2024-01-09 12:28:03 ET
Medtronic plc (MDT)
JP Morgan 42nd Annual Global Healthcare Conference
January 08, 2024 12:00 PM ET
Company Participants
Geoffrey Martha - Chairman of the Board & CEO
Karen Parkhill - Executive VP & CFO
Sean Salmon - Executive VP & President of Cardiovascular Portfolio
Que Thanh Dallara - Executive VP & President Diabetes Operating Unit
Conference Call Participants
Robert Marcus - JPMorgan
Presentation
Robert Marcus
Welcome, everyone. Thanks for joining. I'm Robbie Marcus, the med tech analyst at JPMorgan. Really happy to introduce our next session. We're going to have Geoff Martha, the CEO of Medtronic. And afterwards, I'll join him on stage with several other people from Medtronic for Q&A. Geoff?
Geoffrey Martha
All right. Thanks for the introduction, Robbie. Good morning, everybody. It's really great to be here this year. Great to see so many familiar faces, a few friendly faces as well. And like I said, myself and some -- and my leadership team from Medtronic, we're excited to be here today to share a lot of great information with you.
Before I get started, I want to remind you of some of the disclosures, including -- that I'll be including some forward-looking statements today. And I encourage you to read this disclosure, which will also be available on our Investor Relations website as part of the presentation.
So today, I want to share with you the building momentum that we have at Medtronic. The company has been building a track record of consistency as we've been delivering improved and durable results. And you've probably noticed that over the past couple of months, you've had to notice, we've had several major product approvals in some of the most exciting markets in med tech. We'll spend some time talking through these this morning.
And this guy over here is really excited. At some time -- at the same time, as he's been talking about -- what are you most excited about? Is it Affera or...
Robert Marcus
The 5-year chart...
Geoffrey Martha
At the same time, we've been executing a comprehensive transformation at Medtronic over the past few years. We've changed everything from our operating model to our incentives to our culture and even people in some cases. This is showing up in our results and why we believe our financial performance is durable. We're also focused on specific areas to leverage our scale, and I'll touch on those today.
And finally, we recognize that the earnings power of the company has been held back by headwinds like inflation and FX. And our top priority is restoring our earnings power, full stop. We've been driving efficiencies, and I'll walk you through some of the specific programs and -- like global operations and supply chain that we've been executing to mitigate our earnings headwinds. So taking this all together, including our strong balance sheet and dividend, we're committed to delivering strong shareholder returns.
So a year ago, we reframed our portfolio into these 3 categories: highest-growth, synergistic and established market leaders, to better define our sustainable growth opportunity across all of our businesses. We feel good about all 3 of these categories. And the confidence has been further bolstered given the numerous recent product approvals I mentioned earlier.
I'm going to spend some extra time going through our highest growth opportunities this morning. These make up 20% of our revenue today, but they're in markets that are growing fast and large markets than the -- and they're growing faster than the overall company. They're now getting a disproportionate amount of our capital investments like R&D, and we expect them to become a larger portion of our revenue as we go forward here.
So starting with Cardiac Ablation. We've made several significant investments in EP and have positioned ourselves to expand our share in this attractive $8 billion-plus market that is growing low double digits. We're leading the way in developing solutions for the new pulse field ablation portion of the market in both focal and single shot and have several catalysts coming in the near term.
We executed against our plan not only -- and not only received early approval, but we also made history by being the first company with FDA approval of a PF catheter in the U.S. with our PulseSelect technology. We're also making progress bringing our Sphere-9 focal ablation catheter market. It's already in limited launch in Europe and we're ramping manufacturing, and we expect US IDE results here in the first half of the calendar year.
So next, let's talk about Diabetes. We've had a lot of momentum building here. The market for intensive insulin patients is shifting from one that is primarily stand-alone CGM with multi-daily injection today to one that is smart dosing, using either automated insulin delivery or Smart MDI systems. And by the end of the decade, we believe smart dosing systems will be the technology used by the majority of the market.
So this is another big market, a $6 billion-plus addressable market. And no company is as well positioned to go after this opportunity than Medtronic given our insulin-delivering devices, including pumps and pens today, and a patch system that's under development, along with CGM sensors and leading algorithms and customer support. So this is a trend that will play out over the coming years. But we also have some near-term catalysts.
