Omar Ishrak, Chairman and CEO
Gary L. Ellis, Sr. VP & Chief Financial Officer
Thomas M. Tefft, Sr. VP & President, Neuromodulation
Stephen R. La Neve, Sr. VP & President, Spinaland Biologics
James P. Mackin, Sr.VP & President, CRDM
Christopher J. O’Connell, Exec. VP & Group President, Spinal and Biologics, Neuromodulation, Diabetes andSurgical Technologies
Stephen N. Oesterle, M.D., Sr. VP, Medicine and Technology
Catherine M. Szyman, Sr. VP and President, Diabetes
Michael J. Coyle, Exec. VP & Group President, Cardiacand Vascular Group
NO. OF EMPLOYEES: 40,000
GLOBAL HEADQUARTERS: Minneapolis, Minn.
Not many companies still adhere to a mission that was hatched half a century ago, well before medical device manufacturing was considered a bona fide industry and outsourcing became an accepted business practice. Yet Medtronic Inc. has always remained true to its core objective, written by co-founder Earl Bakken in 1960 to provide a strategic focus for the promising young firm. Still in its original format (Medtronic executives refuse to change a word of it), the mission tasks employees with working toward a common goal: to “alleviate pain, restore health, and extend life.”
Medtronic executives attribute much of the company’s past success to Bakken’s mission, claiming the engineer, entrepreneur and hospital equipment repairman provided the 62-year-old firm with both a purpose and a roadmap for fulfilling it. But there is another word executives usually associate with the mission, one that was not originally penned by Bakken (and won’t be added to the mission anytime soon) but is just as critical to the company’s past and future accomplishments: Innovation.
“This year marks the 50th anniversary of our mission,” former Medtronic Chairman and CEO William A. Hawkins reminded shareholders in a letter published within the company’s 2010 annual report, his last with the company. (Hawkins retired at the end of FY2011 and was succeeded by Omar Ishrak, former president and CEO of GE Healthcare). “As I reflect on this milestone and its relevance today, I am reminded of what Earl intended when he put pen to paper. Implicit in the Medtronic Mission is the idea that innovation has the fundamental power to transform the lives of the patients we serve. Innovation is in our DNA; it’s cultural, informing everything we think and do…A common theme is why we innovate—our Mission—to alleviate pain, restore health, and extend life. Innovation has been at the root of our success and will continue to fuel our global growth …”
Innovation certainly fueled Medtronic’s global growth in fiscal 2010. Net sales rose 8.3 percent to $15.8 billion and gross profit climbed 8.3 percent to $12 billion for the year ended April 30, 2010.
Executives attributed the increases to double-digit revenue growth in four of the company’s seven operating segments, robust device sales outside the United States and a spate of new product launches that included a low-glucose suspend insulin pump and the EnRhythm MRI SureScan pacing system, the second generation of advanced pacemakers designed specifically to endure the rigors of magnetic resonance imaging (MRI). Both products are sold in Europe but have not yet been cleared by the U.S. Food and Drug Administration. In addition to the insulin pump and pacemakers, Medtronic added a new platform to its drug-eluting stent portfolio, introduced a new spinal system (Vertex Select Reconstruction System Occipitocervical Module) that provides orthopedic surgeons with additional options to repair neck and upper back injuries, and launched an endoscopic irrigation system for removing bacteria from the paranasal sinuses. The system, dubbed the Hydrodebrider, is used to treat chronic sinusitis.
Medtronic also received Humanitarian Device Exemption approval in FY2010 for the Melody transcatheter pulmonary heart valve, which uses a minimally invasive procedure rather than the traditional open-chest approach. The Melody valve allows doctors to deliver replacement valves via a catheter through the body’s cardiovascular system, thereby eliminating the need to cut open the chest. Cardiologists called the device “an enormous breakthrough” for congenital heart disease patients.
With its various product launches and foray into the remote wireless patient monitoring realm, the company’s newly-formed Cardiac Rhythm Disease Management (CRDM), CardioVascular and Physio-Control Group easily topped Medtronic’s other division in sales. During the second quarter of fiscal 2010, the company announced the consolidation of its seven segments into two operating groups; Hawkins said the move was designed to capitalize on existing synergies across the businesses and advance the firm’s goal of operating as an integrated company focused on chronic disease.
Overall, the CRDM, CardioVascular and Physio-Control Group generated $8.5 billion in sales, a 9.8 percent increase compared with the $7.8 billion the group reported in fiscal 2009, according to the 2010 annual report (which, incidentally, did not break down sales between the two new operating groups, but rather by the seven separate product segments).
CRDM sales reached $5.2 billion, a 5 percent increase compared with the $5 billion the segment reported in fiscal 2009, ended April 24. Executives attributed the solid growth to robust global sales of the Vision 3D portfolio and the popularity of both the Secura implantable cardioverter defibrillators and the Consulta cardiac resynchronization therapy-defibrillators. Both devices feature Conexus wireless technology that allows clinicians to remotely transfer patient data and improves communication between the implanted device and programmer at the time of surgery, during a follow-up doctor visit or while the patient is at home. Overall, defibrillation systems sales climbed 7 percent to $3.16 billion.
