Medtronic F1Q14 – US sales down 3%, international sales up 8%; MiniMed 530G and 640G delayed over insulin pump quality systems issues – August 20, 2013

Executive Highlights

  • Worldwide diabetes revenues of $369 million represented 1% reported and operational growth. US sales fell 3%, while international sales grew 8% as reported and operationally.
  • FDA approval of the MiniMed 530G is now expected “this fiscal year” (by April 30, 2014), a delay from the previous estimate for approval by the end of 2013. Management said that FDA’s issues relate to Medtronic’s quality systems and not the MiniMed 530G itself.
  • The MiniMed 640G will now launch internationally in the “second half of this fiscal year” (December 2013-April 2014), a six-month delay from the prior timeline due to the quality systems issues.

In a call led by CEO Omar Ishrak, Medtronic reported F1Q14 results this morning. Worldwide diabetes revenues totaled $369 million, representing 1% reported and operational growth from F1Q13. Sequentially, worldwide F1Q14 revenues fell 9% this quarter, the largest decline in over three years. In the US, it was “another challenging quarter,” with sales of $208 million representing a 3% year-over- year decline, the third straight quarter of negative stateside growth (the first time we’ve ever seen this since we’ve been tracking Medtronic). Similar to the past eight quarters, the international business outpaced US sales – revenues of $161 million grew 8% as reported and operationally, stemming from “strong adoption” of the Paradigm Veo insulin pump/Enlite CGM.

In contrast to some quarters in which diabetes is barely discussed, the lackluster US Diabetes performance was a big focus of the call. Said management, “Slow insulin pump system sales continued in the United States due to the delayed launch of the MiniMed 530G” – management has stated this in one way or another on the last three earnings calls. Also consistent with prior remarks, the business is expected “to return to solid growth” once the 530G launches in the US. Medtronic deferred $11 million in revenue in F1Q14 in anticipation of future customer upgrades to the 530G, an accounting move that certainly negatively impacted sales (a total of $33 million has been deferred to date). Once the approval does come through, growth will certainly look more impressive once all the deferred revenue is recognized.

Speaking of challenges in the US, one investor asked about the potential threat of competitive bidding for pumps starting in January 2014, and CEO Omar Ishrak and Executive VP Chris O’Connell gave slightly varying accounts. Mr. Ishrak expressed confidence and said, “we don't see any serious risk of the pump falling under competitive bidding,” while Mr. O’Connell stated, “It's really about defining the categories of pumps that are going to be subject to competitive bidding, and that's an ongoing discussion with CMS.” Clearly, there are a lot of balls up in the air at this point; presumably Mr. Ishrak was referencing the impact on Medtronic, while Mr. O’Connell was speaking more broadly about the entire field. It certainly would be a shake up if prices drop substantially for pumps without CGM and do not drop for integrated pumps. As it is, CMS doesn’t have a great record in providing insulin pumps to patients over 65 on a consistent basis.

On the pipeline side, Medtronic’s insulin pump quality system problems (first discussed on the F4Q13 call) have delayed FDA approval of the MiniMed 530G – it is now expected “this fiscal year” (by April 30, 2014), a four-month delay from the previous estimate of approval “this calendar year.” A bright spot of sorts is that the FDA does not appear to have any issues with the MiniMed 530G itself and presumably quality issues can be addressed, though clearly there have been examples of products delayed a very long time due to quality. Unfortunately, the ongoing quality issues are not just affecting the 530G timing: the next-gen MiniMed 640G will now launch internationally in the “second half of this fiscal year” (December 2013-April 2014), a six-month delay from previous estimates for the first half of FY14; this delay reflects the diversion of “significant people and resources” to quickly address the quality system findings, management said.



  • F1Q14 worldwide Diabetes revenue of $369 million grew 1% as reported and operationally. This was on a fairly easy comparison, as growth was 2.5% in F1Q13. The operational performance continued the noticeable downtick from the 6-8% operational growth seen in the four quarters between F3Q12 and F2Q13.






