Every 2 years, Medtronic presents to the investment community a detailed list of the innovative medical tools they are developing. Here are the main take-aways from the virtual investor day held last week:
- Targeting a 5% long-term top line growth (previously 4%) with change in culture and innovation:
1/ CEO pushing for a change in the company’s culture: decentralization is the new operating model, where each segment will act as its own operating unit (20 of them), with its own P&L and sales team to react faster to changes in the market place. This model has been tested in their Restorative Therapies Group while the current CEO was then President of that group. He increased organic revenue growth to 6% and improved profitability. I always thought of MDT as this big boat steady in the storm but slow to navigate. The CEO seems to be addressing this issue by making the company nimbler.
On a side note, the company featured many diverse employees and patients during the presentation, a way to highlight their desire for inclusion and diversity, one of their 5 sustainability tenets.
2/ Innovation: 130 new products have been approved since January.
New opportunities:
- Robotic surgeries – could add +0.50% of growth in that segment, possibly reaching +2.5% extra sales growth by FY23. Looking to differentiate its robot with system modularity within the hospital.
- Renal denervation – to treat a large population with hypertension (affects 1/3 adults globally, where 50% of patients are non-adherent within 1 year!)
- Colon cancer screening (partnering with Amazon for the delivery of the PillCam Genius – a pill-size camera to swallow that detects abnormalities in the colon and communicates with the doctor): 1 in 20 US adults will be affected by colon cancer, with a 90% chance of recovery if treated early.
Expanding into existing markets:
- Diabetes: developed an app + insulin pen to provide intuitive and personalized insulin dosing intelligence. Developing an even smaller pump.
- TAVR or Transcatheter Aortic Valve Replacement (going on a head to head trial with EW). This market is less than 10% penetrated and growing in the low teens. Edwards Lifesciences is a strong competitor so success there is not guaranteed.
As a result of looking to increase top line growth, MDT will spend >$2.5B in R&D per year, above the $2.2-2.3B it has spent the last few years. This amount should grow with sales as well. Tuck-in M&A, venture investments are also part of this strategy. To offset some of the extra spending, the company continues on its cost savings program, as well as a newly launched “Simplification” program, looking to reduce SG&A expenses. So while we are pleased to see an increased sales growth target, earnings growth target does not increase in the same measure as additional investments are necessary.
Overall this was a bullish investor presentation, as most are. We hope to see the recent innovations and focus on growth come to fruition in the coming years.
Julie S. Praline
Director, Equity Analyst
Direct: 617.226.0025
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square
Suite 500
Boston, MA 02109