Medtronic plc (MDT) Earnings Call Transcript & Summary

Hi, everyone. I'm Steve Lichtman, medical device analyst at Oppenheimer. I apologize for the slight technical delay. Welcome to the 31st Annual Oppenheimer Healthcare Conference. Very happy to have with us up next, Medtronic. With us today is Sean Salmon. Sean, I think you win the award for longest title of the day, Executive Vice President, and President, Diabetes, and President, Cardiovascular Portfolio. So needless to say, we've got a lot of topics that we can hit today. So thanks for joining us, Sean. And if you have any questions, for those dialed in, please keep them in, and I'll make sure to get them right over to Sean.

So first, I thought we would start, Sean, with diabetes. Maybe start at a high level from a market perspective. What do you believe has been the biggest headwind to type 1 adoption historically? And what do you see as changing that now? Because it appears that things are picking up in terms of the new technologies. And where do you think we can go penetration-wise 5 years from now, in your view?

Yes, Steve, there's a number of things that are at play for type 1 for -- I guess you mean by advanced technologies within the penetration question, yes?

For pumps in particular, yes.

Yes, I think for pumps, there's been a number of things. First of all, there's sort of access challenges where you have a finite set of endocrinologists that are there to be able to provide access to those technologies. And maybe even before that starts with awareness, people need to know to go seek out that there's a better way to manage their disease, so whether they're in the hands of primary care doctor looking to elevate that care. I think in the past, there's been sort of, even the provider side, sort of attitudes that you have to really prove that you're good at managing your diabetes before you get advanced technology to do that. And part of the reason for that is the sort of cost barrier up front, right, where you pay for that pump up front. If you're an insurance company, they want to make sure that they're making a good bet on who's going to stay with it, stick with that therapy over time and do well with it. But I think that perceived cost was high. And as it turns out, the people benefit the most from advanced technologies may not be the ones who are being successful managing their disease. They have -- they get this really large improvement by going to automated technology rather than making all those decisions themselves. So I think that has changed a lot, both on the provider side, that attitude, as well as on the payer side, and awareness has gone up a lot. But we're not where we need to be. There's other elements that have to do with personal preference, too, that not everybody wants a pump. They want other form factors or just more control of their disease. But I think the barriers to penetration have really been those kind of awareness access and trust, I suppose, is the other big one where you've got to trust that this machine is going to do a better job than you're doing. In the U.S., I think we're doing pretty well for penetration, and there's still running room to go. But globally, it's not anywhere close to where it needs to be. It's -- the vast, vast majority of people are still injecting, and that's going to be true for a while.

Just to follow up on that, how important, in your view, is pharmacy access? And certainly, one of your competitors in this space is really focused there or a different model. But how is that a headwind for you guys, if at all?

No, I don't think it is, Steve. But I think it's sort of how do you want to get your stuff question, right? And we sell directly to patients. We actually are a pharmacy in a lot of states where we can provide things as a pharmacy benefit provider. We work through durable medical equipment goods companies as well. And then for some of the convenience of when you have to go there and pick your insulin up, might as well pick up the rest of your supplies while you're there. And people have other health conditions as well that make them want to go there. But there are pharmacy deserts, too, where mail order is a different place, and that's where you want to get your access. Some countries, you have to go to a hospital to get your supplies. Some go to even get their treatment. Some people will just go -- like in Japan and China, you just -- you go to a hospital and use your insulin pump. You don't do it at home. So I think -- I just think about a wired question of what helps you manage your disease best and where can we show up. So it's a challenge that's important to us and one that will be increasingly important, it's really the only way you get your injection pen today and we're in the smart pen business. So we're deep into it already, and we'll be more so over time.

And then as we shift the technology, of course, with the upcoming 780G in the U.S., can you talk about first with Zeus and then with Synergy, how you see them stacking up against the other AIDs on the market coming to market? What are the biggest differentiators in your mind?

