Medtronic plc (NYSE:MDT) Wells Fargo 2023 Healthcare Conference August 6, 2023 12:00 PM ET
Company Participants
Geoff Martha - CEO
Conference Call Participants
Larry Biegelsen - Wells Fargo
Larry Biegelsen
All right. Good afternoon, everyone. Can you hear me okay? All right. We’re going to get started with our keynote speaker today. I’m Larry Biegelsen, the medical device analyst at Wells Fargo. Welcome to our 2023 Healthcare Conference. It’s great to see so many people here, so many familiar faces.
I’m really thrilled to have Geoff Martha as our keynote speaker today. Geoff is the Chairman and CEO of Medtronic, which is the world’s largest medical technology company, with annual sales of about $32 billion and a market cap of over $100 billion. Geoff’s been Medtronic’s CEO since April 2020, which was obviously an interesting time to lead a medical device company.
Before becoming CEO, Geoff was -- Geoff led Medtronic’s Restorative Therapies Group, which is a $10 billion business. He also led the integration of Covidien, which is one of, if not, the largest acquisition in the medical device industry. Before joining Medtronic, Geoff spent almost 20 years at GE Capital and GE Healthcare.
During today’s discussion, you may hear some hockey references. That’s because Geoff was captain of the Penn State men’s hockey team and later inducted into its hockey Hall of Fame. And I just learned Geoff still plays hockey, occasionally.
Geoff Martha
Occasionally, yes.
Larry Biegelsen
The format is going to be moderated Q&A. And if anyone in the audience has a question for Geoff, please raise your hand and I’ll bring a mic -- we’ll bring a mic over.
So, Geoff, thanks so much for agreeing to be our keynote speaker today.
Geoff Martha
Well, thanks for having me, and thanks for everybody joining us during a lunch hour. Much appreciated, especially this hotel, where there’s alternative forms of entertainment, I guess, with the casino.
Question-and-Answer Session
Q - Larry Biegelsen
Definitely. It’s good to have you back at the conference.
So, let’s jump into the questions. Geoff, we’ve seen strong growth from MedTech companies coming out of COVID, including 6% organic growth for Medtronic last quarter. In your view, what’s the state of MedTech today, the medical device industry?
Geoff Martha
Let’s say two things at a high level. One is -- especially coming out of the COVID years, procedural growth is back at or above pre-COVID levels for pretty much almost all segments, at least the ones we participate in, and so we feel good about that. And then innovation, whether it be traditional biomedical engineering-related, like PSA, which I’m sure we’ll get in here for ablation. And what that means to grow that market, and I’ll give you a bunch of other examples, or the introduction of digital technologies into the MedTech space, whether that be the connectivity of devices, leveraging our large data sets to apply data analytics techniques, like deep learning or machine learning or AI, and then robotics, just huge opportunities. So, I think the industry is in a good place, and you’re seeing that reflected in various companies’ growth numbers.
Larry Biegelsen
That’s fair. That’s helpful. And what are some of the novel areas you’re investing in, like AI? You touched upon it a minute ago, robotics. Can you expand upon that?
Geoff Martha
Yes, some of the like -- by novel, if you mean, beyond like traditional biomedical engineering, the digital technologies, I would say, like we talked about the connectivity.
And when you talk about AI, it’s a couple of things. It’s like you have to -- there’s lots of talk around ChatGPT and all that. And it’s not good enough for health care, if you ask me. I mean, it’s -- 95% accuracy is not good enough for healthcare, so we have to leverage our own data set.
So understanding those data sets, getting the permission to use them, labeling -- curating that data, labeling that data and using it to train AI algorithms, and then having AI platforms that we can scale across the Company are big areas of investment for us. We can talk about how that’s manifesting itself in some of our products and the benefits we’re seeing.
And another area would be -- robotics is almost too narrow of a term, but enabling technology that people just kind of refer to as robotics. But building these surgical ecosystems, robotics, imaging, interoperate imaging, navigation, powered instruments, an AI layer that could, over time, drive us -- think about self-driving robotic surgery. These are areas that we’re putting a lot of time and investment in.
Larry Biegelsen
For something like AI, is there like a central group or person -- or is this kind of each individual business is responsible?
