Medtronic strikes $738 million deal to help bolster struggling diabetes business

A $738 million deal to acquire a South Korean maker of a wearable insulin patch could provide a long-term boost to Medtronic’s diabetes business.

The agreement to purchase EOFlow Co. should close in the second half of the year, Medtronic said Thursday.

Medtronic, based in Ireland but managed by Fridley, announced the deal at the same time it reported its quarterly financial results.

Net income fell 20% to $1.2 billion, or 88 cents per share, in the fourth quarter ended April 28. Adjusted earnings per share of $1.57 were one cent above Wall Street expectations.

Medtronic reported a 6% revenue increase to $8.5 billion for the quarter, beating consensus estimates of $8.25 billion. The company’s shares fell 4.5% on Thursday and 15% last year.

Medtronic’s diabetes division was its worst-performing segment for fourth-quarter US sales. Domestic diabetes revenue was down 6.6% for the quarter, while overall US sales were up 9.3%.

But Medtronic CEO Geoff Martha said developments during the quarter could turn the tide.

“In diabetes, it’s been a great quarter for us,” Martha said on a conference call with analysts.

Martha pointed to two Food and Drug Administration actions in April as examples of momentum in the unit.

The FDA issued a warning letter in December 2021 detailing concerns about Medtronic’s handling of recalls and complaints about some of its insulin pumps. After another inspection of Medtronic’s facilities in Northridge, Calif., where the diabetes business is headquartered, the agency in April lifted the warning and related restrictions.

At about the same time, the FDA approved Medtronic’s MiniMed 780G insulin pump. Orders are expected to start shipping in June, the company said.

Martha said the EOFlow deal will complement Medtronic’s current portfolio, including MiniMed.

The deal was “one of our traditional deals,” Martha said, adding that Medtronic still has a lot of appetite for similar deals.

The diabetes division is Medtronic’s smallest, with $2.3 billion in annual sales.

John Boylan, senior equity analyst at Edward Jones, said the EOFlow deal is a boost for the diabetes franchise but won’t have an immediate impact on sales growth.

“We think it’s a promising acquisition and could help with long-term growth, but incorporating the technology into Medtronic’s platform won’t happen overnight, so it may take some time to see this incremental growth,” he said. “We see diabetes as a solid part of Medtronic’s long-term growth.”

EOFlow manufactures EOPatch, a tubeless, wearable, disposable insulin patch approved for use in Europe, South Korea, Indonesia and the United Arab Emirates, but not yet in the United States.

“Our goal is to simplify diabetes management and deliver the well-established benefits of automated insulin delivery to our customers in the way they want and need it,” Que Dallara, president of Medtronic Diabetes, said in the statement announcing the agreement.

Medtronic said in its earnings release that it continues to manage earnings expectations with a slower-growing sales environment, inflation and foreign currency exchange rates. It initiated global layoffs in April, but did not provide specific numbers on the job cuts, which will continue in the coming months.

Company executives estimate organic revenue growth of 4-4.5% for the next fiscal year. Adjusted earnings growth, he said, should be in the range of $5 to $5.10 a share. That’s below the analyst consensus estimate of $5.20 a share compiled by Refinitiv.

With non-emergency surgeries continuing to bounce back from pandemic lows and the approval of MiniMed, among other positive notes from Medtronic, “the guide looks conservative to us,” Vijay Kumar, an analyst at Evercore ISI, said in a note.

Includes reporting from Reuters.

Medtronic strikes $738 million deal to help bolster struggling diabetes business

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