Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Medtronic Inc. (NYSE:MDT)

Cowen Health Care Conference Call

March 6, 2013 10:00 am ET

Executives

Christopher J. O’Connell – Executive Vice President and Group President, Restorative Therapies Group

Analysts

Josh T. Jennings – Cowen & Co. LLC

Josh T. Jennings – Cowen & Co. LLC

So we’re going to get started. Good morning, (inaudible) device analyst here at Cowen, and we’re very pleased to have all of you here in attendance at the conference but also thanks for coming to this specific session. And honored to have Medtronic here and Chris O’Connell, Executive Vice President and Group Head of the Restorative Therapies unit of Medtronic is going to give a brief presentation and introductory remarks. And then we’re going to move over into a fireside chat format and Q&A. So, Chris, thanks a lot for coming and great take it away.

Christopher J. O’Connell

Thanks, Josh. Good morning, everybody, and thank you for being here. It’s great to be here at Cowen. Thanks for inviting us out Josh. And I know we want to do more of a fireside chat format. But I though I’d just start off with a few high level comments about the Restorative Therapies Group and some of the important things going on in that part of the business and certainly happy to take questions, that as well as anything in Medtronic.

First, the forward-looking statements that you are well accustomed to. So from an overall Medtronic perspective, our focus right now is very much around consistent execution in delivering reliable results quarter-in, quarter-out focusing on our near-term growth drivers, new product launches, and our commercial activities in the marketplace.

We are very forward leaning as well with some very aggressive strategies to globalize the company, and I’ll talk more about one example today, as well as our strategies around economic value to be even more competitive in a changing healthcare marketplace. We think about our business at Medtronic in our key areas of concentration focused on our customers.

I’m going to talk in particular today about the neuro, ortho, spine area. But obviously, we have great strength in the cardiac and vascular area and in the area of diabetes. And we really believe that this broad and strategically linked portfolio allows us to do some innovative things in healthcare that will give us increasing competitive advantage and ability to grow the market moving forward.

And then finally, disciplined capital allocation both internally as well as a very sharp focus on total shareholder return and our strong policies of returning half of our free cash flow to investors through dividends and share buybacks. I guess the other comment I would make at this point is, we’re now almost two years into a new CEO, Omar Ishrak who is my boss, and I think we have a great momentum as a management team. We’re very focused and we’re very forward leaning to take advantage of a lot of opportunity we see in the medical device space.

From the Restorative Therapies Group standpoint, I’m going to focus on the cluster of businesses in and around the neuro and ortho area with spine as our centerpiece. But obviously we have some great adjacencies in the area of ENT, pelvic floor, and pain management. And I’m going to talk about our portfolio and our first focus of building strength in that portfolio building a growth portfolio primarily through organic development of our therapies in market development supplemented by some very selective M&A.

Secondarily, because of the strategic linkages both at the customer level and the technology level, our ability to accelerate growth and our competitive advantage by exploiting the commonalities within these types of customers and, of course, contributing to the overall Medtronic strategies of economic value and globalization with some of the unique things we’re doing in these areas.

First, from the standpoint of portfolio strength, within this cluster of markets with the foundation being the neuro surgery and the orthopedic surgery area with spine at the center point, as well as ENT, pelvic floor, and pain, and the enabling technologies through our surgical technologies division, we have identified 13 of our most valuable and highest potential areas that we focus on first and foremost.

Each of these categories listed here represent size of at least, $200 million in revenue or revenue growth potential of $100 million over the next five years. And I believe that each of these areas not only has significant unmet patient need and unmet medical need in the marketplace, but also a lot of headroom for innovation and primarily, we achieved that through the process of internal therapy and market development supplemented by some selective M&A.