Geoff Martha
That’s a great question. So what we did a couple of years ago when I first started as we held back a little bit of R&D money and we had like a shark tank of our businesses and said, four AI-related offerings, let’s have a shark tank. And like there was like four or five businesses that we end up giving extra R&D to. But there’s a number of businesses that have developed on their own. But more recently -- and so we have like a couple of AI platforms, but more -- some we’ve purchased, some we’ve developed organically and some are a bit of a hybrid, a little organic and inorganic. But more recently, we’ve hired a head of technology for the company, which we haven’t had before, Dr. Ken Washington. We hired him out of the tech space. He’s also got aerospace background as well and automotive, but to specifically drive a more scalable AI platform across the company.
So, we’ve had some sprout up in the individual businesses. We think the scale is going forward in a more efficient way. We will have a more harmonized system. And out of that, also partnerships with some of the tech companies like NVIDIA. So, he’ll -- he’s responsible for that.
Larry Biegelsen
And where are you applying AI today? Where do you see applications in the future?
Geoff Martha
So I think applications in the future will be across all of our -- everything we do. But right now, it’s in the surgical businesses, for example, I’ll give the spine example, where we have this -- we call it our enabling technology ecosystem, which we call Aible. A big piece of that is AI. So that’s the Mazor Robotics, our StealthStation navigation, Midas powered instruments and then our AI platform, which is doing preplanned surgical -- AI-driven pre-surgical plans, which actually, once you get into the OR, drive the technology -- just guide the technology and guide the surgeon. And then we have a closed loop there. And we’ve now, in our platform, have well over 10,000, 12,000 surgeries. And every surgery is getting smarter. So, that’s a great example.
Colonoscopies, GI Genius for colonoscopies. We’re picking up, using AI in the traditional colonoscopy suite. We’re picking up 50% more polyps. And the linkage between polyps and cancer is fairly high. Basically, surgeons are missing these things. The AI is making them better.
Last example I gave, we have others, would be Cardiac Rhythm or LINQ cardiac loop monitor for picking up AFib. We -- for a year -- we pioneered that space, the insertable loop recorder. Our algorithms are super sensitive picking up 99-point-something percent of the -- historically of the arrhythmias, but not as sensitive or not as specific as we wanted them. And so there were some false-positives, which limited the adoption. Because the physicians don’t want more data, they want insights. We’ve used AI to cut out those false-positives to almost entirely, and it’s really driven our growth. So, those are some examples where we’re using it, but it’s going to be across the whole portfolio.
Larry Biegelsen
And connected devices. People use AI connected devices sometimes interchangeably, but you have a lot of connected devices, too, like CGM.
Geoff Martha
Right.
Larry Biegelsen
What -- where do you see that field going, connected devices at Medtronic?
Geoff Martha
Well, I mean, look, the example I just gave to build on the LINQ example. The fact that it’s now connected through your phone into the cloud, it enables us to do a whole lot more computing power on that device without putting it on the device and draining the battery. So, it’s really driving a lot of efficacy and opening up new markets for us.
On the diabetes space, look, we’re seeing that whole space moved to this automated insulin delivery. And the connected devices are really -- we’re using the connectivity to the cloud and using AI, we’re learning people’s habits, being able to actually predict blood sugar changes. So it’s very compelling.
Larry Biegelsen
That’s interesting. And you talked about enabling technology like robotics.
Geoff Martha
Right.
Larry Biegelsen
You guys are investing a lot there. What -- why is that important? And how does that benefit patients?
Geoff Martha
So how it benefits patients is it’s democratizing good surgery. I mean it’s -- what you’re doing is you’re having -- whether soft tissue robotics or the spine example I gave earlier, you’re enabled to do more -- ensure the precision there.
A surgeon historically has a plan. They have a plan based on imaging. And now with the enabling technology, you can determine how well you did against that plan, taking it to the next -- with robotics. It’s also -- over time, you’re going to see automate parts of the procedure.