We're a couple of quarters into our U.S. launch of the 780G system, and the market adoption of this game-changing system has been tremendous. Our U.S. pump sales were up 30% sequentially last quarter, and unique prescribers in the U.S. were up 60% since the launch. As they return to Medtronic, as they learn more about this differentiated outcomes, users are getting with the 780G, which is really fantastic. And given the success of the launch, we're expecting our U.S. business to return to growth here in the second half of the fiscal year.
And we're pleased to announce that today, we received CE Mark for our 780G system to be used with our new Simplera Sync CGM. Now Simplera Sync is half the size of our previous sensor. It's disposable and a whole lot easier to apply. We've also completed enrollment for this system in the U.S. and expect to submit here in the first half of the calendar year.
And finally, I do want to affirm that we are on track for our patch AID system as well. So just over the last couple of years and months and going forward, just a lot of innovation in our Diabetes business, and it's great to see this business growing and patients returning to Medtronic.
So next, let's talk about Structural Heart. We're in a really good spot to take advantage of the $6 billion-plus TAVR market that is growing high single to low double digits given our new technology with Evolut X -- Evolut FX, rather, and our differentiated clinical data, what you'll see here on the chart. Evolut FX, with its ease of deployment has been doing extremely well in the U.S. and Japan and is just launching now in Europe.
And on the clinical data front, our Evolut platform has shown superior valve performance compared to surgery and randomized trials, including our landmark Evolut low-risk trial that was presented last fall TCT and published in JACC. And as you can see on the chart, we see a lower rate of death or disabling stroke and the TAVR performance continues to get better each year compared to surgery. I mean these are phenomenal results that -- and no other valve has shown this. And this gives us a real advantage in the market, especially as we get out there and show this to physicians around the world how we're better than surgery, and the competition just can't say that.
We also have a near-term catalyst in this business with our SMART trial, which is looking at our valve performance directly mono-to-mono versus Edwards SAPIEN in small annulus patients, which make up about 40% of the market. We expect the 1-year data will be presented this spring, and super excited about that.
So synergistic businesses. We have a number of near-term catalysts, like I said, in our highest-growth businesses, but we also have many in what we're calling our synergistic businesses. Some of these technologies were developed through organic R&D programs and others came through us through tuck-in M&A.
So for example, on the M&A front in ENT, we acquired Intersect ENT about 1.5 years ago. This has been a really good acquisition for us as we were able to plug in their innovative PROPEL and SINUVA sinus implants right into our sales force, a very experienced and scaled sales force bag not just in the U.S. but globally. PROPEL and SINUVA are growing high teens fiscal year-to-date, contributing to the growth of our ENT business, which is now about getting to $1 billion of revenue and one of our most profitable businesses.
Another good acquisition for us has been -- it was in cardiac surgery, where we acquired the Penditure LAA exclusion system. Penditure is used during concomitant cardiac surgery procedures and is the only LAA exclusion device that can be recaptured, repositioned and even redeployed. We had our first commercial procedure this quarter and the market reception has been very positive.
In Neuromodulation, we're awaiting FDA approval for 2 game-changing devices. First, the Percept RC recharge, which will be the first DBS sensing-enabled rechargeable device; and Inceptiv, our first closed-loop spinal cord stimulator. Both of these are examples of how Medtronic engineers are really leading the industry in innovation, developing smaller devices and inventing sensing technology to improve therapeutic benefit. Both devices are already CE Mark-ed and are doing well in their initial European launches. It's great to see them taking share and even expanding the market there. And as they continue to roll out in Europe and come to the U.S., we expect both to drive growth for our Neuromodulation business.
And in endoscopy, we have the near-term catalyst of GI Genius, which is using AI to better detect polyps during colonoscopies. This market is highly underpenetrated, the AI space within -- in colonoscopies. And we're seeing very strong growth with this GI Genius technology. I believe it's going to become the standard. And we're expanding this platform to enable additional AI applications for GI procedures.
So let's talk about our established market leaders. These are our largest businesses where we have market -- commanding market-leading positions, and they make up about half of the revenue today and responsible for a disproportionate amount of our profits and cash flow. So they're very important. These 3 businesses are in really good spots. And we're bringing new innovation to market to extend the advantages and the lead we have.
Let's start with CRM. We have 3 major innovative catalysts with our disruptive EV-ICD launch in Europe and the U.S.; our next-generation micro transcatheter pacemakers with Micra AV2 and VR2; and finally, our 3830 lead, which is the only approved system for conduction system pacing in the U.S. And we just received CE Mark for AV2 and VR2 just last week.
