Medtronic announces diabetes business spin-off, tariff impacts of up to $350M

Medtronic announced plans to spin off its once-strained but now-growing diabetes business into an independent company, allowing the medtech giant to focus on high-growth markets such as pulsed field ablation.

Although the Diabetes Group — making products such as insulin pumps and pens — grew faster than the Fridley-run device maker’s three other large segments, it also had the lowest total sales in the fiscal year ended April 25.

CEO Geoff Martha said in an interview a first priority when he became chief executive at Medtronic more than five years ago was to “get on top” of the business “because we had fallen behind.” It has previously experienced recalls, sales declines and manufacturing issues, drawing regulators’ warnings, the Minnesota Star Tribune previously reported.

“When you kind of take out an underperforming business, it destroys shareholder value,” Martha said. “And in this case, if we would have done that, I think it would have hurt patients. So we did not do that. We invested.”

The new independent company will focus on accelerating innovation for patients with diabetes and will be the only one on the market to commercialize a complete portfolio addressing intensive insulin management, Medtronic said. The diabetes business is ready to stand alone and is well-positioned for public markets, a spokesperson added.

The separation is expected to wrap up within 18 months, with a preferred route of an initial public offering, the company said. After the separation, the change is expected to be immediately accretive to Medtronic earnings, operating margin and gross margin.

Investors sent Medtronic stock down about 1% in morning trading Wednesday.

Que Dallara, president of Medtronic Diabetes with more than 8,000 employees worldwide, will become CEO of the new company. She said the business has an “extremely robust pipeline” and is focused on bringing down patients’ average A1C levels, which show how well blood-glucose is being managed.

“We’re now on the cusp of launching the third-generation system: the new [continuous glucose monitors], new insulin dosing options, patch, pen, pump, and new algorithm,” Dallara said. “And so we absolutely believe the growth is durable.”

Medtronic previously announced a partnership with Abbott Laboratories make a continuous glucose monitor tracking a patient’s blood sugar levels that will exclusively work with Medtronic’s proprietary insulin pumps.

Medtronic’s spinoff announcement came during a busy morning for the medtech company, which reported quarterly profit and revenue beating Wall Street expectations and for the first time revealed the scope of the White House’s tariffs effect on the leading device maker.

Thierry Piéton, in his first call as Medtronic’s new chief financial officer, said the company expects tariffs to cost $200 million to $350 million for next full fiscal year. The wide range, he explained in an interview, depends on whether tariffs on China come back in full force after a 90-day pause.

The biggest impact: U.S. exports to China, Piéton said. Martha explained the company is a net exporter to China and does not have a lot exposure to U.S. tariffs on Chinese imports.

To mitigate tariffs, the company is making sure it qualifies for humanitarian exemptions to import taxes as much as possible, reroutes some logistics flows, and controls discretionary costs, Piéton said. Shifting the manufacturing footprint is more difficult due to the strict regulatory standards on production facilities, he said.

“Changing where we do manufacturing is not something we can do overnight,” Piéton said. “It is something that we will have to look into over time, but short-term, that’s not the key lever.”

Martha said the company is communicating with President Donald Trump’s administration. AdvaMed, the powerful industry trade group, has advocated for broad exemptions from import tariffs.

“Medtech has been kind of a zero-for-zero [tariff] business because of the humanitarian nature of it,” Martha said, referring to arrangements among countries not to impose tariffs on each other’s medtech exports. “So we don’t have high barriers to export into countries, and the U.S. hasn’t put up barriers until recently.”

Yet tariffs aren’t new to Medtronic. Company executives in 2019 said tariffs on Chinese imports in part fueled hundreds of millions in new costs. The company doubled down on its business strategy at the time, and a spokesperson said Medtronic was committed to ensuring technology remains available to patients then.

Years ago, Medtronic executives said China was a pillar of its growth strategy, as the sale of existing products in the growing market could generate a jump in revenue.

In 2021 Martha flagged Chinese competition, telling the Star Tribune government support and venture capital could take companies serving China and expand them to compete on a global stage.

In Wednesday’s earnings report for the three months that ended April 25, Medtronic reported adjusted net profit of $2.1 billion on $8.9 billion in sales. Sales grew by 5.4% on an organic basis.

The diabetes business reported $728 million in sales for the quarter, growing 12% on an organic basis over the previous year. Cardiovascular sales of $3.3 billion led the company’s four business groups. Growth was slowest for the company’s medical surgical division, which increased 2% on an organic basis.

Regarding diabetes, while most Medtronic device sales are often business-to-business, the diabetes division sells products directly to consumers, Martha noted.

The business is in “a really good spot,” he said; the decision to spin it off accelerated Medtronic’s “direction of travel financially for us to higher margin growth.”

“It’s gonna be a very attractive standalone company,” Martha said, “and it’s going to be valued more outside of Medtronic than in.”