I’ve long since wondered about the future of Medtronic’s diabetes division. Their pump sales and renewals are down, while Tandem sets record growth quarter over quarter. Tandem is now out-selling Medtronic, and about half of their growth is from Medtronic conversions, the other half being MDI conversions. I’ve been wondering if they would do like Johnson & Johnson did with Animas when it wasn’t profitable enough anymore.
I found this article from a few days ago interesting. Medtronic has admitted during their most recent earnings call that change is imminent for their diabetes division, but did not clarify yet as to how. There’s mention of divestiture.
https://www.mddionline.com/markets/expect-big-changes-medtronic
Martha also said the management team will be looking at the Medtronic portfolio with a more critical eye, with a focus on growth, and creating shareholder value.
“I’d be surprised if there weren’t changes over the coming fiscal year, but I don’t know yet if they will be smaller or more significant,” he said.
“With shares at the low end of their two-year average valuation (17.4x currently vs. 20.9x on average), limited expectations exist for [Medtronic] and we think now is a good time to rationalize [Medtronic’s] portfolio, shed lower growth areas, and reinvest in the business as multiple expansion seems unlikely until these initiatives are progressed,” Ryan Zimmerman, a medtech analyst at BTIG, said in a report Tuesday.
Zimmerman also suggested that Medtronic’s diabetes unit could be a likely target for portfolio optimization, given its dilutive growth rates. As Martha has previously acknowledged, Medtronic has been missing out on the better growth of the diabetes market, and the company has increased its investments in the space in an effort to catch up with its peers. The diabetes business is also currently working through quality assurance issues that FDA flagged in a warning letter late last year.
Robbie Marcus, a medtech analyst at J.P. Morgan, tried to get Martha to elaborate a bit more on the potential changes we might see from the company.
“At the J.P. Morgan conference, you first mentioned maybe doing some bigger changes to the business. You mentioned it again today,” Marcus said. “I was just hoping you could give us a little flavor for what you’re thinking. Is it divestitures? Is it a bigger breakup of the company? And what’s the time frame we should be thinking about for some of the larger potential actions?”
While Martha declined to get into specifics, his reply does give us at least a vague idea of what his line of thinking is.
“Our north star is durable growth. And we’re looking at our businesses and we’re evaluating them for, one, how well they fit into the portfolio, how well they fit into our strategy, are we the right owners of these assets? And then how we, Medtronic, add value and grow these businesses,” he said. “It’s still at this point like I said at the conference, we don’t know if these changes will be significant or more limited.”
While I’m not a personal fan of Medtronic’s pumps for me, I do appreciate that their competition is what drives innovation. In fact, it’s no secret that I’m a lot mad at Tandem for sitting on their long finalized Mobi product, and I think it’s because Medtronic isn’t providing that competition right now. They can afford to sit on the Mobi because the X2 and Control-IQ is enough of a draw as it is. I also appreciate that the Medtronic system works independent of optimal settings, and that it might be a good choice for those without a good care team to make adjustments.
There’s a lot of excitement over Beta Bionics dual-hormone pump, but we’re still a few years off from that. I don’t know how competition the insulin-only pump will create when it gets regulatory approval.
Are we really only capable of supporting 2 or 3 pump manufacturers at time?