07.29.15
$17 Billion
KEY EXECUTIVES:
Omar Ishrak, Chairman and CEO
Michael J. Coyle, Exec. VP and President, Cardiac and Vascular Group
Gary Ellis, Exec. VP and Chief Financial Officer
Mike Genau, Sr. VP and President, Americas Region
Hooman Hakami, Exec. VP and President, Diabetes Group
Bryan Hanson, Exec. VP and President, Covidien Group
Richard E. Kuntz, M.D., Sr. VP and Chief Scientific, Clinical and Regulatory Officer
Chris Lee, Sr. VP and President, Greater China Region
Geoffrey S. Martha, Exec. VP and Group President, Restorative Therapies Group
Stephen N. Oesterle, M.D., Sr. VP, Medicine and Technology
Luann Pendy, Sr. VP, Global Quality
Rob Ten Hoedt, Exec. VP and President, Europe, Middle East and Africa Region
Bob White, Sr. VP and President, Asia-Pacific Region
NO. OF EMPLOYEES: 85,000
GLOBAL HEADQUARTERS: Dublin, Ireland
Without a doubt, Medtronic is a company of firsts.
Most of its milestones, of course, are breakthroughs in healthcare technology—the first battery-operated external pacemaker (1957); the first commercially produced implantable pacemaker (1960); the first implantable, programmable neurostimulation device for chronic pain (1983); the first implantable cardioverter defibrillator (1993); the first insulin pump with real-time glucose monitoring (2006); and there are many other examples, in innovation as well as in the company’s far-reaching philanthropic work.
But, 2014 saw another—and perhaps less auspicious, depending upon your point of view—first for the world’s largest standalone medical device company. With its nearly $50 billion purchase of Dublin, Ireland-based Covidien plc, Medtronic pulled off the largest-ever “inversion” deal (at the time) in U.S. history. Medtronic Inc., once headquartered just outside Minneapolis in Fridley, Minn., became Medtronic plc, now rooted in its acquisition’s base in Dublin. Inversion deals are structured to reduce U.S. income taxes and typically involve a U.S.-based company acquiring a foreign firm and relocating there for tax purposes.
The deal for Covidien was announced in June 2014, just after the start of Medtronic’s 2015 fiscal year. The deal was completed in January this year. The cash-and-stock transaction was valued at approximately $49.9 billion, based on Medtronic’s closing stock price of $75.59 per share on Jan. 26. Under the terms of the transaction, each ordinary share of Covidien outstanding as of the closing was converted into the right to receive $35.19 in cash and 0.956 percent of an ordinary share of Medtronic plc. Each share of Medtronic Inc. common stock outstanding as of the closing was converted into the right to receive one ordinary share of Medtronic plc.
(Editor’s note: Though MPO’s Top Company ranking is compiled using fiscal 2014 figures, our coverage of Medtronic in this issue in large part will examine the company’s history-making purchase, which happened in the company’s 2015 fiscal year.)
According to Joanne Wuensch, an analyst with BMO Capital Markets in New York, N.Y., the deal for Covidien puts Medtronic in a better position to negotiate with hospital administrators, a group that has gained purchasing power as doctors increasingly become employees and hospitals limit what brands they carry. The expanded Medtronic will have offerings in six of the top 10 purchasing arms of the hospital, she said.
“They can go in not just with a bucket of products as they have previously, but with a full buffet table,” she told Bloomberg Business after the deal was completed. “It does facilitate the partnership between the device manufacturers and the hospital providers, being able to make more purchases from a fewer number of sellers.”
Despite moving overseas to seek a lower tax rate, Medtronic officials said they would spend an additional $10 billion over the next decade in investments, acquisitions and research and development in the United States (in part, from the tax savings, according to the company). The company’s headquarters will move to Ireland, but officials said it would retain its facilities in Minnesota—and largely be run from there, as most of its executives will continue to be based in the Gopher State.
When the deal was announced, Richard Cohen, a retired Twin Cities stockbroker and decades-long Medtronic investor, noted that Medtronic’s effective departure from Minnesota felt like a slap in the face to a state that nurtured it in its initial stages with funding and investment.
