When it comes to quarterly earnings there are a host of variables which impact results. Timing is a huge variable as results are always compared to the results over the same period one year ago. A “bad” quarter one year ago can make a “good” quarter this year seem even more impressive. While we won’t say that is the case for the results released by Medtronic this morning it does explain a great many things.
Nonetheless results were impressive as per the earnings release;
“Diabetes Group worldwide first quarter revenue of $572 million increased 27.4 percent, or 26.3 percent on a constant currency basis.”
The company noted there are now almost 100,000 patients using the 670G, a number which sounds impressive but is somewhat misleading as the company does not disclose how many of these users were converted from another Medtronic pump, how many are new pump patients and how many converted from a competing system. As we keep noting with Medtronic their huge scale in the insulin pump market is a major plus.
This scale is not just advantageous with pumps but CGM too. Just as the company provides little detail on their pump business there is practically no detail on the CGM side. Yes, we hear the customary corporate speak about how great this system is doing but there is no real data that backs up this claim.
Given the way Medtronic reports results throwing all the revenue into one pot and providing no details many analysts are overly impressed with results which look better than they really are. There is no question this was a good quarter, but it was not a great or blowout quarter by any means. And we found it quite interesting during the Q&A which accompanied this morning call that company is already damping down expectations for diabetes going forward.
Here are the major takeaways we have from today’s results;
1. The company is taking full advantage of their huge scale, no surprise here.
2. No matter what they say publicly their current stand-alone CGM will be a major disappointment.
3. Now that Tandem has officially launched their new Basal IQ system and Insulet has launched the DASH competition is heating up.
The realities are when it comes to the insulin pump side of the business no one yet has figured out a profitable way to take away share from Medtronic. The 670G may not be the best hybrid closed loop system, but it does work well enough to keep existing Medtronic patients in the fold and this keeps the golden goose laying those very profitable eggs.
When it comes to CGM the reality is the company has nowhere to go but up. The company is aware that as it stands today the Guardian Connect is substandard when compared to the Dexcom G6 or the FreeStyle Libre. Yet just as Abbott and Dexcom have made improvements to their systems Medtronic will do the same. The CGM market is large enough for multiple systems and the honest fact here is Medtronic does not have to dominate the market like they do in insulin pumps to be successful. The reality here is any revenue the Guardian Connect adds is a bonus.
All in all, the more things change the more they stay the same. With their huge scale and their formulary advantage it’s difficult seeing any competitor taking away substantial share when it comes to the insulin pump side of the ledger. When it comes to the stand-alone CGM side the company has nowhere to go but up so any revenue here is basically found money.
There is no question we see the insulin pump market becoming more competitive as is the CGM market. However, barring a major misstep, we don’t see anyone inflicting enough damage to the golden goose to make the company change course. The bottom line here is Medtronic knows they cannot coast yet when it comes to insulin pumps they are in the catbirds seat. Public statements aside they also know the stand-alone CGM market will take time to develop but they have everything to gain here and not too much to lose.