September 1, 2021
Geoff Martha, chairman and CEO of Medtronic, updates us on Medtronic’s first-quarter performance. Martha reports the Delta variant has had an impact on revenue, but Medtronic forecasts a return to normal soon. This episode also discusses the Intersect ENT acquisition, the source of future growth and the company’s new metrics on patient safety.
Tom Salemi (00:00):
Hey, when this is Tom Salemi of DeviceTalks. Welcome to our newest member of the DeviceTalks podcast family, it's called MedtronicTalks... Our constant search to find new ways to bring new insights in the MedTech industry led us to the fine, fine folks at Medtronic. They've agreed to make their senior leaders available to us and to you. In each episode, we'll discuss the opportunities and challenges facing one of Med Tech's clear leaders. So you'll have an inside view on what makes Medtronic go. We'll ask the questions, Medtronic will provide the answers and our great network of sponsors makes it all possible. So sit back, hop on a treadmill, take the dog for a walk, whatever you do when you listen to a great podcast and let's listen to how Medtronic is getting the job done. Let's go.
Tom Salemi (00:45):
Hey everyone, Tom Salemi of DeviceTalks here, welcome back to the MedtronicTalks podcast, great to have you here. Got a special pre-Labor Day episode for you. I got to speak with Geoff Martha, the Chairman and CEO of Medtronic. We talked after of the company's Q2 results call last week, so we'll talk a little bit about future growth. We'll talk about the quarter, we'll talk about the impact of the pandemic and what Medtronic is doing to encourage vaccinations in the US. And finally, we talked about the Intersect ENT acquisition and about a new you measure that Medtronic is implemented to encourage product quality. So, let's get into this conversation with Geoff Martha, the CEO of Medtronic... And before we get into this conversation with Geoff Martha, I'd like to bring in David Box. David's global managing director of digital healthcare and medtech at Star Global. David, tell us about Star Global.
David Box (01:47):
Certainly Tom. We are a 13 year old product development company with over 800 employees across 11 locations globally. We focus on supporting our clients along the product development journey from end game to market ready. We start by understanding where our customers envision their product to be and develop a plan together with them in a co-creation process, on how to get them there, as well as support them in the market once we launch the product. We offer a variety of different solutions ranging from regulatory strategy and consulting, to product strategy, research and testing, visual design interaction design, as well as industrial design and of course, software engineering. We can really engage with our customers as early as needed in the process or support them midstream, whichever suits their needs.
Tom Salemi (02:34):
We'll hear more from David Box a little later in the podcast. We'd like to find out more information about Star Global, go to star.global... Geoff Martha, welcome to the podcast.
David Box (02:47):
Oh, thanks Tom, great to be here again.
Tom Salemi (02:49):
So sat through another very interesting analyst call, lots of good news. I wanted to let people... You can sort of work some of the performance into your answers if you'd like. But you did see growth in several areas and you identified a few areas where you've seen some declines, but one of the things that I think we have to talk about again is COVID. You mentioned that at the end of July and then in a follow up, you indicated that in August as well, you are seeing a slow down. In some procedures, elective procedures, procedures that require stay in an ICU and you're seeing it in areas where there's a low vaccination rate. I'm curious, how are you collecting this information? What kind of information are you collecting about COVID and how are you using that? Are you actively using that into building your forecasting, is this what we have to take into account when reporting financial results or financial projections in the future?
Geoff Martha (03:41):
Sure. Yeah, we are using it to build our financial results. And what we're doing is we're comparing this data to past waves as well, I mean, so that, that's another thing. And then adding the new information to it, right? What's new, this wave versus the last wave is, the vaccine is the big new one.
Tom Salemi (04:00):
Geoff Martha (04:01):
So that's making a huge difference. Hospitals continue to get better at treating COVID patients more efficiently. Patient sentiment continues to evolve and I'd say, patient sentiment is very strong right now, meaning that are they hesitant to go into the hospital to get treated? And I think that is a low... That's not a big issue. It was a big issue a year ago, no vaccine, lots of unknowns, doctors were a little hesitant to advise patients to come in, that is turned, right? Doctors are saying, "look, it's safe to come in."