Pacing systems sales, on the other hand, remained flat in FY2010 at $2 billion, due mostly to pricing pressures and the June 2009 Class I recall of certain Kappa and Sigma pacemakers (some devices had wiring problems that could have caused them to fail). Pacing systems sales, however, were partially offset by sales growth outside the United States of the Adapta pacemaker product line, which features an atrial-based pacing mode that reduces unnecessary pacing in the right ventricle of the heart while providing the safety of a dual chamber backup. Studies have suggested that reducing unnecessary pacing in the right ventricle may reduce the risk of developing heart failure and atrial fibrillation.
Executives expect fiscal 2011 CRDM sales to be impacted by better market infiltration of the company’s Vision 3D portfolio as well as the commercialization of its Protecta SmartShock line of devices, which was launched internationally late in the fourth quarter of fiscal 2010. The Protecta portfolio leverages the Vision 3D platform to deliver single, dual and triple chamber defibrillators with new algorithm technology that could reduce the frequency of inappropriate shocks. The increased use of devices with OptiVol (which measures fluid levels in the chest) as well as the launch of an MRI pacing system for use in MRI machines also is expected to affect FY2011 CRDM sales.
CardioVascular sales jumped 18 percent to $2.8 billion, with sales of coronary stents comprising about half of that total, or $1.48 billion. Endovascular items and structural heart devices comprised the remaining half, contributing $495 million and $880 million, respectively, to the total. The company attributed the double-digit sales growth in each product category (24 percent for endovascular devices and 18 percent for structural heart merchandise) to increased sales of several products, including the Talent Abdominal Aortic Aneurysm Stent Graft, Thoracic Stent Graft and Endurant Abdominal Stent Graft systems as well as the CoreValve transcatheter valve, tissue surgical valves and cannulae products. Two acquisitions also played an important role in maintaining Medtronic’s market share in the Cardiovascular space in fiscal 2010 and ensuring its future growth—the $350 million purchase of Invatec and two affiliated companies, Fogazzi and Krauth Cardiovascular, in January 2010, and the $370 million purchase of ATS Medical Inc. three months later. The Invatech deal gives Medtronic the ability to market drug-eluting balloons covering the coronaries and lower extremities, while the ATS merger has enabled the company to provide Open-Pivot bileaflet mechanical and 3f pericardial valve technology to cardiac surgeons.
The company’s Endeavor and Endeavor Resolute drug-eluting stents continued to perform well in FY2010, generating $767 million in worldwide revenue, a 27 percent increase compared with the $603 million the products earned for Medtronic in fiscal 2009. Executives expect the both stents to drive future sales, particularly as the device becomes more accepted with Japanese patients.
Physio-Control products such as external and automated defibrillators posted solid gains but contributed the least amount of revenue to the group. The company’s annual report shows that Physio-Control product sales climbed 24 percent to $425 million.
Medtronic’s other operating group—Spinal and Biologics, Neuromodulation, Diabetes and Surgical Technologies—may not have generated as much revenue as the CRDM sector in fiscal 2010, but it nonetheless posted a solid 6.7 percent net sales increase. The group posted $7.2 billion in total sales, with spinal and biologics devices comprising nearly half of that amount ($3.5 billion) and both neuromodulation and diabetes products each contributing nearly an equal amount—$1.5 billion and $1.2 billion, respectively. Surgical technology products brought up the rear, generating $963 million for the group.
Though they ranked second in sales only to CRDM devices, Medtronic’s spinal and biologics product sales remained virtually unchanged from FY2009, managing to gain merely an additional $100 million in sales in fiscal 2010. Much of that growth was driven by global sales of the Horizon Legacy and TSRH Spinal System. Biologics contributed $868 million to the group’s bottom line, a 3 percent increase compared with the $840 million that biological products generated in fiscal 2009.
Neuromodulation product sales, on the other hand, swelled 9 percent in fiscal 2010; executives attributed the growth there to higher global sales of InterStim and Medtronic Deep Brain Stimulation therapies, as well as momentum from Activa PC and Activa RC neurostimulator sales in Europe.
Diabetes product sales followed a similar route, ballooning 11 percent on higher sales of the company’s Durable pump systems, the international launch of the MiniMed Paradigm Veo during the third quarter and the domestic debut of the MinMed Paradigm Revel in the fourth quarter. Sales also received a boost from the June 2009 acquisition of PreciSense A/S, a Denmark-based company that develops continuous glucose monitoring technology. Another factor that contributed to the sales surge was Medtronic’s settlement with suppliers involved in the July 2009 recall of specific lots of Quick-set infusion systems used with the MiniMed Paradigm infusion pumps. Medtronic initiated the recall after discovering that certain infusion sets did not allow the insulin pump to vent air pressure properly, which potentially could have caused the pump to deliver the wrong amount of insulin. The recall did not have a significant impact to total net sales for fiscal 2010.
Surgical technologies posted the largest sales surge of the group, thanks to the launch of the NIM 3.0 Nerve Monitoring System and continued popularity of both the Fusion EM IGS System and the MR7 pneumatic system, an advanced electromagnetic-based image-guided surgery system for sinus procedures. Sales also were positively impacted by the improved international performance of the O-Arm Imaging System, a multi-dimensional surgical imaging system used in spine and orthopedic procedures.