Geoffrey S. Martha
Chairman and Chief Executive Officer at Medtronic
[Video Presentation]
Hello, everyone, and thank you for joining us today. This morning, we reported our Q4 results. Now there were parts of the quarter that played out as anticipated, and there were also some unexpected challenges, more than I would have liked, which caused us to come up short of our expectations.
As we anticipated, procedure volumes in most of our markets reached pre-COVID levels by the end of the quarter. We also executed and delivered on recent product launches. However, we faced challenges related to supply chain in China that impacted some of our businesses and were the largest contributors to our shortfall.
Now I'll get into more detail on these challenges shortly, but you should take away that we understand the root causes and we are well down the path to addressing them. And to be prudent, however, we've assumed that these challenges will persist for the next quarter or two in the guidance that Karen is going to walk you through shortly. So let's focus on what happened this quarter.
The shortfall to our revenue guidance was primarily due to two factors, China, where the extended COVID lockdowns affected our results in the quarter particularly in April; and global supply chain challenges. Over the past few quarters, global supply chain challenges have impacted many of our businesses. And as they arise, our teams have worked quickly to resolve them, and prior to this quarter, we have largely mitigated their financial impact. However, this quarter, one of our largest businesses, Surgical Innovations, was adversely affected by certain raw material shortages, and this resulted in large back orders and caused our SI revenue to come in well below our expectations. Several of our other businesses also face supply challenges in the quarter, but to a lesser extent.
Now we're down the path of improving our supply chain capabilities, and we're leveraging the expertise that Greg Smith, our new Global Ops and Supply Chain leader brings from the retail, consumer products and automotive industries. Greg and his team are making progress addressing the areas, where we can improve, including the management and resiliency of our critical suppliers and manufacturing network.
The recent stress of these global supply chain issues has further illuminated the need for the enhancements. We have a new global structure in place that consolidates operations and supply chain functions, which were previously fragmented throughout the organization. Now this is a big move for us, and there's still a lot of work to be done. But I am confident we will come out of this with a more resilient end-to-end global supply chain that we believe will be a competitive advantage in our industry.
While some of our Q4 challenges will persist in the near term, we expect strong improvement in the back half of our fiscal year, and we remain focused on delivering our long-term strategies. We have made significant changes over the past two years to position the Company for accelerated and sustained innovation-driven growth.
Our pipeline is robust and continues to advance with a number of upcoming catalysts and fast growing medtech markets. We're committed to creating strong returns for our shareholders, and we're making progress with our enhanced portfolio management and our capital allocation processes. We're investing in future growth drivers, while at the same time returning capital, primarily through our meaningful and growing dividend, which we just increased again today by 8%.
Regarding portfolio management, we are continuing to advance the robust process we began talking about earlier this year. And within that, and as a smaller initial step, we're pleased to announce that we've reached an agreement, where we will contribute our Renal Care Solutions business into a new Company, which we will jointly own with DaVita. And in return, we'll receive up to $400 million in value from them, and we expect this transaction will close in calendar 2023. The new Company is going to develop a broad suite of novel kidney care solutions, including home-based products.
I'm excited about this for a couple of reasons. First, this business is going to have the focus that it needs; second, DaVita is a global leader in kidney care and will be a great partner to commercialize and scale this innovative technology. And finally, both Medtronic and DaVita will participate in the expected upside.
Now turning to market share, product availability affected our performance in the quarter with our overall Company share down about 0.5 point. On the bright side, even with our challenges, half of our businesses held or gained share. And as you know, market share is an important metric for us at Medtronic, as it is a driver of our annual variable compensation, along with revenue growth, profit and free cash flow. While I won't go through market share business by business in the interest of time, we'll be happy to take questions in Q&A.
Now let's cover our product pipeline, where we're advancing several meaningful technologies that can create new markets, disrupt existing ones and accelerate the growth profile of Medtronic. We made great strides with our organic pipeline in fiscal '22, conducting over 300 clinical trials and receiving over 200 regulatory approvals in the U.S., Europe, Japan and China. Our recent product launches are starting to make an impact across our businesses. And as we look ahead, we have increasing visibility to upcoming catalysts in the back half of the calendar year that we expect will help accelerate our growth, as we go through fiscal '23 and beyond.
Starting with our Cardiovascular portfolio and Cardiac Rhythm Management, recently launched leadless pacemakers, including our Micra AV in Japan and Micra VR in China, led to above-market growth again this quarter. We just received approval for Micra AV in China earlier this month, and we expect geographic expansion to continue to drive strong Micra growth.
In ICDs, we're preparing to disrupt the single-chamber market with our Aurora Extravascular ICD. We continue to drive towards CE Mark approval for Aurora later this calendar year and U.S. approval next year. With Micra and EV ICD, we expect continued strength in CRM.
In Cardiac Ablation Solutions, we've been assembling a number of technologies to increase our impact in the $8 billion EP ablation market, building on our leadership in cryoablation. We're continuing the roll out of our DiamondTemp RF system, an exclusive cryoablation first-line indication for paroxysmal AF.
We're advancing our pulsed field select anatomical pulsed field ablation system, having fully enrolled our global pivotal trial. We're also expecting to fill competitive gaps in cardiac ablation with our recent announcements to add a differentiated mapping and navigation system, and left heart access portfolio, including a transseptal access system that can perform both mechanical and RF crossings.
