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Medtronic’s Spine Business Dynamics amid a Challenging Market

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Overview

In fiscal 2Q18, Medtronic’s (MDT) RTG (Restorative Therapies Group) business registered YoY (year-over-year) sales growth of ~2.0%, which came in below expectations due to the negative impact of Hurricane Maria. For an overview of the impact of Hurricane Maria, please read Divestiture and Natural Disasters Hurt MDT’s Sales Performance.

Medtronic’s Spine segment, which is reported under the company’s RTG business, reported a decline of ~1.0% in sales in fiscal 2Q18. The segment’s Core Spine sales registered a low single-digit decline, whereas its BMP (Bone Morphogenetic Protein) sales also registered growth.

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Major factors driving down spine sales

In fiscal 2Q18, the weakness in Medtronic’s spine sales was mainly driven by the negative impact of Hurricane Maria. However, when adjusted for the hurricane impact, Medtronic’s core spine business performed better than that of the global spine market, which continues to witness deceleration.

The company believes that its speed-to-scale product launch initiative and surgical synergy strategy are the key growth drivers of its core spine business.

Medtronic entered into a partnership with Mazor Robotics in 2016. This partnership entailed the development, promotion, and distribution of some of the spine products of Mazor Robotics. For details of the deal, please read Medtronic: The New Entrant into the Robotic Surgery Business.

Mazor Robotics is set to deliver integrated procedures with Medtronic’s spine implants, which could help expand Medtronic’s footprint in the spine market.

However, Intuitive Surgical dominates the robotic surgery market in the United States. Medtronic and Verb Surgical (a joint venture of Google (GOOG) and Johnson & Johnson (JNJ)) are the new players in the US robotics market and are expected to provide stiff competition to Intuitive Surgical.

Medtronic noted that these factors helped drive growth in its overall spine procedures compared to its competitors.

The SPDR S&P Dividend ETF (SDY) holds ~1.1% of its total portfolio holdings in Medtronic. Investors can take diversified exposure to Medtronic through investment in SDY.

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