So in our Cranial & Spine Technologies business, the spine market is undergoing a structural change, a true transformation here, where the basis of competition is on the enabling technology, which includes a broad set of technologies: robotics, imaging, navigation, preoperative planning software, powered tools.
And no company is as well positioned as Medtronic as our enabling tech footprint is over 4x the size of our closest competitor. And that is the moat that we will build from and upgrade from. And our lead here is attracting sales teams from other companies. Again, like I said, the industry -- the structure of the industry is changing, and the reps see that and they're coming.
In Surgical, our Hugo robot is rolling out in many markets around the globe, and we're making very good progress in our U.S. IDE trial. We're also launching broader digital technologies with Touch Surgery and innovating our market-leading surgical instruments like Signia, Tri-Staple and LigaSure. We're positioned well to benefit from the lead and shift from open surgery to minimally invasive, including laparoscopic and robotic.
Okay. Now before I wrap up the innovation section, I'd be remiss if we didn't spend at least a little bit of time on our Symplicity Spyral renal denervation system, which recently was approved by the FDA. So over 1 billion people worldwide are living with hypertension. And just a 1% penetration into the target market is over $1 billion of revenue for us. So the opportunity here is massive. Now we've got some work to do on reimbursement. We're in active conversations with CMS and private payers. But those conversations are going well. We think this will become a game-changing therapy for patients around the world.
So talking a little bit about our transformation here. So across our businesses, look, I talked about the innovation. We're in a very good spot of new product introductions. But at the same time, we've been making some foundational changes to the organization over the past few years to drive improved performance.
We've changed our operating model to give P&L responsibility to our businesses while at the same time, centralizing our operations and supply chain. We've brought in multiple new leaders from outside of the industry with great experience and domain expertise that we lack in certain areas. We've implemented a disciplined capital allocation structure to ensure we're investing in our highest-growth opportunities and focusing our firepower on these large market opportunities.
And we've changed our incentives and implemented a more performance-driven culture. And as a result, you're seeing the revenue growth tick up and become more durable underlying these new product approvals in these big markets. Where we need to deliver going forward, though, is a better leveraged earnings growth. And we're making progress here. It's not showing up yet today, but we expect that over time, you're going to see the margin stabilization and then improvement and a return to leverage earnings growth.
So one of the biggest opportunities for us to leverage our scale and drive leveraged earnings over time is with our global operations and supply chain. We spent nearly $11 billion on cost of goods sold last year. That's a lot. And over half of the company's employees are involved in global operations and supply chain. So we hired a new leader, Greg Smith, to manage this much more holistically versus operating unit by operating unit, region by region and with much more intentionality. And Greg has assembled a leading team, many from outside of health care, to meaningfully improve our capability in this area, particularly our COGS efficiency.
So in 2022, like I said, we centralized our operations and supply chain organizations under Greg, and his team has been making very good progress across a number of programs. Unfortunately, though, some of the benefit, it's been masked by inflation and currency. And it takes a few quarters for the efficiencies to work their way from our balance sheet to the P&L, and you can see that when you see that benefit. But over time, we expect these efficiencies to be a meaningful and durable lever for us to first stabilize the margins and then drive margin improvement and earnings leverage, like I said, year-over-year in a very durable fashion.
You can see that on this slide, key areas that we expect to drive, the largest near-term savings in COGS. The biggest near-term bucket is supplier performance, where we've been dramatically reducing a number of our suppliers to focus on strategic suppliers that can provide high quality, high service, continuous improvement all at competitive prices.
I've mentioned that we've completed an RFP in our -- in the metals category that resulted in really dramatic savings and dramatic reduction in suppliers and double-digit cost savings. And there's more to go as we work through other product categories like plastics and so on and so on.
We're also beginning to work on network and capacity optimization. So we're in the process of closing over 5 manufacturing sites this year, and we're consolidating 8 distribution centers down to 2 super distribution centers. And looking at the rest of these pie slices, we've put in place consistent KPIs. We've put in place automation and forecasting systems that not only drive cost efficiency but will allow us to bring down our working capital levels as we move forward.
So when we take all this together, we have increasing confidence that we can deliver consistent cost-out in excess of inflation and help -- this will be a driver of our gross margin improvement strategy, not the only one but a meaningful one. And we look forward to sharing more of the progress as we move forward.