Worldwide Sales (millions)






Year-on-Year Reported Growth






Year-on-Year Operational Growth






  • Sequentially, F1Q14 worldwide revenues fell 9% from record F4Q13 sales of $407 million. This represented the largest sequential drop in over three years, though it was fairly comparable to the 7% sequential decline seen between F4Q12 and F1Q13. The F1Q14 sequential decline in sales was nearly twice as large in the US (-11.1%) as outside the US (-6.9%).






Worldwide Sales (millions)






Sequential Growth






  • Growth in the US declined 3% year-over-year in F1Q14, a significant contrast to 8% international growth. International sales of $161 million were the second highest ever, behind the record-breaking $173 million last quarter (F4Q13). This was the third straight quarter where the international business contributed 100% of Medtronic’s quarterly growth, reflecting thechallenges the company is facing in the US. F1Q14 global performance also continues a two-year trend of stronger international growth, albeit from a lower base.
    • The international business accounted for 44% of quarterly Diabetes Group revenues, the highest we’ve ever seen and an uptick from 41% one year ago, 40% two years ago, and 35% three years ago.

Worldwide Revenue by Geography







US Sales Growth






International Sales Growth






International Contribution to Overall Growth






  • Medtronic deferred $11 million in revenue in F1Q14 ($33 million to date) as some customers planned to upgrade to the MiniMed 530G when it becomes available. Adding back in the $11 million to US sales, stateside growth still fell 1.6%, about half the level Medtronic reported in the press release and prepared remarks. This reflects the company’s New Technology Guarantee promotion, where customers who purchased both a Paradigm Revel insulin pump and CGM during the special promotion period are eligible to upgrade to the company’s latest technology for free, once it becomes available. We aren’t sure what detail is given to them about delays. For context, Medtronic deferred $9 million in F3Q13 and $14 million in F4Q13.
    • The details of the program can be found at The page notes that, “If you purchase the MiniMed Paradigm Revel System (insulin pump and CGM system) starting November 30, 2012 until Medtronic announces the termination of the program you are guaranteed the option of upgrading your newly purchased MiniMed Paradigm Revel insulin pump and CGM system to newer technology should it become available in the US. Exchange must be executed within 60 days after the launch of the new technology.” We think this is a great option for patients, though certainly tricky for Medtronic as the timeline for approval keeps getting pushed out.
  • For the first time, Diabetes revenues were reported under their own heading (“Diabetes Group”) in the quarterly press release and prepared remarks. As a reminder, Diabetes previously fell under the Restorative Therapies Group under Executive Vice President Chris O’Connell. In Q&A, CEO Omar Ishrak justified the move as “purely and completely by the consideration of how our customers are situated.” That’s to say, diabetes customers are different from the other Restorative Therapies groups: neurology, orthopedics, and associated technologies. Additionally, diabetes is one of the company’s three clinical areas of focus alongside Cardiovascular and Restorative Therapies.
    • Medtronic’s Executive Management webpage now separately lists Katie Szyman as Senior Vice President and Group President, Diabetes, right under Michael Coyle (Executive Vice President and Group President, Cardiac and Vascular Group) and Chris O’Connell (Executive Vice President and Group President, Restorative Therapies Group). See Szyman is very highly regarded inside and outside Medtronic and we look forward to seeing her as CEO of the company one day. She has a particularly challenging role at Medtronic and we look forward to see how the US evolves once the quality and regulatory pressure are down.


  • Regarding FDA approval of the MiniMed 530G, management said, “We continue to work diligently with the FDA so that we can make this important technology available this fiscal year” (by April 30, 2013). This is a delay from last quarter, where the timeline was “this calendar year” (see our report at See management’s timeline for the 530G FDA approval-
    • We would note that CEO Omar Ishrak incorrectly stated the following in Q&A: “In terms of the approval, we've been saying ‘the fiscal year’ I think since last quarter.” We were surprised to hear this mistake given the importance of that product’s timing to the Diabetes business, given the importance of dates to investors, and given management’s continued insistence that the US business won’t return to growth until Medtronic Diabetes receives FDA approval for the 530G. Later in Q&A, Mr. Ishrak said, “We think that we in fact can get this on the market before the end of the year,” – it was hard to tell, but this sounded like a reference to the previous calendar year timeline. As a reminder, the PMA for the MiniMed 530G was submitted to the FDA in June 2012; the Veo was approved in the EU in 2009 (we remember clinical trials in the UK in 2008 – see “Medtronic Reorganizes and Launches the Veo” from 2009 at

