Memorandum

Medtronic F1Q16 – Sales up 15% on 530G, 640G uptake; FDA submission of 640G later in 2015, MiniMed Connect coming this fall – September 3, 2015

Executive Highlights

  • Medtronic Diabetes recorded revenue of $445 million in F1Q16, a 7% reported and a 15% operational increase year-over-year (YOY). US Diabetes revenue rose 13%, while international sales grew ~18% operationally in developed markets and 13% operationally in emerging markets.
  • Medtronic still expects an FDA PMA submission of the MiniMed 640G/Enlite 3 “later this calendar year.” Launch of MiniMed Connect is expected this fall (by November 31).
  • Medtronic began a 150-patient, single-arm, three-month (!) pivotal study of the MiniMed 670G hybrid closed loop system at ADA in June. Completion is expected by May 2016.

Medtronic reported F1Q16 financial results this morning in a call led by CEO Omar Ishrak. Enclose are the top financial and R&D highlights, followed by a pipeline summary and an automated insulin delivery landscape review. There was no diabetes-related Q&A. Overall, both the US and international businesses are seeing strong operational growth, and the company’s near-term pipeline seems poised to continue the momentum (MiniMed 640G, MiniMed Connect, commercializing BD’s FlowSmart set, MiniMed 670G).

Financial Highlights

1. Medtronic Diabetes recorded revenue of $445 million in F1Q16, a 7% reported and a 15% operational increase year-over-year (YOY). Actual growth was in the high single-digit range, as the business got a ~6%-point boost from an extra selling week. Management broke out growth (but not sales) between the Diabetes Group’s three divisions for the first time (see #4-6).

2. US Diabetes revenue totaled $274 million in F1Q16, rising 13% as reported. Sales declined 7% sequentially. Management cited “continued strong adoption” of the MiniMed 530G/Enlite, which has seen sustained uptake since the US launch in fall 2013: five of the last seven quarters have had double-digit YOY growth in the US.

3. Overall international sales of $171 million in F1Q16 declined 2% as reported YOY, but grew a strong ~18% operationally in developed markets ($140 million) and 13% operationally in emerging markets ($31 million). The ongoing launch of the MiniMed 640G is definitely helping.

4. The type 1-focused Intensive Insulin Management (IIM) division saw “low double-digit growth” in F1Q16. This division includes the MiniMed 530G and MiniMed 640G.

5. The Diabetes Service & Solutions (DSS) business recorded “high-single-digit growth” on “strong consumable sales” in the US. This was also the first full quarter of operating Diabeter, the recently acquired Netherlands-based diabetes clinic.

6. The very new type 2-focused non-intensive diabetes therapies (NDT) division saw high 60%-range growth driven by sales of professional CGM (iPro2) and infusion ports for type 2 diabetes (i-Port Advance). This represented the first product specifics for this new division.

Pipeline Highlights

7. Medtronic still expects an FDA PMA submission of the MiniMed 640G/Enlite 3 “later this calendar year.” The pivotal study was slated to wrap up in August. We wonder if patients will be able to software update the MiniMed 640G to the MiniMed 670G algorithm.

8. Launch of the MiniMed Connect keychain device is still expected this fall (by November 31). The small keychain device sends pump/CGM data via Bluetooth to a smartphone app and enables remote monitoring for caregivers. This brings important competition to Dexcom’s just-approved G5 mobile system, slated for a launch in late September.

9. The BD partnership was only mentioned in passing. Per BD’s August call, the new FlowSmart infusion set is still slated for a 2016 launch in the US, EU, and Canada. We hope to hear more specifics at BD’s powerhouse symposium at EASD.

10. The MiniMed 670G was not mentioned on the call. Medtronic began a 150-patient, single-arm, three-month (!) pivotal study of the hybrid closed loop system at ADA in June. The expected completion is still slated for May 2016. Medtronic is the first to begin a pivotal study of hybrid closed loop and is positioned to be first to market. See the landscape review below.

11. The new partnership with IBM Watson Health has signed its first agreement with a health system. The Glooko partnership was mentioned in passing, but there was no launch timing. Medtronic compatibility is listed as “coming soon” on Glooko’s device compatibility page.

12. The pivotal US study of the Bluetooth-enabled Guardian Mobile CGM is now pushed back to completely wrap up in October 2015. It was previously slated to finish in July.

