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Q2 Review: Takeaways from the Most Prominent Players in Medtech

A quarterly snapshot of business news from the medical device and diagnostics industry during the second quarter of 2019.

  • It's earnings season again, which makes it a good time to check in on the most prominent medtech companies in the public sector to see what kind of a quarter they had and what the back half of the year looks like for the industry.

  • Is Abbott's 'Phenomenal' Growth Sustainable?

    Abbott's FreeStyle Libre stole the show during the company's second-quarter earnings call, but let's not overlook some of the other growth-driving technologies in the company's medical device portfolio.

    "In general, in medical devices, innovation is what drives the growth," CEO Miles White said during Abbott's earnings call after an analyst asked about the sustainability of the company's "phenomenal" growth in medical devices.

    Abbott has a diverse mix of medical device businesses – thanks in large part to its 2017 acquisition of St. Jude Medical – and some of those businesses are benefiting from innovative new products while other businesses are more mature.

    "I think that there is a lot here to sustain the kind of growth we’re seeing," White said. "There’s always going to be new products like Libre or MitraClip or a HeartMate that singularly for a period of time disproportionately drive the overall growth."

    MitraClip drove growth in Abbott's structural heart business in the quarter. MitraClip sales grew more than 30% worldwide and more than 50% in the United States where Abbott recently won approval for a new indication addressing the secondary form of mitral regurgitation.  The company also announced FDA approval recently of the fourth-generation MitraClip, offering enhanced features and new clip sizes.

    White also took the time to reminisce during the second-quarter earnings call.

    "I remember in my discussions with Dan Starks when we were negotiating over the acquisition of St. Jude, Dan felt pretty strongly that the pipeline at St. Jude was underappreciated and that in their own internal models the growth rate was out there in the high single-digits," White said. "The Street didn't agree with that at the time, because it didn't see it yet, et cetera. But Dan was right. And I think we've seen that in the performance of the medical device business we acquired from St. Jude because it's been performing at sort of a 9% to 10% level as new products have gone to the market, either replacing older products or just simply brand new products altogether."

    Click here for Abbott's second-quarter earnings call transcripts, courtesy of Seeking Alpha.

  • J&J Talks Digital Surgery Strategy

    Johnson & Johnson strengthened its position in surgical robotics during the second quarter with the $3.4 billion acquisition of Auris Health. Auris developed the Monarch platform, an FDA-cleared system currently used in bronchoscopic diagnostic and therapeutic procedure, as well as lung cancer diagnosis. The platform is expected to play an important role in J&J's lung cancer initiative. Shown above is the controller for the Monarch platform.

    Not only did J&J score some great technology in the deal, but the company also has the benefit now of working with Fred Moll, the guy who pioneered robotic surgery. CFO Joe Wolk said the company is taking full advantage of the expertise that Moll and his team bring to the table.

    "So they're currently looking at and assessing all of our platforms," Wolk said. "We think it's prudent of us to utilize that expertise to look at not just what we're doing for the Monarch platform in lung cancer and bronchoscopy but also to take a look at Orthotaxy and as well as our partnership with Verily."

    Acquired by J&J last year, Orthotaxy developed software-enabled surgical technologies, including a differentiated robotic-assisted surgery solution. That technology is in early-stage development for total and partial knee replacement, and the company plans to broaden its application for a range of orthopedic surgery procedures.

    "We want to make sure that we've got a differentiated product, one that competes with the current product offerings that are out in the marketplace for the next three, five, 10 years down the road," Wolk said.

    Paul Stoffels, vice chairman of J&J's executive committee and the company's chief scientific officer, said the company continues to receive positive feedback regarding the Orthotaxy platform, especially about its smaller footprint, the fact that it is an imageless system, and the surgeon's freedom to move within the cutting plane defined by the robot. And all of that contributes to the system's ease of use, Stoffels said.

    As for Verb, the joint venture created by J&J and Verily (Google's life sciences division), Stoffels said the company recently completed a series of end-to-end procedures, engaging a group of global key opinion leaders across a subset of target specialties including general, hernia, colorectal, bariatrics, urology, gynecology, and thoracic surgery.