Quarterly Call (Date)

Management’s Timeline for MiniMed 530G FDA Approval

F1Q14 (August 20, 2013)

“This fiscal year” (by April 30, 2014)

F4Q13 (May 21, 2013)

“This calendar year” (by December 2013)

F3Q13 (February 19, 2013)

“Later this spring or summer” (by May-August 2013)

F2Q13 (November 25, 2012)

“Late FY13” (by April 30, 2013)

F1Q13 (August 21, 2012)

“Late FY13” (by April 30, 2013)

  • Notably, management said that the FDA issues “are not around the 530G itself,” but center on Medtronic’s insulin pump quality systems. While we can imagine that these quality issues are not reassuring, management seemed to imply they were addressable and certainly better than an uncertain product issue. Beyond emphasizing that they were working on the quality issues, management did not share any further details on what they entail, what remedies are being considered, how long they will take, etc. Still, it’s clear that it’s all hands on deck, as the delay in the MiniMed 640G (see below) was specifically attributed to redirecting resources to address this issue. We found this a little heartbreaking since we’ve heard so many positive things about this product – it’s easy to imagine, however, why this would be required.
  • As the MiniMed 530G is further delayed, Medtronic is in increasing jeopardy of losing market share in 2013/early 2014 to Insulet, Animas (depending on when the Vibe is approved), and Tandem. Medtronic has a clear value proposition in the US market right now, since the Paradigm Revel is the only CGM-integrated pump available. However, thatwill end once the Animas Vibe is approved (FDA just sent back a round of questions; launch timeline appears to be around late 2013/early 2014). Insulet just launched its second-generation OmniPod and is seeing extremely strong uptake (see our Insulet 2Q13 report at though we believe it is primarily still growing the market rather than taking share from competitive pumps. Meanwhile, Tandem is working on a Dexcom G4- integrated t:slim, with FDA submission expected before the end of 2013. The MiniMed 530G’s threshold suspend feature certainly has an advantage over all these pumps, but as the timeline gets stretched, customers may choose other pumps.
  • Aside from a vague passing reference in Q&A, management did not discuss the ASPIRE in-home study of the MiniMed 530G – encouraging results were presented at ADA 2013 and simultaneously published in the NEJM (Bergenstal et al., 2013). For the full details, see page 90 of our ADA 2013 report at The trial showed a 32% reduction in nocturnal hypoglycemic events and a 38% reduction in mean area under the curve (magnitude plus duration) of nocturnal hypoglycemia events. Notably, these benefits occurred without an increase in A1c levels. The data was stronger than many expected and should emphatically support the clinical value and safety of device in the eyes of the FDA.


  • The MiniMed 640G predictive low glucose management pump is now expected to launch internationally in the “second half of this fiscal year” (November 2013-April 2014), a six-month delay from last quarter’s “first half” of FY14 timeline. Management specifically attributed the delay to a diversion of “significant people and resources” to address the insulin pump quality issues that are holding up FDA approval of the MiniMed 530G – from a business perspective, this is of course the right call to bring in other resources, though a pity to slow down Medtronic Diabetes’ most exciting product. In the F3Q13 call, management called for an EU launch “this summer.”
    • At this time, Medtronic will not skip launching the 530G in the US in favor of launching the 640G. Given the investment in regulatory dialogue and the onerous ASPIRE studies for the MiniMed 530G, this is certainly unsurprising. Previously, we saw some merit in skipping the 530G and going straight for the 640G in the US – from a regulatory perspective, the 640G is even safer, as it suspends based on predicted low glucose, thereby leveraging the strong tracking and trending accuracy of CGM. The hypoglycemia mitigation and avoidance is also much more impressive with the 640G. At this point, however, since the FDA does not seem to have issues with the 530G, leapfrogging to the 640G would likely introduce major delays.
    • The MiniMed 640G predictive low glucose management (PLGM) algorithm was tested in the PILGRIM study and presented at ADA 2013 – see page 42 of our report at Of the 16 patients who reached the hypoglycemic threshold for PLGM activation, PLGM was successfully activated in 15 of the experiments and prevented hypoglycemia (reference blood glucose ≤63 mg/dl) in 12 of the 15 experiments.
    • Based on the slides shown at the June Analyst Day, we believe the MiniMed 640G will have a color screen and updated form factor. See slide #26 at