So, I think Phase 1 is surgeon guided, and it’s making these surgeons more precise with what they’re doing. Stage 2, think about auto-assist during the surgery. Like the next step should be this, and the surgeon can override that or not, but they’ll know, based on all the literature, based on all the AI learnings, what the next step in that procedure should be. So it’d be a driver-assist. And over time, you’re going to see us automating large parts of the procedure. Like, for example, in spine, the bone cutting piece of it is the laborious part of the procedure that takes a long time. I can see us automating that in the future here or automating just large parts of the surgery. I don’t think we’re going to be replacing surgeons anytime soon, but you probably heard this quote before, Larry, I mean -- and now I really believe this, and I’m seeing it. I don’t think AI is going to replace surgeons anytime soon, but surgeons who use AI will be replacing surgeons that don’t, and that is very clear.
Larry Biegelsen
That’s interesting. So Geoff, switching gears. MedTech right now is actually -- despite the strong growth we’ve seen, it’s actually out of favor investors.
Geoff Martha
Right.
Larry Biegelsen
Partly because of concerns around GLP-1 drugs. And people are concerned that they’re going to reduce -- GLP-1s, will reduce demand for certain procedures.
Geoff Martha
Right.
Larry Biegelsen
It’s going to reduce the TAM for certain end markets. What’s your view?
Geoff Martha
So look, we’ve done some of our own work internally, talked to a lot of experts in these different fields. And the short answer is we don’t agree based on the work that we’ve done with the view you just articulated. We don’t see that impact.
The areas that are communicated to me on our portfolio that -- of concern would be diabetes, cardiovascular-related therapies and bariatric surgery. For us, diabetes, we’re a type 1 company and the GLP-1s don’t impact that. So we don’t see the impact on type 1s.
Regarding cardiovascular, we don’t see the impact there, after doing a lot of analysis. The one area we have seen a little bit of impact is bariatric surgery. This is a low-single-digit part revenue for us. And when you further refine it to the geographies where we’re seeing impact, it’s a very modest impact. And when you combine it to the geographies we’re seeing, it’s very low, low single digits impact.
And over time, the question we have on that is, will GLP-1s actually introduce more patients to the care pathway? And over time, will it become a tailwind? I don’t know. But the headwind side of it is very modest and there’s a question whether or not it will be a tailwind. So overall, we’re not -- we don’t -- we’re not seeing a significant impact and we don’t anticipate that changing.
Larry Biegelsen
That’s helpful. That’s consistent with the survey we did recently.
Geoff Martha
It is consistent. Yes. Good. That makes me feel better.
Larry Biegelsen
Good. Likewise. So let’s talk about the regulatory environment. And actually, maybe just go back to the GLP-1s. On the cardiovascular side, you said you’re not concerned there. Anything -- I think I know why, but I’d just love to hear kind of why...
Geoff Martha
We did survey. Our guys are just telling me for a variety of reasons, there’s puts and takes. But when you look at -- if you take a step back and look at it holistically, they’re not seeing it.
Larry Biegelsen
Okay. All right. Fair enough. So let’s touch upon the -- the other question on GLP-1s, by the way, that I get a lot. I don’t know if you have an opinion on this. How long -- probably there’s more of an investor question, how long this overhang lasts?
Geoff Martha
I don’t know the answer to that. Look, it’s an important class of drugs for consumers. I don’t even want to call them patients at this point for consumers that will have a positive impact on consumers and patients. But we don’t -- it’s something we’re following, but we’re just not seeing the impact. And hopefully, this concern -- this will play out. And hopefully, this concern is a short-lived one.
Larry Biegelsen
Yes. And let’s touch upon the regulatory environment. What -- the interesting trend is that we have the FDA, which seems to me, just the lack of a better word, becoming more efficient. But we’ve seen approvals take longer in Europe. How do you see the regulatory environment evolving in the major markets around the world?
Geoff Martha
Well, first of all, in the FDA, I mean, they’re never going to -- I always believe that they have the patient’s best interest in mind, both safety and efficacy. And they -- I work with them very closely. And I look, I see up and down the organization. So they’re not going to sacrifice that. But they are working with industry -- at the industry level. And I’m part of that -- on the Board, to become more efficient. And it’s great to see. And they take it very seriously, the safety, the efficacy. And they want to be on the cutting edge of things like AI. And how does that work?
You can’t just give the FDA a black box. They want to understand how it works. And so they’re learning and they’re learning new skills. And I am optimistic that it’s going to continue to get more efficient.
