Medtronic (NYSE:MDT) announced growth in three out of four segments for the third quarter, with diabetes the only one to slide year-over-year.
The Fridley, Minnesota-based medtech giant saw third-quarter revenue growth in its cardiovascular segment (3.4%), medical-surgical segment (1.2%) and neuroscience segment (0.8). However, the company’s diabetes business dipped 7.3% year-over-year in sales.
In December 2021, Medtronic received an FDA warning letter highlighting inadequacies in specific medical device quality system requirements at its diabetes business’ Northridge, California, facility. At last month’s 40th Annual J.P. Morgan Healthcare Conference, Medtronic Chairman and CEO Geoff Martha said there is now some uncertainty over approval timing for next-generation platforms, including the MiniMed 780G insulin pump and Guardian 4 continuous glucose monitoring (CGM) sensor.
“In diabetes, we continue to lose share, predominantly in the U.S.,” Martha said on the company’s third-quarter earnings call today, as transcribed by SeekingAlpha. “We are extremely focused on resolving our warning letter and bringing new products to the U.S. market although timing is difficult to predict.”
Medtronic’s MiniMed 780G pump and Guardian 4 sensor remain under an active FDA review, with approval subject to the company’s warning letter. Once approved and launched, Medtronic expects the offerings to accelerate diabetes growth, while the next-generation Simplera sensor submission is expected this quarter.
Additionally, Martha said the company is progressing on multiple next-generation sensor and pump programs, including patch pumps, but details haven’t been disclosed for competitive reasons.
“While it will take time, we expect the technology pipeline investments we are making will result in our diabetes business being accretive to total company growth and eventually grow with this important market,” Martha said.
BTIG analysts Ryan Zimmerman and Phillip Dantoin wrote in a report that Medtronic “opened the door to portfolio optimization,” a term that could mean the sale of a business (among many options), with diabetes “the likely target given its dilutive growth rates.”
Medtronic is exploring all options, the analysts said, and they added that it is a good time to rationalize its portfolio, shed lower-growth areas and reinvest in the business
Martha said during the company’s second-quarter earnings call that the company had no current plans to spin off the diabetes business, but that doesn’t mean they won’t have their eyes open to potential opportunities. No mention was made of a spinoff on this quarter’s earnings call, as Martha exuded confidence over the resilience of Medtronic’s diabetes business.
“Regarding diabetes, I’d say we are confident in our turnaround story here,” Martha said. “I know the warning letter didn’t help. But we are confident in the turnaround story. We believe we have a solid pipeline of new technologies and some near-term growth opportunities. Our clear priority though is resolving the FDA warning letter and getting these new products to market, especially in the U.S.
“In a situation when we see the products working in other markets, we know it’ll have a huge impact on patients here in the U.S. as well.”