So finally, an area that we're leveraging our scale and capabilities to drive growth is AI. We've already had several meaningful innovations on the market that are making use of AI, which you can see on the left side of the slide. We're harnessing the power of AI today for using clinical decision support, creating new indications and delivering personalized treatments.
As I mentioned earlier, GI Genius in our endoscopy business is putting our GI business on the map, aiding in the detection of polyps during colonoscopies. I mean this is a mature procedure. Who would have thought that so many in our clinical data, 26% of the polyps were missed. And as we get out there in the world, we're finding 50% are missed that the AI is picking up without any false positive. So it's really phenomenal.
We're processing surgical videos with our Touch Surgery Enterprise to optimize surgical procedures. So when a surgeon walks out of the procedure, the procedure is broken down by all its component parts right on their phone instantly and annotated. So you kind of watch the game tape right after you get out of the procedure. So this is driving a lot of value for training, compliance, et cetera.
And then I mentioned Spine earlier. Our Spine business is transforming. Spine surgeries are planned and executed. Our AiBLE ecosystem, our AI-enabled ecosystem are really a key -- a cornerstone of that is AI in the planning of these complicated surgeries.
And then in Diabetes, the algorithms in our MiniMed 780G system is really the secret sauce for us, and they were developed using machine learning. That's where we're getting this unbelievable time and range for these type 1 diabetics.
And then finally, in cardiology, the LINQ business is now a $600 million business for us. Physicians like -- the unlock here was AI. We were picking up all the AFib and then some. They didn't want any false positive. They're really looking for 100% sensitivity and specificity, and the unlock was AI. As we eliminated these false positives, this business has taken off.
So we're -- look, I believe we're uniquely positioned to advance AI and med tech, like I talked about earlier, putting the tech into med tech given several differentiators when you compare us to other med tech companies and even the tech companies. We have the domain expertise in medical devices, obviously. We have accumulated millions of patients' data sets, I mean, a lot of data.
And with data sharing, hospitals are increasingly looking for trusted partners that have experience to connect across multiple areas of care. So they don't have the time to interact with all -- too many external partners. They've got to focus, and we believe we're going to -- we are one of those trusted partners.
We have the data and analytics expertise, and we're continuing to build on that. And this is across multiple disease areas. And we've been working very closely with the regulators on this. We spend a lot of time with regulators around the world, especially the FDA on how to think about AI and health care.
So this is a very big opportunity for us to leverage our scale and our unique position. And we're at -- I believe we're at an inflection point, and that's why we're creating this AI center of excellence in the company in order to further leverage common platforms so we can do this more efficiently.
I know when I listen to presentations from other companies, sometimes when the AI stuff comes on, you get a little bit of an eye roll. But this is legitimate here. I mean these are FDA-approved products where you're seeing meaningful improvements to the current standard of care that translate to better patient outcomes, translate to lower cost, translate to better access.
It's a lot of work. This isn't about ChatGPT. I mean we have to train the models ourselves with a lot of high-quality data, but the impact is amazing here. And I think as we move forward, you're going to hear more and more about this from us.
So finally, as I wrap up, as we look -- kind of as we look back in the first half of the fiscal year and beyond, we're feeling very good about the durability of our top line growth because of all the things, all the product approvals here you're seeing in the technology pipeline on this page. As you see the summarized on this slide, we have numerous recent approvals and launches in some of very meaningful products across all 4 of our reporting segments. And this is what gives us confidence in our revenue growth.
But this might be the most important page. We've had several product approvals, like I said, and we're delivering good top line growth today. And we're making the necessary steps to improve earnings power and create value for our shareholders.
And I'll leave you with the thought that we're becoming what I like to call an and company, where we continue to be this mission-driven company that you know Medtronic to be and our customers and patients know Medtronic to be. But at the same time, we're performance-driven. You've got to be both. It's not one without the other. No margin, no mission. And it's a big shift for the company, and it's probably the most important one. It doesn't happen overnight, but we've been working on this for the past couple of years.
I mentioned all the changes we've made. We just had our top 150 leaders in right before the holiday, and the change is palpable, and we're very excited. And I've got a number of my leaders with me here today. So I'm going to ask them to come up on stage, Karen, Sean, Mike, Brett and Que. And I look forward to your questions. Thank you.
