Guess we have too

Guess we have too

Medtronic reported their fiscal first quarter results, so we are obligated to write something. Since Momma Kliff always said look for positives coming from a bad situation we should say that results could have been worse. Per the earnings release;

“Diabetes Group first quarter revenue of $562 million decreased 5 percent as reported and high-single digit organic. Diabetes Group revenue performance was impacted by a delay in new patient starts on insulin pumps and continued competitive pressure. CGM grew in the mid-single digits.”

Now we have to admit we are struggling to find new and creative ways to say the same thing just in a different way. We accurately predicted this once mighty franchise would fall on hard times. That thanks to a combination of arrogance and hubris the Evil Empire would be defeated by those pesky rebels. So rather than cover old ground let’s take a new tac and look at where they go from here.

Since we didn’t listen to the call and honestly why bother, we have no idea what they said about their recent acquisition of Companion Medical. But again why bother to listen as we’re pretty sure they had nothing but good things to say as this is SOP for Medtronic. However this acquisition if played correctly and that’s a big IF, it could be bright light among the darkness. Not to be redundant but as we continually have stated Companion is about the only company with a real Tyler and Tyler is where it’s at when it comes to insulin delivery systems.

However the news is not so good for their core insulin pump franchise as it continues to struggle and that will not change when COVID ends. More than likely it will get even worse when COVID ends as those patients who haven’t started insulin pump therapy or are thinking about upgrading their system will select either the Control IQ from Tandem or the OmniPod from Insulet. Like it or not and there is really nothing the company can do about this but when it comes to insulin pump technology Medtronic is now third in a three-horse race and they are falling further behind the two leaders.

The real question is will Blackstone pull the trigger and buy the franchise for that is about the only way to save it. Should this franchise remain part of the Mothership it will just be more of the same and we believe the mothership knows this. The one thing the mothership doesn’t have is time, time is the enemy here as the longer they keep the franchise the worse it will get and by default decrease its value. Which could be Blackstone’s strategy all along. They agree to make a small inconsequential investment which gives them an inside look at the franchise. They see something of value, wait it out and then pay a fraction of what the franchise was once worth.

This is after all about money – who makes it, who spends it and who saves it.