Outside of the U.S., I’m assuming you’re talking about Europe, in particular, in the EU -- the new EU MDR standards. Look, we’ve been working on this for a long time because the dates have gotten pushed out internally and working with our different notified body partners around the world. And look, we’ve gotten a few products through EU MDR here recently, and they’ve gone as expected. So it’s early. We’ve been working on this for a while. We feel prepared for it, and we’ll keep a close eye on it. But so far, so good. And I know the notified bodies who we work with are getting comfortable with the new framework and identifying opportunities to even speed it up from where it is.
Larry Biegelsen
Yes, I don’t know if you would agree with this, but what we hear is companies with strong resources, strong regulatory personnel have an advantage, and that’s Medtronic.
Geoff Martha
Yes. No, look, I can’t comment on the other companies, but I can tell you, we’ve put almost mind boggling amount of energy into this to ensure a smooth transition, and so far, so good.
Larry Biegelsen
That’s good. I wanted to transition to emerging markets. 17% of sales, by our math, I think for Medtronic, pretty high. It was a big focus of your predecessor.
Geoff Martha
Right.
Larry Biegelsen
And I think it was one of the areas where Omar was very successful during his tenure, increasing the exposure to emerging markets. How are you thinking about emerging market growth versus developed market growth?
Geoff Martha
Well, look, the short answer is we’re very bullish on emerging markets. And we -- and I agree with you. Omar was successful in this area, driving our awareness, driving our business there, also our sophistication on how to access these markets, being students of these different health care systems around the world because health care systems are more local. And so, that legacy has stayed with us.
And we’re a more sophisticated company in regards to emerging markets. We look at it as a separate almost independent growth vector for the company, and we see this in the mid-teens opportunity, double-digit for sure, on a consistent basis going forward.
We have work to do. To continue to evolve, in some cases, you have to localize. You have to understand market access. We have a very strong footprint on the ground in these different markets. And we’ve -- in our -- the operating model changes that we put in place. When I became CEO, we’ve actually empowered our emerging market leaders more to make more of the decisions on the ground, especially during COVID that was helpful because you weren’t traveling as much. And we’ve kept that in place, and I think that’s helped.
The two areas that haven’t been a strong growth for us in emerging markets has been China because of VBP, but we expect to be through that by the end of our fiscal year and get back to that high single digit, maybe double-digit growth in China. And Russia, in the short term has been a headwind with the new sanctions. I mean there’s been a new round of sanctions. And we don’t have operations in Russia, but we do provide life-sustaining, life-saving therapies, like replacing pacemakers. And so, we still do that, but that’s been harder with the new sanctions.
So other than those two areas, and like I said, China, there’s a path back here, we feel very good about emerging markets. And then developed markets is going to be driven by innovation. So, that’s tied to our innovation pipeline. The procedure volumes like we talked about are back, which is great. And then our success will be tied to our innovation pipeline, and we feel really good about that. If you’ve asked some questions about it, I’m sure we’ll get into more of it.
Larry Biegelsen
That’s helpful. Just to stick with China. Investors are concerned about China for a variety of reasons, macro concerns, VBP, which for people not in the weeds on MedTech value-based purchasing, it’s basically tenders. And then people are now concerned about the anticorruption policies being put in place. I know you were asked about this on the earnings call two weeks ago. Anything new there? And maybe just at a high level, how you’re thinking about China going forward?
Geoff Martha
Well, I’ll hit on all three things. On the macro China-U.S. relations, I mean, that’s hard to handicap, but I stay very close to this in communication with senior U.S. government officials and Chinese government officials. There was some optimism coming out of Secretary Raimondo’s meetings there last week, and so we’ll see where that goes. It’s good to see the two governments talking, but it’s hard to predict. But I’m feeling a little bit more -- feeling a little better about it after a series of business from Biden administration officials, most recently from Gina Raimondo last week.
On the big one that we’ve been dealing with is the pricing on VBP. Like I said, I think we’ll be through that by the end of this fiscal year. The Chinese government, have been a lot of dialogue with them. The Chinese government has seen -- that maybe they’ve gone a little far and have pulled back on the discounts, the pricing, as it’s gone on. And as we -- but what we’ve -- so the pricing reductions have been not as bad. We’re almost through it totally, and I think we’ll start growing from here. Even the second round of VBP for some of the therapies we’re in, the pricing is going up. And so, I think that we should get back to the high-single-digit, double-digit growth. And on the anticorruption, which is kind of new, I know you’ve asked us for a bunch of companies and gotten maybe one different answer. We’re not seeing the impact of that at this point. So, we’re watching it closely, but we’re not seeing…
Larry Biegelsen
Any impact on procedures as well?
