Medtronic, A Leader in Opioid Pain Relief
Medtronic PLC (NYSE:MDT) may not be able to solve America’s opioid crisis, but its spinal cord stimulators should certainly reduce the negative impact it has on the lives of those suffering from opioid addiction.
The company’s strong financial position, diversified portfolio of first-to-market products, growing international footprint, and high barrier should also benefit buy-and-hold, income-starved investors.
America’s Opioid Crisis
While the opioid crisis has been declared a national emergency in the U.S., little is being done, it seems, to stem the flow of legal prescription painkillers.
And it’s taking its toll on Americans.
Opioids are a class of drugs that include heroin and powerful pain relievers like oxycodone, codeine, morphine, and fentanyl. Opioid overdoses kill more than 130 people in the U.S. every day; that’s close to 50,000 opioid deaths every year. (Source: “Opioid Overdose Crisis,” National Institute on Drug Abuse, last accessed February 13, 2019.)
And that number is climbing.
Drug overdose is now the leading cause of accidental death in the U.S., and opioid addiction is fueling this epidemic. On top of that, more than 1,000 people are treated in emergency rooms across the country for not using prescribed opioids as directed.
The opioid epidemic has been taking a financial toll on the U.S. economy. In 2015, it was estimated that the economic cost of the opioid crisis was $504.0 billion, or 2.8% of the country’s gross domestic product (GDP). (Source: “The Underestimated Costs of the Opioid Crisis,” The White House, last accessed February 13, 2019.)
The opioid crisis has had a big impact in terms of lost productivity and tax revenue. In 2016, the opioid crisis reduced federal, state, and local tax revenue by almost $16.0 billion. (Source: “The severe economic costs of the US opioid crisis,” The Hill, June 14, 2019.)
Medtronic is the world’s largest medical device company, helping alleviate pain, restore health, and extend life for millions of people around the world.
The Dublin-based company employs more than 9,600 scientists and engineers and has more than 46,000 patents in its portfolio. It serves physicians, hospitals, and patients in more than 150 countries. (Source: “Facts and Statistics,” Medtronic PLC, last accessed February 11, 2019.)
And the company is growing by leaps and bounds. In addition to being a leader in chronic pain, Medtronic also holds a commanding lead in its core heart devices, spinal products, and insulin pump.
Moreover, the company has a deep and potentially lucrative pipeline of products in development. These treat atrial fibrillation, aortic stenosis, and a large number of neurological disorders. Should the company announce strong test results with these new therapies, it could be a leader in three more massive markets.
The Medtronic’s business operates through four segments:
- Cardiac and Vascular Group: Total 2018 sales of $11.4 billion
- Minimally Invasive Therapies Group: Total 2018 sales of $8.7 billion
- Diabetes Group: Total 2018 sales of $21.0 billion
- Restorative Therapies Group: Total 2018 sales of $7.7 billion
It is the company’s Restorative Therapies Group, which focuses on spine, brain, pain, and specialty therapies, that has developed a non-opioid treatment for chronic intractable pain. Those pain control devices are helping not just relieve pain associated with arthritis, but also mask pain associated with opioid addiction.
Medtronic’s spinal cord stimulation therapies are tiny medical devices that are surgically placed under the skin near the spine in the lower back. The neurostimulators modify pain signals before they reach the brain. Drug pumps, meanwhile, deliver pain medication directly into the fluid surrounding the spinal cord.
This rapid, effective pain relief does not just benefit those who are addicted to opioids. It also helps America’s aging population with everyday aches and pains—or, as some call it, America’s arthritis epidemic.
America’s Arthritis Epidemic
The American population is getting older. Roughly 10,000 baby boomers (people born between 1946 and 1964) are retiring each day. And they’re experiencing a lot of aches and pains.
Baby boomers are part of the growing arthritis epidemic. According to the Centers for Disease and Control Prevention (CDC), an estimated 52.5 million Americans have arthritis. By 2030, that number is expected to grow to 67 million. (Source: “At a Glance 2015,” Centers for Disease Control and Prevention, last accessed February 13, 2019.)
That’s a big target audience.