In renal denervation, data from our SPYRAL HTN-ON MED pilot study were presented last month at ACC and simultaneously published in the Lancet. These data demonstrated durable and clinically significant blood pressure reductions through three years. And last week, additional data were presented at EuroPCR, which showed those receiving RDN spend significantly more time in target blood pressure range, adding to our robust body of evidence.
In Q4, we also announced that we completed enrollment in the full cohort of patients in the ON MED study, which we expect to complete the six month follow-up in the second half of this calendar year. We'll then look to present the data and submit for FDA approval, as ON MED is the final piece of our submission.
In Structural Heart, differentiated durability data for our TAVR valves were presented as a late-breaker at ACC last month. The data showed that our TAVR platform is the only one to outperform surgical valves and durability at five years, as measured by SVD or Structural Valve Deterioration. And less SVD was associated with better clinical outcomes, including mortality and heart failure hospitalization.
Additionally, durability data were presented from a separate U.K. registry, the first to look at TAVR data past 10 years, and it showed CoreValve had one third the rate of structural valve deterioration compared to SAPIEN and SAPIEN XT. And data at EuroPCR last week, reinforced our excellent clinical outcomes with our customer cusp overlap implant technique, including one day hospital discharge, single digit pacemaker rates and the absence of moderate or severe PVL.
In the quarter, we also continued to launch Evolut Pro+ in Europe and began the launch of Evolut Pro in China, our first entry into this large and under-penetrated market. In the U.S., we're planning to start the limited market release of our next generation TAVR valve, Evolut FX, here in our first fiscal quarter and move into full market release later in the fiscal year.
We're also looking to expand our TAVR indications. We had first enrollment earlier this month in our EXPAND TAVR II pivotal trial, evaluating our TAVR platform in patients with moderate symptomatic aortic stenosis. Overall, TAVR represents a large growth driver for Medtronic, as we expect this roughly $5.5 billion market to exceed $7 billion within the next three years and reach $10 billion in the next five years.
Moving to our Med Surg portfolio and Surgical Robotics, we remain focused on the limited market release of our Hugo robot, while we scale production. We completed Hugo installations in Denmark, France and Italy. We also continue to increase our installed base of Touch Surgery Enterprise, our AI-powered surgical video analytics platform.
In our Patient Monitoring business, we just received FDA clearance earlier this month for next generation Nellcor OxySoft pulse ox sensor. Now this sensor includes a special silicone adhesive designed to protect fragile skin, while enhancing adherence. Its low profile and brighter LEDs improve accuracy and responsiveness for the most challenging neonatal and adult critical care patients.
Now turning to our Neuroscience portfolio and our Cranial and Spinal Technologies business, we're seeing strong adoption of our unit AI-enabled surgical planning platform with a mid-30 [Phonetic] sequential growth in our U.S. user base. The ongoing launch of our Catalyft Expandable Titanium Interbody System and the roll out of our enabling technologies continues to differentiate us in spine. Customer demand for our capital equipment remains strong. And we had record quarters for our Mazor robotics system and StealthStation Navigation System.
In Neuromodulation, we're building our commercial teams and have started the initial launch of our Intellis and Vanta spinal cord stimulators to treat diabetic peripheral neuropathy. We believe DPN is one of the largest opportunities in medtech, and we expect the market to reach $300 million by FY '26 with an annual total addressable market of up to $2 billion.
And we're also excited about our Inceptiv ECAPs closed-loop spinal cord stimulator, which we submitted to the FDA late last calendar year. We expect Inceptiv's closed-loop therapy, which optimizes pain relief for patients to revolutionize the SCS market.
In Brain Modulation, our ongoing launch of the Percept PC neurostimulator and SenSight Directional Leads is driving new implant share in both Europe and the U.S. And this is the only system that can stimulate and sense brain signals.
In Pelvic Health, we received FDA approval of our next-gen InterStim recharge-free device, InterStim X, and that was happened in the fourth quarter. InterStim X features our proprietary fifth-generation battery chemistry that provides 10 years to 15 years of battery life without the need to recharge.
And in ENT, we announced earlier this month that we completed the acquisition of Intersect ENT, and we're excited to add their attractive high-growth complementary products into our existing business. We believe we can grow Intersect's products in the double digits over the next several years, as we expand use of both the PROPEL and SINUVA sinus implants globally.
In Diabetes, our MiniMed 780G insulin pump, combined with our Guardian 4 Sensor continues to be extremely well received in markets, where it's available. Now this system has a very positive user experience with no fingersticks and more time and range. This is due to its near real-time basal insulin and auto correction boluses every five minutes to address underestimated carb counts and occasional missed meal doses. Very strong data on 780G and Guardian 4 were presented at ATTD last month, showing improved time and range with less user interaction. Additional data sets on this differentiated system will be shared at ADA next month.
And we also announced that Germany and France began reimbursement of our system in the quarter, which helped drive high-teens sequential international growth in diabetes. And in the U.S., we made substantial progress in meeting our observation and warning letter commitments, and continue to have regular communication with the FDA.
In our CGM pipeline, we expect to submit our next-generation sensor, Simplera, for CE Mark and FDA approval this summer. In addition, we're advancing multiple next-gen sensor and pump programs, including patch pumps. We're making considerable investments in our diabetes pipeline with line of sight to restoring strong growth in this business over the coming years.
And with that, I'll turn it over to Karen to discuss our fourth quarter financial performance, and our new guidance for the next fiscal year, Karen?
