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VOL. 125 | NO. 165 | Wednesday, August 25, 2010

Medtronic Spinal Sales Dip 9 Percent

By Tom Wilemon

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Sales of spinal products for Medtronic Inc. decreased 9 percent during the last three months.

The decline for the company’s Spinal and Biologics Business, which is based in Memphis, came as a surprise to Chief Executive Officer Bill Hawkins.

“The biggest surprise was the magnitude of the market slowdown in our two largest businesses, CDRM (cardiac rhythm disease management) and spinal, and how the slowdown escalated in June through July,” Hawkins said in a conference call with market analysts Tuesday morning following the release of Medtronic’s first quarter earnings for the period ended July 30.

Minneapolis-based Medtronic earned $830 million – an 87 percent improvement from the $445 million in earnings from a year ago – despite experiencing an overall decrease in revenue. The company was able to achieve the profit in part because of streamlining efforts over the past three years that have cut $600 million in product costs.

But still the news was not good. Medtronic lowered its guidance on revenue for the rest of the year. The company now expects revenue to grow by 2 to 5 percent during its 2011 fiscal year instead of the previously expected growth of 5 to 8 percent.

The guidance was lowered because of economic trends and uncertainty in the markets that may continue.

Medtronic’s revenue for the quarter was $3.79 billion compared to $3.93 billion for the same period a year ago, which included an extra week.

“We believe there were three primary factors contributing to our top-line results,” Hawkins said. “First, we saw deceleration in volumes and procedures driven both by decreased utilization and increased payer pushback. We believe this led to hospitals decreasing their level of bulk purchases in July, across many of our businesses and geographies. In the U.S., the macroeconomic environment of high unemployment and increasing patient deductibles also affected some of our markets, most notably in spine.”

Worldwide spinal and biologics revenue during the quarter totaled $829 million for the quarter, compared to $915 million for the same period a year ago. Breaking down the total figure for the quarter just ended, core spinal products generated $622 million in revenue, while biologics accounted for $207 million.

Medtronic is increasingly looking to emerging markets, such as China, India and Latin America for future growth.

“We expect that the emerging market mix in our overall revenue will triple in the next five years,” Hawkins said.

Medtronic has “one of the most robust pipelines in the history of the company,” he said, mentioning several spinal and biologics products.

“In spinal, we remain focused on refreshing our entire product portfolio,” Hawkins said. “Solera, which is in its limited release phase, together with the recently launched TSRH 3Dx (spinal system) are receiving very positive surgeon feedback. In biologics, we are encouraged by the positive FDA advisory recommendation for Amplify and anticipate approval later this fiscal year.”

The company also expects to expand its biologics products with the planned acquisition of Osteotech Inc. Last week, Medtronic announced that the New Jersey company will become part of the Memphis-based Spinal and Biologics Business. Osteotech specializes in bone graft products.

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