5 of the Largest Medtech Profit Drops of 2014 (So Far)

Posted in Medical Device Business by Chris Newmarker on June 10, 2014

Stryker and Intuitive Surgical so far this year have seen some of the largest year-over-year percentage drops in quarterly profits among major U.S. medical device companies, according to a Qmed/MPMN analysis of Securities and Exchange Commission filings.

Read on to find out more:

1. Stryker

–77.0%

Stryker’s sales were actually up more than 5% year-over-year, to $2.3 billion, in the company’s first quarter ended March 31.

But metal-on-metal hip implant lawsuit costs, as well as other expenses, continue to trouble the Kalamazoo, MI–based device company. Stryker saw profits of $70 million in the first quarter, a 77% drop from $304 million in the first quarter of 2013.

Excluding all of the one-time charges, earning would have only been down 3% for Stryker, according to the company.

2. Intuitive Surgical

–76.6%

The Sunnyvale, CA–based maker of da Vinci surgical robots in April reported that first-quarter earnings were down more than 76% and revenue was down 24% from a year before.

Intuitive saw $44.3 million in earnings off $464.7 million in revenue for the quarter ended March 31, a big drop from $188.9 million in earnings off $611.4 million in revenue for the same period a year ago.

“Certain elected da Vinci procedures in the U.S have been under significant pressure driven in part by changing surgical admissions, hospital financial uncertainty and payer incentives favoring watchful waiting and conservative treatment,” Intuitive Surgical CEO Gary Guthart told analysts during a conference call transcribed by Seeking Alpha.

Meanwhile, FDA has discouraged the use of cutting tools called power morcellators for hysterectomies because it poses a risk of spreading unsuspected cancerous tissue, notably uterine sarcomas, beyond the uterus.

The Wall Street Journal reports: “Intuitive Surgical doesn’t make power morcellators, but gynecologists say it’s common to use Intuitive’s da Vinci robots to perform the initial parts of hysterectomies, then follow-up by morcellating with the hand-held tools.”

3. Edwards Lifesciences

–53.1%

Edwards’ first quarter earnings were down more than 53% year-over-year. But there was actually a lawsuit-related reason to the drop.

In early 2013, Edwards received an $83.6 million payment from Medtronic as part of the two companies’ patent fights over transcatheter heart valves patents.

There was no similar payment in the first quarter of 2014. Take the payment out of the equations, and Edwards’ profits would have been pretty much the same as they were a year ago.

Sales were actually up to more than 5% from a year ago, to $522.4 million, for the Irvine, CA–device maker. And a much larger patent-related payout is on its way from Medtronic—which leads to the next company on the list.

4. Medtronic

–53.8%

Medtronic officials apparently decided that spending more than $1 billion over the next eight years is worth it when it comes to ending the heart valves patent battle with Edwards, which threatened to stall U.S. sales of Medtronic’s CoreValve System.

Fridley, MN–based Medtronic announced in May that it has agreed to pay Edwards a $750 million payment upfront—and between $320 million and $480 million in license royalty payments over the next eight years—to settle all pending cases or appeals in courts and patent offices around the world.

The agreement came about two weeks after Medtronic announced it would pay $22 million to settle about 950 claims, and set aside up to $120 million to settle an expected 3800 additional claims, related to its Infuse Bone Graft. It has been widely reported that as much as 85% of the Infuse that Medtronic sold was used for off-label purposes. Some of the lawsuits filed allege that Medtronic was engaged in promotion of those off-label uses, which the company vigorously denies.

For Medtronic’s fourth quarter, ended April 25, the lawsuit payouts more than halved profits to $448 million, or 44 cents per share, down from $1.1 billion, or $1.12 per share, without the legal settlements. (The company earned $969 million, or 95 cents per share, during the same period last year.)

Medtronic’s fourth-quarter revenue was actually up 2.4% year-over-year, to $4.6 billion.

Refresh your medical device industry knowledge at MEDevice San Diego, September 10-11, 2014.

5. Abbott Laboratories

–31.1%

Abbott Labs earned $375 million off $5.2 billion in sales during its first quarter ended March 31, down from $544 million in profits off $5.4 billion in sales a year ago.

Much of the company’s recent woes come from the nutritional side of its business, which continues to dig out from sales disruptions in emerging markets including China, where there was a voluntary recall of Abbott’s baby formula products due to a contamination scare.

Forbes actually expects Abbott’s diagnostics business to pick up the slack for nutritional. First quarter sales for diagnostics were up 2.6% year-over-year, to $1.1 billion.

Meanwhile, Abbott’s medical device sales were down 1.2%, to $1.3 billion, from a year before. The sales drop included a 10.5% drop for diabetes care devices amid what Abbott Park, IL–based Abbott described as “CMS reimbursement reductions and competitive dynamics” in the United States.

Chris Newmarker is senior editor of MPMN and Qmed. Follow him on Twitter at @newmarker.