Financial Highlights

1. Medtronic Diabetes recorded revenue of $445 million in F1Q16, a 7% reported and a 15% operational increase year-over-year (YOY). Actual growth was in the high single-digit range, as the business got a ~6%-point boost from an extra selling week. The YOY comparison to F1Q15 was somewhat challenging, when sales grew 13% as reported and 1% operationally. Revenue declined 5% sequentially from record-high sales last quarter (F4Q15). Medtronic typically sees a sequential decline between F4Q and F1Q, and this quarter’s (-5%) was smaller than the past two years (-9% and -10%). Both the US and international businesses are seeing consistently strong operational growth, and the company’s near-term pipeline seems full enough to continue the momentum (MiniMed 640G, MiniMed Connect, commercializing BD’s FlowSmart set, MiniMed 670G).

  • For the first time, management broke out growth between the Diabetes Group’s new three-unit structure: (i) low double-digit growth for the type 1-focused Intensive Insulin Management (IIM) division (e.g., MiniMed 530, 640G); (ii) high 60%-range growth for the type 2-focused non-intensive diabetes therapies (NDT) division (iPro2 and i-Port Advance injection site device for now); and (iii) high-single-digit growth for Diabetes Service & Solutions (DSS) (e.g., consumable supplies, Diabeter). Exact revenue numbers were not shared, but we assume IIM and DSS represent the vast majority of sales. More details below on each division.
  • Now with the Covidien acquisition complete, Diabetes accounts for just 6% of total Medtronic sales. It is notable to this much granularity and attention to the business, given its small relative size. This seems to reflect management’s commitment to Diabetes and long-term view of the potential.

Table 1: Medtronic Diabetes Worldwide Sales

 

F1Q15

F2Q15

F3Q15

F4Q15

F1Q16

Worldwide Sales (millions)

$416

$430

$449

$467

$445

Year-on-Year (YOY) Growth:
   Reported

   Operational

13%

12%

9%

10%

3%

6%

2%

8%

7%

15%*

Sequential Growth

-10%

3%

4%

4%

-5%

*High single digits excluding an extra selling week.

2. US Diabetes revenue totaled $274 million in F1Q16, increasing 13% as reported. Sales declined 7% sequentially from F4Q15. Management cited “continued strong adoption” of the MiniMed 530G/Enlite (now becoming a common refrain!), which has seen pretty sustained uptake since the US launch in fall 2013: five of the last seven quarters have had double-digit YOY growth in the US. This quarter’s comparison was difficult, as sales grew 16% in F1Q15. Consistent with last quarter (F4Q15) – and only the second time since 2009 – the US contributed 100% of the reported sales growth, though that reflects currency pressure on the international business.

Table 2: Medtronic Diabetes Sales – US

 

F1Q15

F2Q15

F3Q15

F4Q15

F1Q16

US Sales (millions)

$242

$257

$279

$293

$274

US Sales Growth (YOY)

16%

12%

3% (12%)*

8%

13%

US Sequential Sales Growth

-10%

6%

9%

5%

-7%

US Contribution to Overall Medtronic Diabetes Growth

72%

76%

69%

100%

100%

3. Overall international sales of $171 million in F1Q16 declined 2% as reported YOY, but grew ~18% operationally in developed markets ($140 million) and 13% operationally in emerging markets ($31 million). The YOY comparison was on the easier side for Medtronic, as sales grew 6% operationally in F1Q15. The launch of the MiniMed 640G in the EU and Australia drove the developed market growth. This is the highest operational growth Medtronic’s international business has seen in at least the last year – the Veo has been available internationally since 2010, and we assume many of the sales were current users getting on the 640G.
  • The emerging market business in diabetes is still early, with sales of $31 million representing just 18% of Medtronic Diabetes’ total international sales. Still, management was clear in its optimism: “...over the long-term we believe strongly that the penetration of existing therapies into emerging markets represents the single largest opportunity in Med Tech.”

