What Investors Can Expect from Medtronic

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Part 5
What Investors Can Expect from Medtronic PART 5 OF 15

Medtronic’s Diabetes Franchise to See Double-Digit Growth in 2019

Diabetes franchise

In 1Q18, Medtronic (MDT) had to prioritize supplying sensors to its existing customers. Thus, it was restricted in its ability to post higher-revenue generating sales of pumps and sensors to new patients. However, the negative impact of supply constraint was partly offset by increasing market share of the company’s durable pumps and related consumables. The constant glucose monitoring (or CGM) segment within the company’s diabetes group also witnessed YoY revenue growth close to 20% in 1Q18, mainly driven by a 50% rise in the sale of sensor-augmented pumps and improvised sensors in international markets.

Based on these trends, Medtronic expects to report year-over-year (or YoY) revenue growth in the range of 1% to 4% for its diabetes group in fiscal 2018. While this is lower than the growth rates witnessed for this franchise in the past few years, which were in the high-single-digit to low double-digit range, the company expects to see a double-digit growth rate for its diabetes portfolio in fiscal 2019. If the company achieves these growth rates, it would enable the company to be a major diabetes player and compete with peers like Insulet (PODD), Johnson & Johnson (JNJ), and Roche Holdings (RHHBY).

Medtronic’s Diabetes Franchise to See Double-Digit Growth in 2019

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The above diagram shows the projected revenue and business trajectory for Medtronic’s Diabetes Group until fiscal 2022. If the company manages to surpass these growth projections, it could have a favorable impact on Medtronic’s stock prices as well as those of the Vanguard S&P 500 ETF (VOO). Medtronic makes up about 0.52% of VOO’s total portfolio holdings.

Priority access program

Owing to earlier-than-anticipated US Food and Drug Administration (or FDA) approval for Minimed 670G, Medtronic launched a priority access program, which allowed the company time to complete reimbursement-related discussions with payers, while giving access to those diabetes patients that required Minimed 670G on a priority basis. Around 32,000 members enrolled in this program, which required them to purchase Minimed 630G and then swap it for Minimed 670G for a small fee. This program has affected both revenues and margins of the company, as only a small portion of deferred revenues are recognized at the time of exchanging pumps. Medtronic expects to fulfill the demand of the priority access members by the end of December 2017.

In the next article, we’ll discuss Medtronic’s strategy for its diabetes business in greater detail.


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