Medtronic Completes €3.5 Billion Senior Notes Offering to Strengthen Financial Flexibility

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September 21,Instrument News learned that Medtronic announced Medtronic plc ("the Company") (NYSE: MDT), its wholly-owned subsidiary Medtronic Global Holdings SCA ("Medtronic Luxco")Completed the registered public offering (the "Offering") of €500 million principal amount of 2.625% Senior Notes due 2025, €1 billion principal amount of 3.000% Senior Notes due 2028, €1 billion principal amount of 3.125% Senior Notes due 2031, and €1 billion principal amount of 3.375% Senior Notes due 2034 (collectively, the "Notes"). All obligations of Medtronic Luxco under the Notes are fully and unconditionally guaranteed on a senior unsecured basis by its parent company and its wholly-owned indirect subsidiary, Medtronic, Inc.

The net proceeds from this offering are expected to be used to repay the outstanding 0.00% Senior Notes due 2022, the 0.375% Senior Notes due 2023, and the 0.00% Senior Notes due 2023 of Medtronic Luxco at maturity, and for general corporate purposes. Although Medtronic Luxco may choose to repay, redeem, or repurchase such notes before maturity, there is currently no intention to do so prior to their maturity.

At the end of last month, Raymond James downgraded Medtronic's rating from "Outperform" to "Market Perform" and removed its previous target price of $109 per share due to concerns about Medtronic’s growth in the second half of the year.Despite Medtronic's announcement of better-than-expected financial results for the first quarter of the 2023 fiscal year, its stock price continued to fall. From its highest point last year at $133.32 per share, the stock has gone through several continuous downward phases and has shown no signs of recovery recently. As of Friday’s closing, it was at $83.56 per share, marking a 37% drop from its peak last year, with a total market value of $111.1 billion, hitting a three-year historical low.

01

No M&A, No Giant

The development of the medical device industry is driven by technology, and often the emergence of a new technology can open up a niche market. However, the space of a single market is often limited. Therefore, when the industry tends to mature, maintaining a certain market share through mergers and acquisitions has become the only choice for medical device companies to maintain their competitive advantage.

Medtronic established an early technological leadership in the cardiovascular field and built a strong brand image, laying a solid foundation for long-term future development. Meanwhile, its performance experienced rapid growth driven by a global sales network. After deeply cultivating its core business and building competitive barriers, in order to break through the ceiling effect of the sector,Medtronic has embarked on cross-sector mergers and acquisitions, often targeting leading companies in other fields. The company considers mergers and integration as key drivers for long-term growth, eventually becoming a global diversified medical device giant.

Medtronic's Partial Major M&A History Source: Siyu MedTech Compilation

Several Key M&A Events：

1998 Acquisition of Sofamor Danek: Expansion into the Spine Market

In 1998, Medtronic acquired Sofamor Danek for $3.6 billion, becoming the leading company in global spinal implants. Through the acquisition of Sofamor Danek, Medtronic gained its spinal and neurosurgical instruments and products, establishing Medtronic's advantage in the spinal product market.In 2007, Medtronic acquired its competitor Kyphon for $3.9 billion, thereby becoming the global leader in spinal products.

Acquisition of MiniMed and MRG in 2001: Entering the Diabetes Field

Before 2000, the insulin pump market was dominated by MiniMed and Disetronic. Later, companies such as Animas, Deltec, and Insulet entered the market, intensifying competition.In 2001, Medtronic acquired MiniMed and Medical Research Group (MRG) for $3.7 billion in cash. The two companies were merged to form Medtronic MiniMed.

2015: Medtronic's Heavy Investment in Merging with Covidien Medical: Establishing Its Position as the Global Leader in Medical Devices

On January 26, 2015, Medtronic acquired Covidien for nearly $50 billion in cash and stock.Becoming the most watched M&A case in the history of the medical device industry. Covidien has a strong complementary relationship with Medtronic in terms of product lines and channels. This acquisition significantly contributes to the diversification of Medtronic's global business and further strengthens its leading position in the global medical device market.

Hugo™RAS system

2018 Acquisition of Mazor: A New Journey in Surgical Robotics

Mazor Robotics was founded in 2000, with its headquarters located in Caesarea, Israel. It is a medical robotics company dedicated to the development, production, and sale of surgical medical devices used to support orthopedic and neurosurgical fields. The company's main products are the Mazor X guidance system and the Renaissance robot-assisted spine surgery device.On December 29, 2018, Medtronic announced the acquisition of Mazor Robotics and its robot-assisted surgery platform for $1.7 billion.