Table 3: Medtronic Diabetes Sales – International

 

F1Q15

F2Q15

F3Q15

F4Q15

F1Q16

International Sales (millions)
   Developed Markets
   Emerging Markets

$174
$143
$31

$173
*
*

$170
*
*

$174
$139
$35

$171
$140
$31

Sales Growth (YOY)
  
Reported
   Operational

8%
6%

6%
9%

3%
12%

- 8%
~ 6-8%

- 2%
~13-18%

Sequential Sales Growth

-8%

-0.6%

-2%

2%

- 2%

International Contribution to Overall Growth

28%

24%

31%

0%

0%

* Not yet reported
  • This is only the second quarter that Medtronic has broken out revenue between these international geographies, which were flat on a sequential comparison to F4Q15. It seems like the reporting structure will permanently move this way, reflecting a Medtronic-wide focus on growing the emerging market business.

4. The type 1-focused Intensive Insulin Management (IIM) division saw low double-digit growth in F1Q16. As noted, sales rose on continued adoption of the MiniMed 530G in the US and the ongoing launch of the MiniMed 640G internationally. Management did not provide specific sales figures or a basis for comparison, so context for these results is absent. Perhaps management will break the actual sales out over time. We’re also a bit uncertain about the products that flow into the separate divisions. Presumably this business is mostly durable pump sales, but what about ongoing CGM sensor and transmitter sales – do those sales flow into the IIM business, or are they considered “consumable” (and thus in the Diabetes Service & Solutions business)?

5. The Diabetes Service & Solutions (DSS) business recorded high-single-digit growth on “strong consumable sales” in the US and continued integration of the newly acquired Diabeter clinic. In the 2014 Analyst Day meeting, we estimated the consumable supplies/pump accessories business at ~$800 million per year (~$200 million per quarter), meaning this division probably accounted for a significant fraction of the quarter’s $445 million in quarterly sales.

  • F1Q16 was the first full quarter of operating Diabeter, the Netherlands-based diabetes clinic that Medtronic intends to expand across Europe. The IT-enabled model of patient care allows the clinic’s 36-person staff to manage over 1,500 pediatric and young adult patients with type 1 diabetes. As a reminder, Medtronic acquired this clinic in April for an unspecified sum. As noted in our interview with Diabetes Group President Hooman Hakami, the acquisition is part of Medtronic’s goal to go far beyond pumps and sensors to a “more holistic diabetes management company.” The group’s ambitious goal is to serve 20 million patients with diabetes by 2020, an approximate 20-fold increase (!) from the current installed base of ~700,000 patients worldwide.
  • For comparison, Medtronic’s cath lab management business has secured 59 long-term agreements with hospital systems representing $1.3 billion in revenue over an average span of six years. As Mr. Hakami told us in April, the goal is to take this kind of integrated care approach from cardiology to diabetes. Of course, cardiology is not as patient-driven as diabetes, but certainly some learnings can be leveraged.  

6. The type 2-focused non-intensive diabetes therapies (NDT) division saw high 60%-range growth driven by sales of professional CGM (iPro2) and infusion ports for type 2 diabetes (i-Port Advance). This is the first time management has specified that these two products fall in this division. We assume this division is the smallest of the three right now and mostly weighted to sales of professional CGM. Overall, the high growth in this new segment is good to see (even if it’s from a low base), and we wonder what future products are planned – patch devices for insulin delivery? Improved data management that leverages the Glooko and IBM partnerships?

  • Professional CGM is quickly becoming a more dynamic field as Abbott reenters the sensor world in a bigger way. The company’s FreeStyle Libre Pro is already available in India, and as of its 2Q15 call, is under FDA review in the US. Dexcom seems more focused on the patient side near-term, though does have better data analytics coming (“Clarity” software with G5, the partnership with Google) and will also bring formidable competition. Given the number of type 2s not at goal, there is tremendous room for all three companies to improve patient outcomes. A key Medtronic advantage is tight provider relationships, though we assume these are less pronounced in the type 2 primary care setting. 

R&D Pipeline Highlights

7. Medtronic still expects an FDA PMA submission of the MiniMed 640G/Enlite 3 “later this calendar year.” The timing was the same as in the February and June calls. The pivotal study was slated to wrap up in August, though is still listed as recruiting.