Yes. I think for 780G, we've now launched that in, I think, 26 countries or something like that. And the feedback is really just tremendous, even with the Guardian Sensor 3 sensor. So that experience, of course, gets better as we get rid of finger sticks and reduce the amount of tape you need to put the device on. The form factor gets -- it's a lot smaller in Synergy, and you could put it on like a little stamp, just stamp on your body. So it's easier to put in places you like. Like on the back of your arm, which is a frequently placed sensor. And you don't have to reach around with a bunch of tapes. So just the convenience and accuracy and reduction of finger sticks, that whole sensor experience is better. But the algorithm itself allows people to set the lowest target available. Your normal blood sugar is 100 milligrams per deciliter, and that's where people want their target. They don't want to set high like with our 670G or our competitors', which is 120 or north of that even. They want a lower target without risking going low, some of the worries that you're going to get good protection in the low end. But what's really unique about what we're doing with 780 is that if you forgot to count your carbs or pre bolus for a meal, we can continue to correct your insulin every 5 minutes, which is unique. Nobody else can do that. There's one competitor in Control-IQ that can do it one-time in an hour, but it's 60% of the calculated dose. So they can just systematically underdose, whereas we can keep correcting until you bring them into a good range. And I think the result of that is people are seeing really good control without any interruption. Nobody's kicking you out, asking you for blood sugar. So that entire experience just gets better. Of course, it's the whole experience that they care about. And even things like infusion sets are single and mundane, but today, depending on which technology you're using, you're changing that infusion set out every 2 to 3 days. And we've got a product now at launched in Europe coming in the U.S. that extends that to 7 days. So once a week can change your set and it's a lot easier to deal with that. And of course, that algorithm on the same platform gets better and better. We've got automatic meal handling teed up. It's not just the product experience, but the way on that integration of the same company with sensors, tubes, reservoirs and pumps all in one-stop shops if you need support, it's really easy to get that without having to call multiple places to figure out what's going on with you if you run into a pothole. So I think it's that whole experience is what we're working on, the product experience and all service experience integrated.

Okay. You have a collaboration with Blackstone that we haven't been able to talk a lot about. Just wondering, I haven't asked you this in a long time. Maybe what can you say, generally, the types of programs, potential timing? Any color that you can provide at all would be helpful.

Yes, look, Steve, I appreciate the question. I promise I'll tell you about it when we get things done, but I think the nature of what we're trying to do that's probably important to understand is I talked about some of the gaps that we're trying to close, and that takes a lot of focus, lots of attention, but you also want to take some swings at the fences because we're not going to get there just by catching up, right? We have to continue to do better. And this facility that the partnership with Blackstone has given us, it's not just the capital, that ability to do sort of that ambidextrous product development where you can drive the near-term mission-critical kind of stuff while taking much bigger risks for the future, so that when we get this business kind of turn the right trajectory, we can go on to the next level of growth, not start over again. And in a fast-moving space like diabetes, the ability to be ambidextrous and to invest for today and tomorrow is really important. So that's really what we're doing. We're taking bigger risks, which is why it qualifies for all the accounting, why Blackstone is interested in it because it's a high risk and high reward if we get it right. And it's going well. It's going very well.

Maybe shifting to an opportunity that very much talked about in the public with the Companion Medical in pen. Can you talk about that opportunity because it is a very different opportunity? And when do you expect to offer the technology with Medtronic's CGMs?

Yes. So we already do that. We did that 2 months post close. We got real-time integration of the Guardian Sensor 3, so you can have your blood sugars right there in real time. It's about a 3-hour delay for the other technology that's available right now. But I think the opportunity just gets better as that sensor experience gets better. But more importantly, it's the things that we're going to bring to it, the ability to detect a meal, for example. And we do that 2 ways. There's this thing called Nutrino, which can tell what you're about to the eating with good understanding and then it can confirm that you're eating. And we did a study with a number of patients, it's a study at Stanford, that showed that if you just remind somebody when they're eating and they haven't bolus -- to bolus, you can drop their A1c by 0.5 point, which is about what a pump can do, about 0.5 point of improvement just by reminding them to take a timely meal bolus. So that technology, bringing Nutrino included, which is a gesture thing that tells that you're eating with good understanding, adding that to a pen is kind of an open loop, if you will, that we get to make a lot better, so we can get people's time and range a lot higher without a lot of effort on their part to make that a simple way to do it. And it's still, what, 80% in the international market, maybe 60% to 70% in U.S. of people that either have to or prefer to self-inject. So I look at it as a really big opportunity to kind of meet patients where they are and possibly get them comfortable with technology. So if they want to move to a fully automated solution, we can bring them there, too. So it's -- I think it's really a market access sort of play where you got to have the right price point and affordability and the right kind of value proposition. And then some of these folks are going to get more comfortable moving to more complicated solutions, which are, frankly, better business for us. There's more razor blades sold in the pump world than there are in the pen world.