Tom Salemi (04:32):
Geoff Martha (04:33):
Patients have higher confidence because the vaccine, or the ones that aren't vaccinated just aren't as afraid of COVID. So patients sentiment is different, vaccines are different, hospital capabilities are different and we apply those with the look back over the past, like I said before. And we get the data... Your original question, we get it from various sources. I mean, in some of our therapies, we get more specifics than others, but-
Tom Salemi (04:58):
Geoff Martha (04:59):
In some cases like in our Cardiac Rhythm business, which is one of our bigger businesses, we have a pretty good line of sight to all the cases. And in other businesses, we have good line of sight to cases. And in the case of Cardiac Rhythm, it's not just us, but the other players in the market all submit their data to an accounting firm, who then sends it back to us in a de-identified way so we can see what's going on. And so there we get pretty good viewpoint, so we look on it every week.
Tom Salemi (05:26):
And you spoke with some confidence that you hope things will improve in September.
Geoff Martha (05:30):
Tom Salemi (05:33):
What are you basing that confidence on?
Geoff Martha (05:33):
We're basing on... Again, what we've learned, right? So we see that and the disease curve. We look at various different third parties, virus curves rather and what we're seeing is that... What we're anticipating and what we're being told from the different epidemiologists is that, in the United States, okay, it's different by a region. But in the United States... there's some variability in the United States, but the COVID cases, right? Will peak, late August, early September, thus the hospitalizations will lag that by two weeks or so. And so they should peak call it, mid-September maybe the end of September. And so thus, our quarter ends at the end of October as we end the quarter... We should be within our fiscal year, our fiscal calendar or too, we should see it bouncing back in October.
Tom Salemi (06:25):
That's interesting news. And you identified again, the bigger slowdowns are in areas where there's low vaccination results or fewer people getting vaccinated.
Geoff Martha (06:36):
Tom Salemi (06:37):
The reluctance to get vaccinated is as we know, slowing healthcare, impeding the access to healthcare, now it's impacting MedTech businesses, yours and I'm sure others-
Geoff Martha (06:46):
Tom Salemi (06:46):
Has Medtronic, as a company, are you taking any policies to encourage or even require vaccinations of your own employees, particularly since the FDA approval on Monday? Has there been any sort of discussions at all, internally that you're able to share?
Geoff Martha (06:59):
Yeah. We talk about it quite a bit. And even before the FDA approval yesterday, we took the step, two weeks ago to strengthen our position on this and where we are right now is we're requiring... To enter our offices, you either have to be vaccinated and provide proof of that vaccination, right?
Tom Salemi (07:17):
Geoff Martha (07:17):
We're tracking that. And if you don't provide proof of vaccination, we're just going to assume that you're not vaccinated. And then to enter offices, you have to provide a... And we provide testing on premises, a negative COVID test and that's where we are today. But it is a tough issue to navigate, as you know there's different opinions on this, but that's where we are right now. We continue to monitor the situation and determine if we have to take even a more aggressive stance on this.
Tom Salemi (07:44):
So, let's go back to talking business, with COVID aside. You spent some time talking a little bit about the Intersect ENT acquisition, very cool news. Could you provide a little color into how this deal came together and did it follow any different process than past acquisitions due to the reorganization? How was it identified and managed internally... Let's take a break from this conversation with Geoff Martha and bring back David Box of Star Global. David, how does Star Global work with MedTech companies?
David Box (08:17):
So Tom, we help medical device manufacturers in a variety of different ways. We can start very early on, upstream in the process from a regulatory consulting perspective. Help our customers understand the hurdles and the challenges that they have from a regulatory perspective and help them define the product from a regulatory perspective in order to have of the maximum amount of flexibility, with their product and service that they're going to need further downstream, in the process and further into the product development life cycle. We go from there into product research and design, where we're working with our customers to research any given problem state, do any necessary testing with users, but then also take that into interaction and visual design as well as industrial design, if there's a hardware component that's associated with it. And from there, we can work with our customers to do any prerequisite software development that's required in order to bring the product to life.
