In the past, Medtronic CEO Omar Ishrak has said that he sees no upside to selling the spine business that has quarter after quarter hung like an albatross around the neck of the medical device giant.
On Tuesday, it appeared as if Ishrak was signaling a shift.
“I was not happy with our overall performance. …,” he told analysts in discussing the company’s fiscal third-quarter performance.
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He added that although each business segment had justifiable cause for poor performance “collectively the year-over-year decline is simply not sustainable over the long term.”
Year-over-year revenue in the U.S. spine market fell 14 percent to $555 million in the year. The business has two segments — core spine, which fell to $390 million from $431 million in the same period a year ago; and biologics, which fell to $165 million in the quarter, down from $215 million a year ago.
The drop is especially dramatic in what was formerly a blockbuster product — the highly controversial bone-growth biologics product Infuse that has been hammered by charges that it is unsafe. Medtronic doesn’t provide actual revenue figures for Infuse (at one time, reportedly it was around $800 million annually ), but Ishrak noted that since the beginning of January, sales have fallen 20 percent to 30 percent. Currently, an independent board of Yale researchers is reviewing the data. Ishrak hopes the results will vindicate Infuse.
Ishrak noted the severity of the decline in the spine business as a whole and suggested the company is looking at options.
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“While we continue to believe in the potential of this market, we urgently need to see meaningful signs of improvement from our current initiatives,” he said. “If we do not, we will need to reassess our strategies for this business.”
Goldman Sachs analyst David Roman was quick to point out that Ishrak seems to be changing his approach to the spine business.
“Omar, over the past couple of quarters, it sounds like your willingness to look toward divesting businesses or reassess the strategic portfolio at Medtronic has become a little bit more flexible than when you first presented to us back in August,” Roman said.
But Roman didn’t get more clarity from Ishrak when he asked what specifically he was waiting for to look at strategic alternatives for the spine business or other businesses that are not performing well.
Ishrak responded by saying that organic alternatives — in other words how strategies within the company can help it to grow — are being pursued in spine. He also added that all businesses within Medtronic have to answer three questions to demonstrate their value: Is the business in an attractive market? Can the company be a leader in that market? And what is the overall value that Medtronic as a company adds to the business?
Still, his comments seem to have wedged a door open in terms of unburdening Medtronic of the spine business.
[Photo Credit: digitalart]