And as you can see on the right-hand of the page, we’ve quietly assembled six new properties within Medtronic, within the Restorative Therapies Group over the past three years starting with Axon Systems, which is nerve integrity monitoring technology and then the Osteotech acquisition, which is bone grafting options for our spine or orthopedic sector. And then two acquisitions about a year and half ago in the advanced energy category, one, PEAK Surgical Technologies which is a surgical cutting tool know as the PlasmaBlade and then the Aquamantys System with Salient Surgical Technologies up in Portsmouth, New Hampshire which is a terrific device for Transcollation and demanding orthopedic applications.

And then we went abroad to Germany for the AMT acquisition, which is a spinal interbody company, a very innovative set of technologies for interbody implants that we can put right into our global spine bag. And then finally, which I’ll talk a little more about is the Kanghui Holdings acquisition of November, which is transformative for Medtronic, both in terms of emerging marketplace as well as getting a beachhead in the orthopedics field.

Probably the question I’m asked most about is core spine, which is really the bad weather at the center of our portfolio and I just want to comment on that market as the improvement in the core spine, particularly the U.S. core spine area is fundamental to our strategy. Obviously, as we all know, the U.S. spine market decelerated in the 2010-2011 timeframe. But it’s actually been showing stability in the last six or eight quarter really bouncing around flat as an overall market with procedures flat to slightly up, some price pressure in the mid single-digits offset by positive mix in price per procedure to get back to a flattish market.

In that flattish market, Medtronic has improved its relative performance and as you can see in the chart on the right, we actually have developed a pattern of stability and really in the last three quarters, we believe we’ve significantly stabilized our market share and even entered into a modest market share gain mode. This is being driven by new technology. This past quarter, for example, more than one-third of our revenue mix was coming from products launched in the prior three years. That’s the highest new product mix in nearly five years. And it’s systems like the SOLERA pedicle-based posterior system, he cervical disc arthroplasty market with our BRYAN ACD offering. And as I mentioned before, the interbody category headline by our AMT acquisition. But we’re really doing a very good job in our spine unit getting new products out and making impact in the marketplace.

But perhaps even more forward leaning and innovative than that is the approach we are taking to procedural innovation. So it’s not just about the technology, but it’s about the ability to add value, clinical and economic value to the surgical setting through packaging different technologies to provide better patient outcomes, less invasive procedures, and to leverage our broad portfolio.

One example, that is the MAST MIDLF procedure that we’ve talked about in the past. We’ve now been over 2000 MAST MIDLF procedures, which is a mini open procedure that allows more surgeons to come into less invasive procedure with a proprietary retractor system, a cortical bone screw approach, and extensive training program.

And then even more importantly, perhaps is the advent of navigated spine surgery. And I actually like to talk a little bit more about that before we get into Q&A. But this is where we have an example of where we are leveraging the breadth of our portfolio for competitive advantage. A lot of the enabling technologies that you see on the page from nerve integrity monitoring to surgical navigation to powered surgical instrumentation, all coming out of our surgical technologies division.

And when you combine that with our spine implants, we are able to deliver a package that we call Smart Surgery, or in this case navigated spine surgery, where we can deliver meaningful clinical and economic benefit to a variety of stakeholders in the system.

And so, just in the way of navigated spine surgery, we have about 350 O-arms combined with image guidance in navigation in the U.S. Now, that’s up 40% for a year ago and is driving about 40% growth in navigated spine surgery in our portfolio. Navigated procedures now account for 10% of our overall procedure mix and they are climbing. And where we have this technology, we are seeing much faster growth on the order of 10 points higher, where we have O-arms, where we have these image-guided navigation systems.

We are also supplementing that with powered surgical instruments. We have a proprietary system for our SOLERA system of powered tools to tap pedicles, drive screws, and perform rod cutting and now we’ve performed over 5,000 power use cases with that proprietary technology. And it’s also important to note that with this great initiative, we are also able to put together a really robust business model that combines capital sales, implant sales, disposable sales, as well as the service contracts to make this a very durable and lasting advantage.