All right. Before we sort of officially pick your hat -- diabetes hat off with cardio one. One question that came in, I guess, it's more of a broader Medtronic question is just obviously a very timely one on the [ rate ] on COVID-19. And since you guys last reported, which is not too long ago, but what are you seeing on the ground today? Is -- the vaccines are coming out, are you seeing any sort of improvement? Any comments you could make relative to that would be helpful.

Yes. Thanks, Steve. It depends on where you are. For the most part, it's getting better. I think we're seeing the large countries with the elderly population getting vaccinated in a preferential way and the fear factor going to hospitals is going down a lot, so that's getting there. There are some spikes, too, in some places. Italy has just locked down again from the variant. And we're a little nervous, like I think Dr. Fauci and others would be, that we're getting a little too cavalier that, yes, we've tamped down hospitalizations and death rates and case rates, but these variants are predominant in a lot of places, and they may be vaccine-resistant. They may be other things. So I think cautiously optimistic. We're definitely seeing improvement. And it's hard to argue with the numbers. But the kind of -- where the plateau of cases makes it nervous is that it may spike yet again. There are a few flareups like that. But with all these vaccines available, they seem highly effective. People are getting vaccinated, which is great. I think we're -- we can see light at the end of this tunnel, for sure.

Helpful. So just as we shift to cardio, maybe first on vascular. On TAVR, as you mentioned on the last call that TAVI was a little slower than you guys had hoped, but you're confident in picking up some momentum looking ahead. Can you talk a little bit more about what you think held back TAVI business last quarter with more than COVID? And what gives you the confidence looking ahead?

Yes. Look, it's very much wrapped up in COVID, to your prior question, Steve, where last quarter, what we saw was, first of all, when you're getting your valve replaced, you're of advanced age. You're north of 70, sometimes 80 years old. And your fear of going to a hospital is pretty big. And it's not just the TAVI procedure. There's a bunch of workup that you have to do, imaging beforehand. So there's multiple visits to health care facilities to get there. And of course, TAVI concentrates -- there's 700 to 800 U.S. centers, for example. It concentrates in big population centers. And it's not like when you have a heart attack and the ambulance can decide to take you to the community hospital versus the one in the big city because you have 1,800 facilities across this country that do PCI for heart attacks and 700 for TAVI. We saw something similar like in cardiac surgery where ORs are like TAVI concentrated in fewer centers, and COVID goes where population is. So it was really about that. And we're seeing that recovery in those big cities, ones they've tapped it down like in Los Angeles and other hotspots we've seen around this country. London has gotten a lot better. So there is a lot of reasons we're seeing the tick-up in procedures already. But I think it's that combination of the complexity of the workup, the fragility of the patient population, the concentration of the centers and, in some cases, the longer recovery with the patient that's just more susceptible to all kinds of challenges. All of those dynamics are getting better.

And then vis-à-vis competition, sales force expansion and focus has been a focus for you guys over a number of quarters. Where are you with that, in particular relative to the TAVI business?

Yes. We keep adding reps to get to broader and broader coverage. There's a time to productivity. It's depending on who you hire. It can be 6 months, 9 months, and we're still ramping up. But I'd say through the -- for the next fiscal year, we should be fully staffed in calling on all of the centers. But today, we're still not in as many places as our main competitor.

Okay. And as we think about the mitral on the last call as well, you mentioned enrollment picking up for Intrepid trial or a replacement. Realizing it's a basing design, do you have any general time frame you can give us as to when data may come through?

Not yet, Steven. I think we've seen a really big pickup in enrollment. It's not really where we want to be because there's still fragile patients. These are heart failure patients, right, who don't want to go to health care facilities. So we think when you get past this COVID thing, we should see even better enrollment. But there's an assumed treatment effect that you have to hit. It's that, really, the population we shifted to, those were too sick for either surgery or aren't appropriate for clipping either. So it's sort of in the middle and there's an objective performance criteria to meet. So the basing design, when you get a confidence that you have boosted your probability that you can hit that number, the study will start. But we need more patients in that cohort. We also need to roll in the transseptal version into that main trial set. So that is yet even better patient outcomes that we think will be blended in that study. That's been doing really well, and it's early feasibility work, and we're close to that as well.

Well, we shift to another segment of cardio. I want to go back -- just had a question that came in on diabetes. Just in terms of what the sales force looks like in the U.S. in terms of call points. Is it -- how much are you focused on endo only? How much is the transition to the more primary care? And has that been evolving?

