Memorandum

Medtronic Diabetes F1Q13 – US sales flat, international grows 14%; FDA approval of MiniMed 530G/Enlite expected in next eight months – August 22, 2012

Executive Highlights

  • Worldwide diabetes revenue was $364 million, a 2.5% reported increase (6% operational) from F1Q12 sales of $355 million, led by double-digit gains in CGM and international pump sales.
  • Sluggish US sales totaled $215 million, up 0.5% year-on-year and down 9.7% sequentially. OUS sales of $149 million were strong by comparison, up 14% operationally and 6% as reported.
  • FDA approval of the MiniMed 530G (the US version of the Veo) is expected in late FY13.

In a call led by CEO Omar Ishrak, Medtronic reported F1Q13 results yesterday morning. Worldwide diabetes revenue of $364 million grew 2.5% as reported and 6% operationally from F1Q12 sales of $355 million. This was the company’s lowest year-over-year worldwide reported performance in the last seven years and reflects a 7% sequential decline from record sales of $392 million last quarter – to be sure, the record sales made for a challenging sequential comparison. Sales in F1Q13 were driven by double-digit growth in CGM and double-digit growth in international sales of insulin pumps, similar to remarks made in the F4Q12 call (see our report at http://bit.ly/KPiei1). Based on a graphic given at the recent Analyst Day in June (see our report at http://bit.ly/M8sb5t), we estimate Medtronic’s FY12 revenue split at ~85% pumps and ~15% CGM. US sales this quarter were relatively weak at $215 million, up 0.5% year-on-year and down 9.7% sequentially. International sales of $149 million were quite strong operationally, up 14%, though up just 6% as reported and down 3.2% sequentially. This is the fifth straight quarter where international growth has outperformed US growth, albeit from a lower base. Indeed, international growth accounted for 89% of overall growth in the quarter, compared to just 11% for the US. During Q&A in the conference call, management attributed the slow US growth in the US to “a replacement cycle issue,” (patients coming out of warranty) noting that it is currently negative in the US and will likely remain a challenge until the Veo and Enlite are approved here. We also believe that CGM is not helping pump sales for Medtronic in the US (but CGM is helping internationally) and that the Enlite approval in the US will prompt more system recommendations. On the positive side, new pump starts were at least positive in the quarter in both the US and international businesses.

On the pipeline front, Medtronic is targeting approval of the MiniMed 530G pump (the US version of the Veo) and Enlite sensor in late FY13 (i.e., within the next eight months). This timeline is in line with comments made in the June Analyst Day, where approval was expected to take ~one year. Management conveyed excitement for the Veo and Enlite during the call and noted that they are expected to “reaccelerate growth in the US” (similar to Analyst Day comments that the products are the “next big catalyst” for the US). We note that when the Veo and Enlite were launched internationally, they doubled Medtronic’s growth rate in insulin pumps from 10% to 20% and CGM from ~20% to 49%. No updates were given on the other near-term pipeline products: the MiniMed 640G (predictive low glucose suspend pump) and the launch of the Sentrino in-hospital CGM in the EU. Medtronic is now recruiting for the outpatient ASPIRE study of the MiniMed 530G low glucose suspend pump, and encouragingly, has recently posted a CGM in type 2 study with principal investigators Drs. Bruce Bode and John Buse (clinicaltrials.gov identifier: NCT01614262) that will compare use of the blinded iPro2 with the Enlite to SMBG over 187 days in 90 patients. Patients will all be on oral therapies only, and this pilot study may lay the groundwork for a larger clinical effectiveness study. We can’t wait for results in 2014 …

  • Medtronic’s F1Q13 worldwide reported revenue growth dropped to its lowest mark in the last seven years. We note that the comparison with F1Q12 was quite challenging, as revenues of $355 million represented strong reported growth of 13.8% (9% operational) from sales of $312 million F1Q11. Operational growth was higher at 6%, though this was still the lowest level in more than three years.
 