Geoff Martha
No, our procedure growth is, like we just said two weeks ago, procedure growth is strong in China. And we have not seen an impact from anticorruption.
Larry Biegelsen
And when you talk to your folks there, which I’m sure you do, like why are you not concerned? Why are they -- what’s the reason they say that this isn’t going to have an impact on procedure?
Geoff Martha
It’s something we’re watching, all right? We don’t have our head in the sand here or something. We’re watching and we’re making these comments relative to Medtronic. Just the type of hospitals that we’re in, the type of the segments that we’re in, less -- we don’t have -- capital equipment for the company is maybe 5% total, but it’s less in China. We don’t have the exposure to capital equipment. And the VBP actually is kind of protecting us from this a bit. Pricing is set. Pricing has come down. Pricing is contracted. The middlemen in the market have been mitigated through VBP. So, it sets up an environment that is less, I think, prone to the corruption that the Chinese government is looking for.
Larry Biegelsen
Interesting. It’s ironic, the VBP could help.
Geoff Martha
Silver lining, Larry, if you look for almost anything.
Larry Biegelsen
We’ve got about 15 minutes left. Medtronic is the world’s largest device company. How is scale and advantage?
Geoff Martha
Honestly, it has -- in the recent past, it really hasn’t been, and that’s on us. We’ve got to make an advantage, and that’s something we’ve been really focused on. And our new operating model, we’re a couple of years into it, we talked about playing small and playing big because there’s -- the well-known kind of dynamic in MedTech, we’re focused, has done well.
So we’ve focused our operating units on their end markets, and we’re allocating capital at that level. So, we’re allocating capital from the top to these focused units that use that capital. They pick what widget they’re going to invest in. What the new mitral valve would you prioritize replacement or repair. That’s all done there. We just know that that market is growing, and we’re going to allocate capital there.
But on the scale side, we’ve also said we’ve been spending time on, you got to make the scale count, and that’s the big side of our model. And there’s a couple of areas we’re focused on, two in particular -- three really. One is global operations and supply chain. Supply chains have gotten more complicated and I think, less predictable, and our scale needs to be an advantage. That’s one area. We brought in a whole new leadership there. We’ve been investing in tools that cut across the company. We’re managing all our factories the same way. We’re now looking at consolidating our suppliers to fewer small suppliers to -- to a lot of small suppliers to fewer big suppliers where we matter to them, and we’re getting long-term strategic relationships.
And that’s a source of resiliency for us now and cost of goods sold productivity that will be years and years to come, 2 to 3x what we’ve been seeing in the past. So that’s one area. Another area would be technology platforms like AI. I think the big tech companies want to partner with bigger companies like us. I think there’s a benefit to having an AI platform, for example, or a couple of robotics platforms that can scale across multiple businesses. So, that’s another area of technology platforms. And then a third would be large hospital systems around the world are looking to companies like us for, I think, better partnerships. And there’s less of this going back and forth on price. There’s more, how do we take cost out of the system?
Larry Biegelsen
That’s helpful. Yes, we focus on Medtronic. Again, strong Q1, fiscal Q1 you’re in fiscal year. You just reported two weeks ago, organic growth of 6%. How are you thinking about the rest of fiscal 2024?
Geoff Martha
Look, I think we’ve been focused on for fiscal ‘24 is to prove out that the supply chain issues are behind us, and that the pipeline is at a place where you guys can -- investors can feel good about the mid-single-digit growth and that it’s durable. And so we just want to continue to prove that out throughout FY24.
And our guidance, we don’t want to get ahead of that. I get a lot of questions in the guidance, why -- but we don’t want to get ahead of ourselves here, but we’re feeling good about where we stand in terms of the resiliency in the mid-single-digit. And the fact that it’s going to be durable, and it’s really primarily innovation-driven growth and some emerging market exposure helps now. And then we -- the third thing I would say is proving out, stabilizing our margins and setting ourselves up to improve those margins over time.