And the last part I want to make is just on the Kanghui acquisition, has received a lot of plus towards the end of the year. And it’s a very bold move in China to advance both our globalization strategies, as well as our expansion into a broader setup of products within the orthopedic sector. The Chinese orthopedic market is nearly $1 billion marketplace today. Nearly 40% of all medical devices sold in China, for example, are in the orthopedic sector and in this market is a great growth.

We believe Kanghui is the premium asset in this marketplace and therefore our focus is really first of all in China to localize. We have two R&D operations now, within the Kanghui organization, two manufacturing facilities, and extensive dealer networks. And then when we combine the two brands of Kanghui and Libeier in with the Medtronic premium brand, we have a three-brand strategy to penetrate all segments of the China spine market, but also participating in the fast-growing orthopedic trauma market. Additionally, we’ve got a very attractive portfolio of joints that are coming to the market now, both in the value segment and in the mid-tier segment. And we are first in the market with a knee system and coming in with a hip system, later this year. And we are excited about entering the Chinese joint reconstruction market in that way.

But more broadly, our strategy with Kanghui is to try to serve the broader opportunity in all of the emerging markets in the value segment of orthopedics. Orthopedic is one of the fastest-growing segments globally, particularly in the value segment. And we think Kanghui has an ability to help advance that market. In fact, Kanghui is already exporting 20% of its revenue outside of China into some of the other markets around the world, including Latin America, Central Asia, Southeast Asia, as well as the Middle East.

And so with that just a few opening comments Josh, now, you want to open this up to Q&A and discussions. So I’ll join you over there.

Question-and-Answer Session

Josh T. Jennings – Cowen & Co. LLC

Thanks a lot, Chris. It’s a nice segue into our sort of first round of questions here. I was looking into the med device sector; we are looking for those companies that can maintain or sustain or accelerate into a growth trajectory on the top line that’s in that mid single-digit range, which I think is the new bar for the med device industry specifically.

And, obviously, with our outperform rating, we think Medtronic can do that. Emerging markets and how you are positioned there and globalization is one of the metrics that we are looking at and I just wanted to, off the comments that you just made. One, just how is Medtronic positioned in emerging markets? How competitively, how can you outperform your peers? Everyone is talking about getting into that segment, that channel of growth, and then we’ll build off of that.

Christopher J. O’Connell

Sure. Globalization is obviously a very important theme and it’s exciting, we are building from position of strength. Keep in mind that about 10% of Medtronics revenue today is in the emerging markets. So we’re probably ahead of the curve just as a starting point. We’ve been building our presence in almost all of the emerging markets for a number of years. For example, in China, we have $700 million business already, which is primarily in the premium segment. And that’s really the first step towards serving the emerging markets. And really our first priority is the traditional model of a multinational to export premium products into those markets to serve the upper end of those markets and develop those markets through the basic market development fundamentals of education, therapy development of evidence et cetera.

But now we’re going to a new level by also instead of – in addition to just importing into those markets, we are now localizing in those markets through local product development offices and in a few cases through aggressive strategies like the one I discussed with Kanghui, where we’re buying local organizations or partnering with local organizations to establish beachheads in the broader and higher potential long-term market of the value segment of those markets.

So the Kanghui acquisition, a LifeTech partnership that we have in the cardiac and vascular side are examples of strategies that are exposing us to new segments of the market that are beyond the traditional focus in the premium segment. But the premium segment alone is the huge opportunity. We’ve said that just in the premium segment in the emerging markets, there is upwards of $5 billion of market potential, and so that really is our first focus. But being more local and truly being a global company as opposed to just being a multinational company is the focus of where we are.

Josh T. Jennings – Cowen & Co. LLC

Okay. If we can just dig a little bit into the Kanghui acquisition, I think the revenue run rate was about $80 million and one of the issues with Medtronic is your revenue base is so big, and what moves the needle? So an $80 million revenue run rate, how can you guys leverage the Medtronic channel, the brand, et cetera, get into a domestic player or acquire a domestic player like Kanghui? And how quickly can you leverage everything I was just talking about and have that be a more meaningful contributor to sort of top line growth?