F1Q12

F2Q12

F3Q12

F4Q12

F1Q13

Worldwide Sales (millions)

$355

$367

$367

$392

$364

Year-on-Year Reported Growth

13.8%

12.6%

7.6%

6.5%

2.5%

Year-on-Year Operational Growth

9%

10%

8%

8%

6%

  • The sequential decline in worldwide revenue was also the largest in the past seven years, but this was partly a reflection of very strong F4Q12 performance. At that time, sales reached a record high of $392 million – a great performance, indeed, that was probably associated in some way with Medtronic’s fiscal year-end.
 

F1Q12

F2Q12

F3Q12

F4Q12

F1Q13

Worldwide Sales (millions)

$355

$367

$367

$392

$364

Sequential Growth

-3.5%

3.4%

0%

6.8%

-7.1%

Year-on-Year Sales (Reported) by Geography

 

F1Q12

F2Q12

F3Q12

F4Q12

F1Q13

US Sales Growth

5.4%

7%

3.2%

4.4%

0.5%

International Sales Growth

29.4%

23%

15.6%

10%

5.7%

International Contribution to Overall Growth

74.4%

63.4%

73.1%

58.3%

88.9%

  • Besides reaffirming the timeline for the MiniMed 530G, disappointingly, no updates were shared on the rest of Medtronic’s pipeline. The table below summarizes the pipeline status as of Medtronic’s Analyst Day in June (see our report at http://closeconcerns.us1.list-manage1.com/track/click?u=8855a320a24ebfbc0280ac3e1&id=d9d9274e73&e=b47ef0a822). The MiniMed 530G insulin pump is the US version of the Veo with low glucose suspend and the Enlite sensor. The MiniMed 640G is a new insulin pump with predictive low glucose management (i.e., the Veo with predictive low glucose suspend).

Near-Term Current (FY13)-FY14

Mid-Term FY15-FY16

Long-Term FY17+

  • Medtronic  MiniMed 530G (US)
  • Medtronic  MiniMed 640G (EU)
  • Sentrino Hospital CGM (EU)

