FDA issues warning to Medtronic's diabetes business

The U.S. Food and Drug Administration issued a warning letter to Medtronic for issues related to its diabetes business, the company said Wednesday.

Medtronic received the letter last week that raised concerns over how this business unit handled complaints, assessed product risks and dealt with recalls for some insulin pump devices.

In July, the FDA inspected the company's Northridge, Calif. facility — the headquarters of Medtronic's diabetes business. The warning letter was the result of that visit.

Medtronic, which has its operational headquarters in Fridley, has been dealing with two separate recalls of insulin pumps that spurred the inspection.

The company recalled pumps in its MiniMed 600 series with an updated retainer ring to prevent damage in November 2019.

In August 2018, the company recalled the optional remote control used with its MiniMed 508 and Paradigm pumps over a potential cybersecurity risk. Medtronic updated both recalls in October.

This new warning letter prompted the company to lower financial expectations for its diabetes division, according to a securities filing Wednesday. The company now forecasts "diabetes declines in the high-single digit range for the third fiscal quarter and the mid-single digits range for the full fiscal year 2022, down modestly from previous guidance of mid- and low-single digit declines, respectively."

This latest regulatory setback also raised investor concern Wednesday over timing for FDA approval of a new Medtronic insulin pump, its 780G model. Medtronic stock closed down 6% on Wednesday.

"While the review of 780G was still progressing up through last week, Medtronic is now assuming that the [warning letter] halts the review process of 780G — the company hasn't confirmed this, but it's a realistic and prudent assumption," J.P. Morgan analyst Robbie Marcus wrote in a note following the warning letter announcement.

Medtronic spokeswoman Pamela Reese said, "We're continuing our conversations with the FDA to better understand the impact on approval timing. This will take time and we'll share updates as we're able."

Reese said the FDA letter addressed: the methods used to assess the risk associated with retainer ring damage on the MiniMed 600 series, the company's processes for investigating complaints about device performance, and timeliness and completeness of the company's recalls and reporting of adverse events.

"We were already in the process of implementing a range of corrective actions related to each of the observations cited during the July inspection," said Reese. "Medtronic is not recommending any action by patients or their healthcare providers as a result of this warning letter."

Diabetes devices are Medtronic's smallest business category. Small changes in its financial performance have a nominal impact on the company's overall business. For the second quarter of its fiscal year 2022, which ended on Oct. 29, diabetes products accounted for $585 million in revenue, or 7.5% of medical device sales.

The disclosure of the FDA letter is the latest in a string of recent delays and disappointments for Medtronic, Marcus wrote in his note.

"The hit to financials isn't great, but worse is likely the hit to investor sentiment, as this follows on the heels of the RDN delayed readout and lowered Hugo robot guidance," wrote Marcus.

RDN refers to the company's renal denervation device to lower blood pressure. The company had been hoping for an early end to the device's clinical trial, but in October, it became clear that a longer, and larger, study would be needed.

Supply chain and manufacturing issues are delaying the rollout of the Hugo surgical robotic product, Medtronic said in its second quarter earnings report last month.