David Box (09:20):
We're very well vast and experienced with developing cloud architectures, with developing applications, as well as on the data science front and naturally in QA, both as a service as well as embedded in the various different projects. Naturally, we're ISO 1345 and 27001 compliant and we develop in accordance with IEC 6366 and 6304, which is of course, very important to our customers in order to be compliant with their certifications and have the necessary documentation. We also have tremendous amount of experience developing HIPAA compliant, GDPR and CPRA compliant software as well. We also have a quality management platform for our customers that they can leverage the platform to manage the quality management system, to use either their own knowhow sets or knowhow sets that we can provide them for 1345, 27001 and a variety of other regulations.
Tom Salemi (10:25):
David, you've been watching this industry for a long time. What are some interesting trends and observations that you can share with our listeners?
David Box (10:31):
We're very bullish on this industry. If you look at the global MedTech industry today, it's approaching, if not already surpassed 500 billion in revenue, and it's projected to grow to just under 800 billion by 2030, that's a compound and annual growth rate of about 5.2%. At Star, we've recognized this and as we're looking to grow as an organization ourselves with some very aggressive targets for 2030, we've naturally taken on both an organic and an inorganic approach to our growth, as evidenced by our recent acquisition of Pro4People in Europe, which has given us some additional strength on the regulatory consulting side and MedTech product development side.
David Box (11:19):
So we're taking a very aggressive approach to the industry in order, really to support some of the trends that we're seeing around integrating intelligence into offerings, around delivering services beyond the device. So we're seeing a lot of hardware, now seeing the benefit of software services that can be added to the devices as well as enabling technologies. Leveraging big data in order to drive some clinical decision support, or other insights that a lot of these devices are producing. And I really think that over the next 10 years, companies are going to need to reconfigure their organizations and shift to becoming more of a solution's provider than just a hardware provider today
Tom Salemi (12:11):
All right. Well, thank you, David Box for your joining us and thank you to Star Global for sponsoring this episode of MedtronicTalks. Now let's get back into our conversation with Geoff Martha... Could you provide a little color into how this deal came together and didn't follow any different process than past acquisitions due to the reorganization? How was it sort of identified and managed internally?
Geoff Martha (12:34):
Yeah, I don't know that it followed any different path because of the reorg. This is a company, I mean, we're the market leader in ENT and we've been the market leader by a wide margin for years and years, it doesn't... The ENT business doesn't get as much publicity if you will, as many of our other businesses, but it's been a really strong performer for us, solid growth, consistent growth, very high profitability and then from a clinical perspective, the efficacy is very strong and the value proposition to patients in the positions is strong. And so we wanted to add to this strength and we've been looking at Intersect ENT since before it went public. We've had investments in the company way back then and been in constant, I'd say, consistent dialogue with them over the course of the last six or seven years.
Tom Salemi (13:26):
Geoff Martha (13:27):
And it just came together. It was just the right time, they've got good momentum, Intersect ENT does with their products in the marketplace. And we thought it was a good time to make this happen, so we were able to figure it out here over the last couple of weeks.
Tom Salemi (13:45):
And how long will it take for that deal to close? I understand it might not close until next year, is that correct?
Geoff Martha (13:52):
Yeah. And the reason for that is, look you've got a new administration, with new folks, driving... Antitrust policy here and-
Tom Salemi (14:04):
Geoff Martha (14:05):
So what we're hearing is the new administrative and antitrust viewpoint may elongate the process here. Personally, I don't see it as an antitrust issue, but we're being prudent in guiding that longer period of time based on what we're hearing from the subject matter experts in this area.