Christopher J. O’Connell

Sure. Well, you have to look at the backdrop as well. In the last five years, we’ve operated in China in some of these other segments through our joint venture with Weigao. And that was a terrific learning experience for Medtronic, as well as for Weigao. But we decided we needed a more permanent and sustainable platform and really an ownership platform in that market, which is why we want to head with Kanghui.

Our first order of business is to sustain the great performance that Kanghui is delivering. They’re a strong company. They’re gaining market share. They’re competing very effectively in the changing Chinese landscape of provincial tenders. They effectively utilize a dual brand strategy and thereby supplementing Medtronic in there.

We have three brands that we can leverage three different channels, we can leverage. And certainly, the Kanghui organization is looking forward to leveraging Medtronic capabilities such as training and education, and then infrastructure globally as they seek to accelerate their performance and in part by expanding more rapidly outside of China.

Josh T. Jennings – Cowen & Co. LLC

And you have a collaborator, you have an investment in LifeTech on some cardio devices in China that may be a precursor of some initiatives to come. But can we expect more M&A activity in Medtronic, picking up some domestic players in emerging markets? Or how should we think about that specific angle of Medtronic’s business development strategy?

Christopher J. O’Connell

It’s a good question. I think we’re clearly more active looking at M&A and partnership opportunities in different markets and it’s not necessarily new. Like I said, we have done this joint venture with Weigao five years ago, which I think was very forward-looking and great learning experience for us. And we continue to look at opportunities and we probably all looking more on average at a broader range of opportunities, not just in U.S. or developed markets, but in the emerging markets.

Although, it’s pretty unpredictable, what you might see, I mean everything has to align well. We’re very disciplined strategically and financially as we look at these acquisitions or partnerships and we really need them to work both at a strategic and financial level and we have a pretty high bar for that.

These two recent examples of Kanghui and LifeTech are excellent high-quality properties that allow Medtronic to really transform ourselves in a way that we understand very well.

Josh T. Jennings – Cowen & Co. LLC

And just thinking about emerging markets, we know the headwinds that are in play for medical device manufacturers in the US, Europe, developed nations, emerging markets, what should we expect for 2013? How is Medtronic looking at the – obviously, it’s a very attractive area for all of the med device industry. Should we continue to expect the growth rates that we’ve seen over the last two years to continue? And then what are the risks there in terms of that slowing down?

Christopher J. O’Connell

Sure. We’ve set an objective, a long-term objective of growing our revenue in the emerging markets in the 20% range. And obviously, growth is never in a perfectly straight line. So you have some quarters where you’re growing faster than that, in some quarters where you’re growing slightly under that.

But we think that, given the opportunity both in the premium segment as well as a greater understanding of and participation in the value segment, that we can deliver those types of rates of growth in the emerging markets. And obviously, our focus is on the large ones, the China’s, the India’s, the Russia’s, the Latin America’s of the world.

But we also have very strong franchises in the Middle Eastern Africa, which have some very unique markets with big opportunity. And we’re spending a lot more of our time really trying to find those areas that bore Medtronic and accelerate our growth, accelerate our presence and where we can help the healthcare system advance the health of their citizens.

Josh T. Jennings – Cowen & Co. LLC

You had some acceleration in emerging market growth in fiscal Q3 that you just reported in the January quarter, and that was in the setting of winding down the Weigao JV and assuming the integration of Kanghui. Is there any setup for or potential risk in the near-term in terms of seeing that wind down of Weigao impact the emerging market growth trajectory, just in the next quarter or two?

Christopher J. O’Connell

In rough terms, in the near-term, the addition of Kanghui revenue roughly offsets the loss of the revenue from the Weigao joint venture. So it’s really a wash in the near-term. Longer-term, we believe the Kanghui platform gives us an ability to have the stronger growth in a more reliable and sustainable growth trajectory. But also keep in mind, the joint venture we split profits 50-50 with our joint venture partner. And so now we obviously maintain our revenue trajectory, but we also keep all the profits.

