Medtronic's Ishrak says Covidien integration on track to meet cost savings of up to $350M

Medtronic CEO Omar Ishrak

Medtronic ($MDT) CEO Omar Ishrak said during a Q1 FY 2016 earnings call that the company is on track to meet its goal of achieving $300 million to $350 million in savings from its acquisition of Covidien.

"As planned, we have already completed over half of our value capture initiatives in the fiscal year and these savings are expected to build as we go through the year with an FY 2016 goal of achieving $300 million to $350 million in savings. We're executing on our indirect sourcing plans where we are using best case contracts and improved purchasing power to achieve meaningful savings. We're also realizing significant real estate savings, having already closed over 60 facilities, most of which were redundant field offices or distribution centers," he said.

The revenue synergy opportunities include "leveraging the legacy Covidien's peripheral vascular sales force to drive sales of drug-coated balloons and leveraging Covidien's neurovascular division to enhance our neuroscience strategy in RTG (the restorative therapies group). In accordance with our plans we have aligned the sales forces and integrated the back offices expeditiously in both of these areas including moving the North American commercial operations of both businesses on to Medtronic's enterprise system SAP," Ishrak said.

One of the biggest benefits of the Covidien acquisition so far has been the addition of the Solitaire stent retrieval device to treat stroke. It suddenly came in vogue after landmark studies shows that the devices can significantly improve outcomes compared to medication alone.

"From an overall perspective the stroke market is one of our biggest opportunities and we're very excited about it. We think we're in the early phases of penetration with our new therapies and so we expect the momentum, just the therapy itself, to continue, but looking into the future we're looking at the entire stroke care pathway more carefully and we've got other products that are also impacting the stroke disease area which we expect will have some level of pull through from our presence in the stroke market," Ishrak said.

"We're seeing a lot of the growth in last quarter come from the ischemic stroke market here, and thrombectomy, and we see that market continuing to grow worldwide in the 25% to 30% range and in the U.S. even higher than that," Geoff Martha, Medtronic's senior vice president of business and strategy added.

In addition to the Covidien integration, Ishrak's also focusing on additional acquisition opportunities.

"We remain disciplined when evaluating potential M&A opportunities. Any investment we must make, any investment we make must be aligned with and ultimately strengthen one or more of our three growth strategies (innovation, globalization and providing economic value to the healthcare system) while at the same time offer high return metrics and minimize near-term shareholders dilution," he said.

Five companies met that criteria during the quarter: RF Surgical Systems, purchased for $235 million, maker of technology to track instruments used during surgery; Aptus Endosystems, purchased for $110 million, maker of an aortic securement device; CardioInsight Technologies, purchased for $93 million, maker of heart-mapping technology; Twelve, purchased for $458 million, maker of an investigational transcatheter mitral valve replacement device; and finally Medina Medical, maker of an embolization coil to treat brain aneurysms.

Overall, the company reported revenues of $7.3 billion during the quarter, up 12% on a comparable, constant currency basis. That represents a 70% increase on a raw, as reported basis, reflecting the impact of the $50 billion Covidien acquisition.

The cardiac and vascular group is the company's largest, with quarterly revenues up 14% as reported. The minimally invasive therapies group had revenues of $2.5 billion (up 11%), the restorative therapies group contributed $1.8 billion (up 10%) and the diabetes group had revenues of $445 million (up 15%).

Medtronic benefited from an extra selling week during the quarter.

Its stock is up nearly 3% on the strong results.

- read the release (PDF)