Larry Biegelsen
That’s helpful. You mentioned it earlier, I think -- the innovation that it would come up. So now...
Geoff Martha
Yes, sure.
Larry Biegelsen
I’ll ask -- it was very interesting, obviously, advisory committee meeting a couple of weeks ago. A company -- a private company, ReCor, went before you, relatively similar data, similar technology, but a little bit different energy source.
Geoff Martha
Right.
Larry Biegelsen
They had a positive vote, if you will, on the benefit risk. And then you went the next day, and it was 7 -- 6, 7 against -- simplicity.
Geoff Martha
Right.
Larry Biegelsen
What’s the path forward here?
Geoff Martha
Well, first of all, it wasn’t -- the dialogue was good. If you actually listen to it, we still -- we have very -- we have confidence in the therapy, both. Obviously, the safety was unanimous.
Larry Biegelsen
13 to 0.
Geoff Martha
Right. Safety is unanimous. And the efficacy or know our data, you have to piece through. We have a lot of data. We have a lot of confidence in it. And you have to pierce through it. And I think the dialogue, if you listen to it, was helpful, and it was not a vote against Ardian and against approval rather. This is in the FDA’s hands. I think the FDA had a good dialogue. I think the panel gave them a lot of latitude to make a decision. I don’t want to get ahead of the FDA, but we’ll see where it goes. We’re heavily engaged with them now, and it’s answering their questions, and it’s in their hands. But we feel confident about the therapy.
Larry Biegelsen
I mean, there were two people who voted no on the risk benefit being positive, who said, if you change the label, then I might vote yes. So, we basically wrote that there’s still -- I think we wrote greater than 50% chance of approval. But I think we said there’s still -- I can’t remember exactly what percent we put on it. I know you’re confident in it, is it just impossible to handicap at this point?
Geoff Martha
Well, I don’t want to handicap it either, because I don’t want to get ahead of the FDA and -- like I said before, I trust that they are committed to doing what they believe is the right thing for patients, both safety and efficacy. They want to see innovation at the market. We have a lot of data. They’re investing time to understand that data and they’ll come out with an informed decision. And we hope it’s an approval, but it’s -- we’re going to be -- we’re being responsive to them. We’ll see where it goes.
Larry Biegelsen
And the market opportunity, Geoff, I mean -- I did listen to a decent amount of it. The doctors did come back and say, look, I think it works, but the efficacy is modest. It’s basically in line with kind of one drug. How are you thinking about, let’s just say it does get approved? Did anything from the panel change your view on kind of the market opportunity?
Geoff Martha
I think we have to simplify our messaging a bit. I mean, look, we saw during COVID, like in our trial that unfortunately happened during COVID, a 10x difference in medical burden -- medicine burden. So, the group that got already in, sitting at home, they’re supposed to -- they stop taking their meds, and they weren’t supposed to. The group that -- because the Ardian helped them. The group that didn’t get Ardian took more meds. We can see that in their testing. And the difference when you look at it is 10x. In the real world, that matters. That matters. And the safety is very good. So, we think it’s got a very strong value proposition that physicians will get. And over time, payers will understand this as well.
Larry Biegelsen
That’s helpful. Geoff, what else -- there’s a lot going on at Medtronic, what else are you excited about?
Geoff Martha
I think I’m excited -- look, there was a couple of things when I stepped as a CEO, I didn’t fully understood. We had some fundamental issues in our supply chain that we had to fix. And I really believe that -- we’ve made a lot of improvement there that’s durable and excited about that, not just on resiliency, but cost that will help us on our margins going forward. And then our pipeline is in a better place. We’re talking about Ardian, but the robots out there, over time, that’s going to be a growth driver, Hugo. I love -- you were -- I was talking to you when I first -- started at Medtronic in 2011, but it was in that beating M&A world that didn’t have the distinct pleasure of dealing. Talking to you until I got into the neuroscience role. So you -- this goes back to 2015. The changes we’ve made in the spine industry is really insightful to me where we took an industry that was more commoditized, heading down a commoditized route and interjected technology, robotics, imaging, navigation and really change the nature of that industry to a technology industry and a growth, it’s growing.
