Medtronic said Tuesday that first fiscal quarter net income fell 38 percent for the quarter ended July 31, largely due to a $360 million (32 cents a share) payment to Abbott Laboratories to resolve the two companies' incessant patent litigation over their drug-eluding stents.
The companies agreed not to sue each other over their stent technologies in the future, saying the money was better spent on product development.
Medtronic's quarterly profit was $445 million, or 40 cents a share, down from $723 million, or 64 cents a share, in the year-ago period.
If not for the one-time charge, the company said income would have climbed 9 percent to $883 million, or 79 cents a share. Wall Street analysts expected earnings of 71 cents a share, according to a poll by FactSet Research.
Revenue for the quarter climbed 6 percent, to $3.93 billion. Sales would have jumped 10 percent, if not for the negative impact of the strengthening dollar.
Shares of Medtronic fell 14 cents Tuesday to close at $37.86 after earnings were announced. In the past year, its stock has dropped approximately 32 percent.
Core Business Growth
The company reported that all its core businesses grew impressively, although they took a hit as a result of currency exchange rates.
Cardiac Rhythm Disease Management
Cardiac Rhythm Disease Management (CRDM) revenue of $1.337 billion was up nearly 3 percent, or 7 percent, after adjusting for an unfavorable $53 million foreign exchange impact.
Revenue from implantable cardioverter defibrillators was $775 million, while pacing revenue was $536 million in the quarter. Outside the U.S., CRDM revenue grew 10 percent, driven by significant growth in Europe and China.
Spinal revenue of $915 million climbed 7 percent, or 8 percent, after adjusting for an unfavorable $17 million foreign exchange impact. Sales of the company's core spinal products increased 11 percent and spinal revenue outside of the U.S. soared 24 percent.
Cardiovascular revenue of $689 million jumped 9 percent, or 15 percent, after adjusting for an unfavorable $37 million currency translation impact. Growth in the cardiovascular business was driven by strong global performance in both the endovascular unit, where sales soared 41 percent; and structural heart disease product lines, where sales increased 16 percent.
During the quarter, Medtronic launched the Endeavor drug-eluting stent in Japan, which helped coronary revenue to reach $353 million for the quarter.
Neuromodulation revenue rose 7 percent to $373 million, or 11 percent, after adjusting for an unfavorable $13 million currency translation impact.
Diabetes revenue of $295 million grew 10 percent, or 15 percent, after adjusting for an unfavorable $14 million currency translation impact, on strong U.S. insulin pump and continuous glucose monitoring (CGM) product sales, as well as sales of consumables in Europe. International sales climbed 14 percent. During the quarter, the business unit launched the Paradigm Veo pump in the UK and Ireland, the first semi-closed loop product, extending its lead as the only company with a proprietary CGM sensor augmented pump.
Revenue from surgical technologies grew to $227 million, up 12 percent, or 16 percent, after adjusting for an unfavorable $7 million currency translation impact. Revenue in the business unit grew on sales of the monitoring product line, the launch of NIM 3.0, a new nerve integrity monitor and strong ear, nose and throat and neurological power disposable sales.
In Europe, sales of navigation equipment used in both brain and spinal surgery procedures were also strong during the quarter.
Physio-Control reported $97 million in revenue, up 3 percent, or 7 percent after adjusting for an unfavorable $4 million currency translation impact. The launch of the LIFEPAK 15 monitor/defibrillator contributed to revenue growth in the quarter, the company said.
"Our solid performance across all businesses demonstrates the strength of our product portfolio and geographic diversity," said Bill Hawkins, Medtronic chairman and chief executive officer. "Our focused efforts to provide innovative solutions to the growing and global challenge of chronic disease are enabling us to bring our therapies to more people than ever before."
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Abbott and Medtronic Resolve Stent Patent Litigation