“The thing that bothers me the most is that this is a Minneapolis-based company that depended on the Minnesota investment community for its initial financing, that attracted investment from Minnesota investors first,” Cohen told the Minneapolis Star-Tribune newspaper. “The ones that were there in the beginning are the ones that are going to get screwed.”
Omar Ishrak, Medtronic’s CEO, took a much broader view of the deal.
“The medical technology industry is critical to the U.S. economy, and we will continue to invest and innovate and create well-paying jobs,” Ishrak said in a statement. “These investments ultimately produce new therapy and treatment options that improve or save lives for millions of people around the world. We are excited to reach this agreement with Covidien, which further advances our mission to alleviate pain, restore health and extend life for patients around the world. This acquisition will allow Medtronic to reach more patients, in more ways and in more places.”
Many U.S. lawmakers were not convinced. Medtronic’s purchase of Covidien along with other similar deals where domestic companies use mergers to reincorporate overseas for tax reasons created consternation on Capitol Hill. U.S. lawmakers moved swiftly to block such efforts.
“These transactions are about tax avoidance, plain and simple,” Sen. Carl Levin (D-Mich.) said in a prepared statement. “Our legislation would clamp down on this loophole to prevent corporations from shifting their tax burden onto their competitors and average Americans.”
In September, the U.S. Treasury Department announced tax restrictions that would make it harder and more expensive for U.S. companies to reincorporate abroad.
The measures included the prohibition of financial maneuvers called “cash boxes” and inversions, and they would prevent “hopscotch” loans that allow American firms to access foreign cash without paying U.S. taxes.
“This action will significantly diminish the ability of inverted companies to escape U.S. taxation,” U.S. Treasury Secretary Jacob J. Lew said after the department’s announcement. “For some companies considering deals, today’s action will mean that inversions no longer make economic sense.”
Venture capitalists also expressed concern over the blockbuster deal. Large mergers such as this only consolidate the medtech market more, leaving less space for small companies, and less opportunity for small startups to find buyers.
“The impact of this [deal] will be felt for many years,” Mir Imran, chairman of medical technology accelerator InCube Labs, told The Wall Street Journal. Imran has launched 19 companies since the 1980s, and has done business with both Medtronic and Covidien.
Last year, Nfocus Neuromedical Inc., a hemorrhagic-stroke treatment company launched by InCube, was acquired by Covidien, he said.
“Prior to this merger, Covidien was very acquisitive of startup companies, and Medtronic was also quite active,” he said. “But post-merger, the new Medtronic will be focused on integrating the two businesses … so, for the next two or three years, [it] will be less focused on investing in and acquiring young companies. For the world of medtech startups, this is not good news.”
Casper de Clerq, a partner at Norwest Venture Partners who has been investing in medical technologies for more than two decades—and whose firm last year invested alongside Medtronic in a $20 million Series D round for sinus-implant company Intersect ENT Inc.—said that certain areas of emerging medical technology could be hit especially hard by a merger that, at least temporarily, takes two major buyers off the grid.
In October, the company reiterated, despite government action, that the deal was still a strategic one, including the belief that the combination would “support and accelerate” Medtronic’s three strategies” of:
Officials also noted the combination would also result in the diversification of Medtronic’s revenue base due to a stronger foundation in emerging-market R&D and manufacturing and the addition of industry-leading capabilities and expertise in general and advanced surgery and patient monitoring.
Medtronic also revealed the proposed management structure of the new company. The new Medtronic is composed of four major business segments, headed by Medtronic’s three existing group presidents plus Covidien group president Bryan Hanson. The four segments will comprise Medtronic’s existing cardiac and vascular group, valued at $8.8 billion; its restorative therapies group worth $6.5 billion; its diabetes group, worth $1.7 billion; and the fourth, the Covidien Group, currently valued at $10.4 billion.
Covidien’s neurovascular business will function as an independent business under the umbrella of Medtronic’s restorative therapies group. The company also announced four geographic regions around which the combined company will operate: Asia Pacific, the Americas, EMEA (Europe, the Middle East and Africa) and Greater China—down from Medtronic’s present seven regions.
“While we will move to four regions in the future—versus the seven regions represented in the Medtronic structure today—this is in no way intended to reflect a diminished importance or focus on those markets that previously served as regions, nor will I remain any less focused on seeing that these markets reach their potential and objectives,” Ishrak said. “Rather, this approach will ensure we have the appropriate leadership involvement in these markets on a daily basis as we grow our overall scale and complexity.”