Question-and-Answer Session
Q - Robert Marcus
All right. Well, thanks. Welcome, everyone. I thought I'd kick off, Geoff, you ended with the slide, there's -- you've put in a lot of changes, you've implemented a lot of proactive different business reorganizations since you came in as CEO. You've had a number of new product wins that are meaningful over the past several months, several years. Just how do you feel about where Medtronic is today and your ability to execute on the long-range plan you gave a few years ago?
Geoffrey Martha
Well, for the reason I just said, I mean, we're -- I'm feeling really good, and you'll hear it from the leaders on the team here. You look at -- in our base, it all starts with innovation and growth. And having a $32 billion revenue company growing mid-single digits, powered by innovation, I think that's a pretty good thing. And we believe that growth is durable. And we're driving the earnings power here, which we're committed to, which I'm sure we'll get questions on that.
And it's -- the changes have taken a little bit of time to take effect. We didn't do a bunch of reorganizations just to kick up some dust and drive change. They were very intentional in terms of empowering our operating units, top-down capital allocation, driving the highest-growth markets, changing our incentives and bringing in some new leaders where we really needed it, whether it be a cultural shift in a particular area of the company or which needed some domain expertise that we just lacked like in global operations and supply chain. So all those things have taken time.
And then in the meantime, over the last couple of years, I don't want to rehash it, we had to deal with some headwinds, some market-driven, some of our own doing, right? And we've had to go through those things. At the same time, we're driving this change. And now you're -- we're starting to feel the benefit. You're seeing it with some of the product approvals. We've known these have been coming for a while, but we're also feeling a different energy and accountability and grit inside the company. So I feel good.
Robert Marcus
I think it's 5 quarters in a row of mid-single-digit growth, if I got that right?
Karen Parkhill
4 soon to be 5.
Robert Marcus
4 soon to be 5. So it's a good string of quarters. You've been able to beat and raise consistently over the past 12 months. I want to shift to fiscal '25 just because everybody here at the conference is forward thinking. It's a question I get a lot. Thanks for what you gave us, but let's see what you could give us in the future. And there's a lot of moving parts. You have a lot of new product launches. You have a lot of margin improvement projects going on. Any early thoughts about Medtronic in fiscal '25 that you could give us?
Karen Parkhill
Yes. Sure. I'll take that. We're a different fiscal cycle than many companies out there. We're not on a calendar year, we're on a fiscal year, our fiscal year ends in April. So we are in the midst of our planning process for next fiscal year. So we're not ready to give formal guidance at this stage.
But we're looking ahead with great confidence to '25. Geoff talked about it. We've got a really strong pipeline that creates that durable mid-single-digit top line. We've already delivered the mid-single-digit top line 4 quarters in a row now. I mentioned soon to be 5. Our guidance is in the mid-single digit for this coming quarter. And we're really focused on this earnings power down the P&L to deliver that leverage down the P&L and to -- over time, with our strong and growing dividend to get back to delivering that double-digit total shareholder return.
We've got headwinds that we're managing. Inflation is moderating a bit. It's still higher than normal, but it's moderating. Currency is fluid and dynamic. And as we look at it today is a headwind next year, but we're focused on driving and managing that. We've got strong programs to deliver that COGS cost down that Geoff talked about. And we continue to focus on driving leverage from the P&L by growing the top line and managing within the head count that we've got.
And so global tax reform is likely to be a headwind. But as always, when we've got tax going on, we're focused on offsetting it in all ways that we can. And so we're excited about what's to come. And again, we're focused on delivering that durable mid-single-digit top line, and ultimately, that durable really strong leveraged bottom line.
Robert Marcus
Just to follow up on the slide you had on the margin improvements that you had and all the programs you have in place, I haven't ever seen a time frame associated with it. How do we think about where you are in that process and when we could start to see tangible impacts from the...
Geoffrey Martha
Let me take that. First of all, that slide was just one element, right? That was just cost of goods sold, right? That's the one you're referring to? That was just the different programs around cost of goods sold. There's other programs down the P&L to effect. Karen mentioned, how do we grow our revenue without growing our sales cost in line, growing it much slower, how do we continue to grow without growing our G&A. So there's program down in the P&L.
And on that cost of goods sold specifically, we are seeing the benefit already. I mean we are seeing significantly higher cost of goods sold productivity in our $11 billion COGS line than we've ever seen. And we believe that that's durable. It's just being masked right now by the inflationary pressures.
Karen Parkhill
That's correct. And over time, inflation moderates, our cost down gets higher. And we're focused on driving that margin improvement. We're confident in our ability to deliver it. And it's nearer term. We're not -- we're beyond the early innings here.