2022 Acquisition of Affera: Expanding Electrophysiology Portfolio

In January 2022, Medtronic announced the acquisition of Affera for $925 million, marking Medtronic's first acquisition of 2022.The acquisition of Affera will further enhance and make Medtronic's electrophysiology ablation business more competitive. (In 2008, Medtronic acquired CryoCath Technologies for cryoablation and later entered the PFA market. In 2019, it acquired EPIX Therapeutics for $316 million for radiofrequency ablation.)

Source: www.statista.com, Medtronic's revenue has grown from $11.3 billion in 2006 to over $31 billion in 2021.

Medtronic's revenue for the fiscal year 2021 was $30.117 billion.Net profit was $3.606 billion. In the third quarter of fiscal year 2022, Medtronic's net sales were $7.763 billion, and net profit was $1.48 billion. (Note: Medtronic's fiscal year 2022 period is from April 28, 2021 to April 27, 2022.)

Top 10 Global Medical Device Companies in 2022 (Billion USD); Source: Breaking Into Device

The latest data shows that Medtronic (MDT) once again topped the list as the world's largest medical device company in 2022.Medtronic is a global leader in medical technology, services, and solutions, with operations in more than 150 countries and regions and over 350 office locations. Medtronic has more than 90,000 employees worldwide, including over 11,200 scientists and engineers, as well as more than 1,600 professional clinical workers.

02

Q1 Revenue Decreased by 8%

Cardiovascular, Surgery, Diabetes, etc. Decline

Recently, Medtronic announced its financial results for the first quarter of the 2023 fiscal year: revenue of $7.371 billion (approximately 50.5 billion RMB), a year-on-year decrease of 8%, and net profit of $929 million, a year-on-year increase of 22%. The results were slightly higher than Wall Street's consensus expectations, and in the current challenging economic environment, the revenue aligns with its full-year financial guidance. Medtronic’s 2023 fiscal year range is: April 28, 2022 – April 27, 2023.

By region, revenue in the U.S. was $3.766 billion, accounting for 51%, a year-over-year decrease of 8%; revenue in developed markets outside the U.S. was $2.328 billion, accounting for 32%, a year-over-year decrease of 10%; revenue in emerging markets was $1.276 billion, accounting for 17%, a year-over-year decrease of 1%.

Medtronic CEO Geoff Martha cited supply chain disruptions, inflation, hospital labor shortages, COVID-related surgical delays/cancellations, and foreign exchange as factors that contributed to Medtronic's revenue decline during the Q1 FY2023 earnings call.. Among them:

Cardiovascular Product Portfolio

The Cardiovascular portfolio includes the Cardiac Rhythm and Heart Failure (CRHF), Structural Heart and Aortic (SHA), and Coronary and Peripheral Vascular (CPV) divisions. Cardiovascular revenue was reported at $2.713 billion, representing a 6% decrease, with 1% organic growth, as CRHF and CPV experienced low single-digit declines.

• Revenue from Arrhythmia and Heart Failure was $1.393 billion, a reported decrease of 6% and an organic decrease of 1%.. Cardiac rhythm management revenue decreased in the single digits, with defibrillation solutions also declining in the single digits, partially offset by growth in pacemaker therapy driven by the sustained global adoption of the Micra transcatheter pacing system, leading to mid-term growth in leadless pacemakers. Cardiovascular diagnostics remained pressured as the overall market continued to face challenges. Cardiac ablation solutions revenue declined due to supply constraints.

• Structural Heart and Aortic revenue of $741 million was reported to decrease by 6%, flat versus the prior year. Aortic valves declined amidst ongoing supply challenges, while Cardiac Surgery grew driven by share gains in extracorporeal life support products and sales of the Avalus pericardial aortic surgical valve.

• Revenue from coronary and peripheral vascular businesses was $579 million, a 7% decrease, with organic growth in the low single digits. Coronary and renal denervation (CRDN) declined considering the ongoing impact of COVID-19 on PCI market procedures across many regions. Peripheral vascular health decreased in the low single digits, with declines in directional atherectomy and PTA balloons partially offset by growth in drug-coated balloons, thrombectomy, and superficial venous products.
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Internal Medicine Surgical Combination

The Medical Surgical portfolio includes the Surgical Innovations (SI) and Respiratory, Gastrointestinal, and Renal (RGR) divisions. Medical Surgical revenue of $2.001 billion reportedly decreased by 14%, with an organic decline of 9%.Both Silicon and RGR experienced high single-digit declines. Excluding the impact of ventilator sales, given the increase in COVID-19 related demand in the prior year, Medical Surgical revenue organically decreased by 7%.