  • Per JPM 2015, a US launch of the MiniMed 640G was ambitiously expected by April 2016. Assuming a best-case FDA submission this month, that represents a very tight approval and launch turnaround of seven months. For context, the MiniMed 530G/Veo had an ~15 month FDA review, the Animas Vibe had a ~20 month FDA review, and the ongoing Tandem t:slim G4 review stands at 13 months (though wrapping up very soon, per Tandem 2Q15). The MiniMed 640G/Enlite 3 is a new pump user interface, a new sensor, and the new predictive suspension algorithm.
  • We wonder if patients will be able to software update the MiniMed 640G to the MiniMed 670G hybrid closed loop algorithm. This seems possible in theory: Dexcom did this with Software 505 (G4AP) and Tandem is pursuing this route with Project Odyssey. Without a software update, the upgrade process is going to be complicated, since it sounds like the MiniMed 640G and 670G might launch within 12 months of each other in the US.

8. Consistent with the FDA clearance announced at ADA, launch of MiniMed Connect is expected this fall (by November 31). The small keychain device sends pump/CGM data via Bluetooth to a smartphone app and enables remote monitoring for caregivers. The device will be $199 (cash pay), and interested users can sign up to be notified at www.medtronicdiabetes.com/minimed-connect. MiniMed Connect is a presumably an interim step until Medtronic launches its own Bluetooth transmitter (Guardian Mobile; see below), a similar stepwise approach to Dexcom’s regulatory approach with G5 (Share cradle, Share receiver).

  • MiniMed Connect brings important competition to Dexcom’s just-approved G5 mobile system, slated for a launch in late September. G5 offers a key advantage over MiniMed Connect, since the G5 transmitter can pair directly with the phone (vs. Enlite transmitter -> MiniMed Connect -> phone). Otherwise, MiniMed Connect brings many of the same advantages as G5 (patients getting data on the phone, caregiver notifications), meaning it could some prevent Medtronic customers from switching over to Dexcom’s G5 mobile. It will be interesting to see at what cadence the systems launch; we assume the availability of G5 later this month will be first, but Medtronic could conceivably launch Connect this month too. The hassle of switching CGMs makes choice of brand pretty sticky – once a patient moves across companies, going back to the previous brand is very unlikely.
  • Initially, the MiniMed Connect paired smartphone app will only be available on Apple’s iOS. Medtronic announced a separate partnership with Samsung at ADA to build out an Android version and apps optimized for Samsung devices. Samsung also has a partnership with WellDoc, signaling increasing interest in diabetes from the tech company.
  • Caregivers can see pump/CGM data on any product with an Internet connection via a web display, a nice device-agnostic approach (similar to the Nightscout setup). Text messages can be sent for uncleared pump alarms or when sensor glucose levels are too high or too low. Given the transformative impact Dexcom Share has had on many families, we imagine parents will really like MiniMed Connect.
  • A downside to MiniMed Connect’s small size is that it will be easy to lose, particularly in younger patients; we wonder how Medtronic is thinking about replacements. The device is presumably very cheap to make, since it simply relays data from the pump to the app via Bluetooth; we assume the margins are excellent on a $199 price.

9. The call mentioned the BD infusion set partnership in very vague terms. Per BD’s August call, the new FlowSmart infusion set is still slated for a 2016 launch in the US, EU, and Canada. We’re not sure when it will launch during the year, though hope to hear more at BD’s symposium at EASD; the powerhouse lineup includes Drs. Bruce Buckingham, Hans De Vries, Thomas Danne, Lutz Heinemann, Larry Hirsch, and Aaron Kowalski. Whew!

  • The BD-Medtronic collaboration agreement was announced at ADA in Boston, giving Medtronic exclusive rights to commercialize BD’s FlowSmart set. The set will be made available for both Medtronic and non-Medtronic pumpers, and Medtronic will control distribution in both cases. We assume this product will fall into Medtronic’s Diabetes Service and Solutions business.
  • We saw new data on BD’s insulin infusion set at Keystone 2015. Dr. Larry Hirsch shared data from an expanded study comparing BD’s new infusion set to Medtronic’s Quick-set in 60 healthy participants (ADA 2015 Poster: 1071-P) – the previous pilot study shown at ATTD was only in 25 participants. Consistent with results from the pilot study, the findings were encouraging – the BD set significantly reduced the amount of time with flow interruptions (p=0.002) and reduced the risk of pressure events by ~75%. There were no observed statistical differences in set site leakage upon removal compared to the Quick-set (1 vs. 0 events, respectively).
  • FlowSmart revolves around a new catheter, which allows insulin to flow out of two places: the bottom (like current infusion sets) and the side (a new innovation). We got an up close look at BD’s infusion set at its headquarters in May and were impressed with some of the additional new form factor improvements: a less painful, 30 gauge insertion needle, making this the smallest infusion set insertion needle on the market (roughly similar to a pen needle in size); a multi-position connector that allows patients to connect the tubing to the on-body set in eight different positions (e.g., no need to line it up); and a sliding shield that covers the insertion needle and contains it after insertion, helping to prevent accidental needlesticks (also a positive for those who are needlephobic).