Tom Salemi (14:26):
Wow. You'll be MedTech's Facebook. They going to keep you from acquiring innovative startups.
Geoff Martha (14:32):
I hope not. It's part of the MedTech model and a lot of these startups begin with the plan of not all of them want to go public. Some of them want to get to a certain point and would rather be purchased by one of the bigger MedTech companies.
Tom Salemi (14:51):
Absolutely. And you had mentioned in the call that you're got other opportunities across portfolios, similar to this one or maybe in the same fitting a similar profile. But you stress that you're not buying for gross, you're going to grow what you buy. Can you kind of expand on that comment a bit?
Geoff Martha (15:09):
Sure. I mean, look, as you know the market's hot right now, there's a lot of money out there and these startups in MedTech are highly valued. And so for us, we need to make sure that we can add significant value to the arc of that therapy or that product. And so we really try to get these therapies or products earlier in there in their life cycle. Where there's sweet spot where it's been de-risked enough, but there's still, opportunities for us to add value. And that could be technically, clinically like design of... And execution of a clinical trial, maybe they've done some feasibility, we do the pivotal trial. Another big one is globalization, where we globalize products or if you look in the spine area, where we've purchased a number of companies over the year, we've built this ecosystem.
Tom Salemi (15:58):
Geoff Martha (15:58):
And we're adding products to the ecosystem, whether it be the Mazor™ robot or more recently, we bought an AI company that's got their principle operations in Léon, France and in New York City and it's AI for spine procedural planning. And so I just visited their office in New York City here two weeks ago.
Tom Salemi (16:21):
Geoff Martha (16:22):
It was just a lot of fun to see what we're doing in the world of AI. Although I got to admit Tom, I felt old, I mean, everybody was so young. It was one of those moments I'm looking around and then I'm like... I felt like I'm talking to my daughter who just graduated college. It was a different feel, but boy, what they're doing is really special. And I think it's going to transform what we're doing in spine for sure.
Tom Salemi (16:44):
I know the feeling I used to be much younger than the executives I interviewed that's not the case anymore. Let's move into-
Geoff Martha (16:51):
Your definitely older than me.
Tom Salemi (16:53):
No comment, but I think I got a couple of years on you, let's move into... You mentioned neuroscience, that was one of the areas that had really great growth, the spine business within neuroscience. I should afford you an opportunity to talk a little bit about, what were some of the highlights in the quarter for the businesses?
Geoff Martha (17:11):
You pointed out... Well, for one that was a highlight, I have to come back to Micra™. It's been so strong and this is our leadless pacemaker and it's continuing to grow, expand the market, take share. And I really think applying Micra™ to more and more segments of the pacing market will continue... And the another couple highlights of the quarter would be, milestones that we hit, so filing for EV ICD approval, but the biggest one has to come in our robot. I mean, we've been talking about this robot for a decade now, I mean, longer than I've around. And obviously you've got this big market out there with Intuitive by themselves. And we're now the next player in and we just did our first surgeries in Chile and Panama.
Geoff Martha (17:59):
And we are on track to be on the market, get our CE mark sometime in the fall and so this is really an exciting time. And a highlight for me personally and I posted on LinkedIn, we were able to go to one of our operational centers for the robot in Connecticut. It's in New Haven, Connecticut, two weeks ago had the entire executive committee there, our leadership team and how far they've come. I got to really use the robots in virtual settings, and don't worry I didn't operate on anybody, but we have virtual operations. So it's like, you can train, we have trainer versions of this robot and actually you can... I trained how to do a prostatectomy, I mean, it was amazing and it was very realistic. So the robot's a big one for us, that's probably the biggest milestone we hit this quarter highlight, I would say. But then we had just strong underlying performance across all of our businesses with the exception of Diabetes, that's the one... All of our big businesses, Cardiac Rhythm,
Tom Salemi (18:58):
Geoff Martha (18:58):
Our big three, Cardiac Rhythm, Spine and the enabling technology around that and our Surgical Innovations business had a monster quarter that had to... That's another highlight, Surgical Innovations they compete against J&J's Ethicon business. Those three businesses all held or gained share, our Surgical Innovations business, gained a lot of share. And then the rest of the portfolio did very well as well. Diabetes, we're still waiting on some product approvals into the US, right? We've got our new pump system on the market in Europe and it's doing great, right?