• Surgical innovation revenue was $1.338 billion, a reported decline of 14% and an organic decline of 9%.Given the anticipated significant shortage in the raw material supply chain, compounded by the impact of COVID-19 shutdowns in China and provincial value-based procurement (VBP) binding tenders, there has been a decline in the low double-digit range for advanced surgical instruments within this division.

• Revenue from respiratory, gastrointestinal, and renal businesses was reported at $664 million, a decrease of 14%.,Organic decline of 9%. Patient monitoring increased by low single digits, with the low single-digit decline in Nellcor pulse oximetry products offset by mid-single-digit growth in perioperative complications products. Renal care solutions decreased by low double digits due to product stagnation and supply chain challenges.

Neuroscience Portfolio

The neuroscience portfolio includes Cranial & Spinal Technologies (CST), Specialty Therapies, and Neuromodulation. Neuroscience revenue of $2.115 billion reportedly decreased by 4%, with an organic decline of 2%. CST and Neuromodulation decreased in the mid-single digits, partially offset by mid-single-digit growth in Specialty Therapies, all on an organic basis.

• Revenue from cranial and spinal technologies reported $1.043 billion, a decrease of 7%, with an organic decline of 5%.Spine and Biologics decreased by single digits, with Biologics dropping around 15% due to customer ordering patterns, partially offset by core spine growth in the U.S. Neurosurgery declined by low single digits, with decreases in navigation and robotics partially offset by growth in powered surgical instruments, imaging, and CSF management.

• Revenue from professional therapies reported at $667 million, with organic growth of 4%.

• Neuromodulation revenue of $405 million reportedly decreased by 8%, with an organic decrease of 5%.Brain modulation saw a single-digit decline as the significant drop in replacement devices was partially offset by an increase in the share of first-time implants, driven by the continued adoption of the Percept PC Deep Brain Stimulation (DBS) system and the SenSight directional DBS lead system. Meanwhile, the company continues to gain new implant share in the pain stimulation market with the strong uptake of its Vanta and Intellis DTM SCS neurostimulators.
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Diabetes

Diabetes diabetes revenue of $541 million, a reported decline of 5%, was flat versus the prior year.Due to the lack of new product approvals, U.S. revenue declined around 2015. International sales were driven by a 25% increase in continuous glucose monitoring (CGM) product sales and low double-digit growth in supply sales, offset by a low single-digit decline in durable insulin pump sales.

Omnipod® 5 Automated Insulin Delivery System

03

€3.5 Billion Bond "Refueling"

Will Medtronic continue to grow?

Recently, Medtronic has also faced a class-action lawsuit, which accuses the medical device manufacturer of defects in its diabetes business.Kessler Topaz Meltzer & Check law firm announced last week that it had filed a lawsuit against Medtronic, the medical technology giant based in Minnesota, alleging securities fraud related to the disclosure of issues with its insulin pumps.

The original plaintiffs in the lawsuit were the trustees of Local 464A Welfare and Pension Funds - Pension Fund, the trustees of Local 464A United Food and Commercial Workers Welfare Services Welfare Fund, and the trustees of the Consolidated Pension Plan for Acme Employees in New York-New Jersey.

The complaint, filed on September 8, also targets current and former executives of Medtronic. It claims that they repeatedly assured investors starting from 2019 that the FDA approval for the next-generation MiniMed 780G insulin pump was on track, while the recall issues were related to previous models. In a statement, Medtronic spokesperson Erica Winkels said the company is aware of the shareholder lawsuit but has not yet received or reviewed the complaint.

Previously, during Medtronic's first-quarter earnings call in August, the company stated that conditions in its diabetes business were improving.It has completed 90% of the action items in the FDA warning letter. Medtronic Diabetes will continue to focus on obtaining U.S. approval for the MiniMed 780G + Guardian 4 sensor and advancing its next-generation product portfolio.

At the same time, the strong growth in the international market has enabled Medtronic to reduce the expected sales loss in the diabetes field for this fiscal year. The decline is now expected to be 3% to 6%.

Raymond James downgraded Medtronic's rating from "Outperform" to "Market Perform" and removed the previously set target price of $109 per share.The reason is that the institution is concerned about Medtronic's growth in the second half of the year. Despite Medtronic reporting better-than-expected financial results for the first quarter of the 2023 fiscal year, its stock price still fell.

The financial report shows that, apart from the decline in revenue from its main business units, the company also stated that if the recent foreign exchange rates remain unchanged, the revenue for the fiscal year 2023 will be negatively impacted by approximately $1.4 billion to $1.5 billion.