Robert Marcus
I remember this time last year and fast forward to now, and you've had 780G approved. You just had announced today, 780G in Europe approved with Simplera. You got renal denervation approved, you have PFA approved. So there's been a lot on the R&D pipeline front. Maybe we could touch on each of those because I know people are really focused, and these are the big needle-moving projects at Medtronic.
And I want to start with renal denervation first. This is one you have FDA approval. I think most people believe it's the reimbursement that's the real hurdle, not the approval, which you did get. Congratulations. So how do we think about the likelihood to get reimbursement, how broad of a label you might see and the time lines and impact for both coming through and also to revenue?
Geoffrey Martha
Well, Sean, do you want to take that one?
Sean Salmon
Sure. Well, thanks for the question, Robbie. I feel very confident in our ability to get reimbursement for renal denervation to the label that we have approved. And to remind you, that's for patients with uncontrolled hypertension, who aren't able to use lifestyle or drugs alone to get to their goal. So it's a pretty broad set of patients.
This device has proven breakthrough designation. And what that means is it allows you to have certain transitional pathways both in the inpatient setting as well as the outpatient setting, and it would qualify you for other kind of coverage with evidence development. So typically, something like a new technology add-on payment takes about a year. So you file that October, that's the fiscal year for the government, so the next October. So that would be one way of covering things with prior authorization, which is a bit of a pain for the hospitals. They have to call up, kind of get piece by piece those approvals.
But I'll just remind you that we've created numerous markets in our history. This is in our wheelhouse. We know how to do this. We've got the evidence, we've got the experience, we've got the knowledge. So we're very confident in driving reimbursement for this to the labeled indication.
Robert Marcus
And the breakthrough designation helps with Medicare. How do we think about the mix of this market, Medicare versus...
Sean Salmon
Yes. No, good question. It's about 50-50 private or commercial insurers and Medicare. And for the commercial insurers, they typically look to Medicare's coverage determinations to set their own. So it's really important that you get CMS reimbursement even to qualify for those other payers. That's a payer-by-payer, state-by-state kind of activity you have to do.
They can make independent decisions, of course, they do. But having both of them together is really important. So the strategy is to do them both in parallel. We've been working on this for years. In parallel with regulatory and clinical work, we've been keeping payers up to date, and there's good interest there as well.
You've got to remember that this is a very expensive disease state. A hypertension patient costs 3x a normal intensive patient to a payer. So the ability to avoid expensive things like heart failure and kidney failure downstream is very good for payers, too.
Robert Marcus
Very expensive to treat but also a huge market with millions of patients that could be billions of dollars if you do the TAM math on it. But you did comment that it's building a new market, and you've done this before and Medtronic as an organization is good, is it? How do you think about some of the bottlenecks to this market? And what can you do to help speed up the adoption...
Sean Salmon
Well, there's really 2 big ones and a smaller one. I'd say the big one is, of course, reimbursement. Then there's awareness. But once you get reimbursement on court, the awareness drive can be done very effectively and very cost effectively with social media. We recruited 80% of the patients on our clinical trial on Facebook. So it's not Super Bowl commercials, it's relatively efficient to be able to accrue those.
The other ones are just about making sure that everybody knows how to do the procedure, and that's pretty familiar to us. We've got a large sales force that's been in place with relationships for many, many years. So that part of it, training on the technology, making sure people can pick the right patients, do the procedure efficiently and effectively.
Hospitals will have to set up their own programs. Typically, in the outpatient setting, you'll do screening of patients, make sure they're appropriate, there aren't other secondary causes, that they're on the right kind of medications for them. And the ones that are appropriate, then they yield it into procedures. So I think it's all very clear what we've got to go do. And as I said, we've got a team that knows how to do it.
Robert Marcus
Maybe if I shift to Diabetes. 780G in the U.S. helped stabilize the business, take what was a competitive headwind and turned it into a competitive tailwind. And then today, you just announced you have Simplera integration. This is the much smaller, better CGM that should help outside the U.S.
So maybe for Que, how are you thinking about the overall Diabetes business with your portfolio that you have now your competitiveness and your ability to grow at market rates are better?
Que Thanh Dallara
No. We're really thrilled with the performance of 780G -- the 780G system in the U.S. I mean we thought it would take us a couple of quarters to get to Medtronic's growth rate. We've already been accretive to Medtronic's growth all year. We've had big accounts that haven't prescribed Medtronic in years starting to prescribe Medtronic. And I think we've demonstrated value proposition of automated insulin delivery in the market. So that's all very positive.