  • Medtronic  MiniMed 640G (US)
  • Next-Gen Enlite
  • Patch Pump
  • Optical Sensor
  • Overnight Closed Loop
  • Fingerstick Replacement
  • Medtronic has a number of studies currently listed on ClinicalTrials.gov. The list below only includes relevant diabetes studies that list Medtronic as a collaborator or sponsor. For brevity, we have shortened the list to include the most exciting studies.
    • Although not yet recruiting, we look very, very forward to a study examining the role of CGM in type 2s (clinicaltrials.gov identifier: NCT01614262), led by principal investigators Drs. John Buse (UNC Chapel Hill, NC) and Bruce Bode (Atlanta Diabetes Associates, Atlanta, GA). The study is notable because the enrolled type 2s are on oral therapies only. The 90-patient trial has an expected start date of June 2012 (the page has not been updated since June) and an estimated primary completion date of December 2013. Patients randomized to the intervention arm will wear the iPro2 with the Enlite sensor for 187 days and providers will make treatment decisions based off of CGM data; the primary outcome is change in A1c from baseline to day 187. The data gathered from this pilot study will help determine whether to conduct a larger, clinical effectiveness study assessing CGM in type 2 patients on orals. We wish the trial had a third arm examining use of real-time CGM in type 2s, though it should still prove quite interesting and we suspect glycemic control will substantially improve in the CGM arm. More broadly speaking, we’re very glad to see more data emerging on CGM in type 2 diabetes. As a reminder, the widely discussed Vigersky et al. study was published in Diabetes Care earlier this year (see our report at http://www.closeconcerns.com/knowledgebase/r/cb338310), and at AADE earlier this month, we saw an impressive type 2 CGM study (see page 10 of our report at http://closeconcerns.us1.list-manage.com/track/click?u=8855a320a24ebfbc0280ac3e1&id=21bad175da&e=b47ef0a822). We continue to believe there is a fair amount of “inertia” with type 2 patients and that many of them do not have optimized therapy because their diabetes management tactics are not changed as often as they should be, due to the progressive nature of the type 2 diabetes. We expect this study will help show the value of more closely watching how patients respond to current diabetes management, food, exercise, etc. We firmly believe intermittent CGM will be standard of care for type 2 patients in the future and that 24/7 CGM will be standard of care for all patients on insulin (type 1 and type 2) as CGM becomes easier to use and better reimbursed and as HCPs and payors better understand the value of the technology. Kudos to Drs. Buse and Bode for taking on these studies – they are very high-profile researchers and we look very forward to seeing these results.
    • Outpatient Study to Evaluate Safety and Effectiveness of the Low Glucose Suspend Feature (ASPIRE). Clinicaltrials.gov identifier: NCT01497938. The study has a primary completion date of June 2013 and an expected enrollment of 260 patients. As a reminder, this is the home study of the MiniMed 530G that FDA had previouslyasked the company to do prior to submitting the device for approval. That the company was allowed to file prior to completing this study was the biggest news of the June Analyst Day and a real step forward from FDA in our view that should also help other pump companies.
    • OpT2mise Glucose Control in Type 2 Diabetes Mellitus (DM) With Insulin Pump Therapy. Clinicaltrials.gov identifier: NCT01182493: The study has a primary completion date of December 2012 and an expected enrollment of 400 patients at 30 centers. Dr. Bruce Bode spoke about this study at the recent Clinical Diabetes Technology Meeting (see our report at http://www.closeconcerns.com/knowledgebase/r/703bfc41). He noted that although the two large RCTs on pumps in type 2 have not shown a benefit, he has faith that Medtronic’s OpT2mise trial will change that – the study has improved upon earlier trials by testing the benefit of pumps in MDI failures (A1cs of 8-12%). We cannot wait to see data from this trial and we hope it can be used to change reimbursement policies. As a reminder, many insurers (e.g., Medicare, Aetna) restrict pumps to insulin deficient type 2s – this is not at all forward thinking in our view as we know that insulin use is associated with poor adherence for many patients.
    • Outpatient Pump Shutoff Pilot Feasibility and Efficacy Study.​ Clinicaltrials.gov identifier: NCT01591681. This NIDDK-sponsored, nocturnal outpatient study will evaluate a predictive low glucose suspend system (using an Enlite CGM and Medtronic pump) – we are glad to see an impressive list of PIs that includes Drs. Bruce Buckingham, Roy Beck, and Peter Chase. The 45-60-patient study was expected to start in July and complete in July 2013 (the study is listed as not yet recruiting and the page has not been updated since May). The trial has several phases and will take about three months for a patient to fully complete it. At April’s Clinical Diabetes Technology Meeting (see our report at http://www.closeconcerns.com/knowledgebase/r/703bfc41), Dr. Buckingham was quite encouraged by the FDA’s recent responsiveness (“It seems like a new day”) – we hope the trial goes smoothly given the (to date) three-year-plus delay in bringing the Veo to the US.
    • Medtronic Treat to Range (TTR) Closed-Loop Control. Clinicaltrials.gov identifier: NCT01490151. This trial is evaluating a treat-to-range system in 24 patients and has an estimated primary completion date of June 2013. Medtronic is a collaborator and it is sponsored by Stanford University (PI: Dr. Bruce Buckingham). The study page has not been updated since December 2011, so it is not clear if it has since completed.
  • Management briefly commented on M&A opportunities, noting that the company “will be very disciplined.” CEO Omar Ishrak explained that “all transactions will be scrutinized for their ability to meet our high financial hurdles, with a particular focus on returns.” We certainly expect that the very highly regarded Mr. Ishrak and teams would also assess M&A from the perspective of ability of potential acquisitions to help patients live much better lives.

Questions and Answers:

Q: Why was the US diabetes business flat this quarter?

A: In terms of diabetes, the results were primarily related to a replacement cycle issue. And we’re building excitement for the new products and it might remain a challenge until we get our FDA approval in FY 2013 – but it’s primarily a replacement cycle issue in the US. That’s what we’re seeing.

Certainly the growth in the US was a little more modest than we expect and the market, as we’ve been commenting in recent quarters, has been a little bit softer in the recent years with the consumer economy. Our replacement cycle is currently negative in the US. However, I will say that our new pump starts (new pumps on new patients) was positive in the quarter, which makes us feel good. And in addition to that, the international business was very strong. The big event in the US is obviously the launch of the 530G at the end of the fiscal year, so we’re all looking forward to that.

-- by Adam Brown and Kelly Close