Other Acquisitions
The brass at Medtronic seem to be multitaskers on the deal-making front.
In August 2014, the company paid $350 million to buy NGC Medical S.p.A., a privately held Italian company that manages cardiovascular suites, operating rooms, and intensive care units for hospitals. Medtronic already owned 30 percent of the business, which works with hospitals in Italy but also is expanding in Europe, the Middle East and Africa.
“Medtronic is intent on finding new ways to partner with physicians, hospital systems, patients, payers and governments around the world to meet their cost and access challenges and to deliver high-quality healthcare,” said Rob ten Hoedt, executive vice president and president of Medtronic’s European business. “Medtronic has made significant progress over the past year since launching our hospital solutions business. NGC’s managed services expertise further enhances this momentum.”
The company also spent $200 million in cash to purchase privately held Sapiens Steering Brain Stimulation, based in Eindhoven, the Netherlands, which develops deep brain stimulation (DBS) technologies.
The system being developed by Sapiens would allow for more precise stimulation of intended targets in a patient’s brain, according to Medtronic. Sapiens and Medtronic will continue work on the project while beginning clinical research into integrating the technologies into Medtronic’s existing portfolio. “This acquisition broadens our neuroscience position with brain modulation technology that, along with our portfolio of DBS solutions, may one day transform the way physicians are able to treat patients with neurodegenerative diseases like Parkinson’s disease and essential tremor,” said Lothar Krinke, Ph.D., vice president and general manager of the Brain Modulation business at Medtronic.
The Eindhoven facility will serve as a global research and development center for Medtronic’s Neuromodulation business, complementing the firm’s existing research and development operations, officials noted.
In June, Medtronic Inc. announced plans to buy Corventis Inc., a venture-backed, St. Paul, Minn.-based maker of wireless health-monitoring patches. Terms of the deal were not disclosed. Medtronic officials instead called the deal a “staged investment.”
Michael Coyle, president of Medtronic’s cardiac and vascular group said during an investor conference that Medtronic partnered with Corventis to develop the startup’s patch, which monitors heart rate, fluids and respiratory activity. Data is transmitted over a cellular network.
The Nuvant Mobile Cardiac Telemetry (MCT) system from Corventis, cleared by the U.S. Food and Drug Administration (FDA) in 2010, is designed to help physicians around the world better diagnose cardiac arrhythmias such as atrial fibrillation. The device is small and is worn on a patient’s chest.
According to Corventis, Nuvant MCT “provides continuous monitoring of symptomatic and asymptomatic cardiac abnormalities so physicians can detect problems in a timely way.”
The company’s other marketed device, the Avivo Mobile Patient Management system is designed to provide continuous insight into the health status of ambulatory patients, such as those living with heart failure or fluid management problems, so healthcare providers can proactively identify concerning trends and intervene before problems progress. The device has received CE mark in Europe and FDA clearance.
Originally best suited for emerging markets, according to Coyle in a transcript of the meeting, the company now predicts a market for the technology in the United States and Europe. Coyle said the devices might be able to serve as an alternative to holter monitors, which commonly are worn to monitor heart rhythms.
Medtronic’s cardiovascular market rival, St. Jude Medical Inc., recently purchased Atlanta, Ga.-based CardioMEMS, which makes an implantable cardiac monitoring technology. Analysts said that acquisitions such as this will become more common as large companies pursue home health and monitoring technologies as longer-term healthcare solutions for reducing costs and improving outcomes.
In January 2014, Medtronic acquired TYRX Inc., a privately held, New Jersey-based developer of implantable combination antibiotic drug and implanted medical devices. TYRX’s product offerings include the FDA-approved AIGISRx R fully resorbable antibacterial envelope, which is designed to reduce surgical site infections associated with cardiac implantable electronic devices, and the AIGISRx N Antibacterial Envelope, for use with spinal cord neuromostimulators. The all-cash transaction includes an initial payment of $160 million plus potential earn-out and performance-based milestone payments.