    "We continue to believe our system will address the current limitations of robotic surgeries such as access and reach, the footprint and cost and the workflow and advanced instrumentation to such a much better outcome," Stoffels said. "I was personally able to operate one of the instruments in the lab and it's really a very impressive new robotic surgical tool. And also overall, the surgeons, their feedback continues to be very positive on the product."

    There is still a lot of hard work and developments ahead for the technology, he said, but it is "on a very good path."

    Supply Disruption Stunts Medical Device Growth

    Another important takeaway from J&J's earnings call was the impact from a supply disruption involving two medical devices. The first was the recall on J&J's Ethicon Endo-Surgery Intraluminal Stapler in May. The second involved a third-party manufacturer that is manufacturing J&J's Surgiflo product. FDA found a change in the manufacturing process and wanted more information, Wolk explained. 

    The company said these supply challenges in the quarter negatively impacted medical device growth by about 100 basis points worldwide. The medical devices business would have delivered growth of just over 4% if it hadn't been for that disruption.

    Wolk said the problem involving the circular stapler has been resolved and that device is already back on the market. As for the second issue, involving the third-party manufacturer, he said: "we're working fully with the FDA and expect that to be resolved shortly."

    Click here for J&J's second-quarter earnings call transcripts, courtesy of Seeking Alpha.

  • Boston Scientific CEO on Lotus Edge: 'This Has Been a Long Time Coming'

    Boston Scientific is still in a controlled launch, but CEO Michael Mahoney says that controlled launch is "going extremely well."

    "Positive physician feedback highlights the benefits of complete control and drama free TAVR," Mahoney said.

    He said the company is on pace to open 150 accounts in the first 12 months, and he expects that Boston Scientific's launch approach will position the device and the company's entire structural heart portfolio for long-term leadership in TAVR. 

    "This has been a long time coming to bring it to the market. And anecdotally, I would say doctors are pleasantly surprised by the unique features that it delivers," Mahoney said. "The controlled uses of the device, the ability to reposition, and the elimination of the [paravalvular leaks] is delivering on its promise."

    In addition to the high-risk labeling that Lotus is currently approved for, the company is also enrolling patients for its U.S. REPRISE IV trial to support expanding the indication to intermediate-risk patients.

    Ian Meredith, MD, global chief medical officer at Boston Scientific, said the recruitment in the REPRISE IV trial is going well and he noted positive patient feedback. It's a single-arm study and Boston Scientific anticipates completing it with one-year follow-up in early 2020.

    In the second half of the year, Boston Scientific expects to see a greater acceleration of the Lotus Edge rollout.

    "And given the investment that we’ve made, the time that it's taken, we’re really focused on quality, strong patient outcomes, and proctoring," he said. "And we’re in this for the long run with two valves and going to deliver as planned our financial commitment and the rollout of Lotus."

    Click here for Boston Scientific's second-quarter earnings call transcripts, courtesy of Seeking Alpha.

  • Q2 TAVR Sales Exceeded Edwards' Expectations

    The most shocking news to come out of Edwards Lifesciences' second-quarter earnings call was the company's decision to discontinue its Centera program, as MD+DI reported last week. Beyond that news, however, is the fact that the company's transcatheter aortic valve replacement (TAVR) sales were far better in Q2 than anyone anticipated.

    Global TAVR sales were up 18% on an underlying basis.

    "We anticipated growth would accelerate after the first quarter and our results this quarter exceeded our expectations," CEO Mike Mussallem said during the earnings call.

    So what drove that acceleration?

    "There were multiple factors that probably contributed to the growth in Q2 and it's pretty hard for us to isolate each one," Mussallem said.

    He reminded analysts that there has been a lot of variability from quarter to quarter and said not to expect that kind of sequential growth on a routine basis.

    Mussallem did say, however, that the growth might have been stimulated globally just by the increased confidence in TAVR, following the strong PARTNER 3 results published in the New England Journal of Medicine in March.

    "It could have had several influences," he said. "There was a lot of awareness and publicity that could have encouraged treatment."

