2015. Each company will hold a separate Jan. 6 shareholder meeting to conduct an official vote on the merger.

On the whole, Medtronic met investor revenue and EPS expectations for last quarter and its fiscal 2014. Investors were pleased with the results, driving shares up 4% in early trading to reach an impressive year-to-date gain of 25%.

- here is the release on the quarter and yearend earnings
- here is coverage from the Associated Press, Reuters and The Wall Street Journal

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