According to the company, while the risk of infection from an implanted pacemaker or defibrillator is low for most patients, repeated operative procedures after the initial device implant are associated with a substantial incremental risk of infection. It is estimated to cost the U.S. healthcare system more than $1 billion per year. “TYRX has developed an innovative, proven technology to reduce infection risk, making the procedure safer for patients and removing significant costs from the healthcare system,” Medtronic officials said.
Finally Getting to the Core
The beginning of the 2014 calendar year saw Medtronic enter the increasingly competitive transcatheter aortic valve replacement (TAVR) market in the United States. The FDA approved Medtronic’s CoreValve technology, which already had been approved in Europe in 2007. The agency okayed the self-expanding transcatheter CoreValve valve replacement system for severe aortic stenosis patients who are too ill or frail to have their aortic valves replaced through traditional open-heart surgery. Untreated, these patients have a risk of dying approaching 50 percent at one year, according to the company. Notably, the FDA granted approval of the CoreValve device without an independent device advisory panel review after reviewing the clinical outcomes in the extreme risk study of the CoreValve U.S. pivotal trial, which the watchdog agency claims demonstrates that the CoreValve system is safe and effective with high rates of survival and low rates of stroke and valve leakage reported.
“The low rates of stroke and valve leakage with the CoreValve system—two of the most concerning complications of valve replacement because they increase the risk of death and have a dramatic impact on quality of life—set a new standard for transcatheter valves,” said Jeffrey J. Popma, M.D., director of Interventional Cardiology at the Beth Israel Deaconess Medical Center in Boston, Mass., and co-principal investigator of the trial. “The CoreValve U.S. Pivotal Trial was rigorously designed and applied clinical best practices. The trial results have redefined optimal TAVR outcomes in the areas that matter most to physicians and their patients, and the results are especially remarkable given the complex medical conditions and extreme frailty of this population.”
In the U.S. trial, the CoreValve System achieved exceptional hemodynamics, or blood flow, post-implant with results similar to the gold standard, surgical valves, Medtronic reported. Additionally, valve leakage (known as paravalvular leak or PVL) rates were low and decreased over time as the self-expanding valve conformed to the shape of a patient’s annulus—an improvement that has not been reported in other major TAVR studies.
The CoreValve System was developed to serve the needs of a broad range of patients. The FDA approved the entire CoreValve platform including the CoreValve Evolut 23 millimeters (mm), and the CoreValve 26 mm, 29 mm and 31 mm valves.
A self-expanding nitinol frame enables physicians to deliver the device to the diseased valve in a controlled manner, allowing for accurate placement. All valve sizes are delivered via a small (18 Fr, or 6 mm) TAVR delivery system, making it possible to treat patients with difficult or small vasculature.
The FDA approved CoreValve for high-risk patients in June 2014. The next-generation recapturable CoreValve Evolut R transcatheter valve and the CoreValve EnVeo R delivery catheter system are available in Europe and other countries that recognize the CE mark. The company received FDA approval for an expanded indication for CoreValve in April this year. Japanese regulators gave their OK for CoreValve in Japan in May.
Show Me the Money
The company reported fiscal year 2014 revenue of $17 billion, an increase of 4 percent on a constant currency basis after adjusting for a $175 million negative foreign currency impact, or 3 percent as reported. As reported, fiscal year 2014 net earnings were approximately $3.1 billion or $3.02 per diluted share, a decrease of 12 percent and 10 percent, respectively. The Cardiac and Vascular Group (cardiac rhythm disease management, coronary, structural heart and endovascular) posted sales of $8.9 billion (up 2 percent). The Restorative Therapies Group (spine, neuromodulation and surgical technologies) recorded $6.5 billion in revenue (also up 2 percent). The Diabetes Group had $1.7 billion in sales (flat compared to FY13). Overall company sales for FY15 (ended April 24) were $20.3 billion.