    Most encouraging, however, is that Edwards saw broad-based growth across the globe, even in the United States, and the growth was in both large-volume and lower-volume centers.

    Looking ahead, Edwards anticipates winning FDA approval to market the Sapien 3 and Sapien 3 Ultra valves in the patient population that is considered low-risk for open surgery.

    Mussallem also said the company has received positive physician feedback throughout its disciplined launch of the Sapien 3 Ultra valve, but a lot of clinicians seem to prefer aspects of the Sapien 3 delivery system. He said the company is working to incorporate those changes to optimize the Sapien 3 Ultra delivery system (shown above, courtesy of Edwards Lifesciences).

    Click here to read Edwards Lifesciences' Q2 earnings call transcripts, courtesy of Seeking Alpha.

  • When Will Baxter Pull the M&A Trigger?

    Baxter CEO José Almeida has talked about the company's hunger for M&A opportunities for some time now, but so far in 2019 we haven't seen any M&A from Baxter. That doesn't mean the company has given up looking, according to CFO Jay Saccaro.

    In response to an analyst's question about capital deployment and M&A, Saccaro said the company has been "very, very busy" analyzing opportunities this year. 

    "So, what I’m going to say to our investors is, think about Baxter adding value with the small tuck-ins as we look for the right opportunity and valuation for a larger deal," Saccaro said. "It is very, very rich, right now, the market is frothy and we are not going to compromise on the returns of this acquisition."

    The larger the deal is, the more inherent the risk is, Saccaro said.

    "We all take risks, but there is a point where the cost of investing in that asset and the price valuations are so [out of whack] that you cannot make an internal rate of return of low single digits, it doesn’t work, it doesn’t work," he said. "And then if anything goes wrong, the FDA comes about and tells you that a product that you have has a compound that is made into the product that doesn’t work, now your whole evaluation of that target is under scrutiny. You’ve got to be very careful with this and understand your target."

    He underscored the company's inorganic opportunities in the areas of pumps and monitoring devices and hinted that the company is likely to add to those areas as tuck-ins rather than coughing up huge capital investment for assets that are over-priced.

    "And I tell you something else," Saccaro said. "We will continue to acquire our shares prudently, while we see the prices are there because we are not going to sit on cash, as I said to you, cash is not going to burn a hole in our pocket."

    Click here to read the transcripts of Baxter's second-quarter earnings call, courtesy of Seeking Alpha.

  • Mako Keeps Makin' an Impression

    Stryker continues to report success with its Mako robot. Katerine Owen, vice president of strategy and investor relations at Stryker, said Stryker sold 44 Mako robots globally during the quarter and 35 of those were U.S. sales. In total, the company has installed north of 700 robots, about 600 of which are in the United States.

    Looking at U.S. procedures, in Q2, Mako total knee procedures exceeded 18,000, increasing roughly 80% from the same quarter last year, while total Mako procedures were about 27,000, Owen said.

    "We are also pleased with the acceleration we are seeing in our hip performance," she said. "These results reflect uptake for our new 3D-printed Trident II hip cup, as well as increasing utilization of Mako for hip procedures, where we achieved strong double-digit procedure growth in the quarter."

    Surgical robotics is hotter than ever in 2019, particularly on the orthopedics side, but Owen said Stryker has not and does not expect to see any competitive impact on Mako sales.

    "The order book is very robust," she said. "We're seeing really strong uptake in terms of robot sales as well as the utilization rates ... So we are really pleased with what we're seeing within Mako and we're now really starting to see indications across all the joint procedures and reconstructive joint procedures starting to see more of a lift to, so really good momentum."

    Click here to read Stryker's second-quarter earnings call transcripts, courtesy of Seeking Alpha.

  • Don't Over-Analyze Zimmer-Biomet's CFO Change

    CEO Bryan Hanson kicked off Zimmer-Biomet's second-quarter earnings call by addressing the elephant in the room.

    "I'm sure we have had a lot of people talking about the CFO transition," Hanson said.

    Dan Florin effectively retired as CFO on July 1 but he has agreed to stay on in an advisory capacity to ensure a smooth transition. Both Florin and the new CFO, Suketu Upadhyay, were on the call.