Medtronic PLC Stock Information
|MDT Stock Figures|
|Market Cap||$121.21 billion|
|Shares Outstanding||1.3 billion|
|50-Day Moving Average||$87.29|
|200-Day Moving Average||$92.44|
(Source: “Medtronic plc (MDT),” Yahoo! Finance, last accessed February 13, 2019.)
Medtronic PLC’s Aggressive Acquisition Strategy
Medtronic’s diversified product portfolio gets a regular boost thanks to its aggressive acquisition strategy.
In January 2015, Medtronic completed the acquisition of rival device maker Covidien plc (NYSE:COV), in a cash-and-stock transaction stated to be worth approximately $49.9 billion. (Source: “Medtronic Completes Acquisition of Covidien,” Medtronic PLC, January 26, 2015.)
In September 2018, Medtronic purchased Mazor Robotics (NASDAQ:MZOR, TASE:MZOR.TZ) for $1.7 billion. The acquisition further supports Medtronic’s position as a global leader in robotics-assisted spine surgeries. (Source: “Medtronic Completes Acquisition of Mazor Robotics,” Medtronic PLC, December 19, 2018.)
On January 24, 2019, Medtronic confirmed a definitive agreement to acquire privately held medical device company EPIX Therapeutics, Inc. Upon completion, the acquisition will boost Medtronic’s cardiac ablation portfolio to treat cardiac arrhythmia. (Source: “Medtronic to Acquire EPIX Therapeutics, Expanding Its Cardiac Ablation Portfolio,” Medtronic PLC, January 24, 2019.)
Medtronic PLC Announces “Outstanding” Q2 Results
On November 20, Medtronic announced its financial results for its second quarter of fiscal-year 2019, which ended October 26, 2018. Second-quarter revenue increased 6.1% year-over-year to $7.5 billion. (Source: “Medtronic Reports Second Quarter Financial Results,” Medtronic PLC, November 20, 2018.)
- Cardio and Vascular Group revenue increased by 3.1% to $2.9 billion.
- Minimally Invasive Therapies Group revenue rose by 4.9% to $2.0 billion.
- Diabetes Group revenue up 26.2% at $583.0 million.
- Restorative Therapies Group revenue increased seven percent to $2.0 billion.
Net income was $1.2 billion, or $0.82 per share. In the second quarter of fiscal 2017, Medtronic announced net income of $2.0 billion, or $1.48 per share.
Chairman and CEO Omar Ishrak said:
This was an outstanding quarter for Medtronic. We are executing on multiple fronts, resulting in robust top-line growth, solid margin expansion, and increasing free cash flow…Yet, even more exciting than our results this quarter is the progress we are making on our new product pipeline, which is stronger than at any time in our company’s history.
For fiscal-year 2019, Medtronic increased its organic revenue growth guidance from a range of 4.5%–5% to a range of 5%–5.5%.
The company is maintaining its fiscal year 2019 diluted non-generally accepted accounting principles earnings per share guidance in the range of $5.10 to $5.15.
“Our end markets are strong, and we are leading in most of the fastest growing markets in medical technology,” said Ishrak. (Source: Ibid.)
Medtronic will report financial results for the third quarter of fiscal-year 2019 before the markets open on February 19, 2019.
For yield-hungry investors, there are few better biotech companies than Medtronic. Thanks to its strong cash position, it has increased its annual dividend payment for the last 41 consecutive years.
Over the last 10 years, Medtronic’s dividend yield has increased at a compound annual growth rate (CAGR) of 10%; over the last 20 years, it’s boosted its annual payout at a 15% CAGR.
Medtronic currently pays a quarterly dividend of $0.50 per share ($2.00 annually) for a dividend yield of 2.33%. (Source: Yahoo! Finance, op cit.)
Medtronic PLC has a strong diversified product portfolio aimed at a wide range of chronic diseases. Because of the aging population and opioid crisis, the company’s spinal cord stimulation therapies are garnering a lot of attention.
Medtronic is a financially robust company with a large number of revenue-generating products and a strong pipeline. Thanks to its strong fundamentals, Medtronic should continue to provide buy-and-hold investors with capital appreciation and growing dividend yields.