KEY EXECUTIVES:
Omar Ishrak, Chairman and CEO
Michael J. Coyle, Exec. VP and President, Cardiac and Vascular Group
Gary Ellis, Exec. VP and Chief Financial Officer
Mike Genau, Sr. VP and President, Americas Region
Hooman Hakami, Exec. VP and President, Diabetes Group
Bryan Hanson, Exec. VP and President, Covidien Group
Richard E. Kuntz, M.D., Sr. VP and Chief Scientific, Clinical and Regulatory Officer
Chris Lee, Sr. VP and President, Greater China Region
Geoffrey S. Martha, Exec. VP and Group President, Restorative Therapies Group
Stephen N. Oesterle, M.D., Sr. VP, Medicine and Technology
Luann Pendy, Sr. VP, Global Quality
Rob Ten Hoedt, Exec. VP and President, Europe, Middle East and Africa Region
Bob White, Sr. VP and President, Asia-Pacific Region
NO. OF EMPLOYEES: 85,000
GLOBAL HEADQUARTERS: Dublin, Ireland
Without a doubt, Medtronic is a company of firsts.
Most of its milestones, of course, are breakthroughs in healthcare technology—the first battery-operated external pacemaker (1957); the first commercially produced implantable pacemaker (1960); the first implantable, programmable neurostimulation device for chronic pain (1983); the first implantable cardioverter defibrillator (1993); the first insulin pump with real-time glucose monitoring (2006); and there are many other examples, in innovation as well as in the company’s far-reaching philanthropic work.
But, 2014 saw another—and perhaps less auspicious, depending upon your point of view—first for the world’s largest standalone medical device company. With its nearly $50 billion purchase of Dublin, Ireland-based Covidien plc, Medtronic pulled off the largest-ever “inversion” deal (at the time) in U.S. history. Medtronic Inc., once headquartered just outside Minneapolis in Fridley, Minn., became Medtronic plc, now rooted in its acquisition’s base in Dublin. Inversion deals are structured to reduce U.S. income taxes and typically involve a U.S.-based company acquiring a foreign firm and relocating there for tax purposes.
The deal for Covidien was announced in June 2014, just after the start of Medtronic’s 2015 fiscal year. The deal was completed in January this year. The cash-and-stock transaction was valued at approximately $49.9 billion, based on Medtronic’s closing stock price of $75.59 per share on Jan. 26. Under the terms of the transaction, each ordinary share of Covidien outstanding as of the closing was converted into the right to receive $35.19 in cash and 0.956 percent of an ordinary share of Medtronic plc. Each share of Medtronic Inc. common stock outstanding as of the closing was converted into the right to receive one ordinary share of Medtronic plc.
(Editor’s note: Though MPO’s Top Company ranking is compiled using fiscal 2014 figures, our coverage of Medtronic in this issue in large part will examine the company’s history-making purchase, which happened in the company’s 2015 fiscal year.)
According to Joanne Wuensch, an analyst with BMO Capital Markets in New York, N.Y., the deal for Covidien puts Medtronic in a better position to negotiate with hospital administrators, a group that has gained purchasing power as doctors increasingly become employees and hospitals limit what brands they carry. The expanded Medtronic will have offerings in six of the top 10 purchasing arms of the hospital, she said.
“They can go in not just with a bucket of products as they have previously, but with a full buffet table,” she told Bloomberg Business after the deal was completed. “It does facilitate the partnership between the device manufacturers and the hospital providers, being able to make more purchases from a fewer number of sellers.”
Despite moving overseas to seek a lower tax rate, Medtronic officials said they would spend an additional $10 billion over the next decade in investments, acquisitions and research and development in the United States (in part, from the tax savings, according to the company). The company’s headquarters will move to Ireland, but officials said it would retain its facilities in Minnesota—and largely be run from there, as most of its executives will continue to be based in the Gopher State.
When the deal was announced, Richard Cohen, a retired Twin Cities stockbroker and decades-long Medtronic investor, noted that Medtronic’s effective departure from Minnesota felt like a slap in the face to a state that nurtured it in its initial stages with funding and investment.
“The thing that bothers me the most is that this is a Minneapolis-based company that depended on the Minnesota investment community for its initial financing, that attracted investment from Minnesota investors first,” Cohen told the Minneapolis Star-Tribune newspaper. “The ones that were there in the beginning are the ones that are going to get screwed.”
Omar Ishrak, Medtronic’s CEO, took a much broader view of the deal.
“The medical technology industry is critical to the U.S. economy, and we will continue to invest and innovate and create well-paying jobs,” Ishrak said in a statement. “These investments ultimately produce new therapy and treatment options that improve or save lives for millions of people around the world. We are excited to reach this agreement with Covidien, which further advances our mission to alleviate pain, restore health and extend life for patients around the world. This acquisition will allow Medtronic to reach more patients, in more ways and in more places.”
