Medtronic Spine’s Q4 Results

For the fourth quarter (ended April 25), Spine revenue declined 2 percent year over year to $786 million due to flat sales in the core spine business and a decline in balloon kyphoplasty procedures (BKP) and bone morphogenetic proteins products, the company said. Excluding BKP, Spinal division sales improved by 1 percent compared with the year prior. The company’s procedural innovation and “surgical synergy program” is driving surgical equipment and spinal implant sales and helping regain acceptance in the U.S. spine market, company officials noted. Spinal sales are expected to get a further boost in the coming quarters as the company is planning to launch its recently approved Prestige LP next-generation cervical disc in the U.S. market. (See the New Technology column on page 28.)

Overall, the company’s fourth quarter fiscal 2014 results reflected operational revenue growth of 3.3 percent year over year to about $4.57 billion, driven by growing acceptance of new products and robust sales in emerging markets. Profit dropped to $448 million, compared with $969 million during the same quarter in fiscal 2013.

For the full year, Medtronic reported that revenue rose to $17 billion, compared with $16.59 billion in 2013. Net earnings fell 10 percent to $3.06 billion in 2014. The company’s largest divisions, Cardiac Rhythm Disease Management and Cardiovascular, continued to grow in low single digits driven by sales growth of more than 50 percent in Atrial Fibrillation and 9 percent in the Structural Heart business. Other businesses such as Neuromodulation, Surgical Technologies and Diabetes also registered robust revenue growth, which offset declines in the company’s Spinal division.

International sales accounted for 47 percent of total revenues for the medical device maker, driven by 14 percent year-over-year growth in emerging markets.

The company’s overall results for the quarter, however, were negatively affected by a patent agreement with Edwards Lifesciences over the companies’ heart valves. Results for Q4 included a one-time charge of $750 million related to the patent agreement with Edwards about transcatheter heart valves as well as a separate product liability settlement for the company’s Infuse bone graft product.

Edwards Lifesciences, an Irvine, Calif.-based maker of heart devices, said Medtronic will pay the company annual royalty payments of at least $40 million based on sales of Medtronic’s CoreValve product for eight years.

“We are pleased to reach an agreement that preserves physician choice while also recognizing Edwards’ leadership in pioneering the transcatheter heart valves that are chosen most often by physicians worldwide,” Michael Mussallem, Edwards’ chairman and CEO, said in a written statement.

Medtronic also will settle 950 claims related to Infuse. As part of the settlement, the company did not admit liability. The company said in a written statement that it expects a special charge of up to $140 million related to the Infuse settlements.