Geoff Martha (19:31):
The performance is strong, the best time and range of any diabetes pump, the consumer feedback is strong. We just need to get that in the US and as Sean pointed out on the call, Sean Salmon, I think he's been on your show here.
Tom Salemi (19:44):
Geoff Martha (19:45):
The FDA that handles that approval's been pretty busy with COVID and it's hard to handicap and approve it, but we're on active dialogue with them on these approvals with our pump and new sensor and various other things. So we're excited about what's to come, but in the meantime, the financial performance of the business is well below the market.
Tom Salemi (20:05):
I'm sure we'll talk about Hugo™ in future episodes as well, but I'm curious, you mentioned Intuitive is the incumbent. How do you approach building this business differently than perhaps some other MedTech business where you're just asking someone to buy this defibrillator instead of that defibrillator. This is people have a legacy system in my place, they have a knowledge of a system. Maybe you're not looking for converts, maybe you're looking for first time adopters of robotics, maybe a mix of both. How do you look at building that market? And I know you're not there yet, but I'm sure you're talking about it.
Geoff Martha (20:35):
Yeah. We're definitely talking about it, have plans and I think... Look, there's more about market expansion than anything. We're definitely looking for converts, but we're really trying to expand the market and then remove the barriers. One barrier is lower cost per procedure and the way we've designed our product and the way Hugo™ and the way it works, it syncs with our existing surgical tools that the surgeons already know how to use and already have, we anticipate... Now we know it'll be a lower cost per procedure, doesn't mean we're selling the robot cheaper. What it means is that because of the backward compatibility into and the modularity of our robot-
Tom Salemi (21:20):
Geoff Martha (21:20):
So it provides a more efficient, cost effective way for hospitals to do robotic surgery. And another barrier that will lower... We have a bigger footprint outside the US and so we can globalize this. We have surgeon training facilities all around the world that we're greater penetrated than I think the competition there. But ultimately, we do think we have some differentiated features and there will be some converts as well. And there's just a lot of, when you have a kind of a monopoly situation for as long as Intuitive has had, there's definitely built up, some pent up demand for an alternative and we're definitely feeling that.
Tom Salemi (22:03):
That's great. Two more questions, one renal denervation, I know that you're still looking at that study and talk a bit about the data you're hoping to pull out of that. But also Sean had mentioned on the call that I think you got some positive, or not you specifically but the hypertension physician group in Europe had recommended reimbursement for, or to include this as a reimbursed procedure, so give us-
Geoff Martha (22:31):
Yeah. They recommended, so it's already technically to be specific reimbursed in Europe. However, it's not recommended outside of a clinical trial setting.
Tom Salemi (22:43):
Geoff Martha (22:44):
And now the Society of Hypertension in Europe has said, " look, we do recommend it to be part of your hypertension care pathway." So that's a big step in Europe and then in the US, we have to... There's work with the CMS to get Medicare and we've got this MCIT opportunity here, because it's a breakthrough device. MCIT is a legislation that would automatically give us a number of years of reimbursement, that's been paused under the Biden administration. So we're hoping that gets cleared up in December and we get the approval there. But then otherwise we're going one payer at a time and sharing with them the health economics. Here's the clinical outcomes, here's the health economics.
Geoff Martha (23:29):
And it's beyond the data that we're hoping for in the fall. Because we've had prior trials, we have registries out there, we've built up a pretty big set of data here that just shows that, one, it's unequally safe and that over time we're showing the efficacy of this. And you asked about the data, so we are hoping the last of our latest pivotal trial here is what we're calling the OnMed trial. We had a trial for patients who were... They were off their meds and that had gone through their system and that was a simpler environment. And now OnMed, which is probably more like what we're going to see in the real world, where some patients are still on their medication and get this therapy in the hopes that... The idea is, that it would lower your blood pressure and you don't have to take as much medication.
