Medtronic Reports – More of the same

Medtronic Reports – More of the same

This morning Medtronic (NYSE:MDT) reported their fiscal fourth quarter results and for their diabetes unit the story remains the same, decent growth of 9% on a constant currency basis. The company also stated there is continued strong demand for the continuous glucose monitoring systems with growth up over 20%.

These results are not that surprising but in reality really don’t mean that much. As Diabetic Investor has reported previously the diabetes unit has undergone a major restructuring which involved hundreds of positions being eliminated. The key for Medtronic isn’t how the unit performed in the past but where the unit is headed in the future. If today’s call was any indication the future for this unit will not be much different than the past.

As has become standard operating procedure the company gave no updates on the status of the patch pump or the replacement for the Paradigm line of insulin pumps. Perhaps the company is just waiting for the upcoming ADA Scientific Sessions, which begins in late June, to provide a more detailed update on their diabetes strategy or perhaps they haven’t quite figured out just what that strategy is. About the only significant comment made today came when the company noted they are the only insulin pump company that offers systems which combine insulin pump and continuous monitoring technology. While this is true today, it won’t be long before Insulet (NASDAQ:PODD) and Animas have integrated pump/CGM systems.

Diabetic Investor suspects that no matter what might be said at the ADA conference, the unit is still trying to adjust to the results of the restructuring.  A restructuring which is looking more and more like an attempt to maximize profitability rather than capturing greater market share.  The key for Medtronic, as Diabetic Investor continually notes, is to keep existing Medtronic customers happy and prevent them from switching to a competing system. As long as they can hold onto these loyal customers, this now streamlined unit will continue to generate a solid profit margin.

The fact is the burden is not on Medtronic to change anything it’s on their many competitors. Medtronic knows their sitting in the catbird seat and that no one has found a way to convert their huge installed user base to a competing system. While it does bother them that are not capturing a significant portion of patients new to insulin pump therapy, they are also aware that their competition will not pose a serious threat from being successful in this market sub-segment.

Given this set of market dynamics it’s understandable that the company would be in no rush to make any major changes or spend significant resources towards newer systems. Should they feel threatened they could easily acquire a replacement for the Paradigm or add a patch pump to their line. At this point, however, there is no reason to rock the boat. There may be choppy waters ahead should they make the mistake of becoming overly complacent, but for now it’s smooth sailing.