Yes. Look, I think what we do is we follow prescribing data, and you find out who's writing into the scripts and figure that out. And no surprise, endocrinologists, right, the vast majority of those scripts. But there are large internal medicine practices and primary care practices that also are running a lot of the scripts. So I'd say the vast majority of our call points are endocrinology specialty clinics, but it really -- it follows where the volume is.

Okay. So yes, I did want to shift again now to CRM and AF. Micra, obviously a big success story for Medtronic. And with AV, you have the ability to address 50% to 60% of the pacing market versus the original 15% with BR. Where are you -- I think you were asked this on the call, but -- on the last call, but I'm curious as to where you think you are in terms of capturing that single chamber, the initial 15% and then that incremental 35% to 45% that we've been [ tracking to ].

Yes. Thanks, Steve. I actually got to go to school on a lot of the numbers. To the last one, I got stumped on what they were. But I think actually, 50% to 60% is not actually right for the single chamber. I think, really, there's a number of those patients that have heart failure, their [ injection ] fraction is lower. So they're going to be more appropriate for like a CRT P device, right, or even conduction system pacing. So I'd say that maybe the number is 45% for the AV block population where you're using the AV device to treat that. In the U.S., we're pretty far along in that, about 30% of that, so pretty well penetrated, and it's about half that outside the United States. So I guess, lots of runway left to go, but there's also the other opportunities ahead of us, which is the pure cytostome dysfunction for the atrial replaced device and the combination of both an atrial and a [ mitral clip ] device with synchrony in certain patients. But I guess the short story is that between geographic penetration -- penetration with indication and case expansion, we've got a lot of room to continue to grow that leadless pacer segment for a long time.

On the [ implanted ] monitor market, where do you think the market is growing today? And do you think you're holding share with LINQ II despite new entrants? And then when you talk about heart failure opportunity, how big could that additional opportunity be?

Yes. So look, I think the market slowed down a little bit because it's much more of an elective procedure. So it wasn't a lot of growth in the last quarter. And some of the features that people were valuing is what we were offering in ICD and CRT devices with this ability to remote program. But really, there's 3 things that you care about those devices, battery life, remote programming, and we'll be bringing that LINQ II, and the third one is the algorithm because what it does is if you're trying to detect AF and you're sending a lot of false positive signals, it's really a very annoying thing to the workflow of the doctors. And we've been at this for a long time, obviously, Steven. Just continue to get better and better and better at the prediction capability. And we, by far, have the best algorithm out there. And what's nice about LINQ is it brings it all, right? You've got your Bluetooth connectivity. The patient can see stuff on their phone. It's got the longest battery life in the industry, and it's got the best and most proven algorithm. So when we ramp that, we'll be back into share-taking mode. And then also about market expansion, localization, indication expansion. Heart failure is a big one, as you mentioned, and that could be upwards of 600,000 patients or so. That could be helped by that. But again, we'll have to see the data on our lead AHF and its -- I guess, through this clinical trial pace to see how good are we at predicting these excursions of heart failure and intervening on them without creating a lot of that noise I was talking about like AF, where you have to have really good diagnostic capabilities so you don't miss anything, plus that you get actionable insights that can keep people out of the hospital and keep them from exacerbating the heart failure. So it's a big population. Some of that's already served by the people with implanted devices that have capability that some of our advisers have for impedance, but this picks up other parameters, breathing, [indiscernible] heart rate, a bunch of other things that put into the prediction algorithm that can really get better and more accurate results. I'm excited about it. It's a big opportunity for us.

Another exciting pipeline opportunity is on the AF side with your PFA program. So obviously, we're condensed in time, but if you could talk just briefly about what is differentiated and exciting about that potential and the next milestones in development there.

Yes. So look, it's something we've been working on for a really long time. We started this work in cardiac surgery a number of years ago. And it's really -- what this does is it's a nonthermal way of titrating [ injury ]. So you're really getting much more targeted at destroying the muscle tissue without taking out nerves with the esophagus or the other kind of adjacent structures that thermal devices go after. It's also super fast and doesn't rely on contact. So you can get kind of near where you want to go. It's selective to the tissue you want and it's really efficient because it goes fast. And it's exciting for [indiscernible] isolation or even anatomical-based arrhythmias that are in the atrial chambers. But also, I think it could probably unlock the ventricular side of life where you got a lot of muscle to burn through. So it takes super high energy. You wind up getting these [indiscernible] and thrombus risk. And it's just not an area of [ ET ] ablation. It's not been something that's been done outside of very specialized centers and the outcomes have been really variable. But to be tissue-specific and not worry about a lot of collateral damage, not having to be in touch with the ventricle, when you touch the ventricle, it contracts, there's a lot of opportunity for that as well. And we've got a lot to prove to get to that. We're starting out on the atrial side of things. But we've started the clinical trial, the pivotal trial in the United States, enrolled the first patients. The docs are really excited about it. I think this is a meaningful advance in a $7 billion market that we can disrupt.

