Medtronic reported its spine revenue was up 3 percent in the third quarter, but down slightly on an organic basis.
The company's acquisition of Titan Spine was a driver of growth, contributing $21 million in new revenue to the company. During the third quarter earnings call, Chairman and CEO Omar Ishrak discussed the spine division, how the coronavirus could affect Medtronic's bottom line and why they acquired Digital Surgery last week.
Why did Medtronic's spine division underperform?
The company's Restorative Therapies Group, which includes spine and pain products, reported a 3.6 percent revenue increase. However, it could have been more.
"RTG's performance was affected by customer buying patterns in BMP and the continued market slowdown and slide share loss in pain stim ahead of our DTM therapy launch," said Mr. Ishrak, as transcribed by Seeking Alpha. "On an organic basis, our overall spine division was flat this quarter, reflecting customer drawdown of Infuse inventory. Despite this, our core spine business grew 2 percent both globally and in the U.S."
He also reported the sales increase in the Core Spine implants is driven by capital equipment, specifically the Mazor robot, which is included in the brain therapies division. Brain therapies delivered 9.2 percent growth in the third quarter. "We had strong growth in Mazor robotics where we are meaningfully outpacing the competition, as well as in StealthStation navigation, O-arm imaging and our new Midas Rex MR8 systems," said Mr. Ishrak.
Will the coronavirus affect Medtronic financially?
China represents around 7 percent of Medtronic's global business and for the first half of February China was in "complete shutdown mode" due to the coronavirus, said Mr. Ishrak. However, it's beginning to ramp up again.
Mr. Ishrak reported that Medtronic's manufacturing operations are "up and running" in China. "We are committed to helping the Chinese government and Chinese physicians address [the coronavirus] crisis. As the Chinese healthcare system is focused on containing the spread of the virus, hospitals in China have experienced a slowing of medical device procedure rates and we are seeing procedure delays."
He expects the delays will have a negative impact on fourth quarter financial results, but was unable to predict how much the slowdown in China would impact Medtronic's bottom line.
Where does Medtronic's acquisition of Digital Surgery fit into the overall company strategy?
Medtronic acquired Digital Surgery last week, which is an artificial intelligence and analytics platform for surgery. "They lead the industry with their unique Touch Surgery ecosystem of products, including AI that identify surgical steps and instrumentation," said Mr. Ishrak. "These products can be leveraged to provide insight into the procedure time, cost and process to improve surgical care."
The acquisition will strengthen Medtronic's capabilities in minimally invasive and robotic surgery platforms.