Josh T. Jennings – Cowen & Co. LLC

And just to continue on the growth trajectory for Medtronic, revenue growth story or sustaining that mid single-digit level. You guys are exposed or you’re levered to some of the most attractive, innovative devices with renal denervation, transcatheter valves. You’re in some of the most attractive markets, atrial fibrillation is included. Can you just talk about maybe how Medtronic is looking at the landscape? And are there areas that you are not involved in here today that you find attractive and that maybe an adjacency or an add-on?

Christopher J. O’Connell

So that’s a good question. We are very focused on the big markets that we’re serving. We do feel very lucky to be in big markets, Cardiac and Vascular and all the key sub-segments there within the neuro, ortho, pain, ENT, GU area that are highly related. There is a lot of opportunity $20 billion to $40 billion of market opportunity depending on how you bigger than orthopedic target you look at.

And then obviously, I feel the diabetes, which is a very large market opportunity. So I think we feel, we’re in the right markets. And almost all of our effort right now is focused on those key clusters. And if we’re going to develop new therapies or add therapies from the outside, it’s really going to be with the high towards strengthening our franchises in those areas that we already participate in and you’ve seen that. The examples I gave earlier within the neuro, ortho cluster, if you will have had the effect of deepening our presence, deepening our expertise, deepening our technology and broadening our participation in some of those markets.

Josh T. Jennings – Cowen & Co. LLC

And just in terms of capital allocation, any changes that we should expect from Medtronic in 2013 or 2014? I know last year, the dividend yield became a big factor in terms of how investors were looking at the med device industry with all the headwinds in play and the stunted growth trajectory for many. How should we look at capital allocation strategy going forward for Medtronic?

Christopher J. O’Connell

I think actually we’re in a great space as it relates to capital allocation. I mentioned briefly, half of our free cash flow back to investors through dividends and share repurchase. And I think we’re just very focused on executing to that and continue to deliver sustainable returns. We do look at total shareholder return as an important equation and obviously our shareholders are a critical constituency.

But we’re also really focused on the fundamentals of our business to try to optimize growth in a changing environment and to be both responsible in the near-term to deliver reliability, but also to be, as I said, very forward leaning in terms of our strategies to accelerate our growth in the future and supplement our growth and to compete more effectively and what is obviously a changing healthcare marketplace.

Josh T. Jennings – Cowen & Co. LLC

And we can just touch on one of the buzzwords that’s come out of your last earnings call. Europe, maybe any incremental color you can provide around the commentary that you gave in terms of the slowdown that you experienced in January and understanding that it is more – I mean I won’t steal your thunder, but if can just give us anymore color in terms of what you guys experienced and then why you called out January in Europe.

Christopher J. O’Connell

Sure, sure. well, as a backdrop, we’ve been performing very well in Europe for some time and growing above the rate of the market in the past year or so in that low to mid single-digit range. We did experience a very soft holiday season. I mean, the holiday season was certainly affected by where the days fell, but there was obviously a very slow couple of week period in there. And so I think that just gave us a little bit of caution. And so, as we look forward, I think we’re expecting maybe growth more aligned with where the overall medical device market is right now, which is more flattish to slightly up, which is what other people have been reporting.

So again, it’s an evolving marketplace. We probably saw a little more of a slowdown in that period in a broader range of therapies and in more countries than we typically are accustomed to. And so, we’re just being a little more cautious, that’s all.

Josh T. Jennings – Cowen & Co. LLC

And heading back towards the growth trajectory of Medtronic, the other side of the equation in stabilization is some of the anchors that have weighed down the growth profile over the last couple of years; Spine being one, ICDs being the other, but talking about Restorative Therapies specifically the whole unit. As you mentioned in your prepared remarks about how spine is stabilizing to a degree. Can you just talk about some of the other business units in Restorative Therapies that can offset spine and what you’re most excited about there?