  • No specifics were provided on the company’s next-gen products beyond the MiniMed 640G. The table below is informed by our coverage of Medtronic in exhibit halls, earnings calls, and the 2012 Analyst Day.


Product Latest Timeline

MiniMed 530G

Threshold suspend insulin pump and Enlite CGM sensor

FDA approval “this fiscal year” (by April 30, 2014)

MiniMed 640G

Predictive low glucose management pump and CGM (sensor not specified)

International launch now in the “second half of this fiscal year” (November 2013-April 2014)

Enlite 2 CGM sensor Submitted for CE Mark Approval as of F4Q13 call (May 21, 2013)
Medtronic Sentrino Critical Care CGM

CE Marked in December 2012; controlled EU

launch started in Germany and UK

Connected Care

Remote monitoring of insulin pump/CGM via smartphone app

No official timeline; on display in the ATTD 2013 Exhibit Hall

MiniMed Duo

Integrated sensor and infusion set

Data presented in Poster #970 at ADA 2013; no official timeline
Patch Pump May 2014-April 2016 (2012 Analyst Day Timeline) – we do not think this is a priority given different economics
Optical Sensor May 2016+ (2012 Analyst Day Timeline)
Overnight Closed Loop May 2016+ (2012 Analyst Day Timeline)
Fingerstick Replacement May 2016+ (2012 Analyst Day Timeline)


  • Medtronic announced the acquisition of Cardiocom on August 12 for $200 million – the company provides integrated solutions for chronic disease management. Cardiocom's products and services include remote monitoring and patient-centered software to enable efficient care coordination and specialized telehealth nurse support. The initial focus within Medtronic will be on heart failure and hypertension, though the company has plans to expand to diabetes in the longer-run (no specific timeline or details provided). We think the acquisition makes strategic sense, especially in diabetes, where healthcare delivery needs to change in order to reduce costs and improve outcomes. Industry has great potential to help make this happen through remote-enabled products, and we look forward to seeing how Medtronic integrates the Diabetes portfolio into Cardiocom’s products.
  • In Q&A, management highlighted that type 2 diabetes will be a focus in the future – Medtronic’s existing call center and the acquisition of Cardiocom will both support this endeavor. We note that Medtronic’s study of pumps in type 2, OpT2mise ( Identifier: NCT01182493), is still currently recruiting participants. The study has a primary completion date of January 2014 and an expected enrollment of 400 patients at 37 centers. It is still listed as recruiting participants and was last updated in April 2013. We’re guessing this study is proving hard to recruit for, since prior to the April 2013 update, the primary completion date was December 2012.


Q: With the 530G, you had mentioned in the prepared remarks that you are expecting approval ‘in the fiscal year.’ I had thought previously your expectations were for the ‘end of the calendar year.’ I wanted to double check on the timing there?

A: In terms of the approval, we've been saying ‘the fiscal year’ I think since last quarter. [Editor’s Note: This is not true; management said “this calendar year” in the F4Q13 call. See our report at]

I think prior to that we were expecting it earlier and we might have said so. But ever since last quarter, the end of Q4, we've been saying ‘this fiscal year.’ That has not changed. We think that we in fact can get this on the market before the end of the year. Again this is not completely in our hands so I cannot say definitively because there are a lot of variables here. But we're working closely with the FDA and we're making progress and we are pretty confident that we can get this released within the fiscal year. And when we do we expect immediate traction both from an acceptance of a new product, which has had considerable success outside the US where it's available and also from the recognition of all the deferred revenue that we have had for the past over two quarters now.