We’re growing, $4.5 billion business, high margin, high cash flow, growing 6% plus, very good. And it’s consolidating the industry. And it just inspired me to show, look, the introduction of technology and our engineering prowess can actually really drive better patient outcomes and actually change the industry dynamics. And I -- you’re seeing us go down the path of the spinal we just talked about diabetes turnaround is underway with our technology there.
I think we’re doing better in TAVR here. And we’re holding serve there, growing at the market, and I’m optimistic about the rest of structural heart. So as you go down, we’ve opened up a big opportunity in PFA and AFib. So I’m excited about, one, the technology; and two, the company getting confidence and accountability around leading these markets with technology and making ourselves more competitive.
Larry Biegelsen
I didn’t hear you talk about Hugo. Are you...
Geoff Martha
Yes. That was in there, soft tissue robot, Hugo. Yes. So yes, Hugo, I’m very excited about.
Larry Biegelsen
Okay.
Geoff Martha
As a matter of fact, I was just -- our Hugo team is here in Boston in the Seaport area. We’re just expanding into a larger facility there. I was just with the team yesterday, super exciting. They’re very optimistic about it. The capabilities of Hugo, the indication expansion and as we get our instruments, stapling energy over time, I think this is going to be a very powerful tool.
Larry Biegelsen
It’s good to hear. I know it’s an important area for Medtronic. A couple of minutes left here. You’ve talked about durable mid-single-digit growth. I mean, it’s been a while since you’ve had an investor meeting, updated long-term financial goals. The last time you did, you had a goal of 5% plus for organic growth, top line and you had an 8% EPS growth target. What’s the latest on that? Is that still beyond fiscal 2024 because you have guidance out there for this year?
Geoff Martha
Yes.
Larry Biegelsen
Is that -- are those still realistic goals for Medtronic?
Geoff Martha
I think so. The timing on the profit one, we’ll have to get our margins back, right? Inflation and FX of -- take a bite out of the industry’s and especially a company that’s global like us on the FX is hurt.
And so, we’ve got to get -- I feel good about the mid-single-digit growth. We haven’t given specifics on when and where those margins will go, like the timing of the ramp back up and how high they will go. So that’s coming. But needless to say, we feel good about -- like we said, stabilizing this year and growing them from here for various reasons we can walk through, and then maintaining our dividend. So, I feel that that formula still works. We’ve got to prove it. I fully realize that and feeling better about the growth side of it. Dividend side is not -- never been in question. And we got to give an update at the appropriate time on the profit side as to the timing of that.
Larry Biegelsen
I didn’t ask anything about inflation. But is there anything inflation -- the inflationary headwinds getting better, stable? How would you characterize it?
Geoff Martha
It’s better. It’s better than it was. I mean, it’s off its highs. But the labor side of it is still a little persistent. For us, the biggest piece of inflation was -- our biggest cost of goods sold component is raw material, and that’s the vast majority of it. So, through our supplier consolidation work, where even though there’s still some inflation there, we’re more than offsetting it through what we’re doing in supplier consolidation. The labor piece is a little -- still a little high, but way off where it was. So it’s getting better. It’s -- as you -- in your analysis, we show it still not where it was. But it’s better than you might think because of so much is in raw material, and we’re able to offset with that the supplier consolidation, but the labor -- we are subject to labor rates around the country -- around the world rather.
Larry Biegelsen
We’re just about out of time. Geoff, I’ll give you the last word. Any closing remarks? Anything you want to highlight we didn’t touch upon?
Geoff Martha
No, I just think we touched upon a lot of it. I think the industry is in a good spot -- better spot than it’s been with procedure growth. And the questions on China, I do think China is bottomed and we’re going to hit. It’s a little -- it can be a little lumpy and a little -- but over time, I think it’s -- we’ll see where some of these other questions come up. But over time, I think China is going to be a source of growth for the industry.
And then for Medtronic, like I said, I feel good about the fundamentals that we’ve built over the last couple of years that are durable and the pipeline and where it is to get that growth, and appreciate everybody’s engagement. I appreciate your -- I appreciate what you’re doing for the industry, Larry. I do. Thank you.
Larry Biegelsen
Yes, thank you so much. Thanks for being here.
Geoff Martha
Really appreciate it.
Larry Biegelsen
Thank you.
Geoff Martha
Thanks, Larry.
Larry Biegelsen
Good discussion.
Geoff Martha
Thank you.