Christopher J. O’Connell

Sure, sure, well like the Medtronic portfolio overall and with any of the subsets within Medtronic there are parts of the business that we’re focused on improving growth and core spine being a good area, a good example of that and I think we’re having good success there. Obviously, we still have a couple of gaps in our growth profile related to INFUSE, for example, that we’re focused on and getting the Kyphon business growing again.

But there’s also great therapies. Our Surgical Technologies Unit which is probably area that people ask the least about. This is our surgical tools division with our technology platforms in surgical navigation, powered instruments, advanced energy and nerve monitoring serving the fields of ENT, nerve surgery and orthopedics. It’s a wonderful business mix between capital and disposables and service. It’s about a $1.5 billion business growing solid double-digits, continue to innovate internally and add interesting technologies from the outside.

But more importantly those surgical technologies are very focused and very directed at deep in some specialty areas where we have expertise and presence in the implant business. So, for example, neurosurgery, neuromodulation, spin surgery, orthopedic surgery, and that’s a unit that has been just a start performer for Medtronic and has a number of key product lines that continue to grow.

Neuromodulation is another area that’s really performing very well right now in that near double-digit type range. And that’s three businesses that’s the Gastro/Uro business, which is pelvic floor stimulation for urinary and fecal incontinence. It’s the deeper in stimulation for movement disorder such as Parkinson’s disease and the Chronic Pain business with the pain stimulator and the pain pump.

And we have some new technology in the pain area, the Restore Sensor, which is the industry’s first device that automatically adjusts stimulation based on the posture changing posture of the patient. So almost more a closed-loop process that we’ve seen in other key devices around Medtronic, whether it’s cardiac pacing or diabetes pumps et cetera.

And so all three of those major businesses within neuromodulation are now performing well. In some cases we own most of the market like DBS and Neurostim and the carry pain, which is more competitive. We believe we’re in a market share gain mode. And so, the neuromodulation business is working well right now.

And obviously the diabetes business has been a historic strong source of growth. It’s been a little slower recently in the U.S., because we’re waiting a brand new product of 530G, which is an exciting innovation that’s captured the hearts and minds of people all over the world as it’0s rollout in the international markets. But now coming to the U.S. to provide low glucose spend technology for the patients who use the Sensor-Augmented Pumping Sytem.

Josh T. Jennings – Cowen & Co. LLC

And if we can just focus specifically on spine here, and just how – and core spine, obviously, as you pointed out, you’ve experienced some nice stabilization, new innovative products, had some pull-through there, the INFUSE and Kyphon, the anchor specifically to that unit. How do we think about those two product lines stabilizing in terms of maybe time lines for INFUSE and Kyphon specifically?

Christopher J. O’Connell

Sure, well, Kyphon specifically is not hurting us as much as BMP is right now. But Kyphon is a very important therapy balloon kyphoplasty for vertebral compression fractures. And obviously that became a very big market very fast around the time of acquisition and has been less of a growth business in recent years and has more competition has come in and the business has segmented into both premium and value and as vertebroplasty has continued to grow as a therapy in that segment.

But we’re very patient with Kyphon right now. We’re obviously pushing hard to return it to growth. It had some modest declines. But we actually believe Kyphon is a very important strategic platform for Medtronic as we look forward to the world of interventional pain therapies. So historically, the pain market has been driven in medical devices by certainly spine surgeries as well as neuromodulation.

But there is a number of new therapies being developed both internally and externally in the market, which call for less invasive approaches to help treat patients early in the care continuum through catheter-based therapies and interventions that don’t necessarily leave a lot of device behind.