10. The MiniMed 670G was not mentioned on the call. Medtronic began a 150-patient, single-arm, three-month (!) pivotal study of the hybrid closed loop system at ADA in June. The expected completion is still slated for May 2016 (11 months from now – we assume it could finish much earlier). That puts Medtronic loosely on track to hit the April 2017 launch timeline (as of JPM 2015), assuming the PMA submission and approval take less than a year. We expect that it could if the MiniMed 640G is approved in the meantime (i.e., largely the same pump user interface, with the exception of the algorithm changes).

  • Medtronic is the first to begin a pivotal study of hybrid closed loop and is positioned to be first to market. See the landscape review below, which includes Animas, Insulet, Roche, Tandem, Bigfoot, TypeZero, the Bionic Pancreas, and Cambridge.
  • The primary objective of the pivotal study is to evaluate the safety of the 670G system; secondary endpoints include mean change in A1c, change in insulin dose and weight, time spent with closed-loop on vs. off, and time spent in different sensor glucose ranges (we obtained these from the company directly, as the posting incorrectly implies the primary endpoint is A1c at 12 months). Notably, it is a single arm study – during a two week run-in period, participants will be using the study pump (MiniMed 670G) with only the CGM function activated (i.e., SmartGuard OFF and HCL OFF). Subsequently, participants will wear the 670G at home for three months. The study also includes a short six-day hotel stay phase. We assume the baseline run-in period will serve as the “Control” group, which is far less onerous than the parallel group RCT that could have been requested – kudos to FDA for being so reasonable here! It’s also quite notable to see that the at-home portion of the study is just three months.
  • The study inclusion criteria are very broad, as those with an A1c <10% and ages 14-75 years will be enrolled. It seems like the 670G will be worn day+night in the study, and based on our read of the exclusion criteria, patients won’t have an option of wearing it at night only – we do think this would be a nice option, but understand the rationale for 24-hour wear in the pivotal study. (Whereas in the real-world, patients can choose when and how they want to wear it; for more on this balance, see diaTribe’s test drive on DiAs.)

11. The new partnership with IBM Watson Health (announced in April) has signed its first agreement with a health system. Details were vague –“to drive care solutions that are expected to improve outcomes and lower costs for this health system – but it is good to hear this is moving beyond just an announcement into actual products. This partnership combines IBM’s Watson supercomputer and Medtronic’s incredible volume of diabetes data to advance diabetes care on three main fronts: (i) integrated care; (ii) artificial pancreas algorithm enhancement; and (iii) dynamic, personalized care plans for type 1 and type 2 diabetes. We see potential to tackle many challenges in the field: personalizing therapy; gleaning insights from Big Data (particularly when it is unstructured); aiding time pressed providers; and stemming rising costs.

  • IBM’s Watson Health is partnering with healthcare companies in a similar fashion to Google. Will a divide emerge, pushing diabetes players to work with either Google or IBM on data analytics? A twist is that Google is offering hardware and software technology, while IBM is focused on software. For more on Google, see our coverage of the Sanofi partnership earlier this week and the Dexcom partnership from a few weeks ago.
  • The Glooko partnership (announced in June) was mentioned in passing, but there was no timing associated with a launch. Medtronic compatibility is listed as “coming soon” on Glooko’s device compatibility page; Dexcom’s G4 Platinum and Insulet’s OmniPod compatibility launched last month. Following Glooko’s introductory pump/CGM webinar, the FAQ said the following about Medtronic timing: “We are currently working on the integration and hope to have it available in the near future. Please stay tuned.”