Fantastic. Yes. So pivoting again here in the last few minutes to another big, big opportunity in renal innovation for drug-resistant hypertension. On the ON MED pivotal trial, which is coming later this year, what are -- as people look at the pilot study, ON MED pilot study as a precursor, what are the key differences and similarities between the 2 studies?

That's actually the same study, Steve. So the way we constructed that, I'll get geeky on you on trial design, we did something called a basing trial design. And all that means is we wanted to know, is this thing going to work before we spend a whole bunch of time, money and effort bringing it forward again. So the first 80 patients that were already reported out were the sort of like sanity check. Does it look like it's going to have a treatment effect that's okay? And then the basing part is we enroll a bunch of patients. And then if the results we get at predefined checkpoints, based on how many patients they're in, agree with those first 80 patients, they come with you in the kind of analysis of the primary data set. If it doesn't match, those patients get discounted, and you control, you keep going to the next tranche of numbers. So that's a long way of saying that. We started that pivotal study when we started the pilot study, and we have pretty good assurances that it's going to work to the treatment effect that we need. Whether we get that in the first look, the second look or the third look is what we're still waiting to find out.

And Spyral, of course, is already approved in Europe. With the ON MED data later this year, which assuming positive, of course, do you expect a pickup in commercial efforts and sales in Europe? I mean, what -- how quickly could that turn on for you with positive data in hand?

Great question. I think there's 2 things we have to do there. First and foremost, like any new technologies, is an old new technology, is you have to get paid for, right? So you have to get sort of the health technology assessment at certain country levels. And what they're really reliant on is the guidelines in a lot of cases. And the European guidelines and even the country-specific guidelines don't match. Some of the country-specific guidelines are going to facilitate reimbursement, whereas the Pan-Europe one says that you should be using this in the context of a clinical trial because that's where the contemporary evidence has been. So we'll have some time of knock down the barriers of health technology assessment, getting guidelines for it and getting coverage policies in place at the country levels. But I think the usual places that adopt quickly like Germany will come back online and places like the Netherlands and Belgium, and we'll have different countries that will need more time to get through their assessments. But it's -- yes, it's going to be hard work. We've got to reestablish everything.

Maybe lastly, Sean, jumping back on to mitral valve repair and your collaboration with Half Moon. When could we see some initial data on that? And can you talk a little bit about the system itself and what you see as differentiator versus what's on the market?

Well, on the data front, I think that's -- Half Moon is an independent company and those decisions they're going to make. I think we've treated a handful of patients so far. So we'll expect that to come at some meeting, probably one of it's the usual suspects of PCR or TCT, where it's sort of case evidence at first. But what's really different about the technology, it's kind of like a half a valve. So the way the mitral valve works, there's 2 flaps, one of them sort of just stays where it is, and the other one comes from the [ air valve ] and sweeps and then touches. What happens when your heart fails and it dilates, they come apart and your valve is leaking. So what Half Moon does is it clips on the back of that post your leak side, and it puts a baffle or a backboard, a collection service so that the valve can come back together despite what happened to the ventricle. That's anchored on the top, comes transseptally. And what's differentiating about that is, in at least the first couple of cases we did, it completely eliminates that mark, which is a big deal. If you leave behind that mark, you don't fully resolve the challenge that your ventricle has got to work hard to push blood into 2 holes at the same time, or 3, depending on what they're treated with. And if the heart continues to dilate, you don't have your [ leaflets ] sown together with, nothing you can do about that. You have a hole and you can put a prosthesis in the middle of that to revalve the systems you need to. So we like the idea that you have the potential to get rid of MR. MR's bad. All MR is bad, so getting rid of it and having future options is really what's differentiating about it.

Awesome. I could go on and on. But unfortunately, we are at 30 minutes, I want to let everybody go and let you go, Sean. Thanks so much for joining us today, and thanks, everyone, for dialing in, and have a great rest of the day.

Thanks, Steve.