What Investors Can Expect from Medtronic

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Part 4
What Investors Can Expect from Medtronic PART 4 OF 15

What Affected the Performance of Medtronic’s Diabetes Franchise?

Limited supply of sensors

Medtronic (MDT) has been witnessing higher-than-anticipated demand for its automated insulin dosing technology around the world. MiniMed 640G was launched in international markets in 2015, while the first hybrid closed loop system, MiniMed 670G with Guardian Sensor 3, was launched in the US in June 2017. These launches are major advancements towards the company’s ultimate goal of offering fully closed loop systems that work on algorithms and continuous glucose monitoring sensors.

In the last ten quarters, Medtronic has witnessed more than double the demand for its sensors driven by increasing adoption of Minimed 640G and Minimed 670G. After the launch of Minimed 640G in 3Q15, the company has witnessed a 250% increase in volumes of sensors sold in markets outside the US. These sensors currently account for 40% of Medtronic’s total sensor shipments.

What Affected the Performance of Medtronic’s Diabetes Franchise?

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While the company has witnessed an increase in market share and installed base, its sensor production capacity has failed to keep pace. The company has been actively working on scaling up the commercial production of sensors, which is expected to become effective by the end of fiscal 2018. The company would then be in a position to fulfill additional sensor demand and actually realize revenue and earnings benefits of its rapidly adopted diabetes technology. This may boost the company’s share prices as well as those of the Health Care Select Sector SPDR Fund (XLV). Medtronic makes up about 3.5% of XLV’s total portfolio holdings.

Diabetes franchise performance in 1Q18

In 1Q18, Medtronic’s diabetes franchise reported revenues close to $449 million, which is a YoY drop of about 1%. The US market contributed $243 million to diabetes franchise revenues in 1Q18, which was a YoY drop of 8% on a reported as well as an operational basis. The non-US developed markets also contributed approximately $167 million to Medtronic’s revenue performance in 1Q18, which is 8% YoY growth on a reported as well as an operational basis. The company reported revenues close to $39 million from the sale of diabetes products in emerging markets in 1Q18, which is 15% YoY growth on a reported basis and operational basis.

With its innovative insulin pumps, Medtronic is competing effectively with other major diabetes device players such as Insulet (PODD), Johnson & Johnson (JNJ), and Roche Holdings (RHHBY).

In the next article, we’ll discuss the 2018 guidance provided by Medtronic for its diabetes franchise.


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