12. Though not mentioned on the call, the pivotal US study of the Bluetooth-enabled Guardian Mobile CGM is now pushed back to completely wrap up in October 2015. It was previously slated to finish in July. The 100-patient study has taken a while to get finished, as it came online in September 2014. Medtronic has never shared timing on this device. The study uses the MiniMed 640G and the Guardian Mobile app, implying the transmitter can send CGM data directly to both devices (i.e., eliminating the need for an interim device like MiniMed Connect). As we understand it, the current MiniMed 640G does not have embedded Bluetooth; we’re not sure what that means from a launch perspective.

R&D Pipeline Summary

Pipeline Product

 

Latest Timeline

MiniMed 640G/Enlite 3 CGM sensor  

Predictive low glucose management, updated pump platform

Launched in Australia in January and EU in February.
-FDA PMA submission later in 2015; US launch ambitiously expected by April 2016.

MiniMed Connect

Launch this fall (by November 31). $199.

Glooko integration

“Coming soon”

BD FlowSmart Infusion Set

Launch in 2016 in US, EU, Canada

MiniMed 670G

Hybrid closed-loop

Pivotal study underway. Launch expected by April 2017 in the US and April 2018 in the EU.

Partnership with IBM’s Watson Health

Signed first agreement with health system

Partnership with Samsung

No official timing

Guardian Mobile

Bluetooth-enabled, transmitter, standalone Enlite 3 CGM

Pivotal US study ongoing (n=100) with expected completion in October 2015.

Fully automated artificial pancreas incorporating MD-Logic algorithm

Algorithm licensed from DreaMed Diabetes in April 2015; timing unclear.

Harmony CGM sensor (fifth generation)

Redundant electrochemical sensor weights signals from two sensors

MARD of 9% vs. YSI in a small (n=15) seven-day study at ATTD 2015.

Patch pumps for type 1 and type 2 diabetes

In development, per Dr. Bruce Bode at AACE 2015. No specifics.

MiniMed Flex

“Hybrid pump” with a smaller footprint, ability to wear on or off the body

First introduced at 2014 Analyst Day, but no updates since.

Orthogonally redundant CGM

Glucose oxidase and optical sensing

First-in human data shared at ATTD 2014; no updates since.
 

Automated Insulin Delivery Competitive Landscape

  • See below for an overview of the automated insulin delivery landscape, as far as we aware. We acknowledge this list may be incomplete, as there may be other stealth startups or academic groups working to commercialize closed-loop technology.

Group/Company

Product

Latest Timing

Recent Coverage

Medtronic

- MiniMed 670G (hybrid closed loop)

- Fully automated closed loop

- US launch expected by April 2017

- Following 670G

Begins Pivotal Study of 670G

Tandem

 

Predictive low glucose suspend or basal closed-loop system

FDA IDE filing by end of 2015 for a clinical study. Potential launch in late 2017.

Tandem 2Q15

Insulet

Plans to be involved in the artificial pancreas and is developing strategies on the CGM and algorithm fronts.

Hopes to fast-track an AP device

Insulet 2Q15

Animas

Predictive Low Glucose Suspend or Hypoglycemia-Hyperglycemia Minimizer with Dexcom CGM

In Development. Called “a priority” at AACE 2015.

J&J 2Q15

Roche

Working internally on a new CGM, with future potential application to an artificial pancreas device

Unknown

Roche 2Q15

TypeZero (licensed from UVA)

DiAs (24-hour or overnight-only, hybrid closed loop, insulin-only, algorithm that can be embedded in a pump or reside on smartphone. The current systems include a Dexcom sensor and Roche/Tandem insulin pumps.

Large-scale clinical trials are planned for 2015 and 2016.

Raises seed funding

MGH/BU

Bionic Pancreas (24-hour, hybrid closed loop, insulin + glucagon, dual chambered pump with built-in algorithm, Dexcom CGM)

Pivotal study in late 2016 - early 2017

AADE 2015

Bigfoot Biomedical

Asante pump body (disposable), custom built, durable, Bluetooth-enabled controller that talks to Dexcom’s Gen 5 CGM and includes a control algorithm

In a pivotal trial by end of 2016

Acquires Asante’s Assets

Partners with Dexcom

Cambridge

Overnight and 24-hour, hybrid closed-loop using Abbott Navigator CGM, algorithm on portable computer, and Abbott Florence pump

Plans to commercialize, but timing is unknown

ADA 2015

 

-- by Adam Brown and Kelly Close