    "People have been writing quite a bit about it, even some people thought that maybe the CFO transition might signal that we didn't have confidence in our guidance," Hanson said. "... This truthfully is just Dan's intent to spend more time with his family and who are we to get in the way of that aspiration? Really that truly is what it is."

    Rosa Knee Is in High Demand

    Zimmer-Biomet is taking a disciplined approach to the launch of its Rosa robot, as MD+DI reported in February. But even with a limited launch, the Rosa Knee system provided a benefit in the second quarter, Hanson said.

    "The Rosa knee system is receiving very high marks out of the gate and feedback from surgeons is very positive," he said. "While the overall number of placements in the second quarter remained relatively small, it's clear we have a solution that is attractive to our surgeon partners as evidenced by the surgeon feedback we received from the hundreds of procedures that we've performed since launch."

    Most importantly, Hanson added, demand is strong and it is growing daily.

    As a result of the excitement around robotics, Hanson said Zimmer-Biomet intends to increase its investment in robotics R&D and commercial infrastructure. That increased investment will begin in the second half of the year.

    Naturally, analysts on the call prodded Hanson for more details regarding said investment plans.

    "If you look at overall knees, it's not that exciting of a growth business or growth market. But when you look at the sub-elements of certain categories like robotics, like cementless, there's clearly an opportunity for outweighed growth," Hanson explained. "So we want to make sure that revising our investment to those areas, that’s number one, right? So the whole goal of this is, choose those submarkets that are most attractive, bias investments to those which would be R&D, commercial investments and others, and that’s exactly what we’re doing. The second piece of it is though, we’re actually getting better feedback even than what we expected."

    Because of that better-than-expected feedback, Hanson said, the company wants to lean into the investment and make sure that it is increasing investment in R&D to be able to fill some of the gap areas that Zimmer-Biomet has in robotics.

    "You know, we don't want to just fill gaps that exist in robotic applications today," he continued. "We want to be able to bring a more integrated ecosystem of robotics that will differentiate us beyond what other players have. And so that’s where some of that R&D money is going."

    Hanson said it's also important that the company has the right commercial infrastructure in place to support the demand that it's seeing for Rosa.

    "That’s not just sales teams, that service, that’s education, that’s everything that we need to be able to rollout Rosa in an effective manner," he said. "That’s what we’re seeing, we’re seeing an opportunity to invest in a higher growth submarket, and we’re seeing an opportunity to respond to better demand than what we expected."

    Click here to read the transcripts of Zimmer-Biomet's second-quarter earnings call, courtesy of Seeking Alpha.

  • Surgeons Want More Access to Intuitive's Bots

    Intuitive Surgical is seeing additional demands on system access and accounts, as well as increased demands on company reps' time to support different procedure types, CEO Gary Guthart noted during the company's second-quarter earnings call. That desire for increased access has likely contributed to system placement strength in the U.S. market, he said.

    "We have two things going on. One is there are a lot of different procedure types, and now, in busy centers, competition for system access," Guthart said. "We can, of course, solve that with additional systems placed as well as work with folks on the efficiency of use. And we're doing both."

    Second, he said, Intuitive's commercial teams have been growing in the United States to support the company's growth. But as the percentage of new reps in new territories ticks upward, it takes time to bring teams up to full productivity, he noted.

    "Employee retention has been great," Guthart said. "It's really around the increased need to get increased case coverage, and so there, it's supporting our new folks in the field with tools and some of it is just time on task."

    CFO Marshall Mohr reported that 74% of the systems placed in the quarter were da Vinci Xis and 20% were da Vinci X systems compared with 67% da Vinci Xis and 25% da Vinci Xs last quarter. Mohr said 13% of the systems placed in the quarter were SP systems, and he noted that the company's rollout of the SP surgical system is measured, putting systems in the hands of experienced da Vinci users while Intuitive optimizes training pathways in its supply chain.

    Click here for Intuitive Surgical's second-quarter earnings call transcripts, courtesy of Seeking Alpha.

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