That whole world interventional pain management and physicians like anesthesiologists and interventional radiologists, PM&R physicians is a really critical future for obviously a worsening and worsening problem of chronic pain management. And so we really like the R&D platform we have and the distribution platform we have into some of those specialties based on the Kyphon product line, and so we continue to invest to make that growth market in the future.

As it relates to BMP, I think it’s a pretty straight forward story that most people know. We’ve been very patience with BMP as these external systematic reviews conducted by Yale have been underway to try to clear the air on some questions that have been raised a few summers ago by a particular author of a journal. And it’s an example of Medtronic taking the high road and being extremely transparent with all the patient data and letting a third-party really evaluate that rather than getting into a debate with that author.

I think it’s important to say that we really believe in this product that BMP-2 product infuses a very unique product in orthopedic medicine. It’s critical to so many surgeons and patients around the world. And so, we’ve taken the hit on the business side. But we’re doing the right thing by having this third-party review and obviously, we believe in this product and believe it has a future.

Josh T. Jennings – Cowen & Co. LLC

We’ve annualized the INFUSE initial hit in the…

Christopher J. O’Connell

Yeah.

Josh T. Jennings – Cowen & Co. LLC

January quarter in fiscal 2012. How should we think about INFUSE revenues going forward with this Yale review being pushed out? Should we expect continued pressure, do you think modest, less pressure than we saw over the last four quarters, or continued pressure in that same range?

Christopher J. O’Connell

We’re obviously still seeing some declines there. They’re probably are moderating a little bit. And obviously, we look forward to the day where that flattens out. We’re not there yet, but we hope to be there in the future. And obviously, we expect that a lot of people are probably watching and waiting for Yale report to come out.

It’s been an arms-length process. We have no involvement in that process. So we obviously are aware where it is from an overall process standpoint, but not what’s going to be published. And so we’re obviously being patient and continue to support the products in the marketplace.

Josh T. Jennings – Cowen & Co. LLC

Great. I’d just like to open it up to any question from the audience before we head to a breakout session.

Question-and-Answer Session

Unidentified Analyst

(inaudible)

Christopher J. O’Connell

Sure. So the question is really about China in the evolution of the market and hospital process and the tendering process. First of all, what’s palpable when you’re in China and as a part of this deal, I personally traveled to China 10 times last year and led this deal and learned a lot in the process, obviously a tremendous amount of building going on.

The Chinese government has made huge financial commitments not just in the major cities on the East Coast, but really throughout China. To build healthcare infrastructure that consist of hospitals, clinics, trained physicians, other medical professionals. And so clearly, there’s an infrastructure there to grow in.

The purchasing model continues to evolve. We are seeing definitely a trend towards regionalization and specifically provincial tenders. And this is a process where a local province or even a local set of hospitals will take a product category, to say value segment orthopedics or premium segment orthopedics in tender for a period of time.

And so, our ability to effective in those tenders is based on a number of factors including breadth of product line, local knowledge ability to service. The brand actually matters quite a bit in an increasingly tender oriented environment. And this is an environment that Kanghui has actually been particularly successful in. Just to say a little more about their past is, about three or four years ago, Kanghui out of Changzhou, China merged with a company called Libeier up in Beijing, which is another orthopedic company and they actually operate two pretty distinct brands in the marketplace.

In some cases, they are complementary region by region and in other cases, they take both of those brands into some of these provincial tendering processes. And so, they’re certainly teaching us a lot about the evolving marketplace in those areas and now the opportunity to add Medtronic a little more broadly in some of those competitions is going to be, I think a good opportunity for us. And so, really trying to balance both being a strong multinational in those markets, as well as a more localized company through that type of an investment.

Josh T. Jennings – Cowen & Co. LLC

Great. Well, Chris, thanks so much, and I think we’ll all head over to the breakout room next door.

Christopher J. O’Connell

Good. Thank very much Josh.

Josh T. Jennings – Cowen & Co. LLC

Thank you.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Medtronic's Management Presents at Cowen Health Care Conference (Transcript)
This Transcript
All Transcripts