The company has achieved a certain scale of business and revenue through multi-layered leverage. However, its aggressive mergers and acquisitions have also brought certain "side effects" to the company's assets and funds. As of the end of the first quarter of the 2023 fiscal year, the ending balance of the company’s cash and cash equivalents was $2.14 billion, dropping to the lowest level in the past year.Recently, Medtronic issued senior bonds totaling 3.5 billion euros and will use the proceeds for general corporate purposes and to repay part of its overdue commercial paper. This indicates that Medtronic is managing its debt levels, demonstrating confidence in the future, and may continue to implement its corporate strategy.

Medtronic CFO Karen Parkhill expects organic growth to improve gradually, with a stronger second half.But Jayson Bedford, an analyst at Raymond James, disagrees with this view, arguing that the core argument about Medtronic still revolves around valuation. Despite concerns among investors regarding Medtronic’s revenue growth, which have led to a weak market sentiment, the firm expects the stock to remain range-bound.

Bedford stated that due to the impact of supply chain issues on Medtronic's growth exceeding that of its peers, the company would require more time to regain momentum. Additionally, the analyst believes that Medtronic will need higher investment to achieve mid-single-digit revenue growth, which will cast a shadow over the long-term growth outlook.

04

After Important Personnel Adjustments

Medtronic, plc. continues to expand its presence recently.

On March 17, Medtronic announced that the presidents of its three operating divisions—Diabetes, Surgical Robotics, and Cardiac Rhythm Management—were replaced. The newly appointed individuals are as follows:: Que Dallara was appointed as Executive Vice President and Business President of Diabetes, Mike Marinaro as President of Surgical Robotics, and Dr. Kweli Thompson as President of Cardiac Rhythm Management. The leadership changes in these three departments involve three major business segments, all of which are key business units of the company.

Notably, among the newly appointed presidents of the three major divisions, Mike Marinaro and Kweli Thompson are both long-time employees of Medtronic, while the new Executive Vice President and Business President of the Diabetes division, Que Dallara, is a new member who officially joined on May 2.

Que Dallara

Following the personnel adjustments in the business line, Medtronic promptly continued its business expansion strategy on May 13, 2022.Medtronic Announces Completion of Acquisition of Medical Technology Company Intersect ENT ($1.1 Billion Deal), Expanding the Company's Comprehensive ENT and Sinus Surgery Innovation Portfolio to Improve Postoperative Outcomes and Treat Nasal Polyps.

In July, Novartis launched the project plan for Novartis Biome UK Heart Health Catalyst 2022, establishing the world's first investor partnership with Medtronic, RYSE, Chelsea and Westminster Hospital NHS Foundation, and its official charity CW.In April this year, Medtronic announced a partnership with Cydar Medical to bring an innovative component of aortic care to physicians and their patients.Medtronic aims to revolutionize endovascular aortic therapy through this phased approach with digital solutions.

As the world's largest medical device company, Medtronic has also expanded its production and manufacturing scale of cardiovascular devices in China.In February this year, Medtronic invested approximately 300 million yuan in the first phase of its Lingang project in Shanghai, which will be used for the research, development, and industrialization of products related to cardiovascular diseases.The factory of this project is expected to be delivered in June this year, will commence operations within 5 years after delivery, and is expected to reach full production capacity in the third year after commencement. After reaching full capacity, the annual output value is expected to be around 300 million yuan.

Notably, in December last year, the Chinese interventional medical device company Lifetech Scientific and Medtronic reached an agreement to further expand the cooperation on the "Xin Tong" domestically produced pacemaker project. The two parties will initiate a project collaboration on a domestically produced MRI-compatible pacemaker system, promoting the rapid commercialization of the new cooperative products in the Chinese market to meet the growing treatment demands.

In addition, Medtronic recently completed the acquisition of Affera, a developer of cardiac mapping and ablation technologies, for $925 million. This acquisition further expands Medtronic's portfolio of cardiac ablation products and accessories.

On August 31, Medtronic announced that it had partnered with BioIntelliSense for the distribution rights of the BioButton device. Frank Chan, President of Medtronic's Patient Monitoring business, stated,This business is part of Medtronic's medical and surgical product portfolio: "Our vision is to provide actionable insights to clinicians and patients for personalized care anytime, anywhere. Currently, our solutions reach more than 100 million patients in hospitals each year. Through our collaboration with BioIntelliSense, we will support continuous, connected care from hospital to home and expand our reach to help even more patients in more places than ever before."

On September 12, Titan Medical, a medical device company focused on the development of single-port robotic-assisted surgery (RAS), announced the signing of a definitive agreement with Medtronic.According to the agreement, both companies can develop robot-assisted surgical systems in their respective businesses, and Titan will receive up to $31 million (approximately 200 million RMB) upon completion and verification. This agreement builds on the previous agreement between Titan and Medtronic.