Many U.S. lawmakers were not convinced. Medtronic’s purchase of Covidien along with other similar deals where domestic companies use mergers to reincorporate overseas for tax reasons created consternation on Capitol Hill. U.S. lawmakers moved swiftly to block such efforts.
“These transactions are about tax avoidance, plain and simple,” Sen. Carl Levin (D-Mich.) said in a prepared statement. “Our legislation would clamp down on this loophole to prevent corporations from shifting their tax burden onto their competitors and average Americans.”
In September, the U.S. Treasury Department announced tax restrictions that would make it harder and more expensive for U.S. companies to reincorporate abroad.
The measures included the prohibition of financial maneuvers called “cash boxes” and inversions, and they would prevent “hopscotch” loans that allow American firms to access foreign cash without paying U.S. taxes.
“This action will significantly diminish the ability of inverted companies to escape U.S. taxation,” U.S. Treasury Secretary Jacob J. Lew said after the department’s announcement. “For some companies considering deals, today’s action will mean that inversions no longer make economic sense.”
Venture capitalists also expressed concern over the blockbuster deal. Large mergers such as this only consolidate the medtech market more, leaving less space for small companies, and less opportunity for small startups to find buyers.
“The impact of this [deal] will be felt for many years,” Mir Imran, chairman of medical technology accelerator InCube Labs, told The Wall Street Journal. Imran has launched 19 companies since the 1980s, and has done business with both Medtronic and Covidien.
Last year, Nfocus Neuromedical Inc., a hemorrhagic-stroke treatment company launched by InCube, was acquired by Covidien, he said.
“Prior to this merger, Covidien was very acquisitive of startup companies, and Medtronic was also quite active,” he said. “But post-merger, the new Medtronic will be focused on integrating the two businesses … so, for the next two or three years, [it] will be less focused on investing in and acquiring young companies. For the world of medtech startups, this is not good news.”
Casper de Clerq, a partner at Norwest Venture Partners who has been investing in medical technologies for more than two decades—and whose firm last year invested alongside Medtronic in a $20 million Series D round for sinus-implant company Intersect ENT Inc.—said that certain areas of emerging medical technology could be hit especially hard by a merger that, at least temporarily, takes two major buyers off the grid.
In October, the company reiterated, despite government action, that the deal was still a strategic one, including the belief that the combination would “support and accelerate” Medtronic’s three strategies” of:
- Therapy innovation: With its expanded portfolio of products and services and ability to accelerate strategic investments and investments in technology, the “new” Medtronic would be a preeminent leader in developing, investing in and delivering therapy and procedural innovations to address the major disease states impacting patients and healthcare costs in the United States and around the world;
- Globalization: With a presence in more than 150 countries, the combined entity would be better able to serve global market needs. Medtronic and Covidien have combined pro forma revenues of approximately $27 billion including approximately $13 billion from outside the U.S., of which $3.7 billion comes from emerging markets. Covidien’s capabilities in emerging market R&D and manufacturing, joined with Medtronic’s clinical expertise across a much broader product offering, significantly increases the number of attractive solutions the new company would be able to offer globally; and
- Economic value: Medtronic has adopted an intense focus on aligning with its customers to create more value in healthcare systems around the world by combining products, services and insights into solutions aimed at expanding access and reducing healthcare costs. With Covidien, Medtronic would be able to provide a broader array of complementary therapies and solutions that can be packaged to drive more value and efficiency in healthcare systems.
Officials also noted the combination would also result in the diversification of Medtronic’s revenue base due to a stronger foundation in emerging-market R&D and manufacturing and the addition of industry-leading capabilities and expertise in general and advanced surgery and patient monitoring.
Medtronic also revealed the proposed management structure of the new company. The new Medtronic is composed of four major business segments, headed by Medtronic’s three existing group presidents plus Covidien group president Bryan Hanson. The four segments will comprise Medtronic’s existing cardiac and vascular group, valued at $8.8 billion; its restorative therapies group worth $6.5 billion; its diabetes group, worth $1.7 billion; and the fourth, the Covidien Group, currently valued at $10.4 billion.