And what we see now is clearly a stabilization of sales as well as prescribers and our install base. We -- our CGM attachment is very high. We are seeing net new patient growth in Q2. We talked about 60% growth year-over-year, a 50% -- greater than 50% growth quarter-over-quarter. So we're seeing that in new patient adds.
We also see that every month, our attrition is declining. And so as a result, we are adding net patients already in the year-to-date. So we're very positive about the buildup of our install base. And as a result, that's translating into accretive growth for the company.
So the short-term execution is really strong. In addition to that, we're doing what we say we were going to do in terms of the innovation road map with Simplera approved last September, with InPen in Europe and now with the approval with 780G system. And all of these innovations, we continue to execute on this cadence. And that's going to remove some of the objections that people have had around our sensor, that the value proposition of our automated insulin delivery system with order corrections every 5 minutes is truly a compelling system in the market. So very confident, Robbie, that all these indicators are pointing to a very attractive trajectory.
Robert Marcus
I think Geoff made the comment that the patch pump program remains on track. Can you just remind us what is the status, what type of patch pump been on track? What's -- when do we get to see it and learn more about it?
Que Thanh Dallara
Well, there are many components that go into this next-generation patch AID system, Robbie, from our next-generation CGM as well as algorithmic development, software development. And we remain very confident on the plans that we have on our patch program. We don't want to disclose the time lines for competitive reasons, but we're very happy with the progress that we're making so far. And you can see that in our safety ratio of what we've said. We said we would release our next-generation sensor a year ago. We did that, and we continue to make progress on the patch program.
Robert Marcus
Great. Maybe in the last few minutes, I want to spend some time on the pulse field ablation program. You had the first pulse field catheter approved in the U.S., PulseSelect. Maybe just investors are really just, I would say, maybe the right word is unsure, about how PFA will grow. And some of the existing technologies may come down because there will be a trade-off on volume.
So how do you think about Medtronic's EP business overall, the cryo business, which you have $800 million, $900 million in sales of today globally versus this really exciting, groundbreaking new technology that you're first to launch with?
Sean Salmon
Yes. Robbie, I think it's kind of worth reminding everyone that, yes, we've established a very large business in a very small corner of the market, right? So we play in about 15% of the total ablation market today, and we have the majority position there with cryo.
But now we have a broader footprint. With Affera, we're going to have the point-by-point or individual content, which is 85% of the market with a mapping system. So you can see what you're doing, where you're going, what you've done, really, really important and a favored and broader arrhythmia set that you can treat with that.
And the first PulseSelect approval in the United States is attracting a lot of interest from all ablators, whether they normally do kind of single-shot work or if they do point-by-point in their day job, they all are very, very interested. And the reason they're interested in it is because pulse field ablation, I'll speak for ours, is exquisitely safe. You can go in there and do very rapid procedures with some of the lowest complication rates ever seen.
That's really important, because if you want to expand the market, this is an underpenetrated $8 billion market, you have to take away complication rates and make sure patients can get out of the hospital quickly. So things like -- scary things like when you have a fistula that connects the atrium to the esophagus, which is right behind the atrium, right behind where you're doing the ablation work, that can be fatal about 65% of the time. It's a rare complication, but it's one that everybody worries about because it's late presenting.
We haven't seen that yet, and we don't see any preclinical work. So it's safer, it's faster. And for us, it's also an opportunity to price to value so you can get more value out of that. So look, I think the worry about cannibalization is misplaced. We have a lot of greenfield to go after, and we have a complete set of tools to do it with, with a great team worldwide to make it happen. So I'm very bullish about our pulse field ablation and our entire EP portfolio.
Geoffrey Martha
Yes, I'd just echo that. I mean this has been, like you said, a nice business for us. But we've been relegated to the smaller part of the market. Now we've made investments across the whole marketplace, multiple modalities, PFA on both sides of the market. We've got cryo, we've got RF, we've got catheters that have integrated those technologies, we've got mapping. So we're going to see meaningful acceleration of this business.
Robert Marcus
Great. Well, I think that's a perfect place to leave it. We're out of time. Thank you, everyone, and thanks for coming.
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Medtronic plc (MDT) JPMorgan 42nd Annual Global Healthcare Conference (Transcript)