Geoff Martha (24:16):
And so we are anticipating to get those results back. And I won't get into the in's and out's of the metrics, because there're different ways to measure it ambulatory versus office visits. But needless to say, it's a meaningful decline is what we're anticipating in your blood pressure, which results in 28, 29, 30% less strokes and things like that. The knockoff impact is dramatic and so we believe this is going to be a three billion market conservatively by the end of the decade.
Tom Salemi (24:55):
And you're hoping to have results to present at TCT in November you said?
Geoff Martha (24:55):
That's what I hope, that's our next inner look. And if we don't get to statistical significance, then it goes on for a couple more months until we get there, this bayesian trial design. Two reasons I won't get into too much detail there, one we don't have time and two, I really couldn't explain it fully, but-
Tom Salemi (25:14):
I couldn't understand that if you couldn't, so. Final question, you made a point of talking about quality on the call. And you're assigning new financial metrics to quality and you brought it up into context of the decision to stop selling HVAD's. Can you just quickly... I know we don't have much time, walk me through what's going on behind the scenes at Medtronic, following that decision and what lessons were learned and anything else you can share.
Geoff Martha (25:37):
Okay. Look, patient safety and our product quality are the number one thing here, there's nothing more important at Medtronic. And the decision to pull HVAD off the market, as we've talked about in the past, new data came out that demonstrated that the competitive alternative had a meaningful, less occurrence of these complications and these are serious complications. And so we don't typically see that between competitive devices where the complication rates are different like that and so we decided to... and where they're serious complications and so that's why, tied to our Mission, we decided to pull it from the market. And so I'm proud of that decision and how quickly we acted on there. But look, the problem that we did have some quality issues there as well, the product performance. And we've had others in a few other businesses where we've had to do some Class 1 recalls.
Geoff Martha (26:28):
And look, I think it's important to remind the organization that this is number one for us and so we're putting... There's a transformational plan in place to really reemphasize, double down on this product quality. And we're including more of our bonus tied to it.
Tom Salemi (26:52):
Geoff Martha (26:53):
To accentuate the point, I'm not sure an extra bonus is going to drive it because our Mission is much stronger than our pay, but it does send a message. And I just want to make sure that everybody knows that this is number one and we got a big company here. And so a plan like this will, I think help reach every one of the 100,000 Medtronic employees around the world.
Tom Salemi (27:17):
Excellent. All right, I know you need to go, you get a busy day. Geoff Thanks for joining us on the podcast.
Geoff Martha (27:21):
All right. Thanks Tom, always good to see you.
Tom Salemi (27:25):
All right. Well that is a wrap. Thanks so much for joining us on this episode of the MedtronicTalks podcast, great to have you here. Could you do us a few favors? Number one, could you subscribe to this podcast? You can subscribe or follow on whatever podcast app you are listening to the podcast on. Of course, you can also find these podcasts at ourdevicetalks.com website. DeviceTalks is a producer of meetings and content centered around the metal device industry. Please also give us a ranking on those podcast apps. You can give us stars, you can give us written comments. All of that helps others find Medtronic stories, so we're trying our best to get the word out. So please do consider taking a few minutes to give us a ranking and a review.
Tom Salemi (28:07):
Finally, you can help out a lot by sharing this podcast on your social media channels. Can do it on LinkedIn or Twitter and if you do, please do connect me as well. I am on Twitter @MedTechTom, I am on LinkedIn, Tom Salemi, Salemi is spelled S-A-L-E-M-I. All right. Well, once again, that's a wrap, we'll have a bunch of great episodes of the MedtronicTalks podcast coming up. Hope you all have a happy Labor Day and look forward to telling you future stories soon...