Covidien’s neurovascular business will function as an independent business under the umbrella of Medtronic’s restorative therapies group. The company also announced four geographic regions around which the combined company will operate: Asia Pacific, the Americas, EMEA (Europe, the Middle East and Africa) and Greater China—down from Medtronic’s present seven regions.
“While we will move to four regions in the future—versus the seven regions represented in the Medtronic structure today—this is in no way intended to reflect a diminished importance or focus on those markets that previously served as regions, nor will I remain any less focused on seeing that these markets reach their potential and objectives,” Ishrak said. “Rather, this approach will ensure we have the appropriate leadership involvement in these markets on a daily basis as we grow our overall scale and complexity.”
Other Acquisitions
The brass at Medtronic seem to be multitaskers on the deal-making front.
In August 2014, the company paid $350 million to buy NGC Medical S.p.A., a privately held Italian company that manages cardiovascular suites, operating rooms, and intensive care units for hospitals. Medtronic already owned 30 percent of the business, which works with hospitals in Italy but also is expanding in Europe, the Middle East and Africa.
“Medtronic is intent on finding new ways to partner with physicians, hospital systems, patients, payers and governments around the world to meet their cost and access challenges and to deliver high-quality healthcare,” said Rob ten Hoedt, executive vice president and president of Medtronic’s European business. “Medtronic has made significant progress over the past year since launching our hospital solutions business. NGC’s managed services expertise further enhances this momentum.”
The company also spent $200 million in cash to purchase privately held Sapiens Steering Brain Stimulation, based in Eindhoven, the Netherlands, which develops deep brain stimulation (DBS) technologies.
The system being developed by Sapiens would allow for more precise stimulation of intended targets in a patient’s brain, according to Medtronic. Sapiens and Medtronic will continue work on the project while beginning clinical research into integrating the technologies into Medtronic’s existing portfolio. “This acquisition broadens our neuroscience position with brain modulation technology that, along with our portfolio of DBS solutions, may one day transform the way physicians are able to treat patients with neurodegenerative diseases like Parkinson’s disease and essential tremor,” said Lothar Krinke, Ph.D., vice president and general manager of the Brain Modulation business at Medtronic.
The Eindhoven facility will serve as a global research and development center for Medtronic’s Neuromodulation business, complementing the firm’s existing research and development operations, officials noted.
In June, Medtronic Inc. announced plans to buy Corventis Inc., a venture-backed, St. Paul, Minn.-based maker of wireless health-monitoring patches. Terms of the deal were not disclosed. Medtronic officials instead called the deal a “staged investment.”
Michael Coyle, president of Medtronic’s cardiac and vascular group said during an investor conference that Medtronic partnered with Corventis to develop the startup’s patch, which monitors heart rate, fluids and respiratory activity. Data is transmitted over a cellular network.
The Nuvant Mobile Cardiac Telemetry (MCT) system from Corventis, cleared by the U.S. Food and Drug Administration (FDA) in 2010, is designed to help physicians around the world better diagnose cardiac arrhythmias such as atrial fibrillation. The device is small and is worn on a patient’s chest.
According to Corventis, Nuvant MCT “provides continuous monitoring of symptomatic and asymptomatic cardiac abnormalities so physicians can detect problems in a timely way.”
The company’s other marketed device, the Avivo Mobile Patient Management system is designed to provide continuous insight into the health status of ambulatory patients, such as those living with heart failure or fluid management problems, so healthcare providers can proactively identify concerning trends and intervene before problems progress. The device has received CE mark in Europe and FDA clearance.
Originally best suited for emerging markets, according to Coyle in a transcript of the meeting, the company now predicts a market for the technology in the United States and Europe. Coyle said the devices might be able to serve as an alternative to holter monitors, which commonly are worn to monitor heart rhythms.
Medtronic’s cardiovascular market rival, St. Jude Medical Inc., recently purchased Atlanta, Ga.-based CardioMEMS, which makes an implantable cardiac monitoring technology. Analysts said that acquisitions such as this will become more common as large companies pursue home health and monitoring technologies as longer-term healthcare solutions for reducing costs and improving outcomes.