Q: At what point with the 530G, if that does slip further, do you make a decision to just move forward with the 640G?

A: No. I think we're not considering that yet. We feel like at this stage the 530G is well on its way to approval and we think it's an unlikely scenario that we'd have to skip it completely. I think the patient benefits of that have been proven to be quite dramatic both in commercial use in Europe as well as some recent papers that have been published in the New England Journal – I think it was last quarter. So we're pretty committed and the FDA is working together with us to get this to market. So I think skipping it is a very unlikely scenario at this point.

The FDA issues are not around the 530G itself. They're also very supportive that it's a good product obviously; it's around our quality systems, which is what we're having to do the work on. We have no plans on not launching the 530G. The only question is when and that's what we're working with the FDA on.

Q: I just wanted to ask about the competitive bidding for insulin pumps and just wanted to confirm that you feel that your pumps are pretty well protected by any competitive bidding that could be implemented in January of 2014?

Mr. Omar Ishrak (CEO): That is correct. We feel pretty protected that that's not part of the competitive bidding process. It's a much more unique sort of product. It's not commoditized, even close in that sense. And we've got support from the physician community and the healthcare agencies in that respect. So we don't see any serious risk of the pump falling under competitive bidding.

Mr. Chris O’Connell (Executive Vice President, Restorative Therapies): No, I think that’s right. It's really about defining the categories of pumps that are going to be subject to competitive bidding, and that's an ongoing discussion with CMS. (Editor’s note – this was quite a deft comment from Mr. O’Connell, since he appeared to agree with Mr. Ishrak, but in fact said something different. It may be that Mr. Ishrak was focused only on Medtronic pumps and Mr. O’Connell was referencing the broader market.)

Q: Why you are breaking out the Diabetes business from Restorative Therapies? Is that foreshadowing any potential consideration that you guys might be looking to potentially spin it off or something else?

A: That is driven purely and completely by the consideration of how our customers are situated. And like I said, we are focused in on three customer groups: Cardiovascular, Restorative Therapies (which broadly encompasses neurology and orthopedics and associated technologies), and Diabetes, which is a different customer. That's the reason why we've broken it up into three – it will give us more focus in three of these distinct areas so that we can drive both inorganic and organic growth. Anything in Diabetes is going to fill out the platform, and of course, more and more patients because we consider that to be a key area of growth for us. The purpose of this was just looking at our customer base in a logical and rational way and grouping them around certain types of customers – these customers will look at common components of our technology and therefore prove that we can take advantage of our size and scale in addition to being really focused around those customers.

Q: On our call in June you talked a fair amount about building a comprehensive presence across all the different platforms at Medtronic: Cardiovascular, Restorative, and Diabetes. Can you talk about that? In particular in Diabetes and Restorative, how do you think about how you want that business to look over the next three to five years?

A: Just to give a little background, what I've said is that our long-term strategy of rebuilding business growth both organically and inorganically is to progress on two definitive directions. The first is to build out comprehensively the three big clinical areas that we've identified as our focus areas: Cardiovascular, Diabetes, and Restorative Therapies. The second was to expand along the continuum of care in each of these areas.

In Diabetes, for example, today we're a niche player, so to speak, in type 1 diabetes and patients who require insulin. We see that we've got a platform which enables us to step into a broader range of diabetes patients who largely have type 2 – first through our call center presence, which is very significant and one we can broaden to apply to a broader patient group, and through the acquisition of Cardiocom, which helps in that endeavor.

Second is our continuous glucose monitoring technology – we feel that as we improve this technology, we can expand into more and more patient types.

Third, we continue to look at value products and our expansion into emerging markets, which will enable us to come out with lower and lower cost pumps over time, which will again address a broader set of populations. I think in these areas we expect to grow organically as well as inorganically and expand our footprint into a broader range of diabetic patients.

-- by Adam Brown and Kelly Close