In January 2014, Medtronic acquired TYRX Inc., a privately held, New Jersey-based developer of implantable combination antibiotic drug and implanted medical devices. TYRX’s product offerings include the FDA-approved AIGISRx R fully resorbable antibacterial envelope, which is designed to reduce surgical site infections associated with cardiac implantable electronic devices, and the AIGISRx N Antibacterial Envelope, for use with spinal cord neuromostimulators. The all-cash transaction includes an initial payment of $160 million plus potential earn-out and performance-based milestone payments.
According to the company, while the risk of infection from an implanted pacemaker or defibrillator is low for most patients, repeated operative procedures after the initial device implant are associated with a substantial incremental risk of infection. It is estimated to cost the U.S. healthcare system more than $1 billion per year. “TYRX has developed an innovative, proven technology to reduce infection risk, making the procedure safer for patients and removing significant costs from the healthcare system,” Medtronic officials said.
Finally Getting to the Core
The beginning of the 2014 calendar year saw Medtronic enter the increasingly competitive transcatheter aortic valve replacement (TAVR) market in the United States. The FDA approved Medtronic’s CoreValve technology, which already had been approved in Europe in 2007. The agency okayed the self-expanding transcatheter CoreValve valve replacement system for severe aortic stenosis patients who are too ill or frail to have their aortic valves replaced through traditional open-heart surgery. Untreated, these patients have a risk of dying approaching 50 percent at one year, according to the company. Notably, the FDA granted approval of the CoreValve device without an independent device advisory panel review after reviewing the clinical outcomes in the extreme risk study of the CoreValve U.S. pivotal trial, which the watchdog agency claims demonstrates that the CoreValve system is safe and effective with high rates of survival and low rates of stroke and valve leakage reported.
“The low rates of stroke and valve leakage with the CoreValve system—two of the most concerning complications of valve replacement because they increase the risk of death and have a dramatic impact on quality of life—set a new standard for transcatheter valves,” said Jeffrey J. Popma, M.D., director of Interventional Cardiology at the Beth Israel Deaconess Medical Center in Boston, Mass., and co-principal investigator of the trial. “The CoreValve U.S. Pivotal Trial was rigorously designed and applied clinical best practices. The trial results have redefined optimal TAVR outcomes in the areas that matter most to physicians and their patients, and the results are especially remarkable given the complex medical conditions and extreme frailty of this population.”
In the U.S. trial, the CoreValve System achieved exceptional hemodynamics, or blood flow, post-implant with results similar to the gold standard, surgical valves, Medtronic reported. Additionally, valve leakage (known as paravalvular leak or PVL) rates were low and decreased over time as the self-expanding valve conformed to the shape of a patient’s annulus—an improvement that has not been reported in other major TAVR studies.
The CoreValve System was developed to serve the needs of a broad range of patients. The FDA approved the entire CoreValve platform including the CoreValve Evolut 23 millimeters (mm), and the CoreValve 26 mm, 29 mm and 31 mm valves.
A self-expanding nitinol frame enables physicians to deliver the device to the diseased valve in a controlled manner, allowing for accurate placement. All valve sizes are delivered via a small (18 Fr, or 6 mm) TAVR delivery system, making it possible to treat patients with difficult or small vasculature.
The FDA approved CoreValve for high-risk patients in June 2014. The next-generation recapturable CoreValve Evolut R transcatheter valve and the CoreValve EnVeo R delivery catheter system are available in Europe and other countries that recognize the CE mark. The company received FDA approval for an expanded indication for CoreValve in April this year. Japanese regulators gave their OK for CoreValve in Japan in May.
Show Me the Money
The company reported fiscal year 2014 revenue of $17 billion, an increase of 4 percent on a constant currency basis after adjusting for a $175 million negative foreign currency impact, or 3 percent as reported. As reported, fiscal year 2014 net earnings were approximately $3.1 billion or $3.02 per diluted share, a decrease of 12 percent and 10 percent, respectively. The Cardiac and Vascular Group (cardiac rhythm disease management, coronary, structural heart and endovascular) posted sales of $8.9 billion (up 2 percent). The Restorative Therapies Group (spine, neuromodulation and surgical technologies) recorded $6.5 billion in revenue (also up 2 percent). The Diabetes Group had $1.7 billion in sales (flat compared to FY13). Overall company sales for FY15 (ended April 24) were $20.3 billion.