07.26.18
$29.7 Billion
KEY EXECUTIVES:
Omar Ishrak, Chairman and CEO
Michael J. Coyle, Exec. VP and Group President, Cardiac and Vascular Group
Hooman C. Hakami, Exec. VP and Group President, Diabetes Group
Bob White, Exec. VP and Group President, Minimally Invasive Therapies Group
Richard Kuntz, M.D., Sr. VP and Chief Scientific, Clinical and Regulatory Officer
Bradley E. Lerman, Sr. VP, General Counsel and Corporate Secretary
Geoffrey S. Martha, Exec. VP and President, Restorative Therapies Group
Karen L. Parkhill, Exec. VP and CFO
Carol A. Surface, Sr. VP and Chief Human Resources Officer
Robert ten Hoedt, Exec. VP and President, EMEA
NO. OF EMPLOYEES: 91,267
GLOBAL HEADQUARTERS: Dublin, Ireland
Stephanie Rodenberg-Lewis, a Katy, Texas, elementary school teacher, has Type 1 diabetes. She used a Medtronic insulin pump for 15 years before switching to another brand due to concerns with accuracy and personal preference. When it was announced in May 2016 that UnitedHealthcare was going to have an exclusive coverage agreement with Medtronic for insulin pumps, she was not pleased. She had previously determined that she would not return to the Medtronic product and was decidedly not pleased when her health insurance provider was asking her to do just that.
“I have this disease that I did not ask for, did not cause, and now you’re telling me you’re going to make the decision for me (about) the device that keeps me alive?” Rodenberg-Lewis told the Associated Press (AP) in June 2016.
UnitedHealthcare, on the other hand, saw the move as a necessary means to find ways in which to cut costs from healthcare, which continue to rise. “We can’t just wish away the high cost of medical care,” Linda Blumberg, a health economist with the nonprofit Urban Institute, told the AP. “We’ve got to think about…ways in which we can bring down costs while not significantly hurting quality.”
While Dr. Richard Migliori, UnitedHealthcare’s chief medical officer, did cite cost as a contributing factor in the company’s selection of Medtronic’s diabetes care technology offerings to back in the exclusive agreement, he also specifically noted a clinical feature as a reason as well. Medtronic’s insulin pump has the option where the device stops insulin flow if a user’s blood sugar levels drop dangerously low.
While agreements between health insurers and pharmaceutical and medical device companies are not unusual, the UnitedHealthcare/Medtronic arrangement was one of the first to impact a traditionally consumer-made decision regarding choice of healthcare technology. Other contracts have not directly impacted patients, such as those centered around devices like implants where the patient would not have a particular choice on the technology used anyway. Followers of healthcare trends, however, point to this decision possibly affecting patients more in the future as other firms follow suit with their own arrangements. In an era of growing consumer-based healthcare, patients are likely to face this type of exclusivity agreement more often.
The news marked an unfortunate start to Medtronic’s fiscal year, which began April 29, 2016, but the company was quick to recover with regard to positive PR, specifically from the diabetes community. In September, the firm announced its hybrid closed loop system—the MiniMed 670G system—had earned FDA approval. The system was the first such technology for Type 1 diabetics to automatically deliver the correct dosage of insulin to the user without requiring intervention. Powered by a sophisticated algorithm called SmartGuard HCL, the device was a significant milestone for diabetes care management and, hopefully, eliminated some of the resentment over the UnitedHealthcare arrangement.
“With SmartGuard HCL, the ability to automate basal insulin dosing 24-hours-a-day is a much-anticipated advancement in the diabetes community for the profound impact it may have on managing diabetes—particularly for minimizing glucose variability and maximizing time in the target range,” Richard M. Bergenstal, M.D., principal investigator of the pivotal study and executive director of the Park Nicollet International Diabetes Center in Minneapolis, said in a news release issued by Medtronic. “The data from the pivotal trial were compelling and I am confident this therapy will be well-received by both the clinical and patient community.”
A first of its kind, the 670G system—colloquially referred to as an “artificial pancreas,” although Medtronic shies away from the use of that name—leverages a glucose sensor that communicates with an insulin pump to automatically regulate the insulin flow. While it would still be approximately nine months before the device would see its U.S. market launch (June 2017), those familiar with the development effort for such a device to be made available were thrilled.
“It is a major news event that a system of this kind has been approved—the first time a pump will administer insulin as a result of information it receives from a sensor,” Derek Rapp, CEO of the Juvenile Diabetes Research Foundation, said in a Medtronic news release.
Indeed, the news tied to Medtronic’s Diabetes Group—made up of Intensive Insulin Management, Non-Intensive Diabetes Therapies, and Diabetes Services & Solutions—was some of the loudest for the firm during its 2017 fiscal year. Conversely, the unit was a distant fourth in order of sales contributions to Medtronic’s $29.7 billion in net sales. The company’s three other business segments offered significantly higher sales figures. Leading the firm, the Cardiac and Vascular Group, home to the Cardiac Rhythm & Heart Failure, Coronary & Structural Heart, and Aortic & Peripheral Vascular divisions, posted $10.5 billion in sales. Surgical Solutions and Patient Monitoring & Recovery divisions make up the Minimally Invasive Therapies Group, which provided $9.9 billion in sales. Rounding out the top three segments, Restorative Therapies, which covers the divisions for Spine, Brain Therapies, Specialty Therapies, and Pain Therapies, saw $7.4 billion in net sales during the fiscal year.
ANALYST INSIGHTS: While performing well in revenue growth but underperforming in bottom line increases (since the Covidien acquisition), the recent hiring of former JPMorgan Medical Industry analyst Mike Weinstein was seen as a positive for the future portfolio management of Medtronic. Watch for Medtronic to continue to leverage their portfolio depth and lead the way in “risk sharing” arrangements with their hospital customers.
The company inched closer to the elusive $30 billion in medical device and technology sales figure in fiscal 2017, up from its 2016 total of $28.8 billion—an increase of 3 percent. In fact, the elevation was markedly diminished when compared to the prior year’s meteoric rise, which saw sales jump from $20.3 billion in 2015, a number that represents sales for the company prior to full integration of former Top 30 company Covidien, into its report, which is now represented as the majority of the Minimally Invasive Therapies Group.
That modest growth over 2016 was reflected across all segments as well. Cardiac and Vascular Group increased 3 percent from $10.2 billion, bolstered primarily by strong net sales in Arrhythmia Management within Cardiac Rhythm & Heart Failure, largely due to growth in AF Solutions and Diagnostics (most attributable to acceptance of the Arctic Front Advance Cardiac CryoAblation Catheter system). Coronary & Structural Heart also contributed to the rise due primarily to the ongoing launch of the Evolut R 34mm transcatheter aortic heart valve in the United States and Europe.
Minimally Invasive Therapies enjoyed 4 percent growth from $9.6 billion in 2016. The gains here were primarily driven by strong sales in Advanced Stapling and Advanced Energy (Surgical Solutions). Gains were experienced in Stapling from increased adoption of endo stapling specialty reloads with Tri-Staple technology. In Energy, the LigaSure vessel sealing instruments launch and Valleylab FT10 energy platform adoption were primarily responsible for the rise. Also contributing to the growth was a combination of factors in Airways and Ventilation Management (Patient Monitoring & Recovery). Most notable in this unit were strong sales of the Puritan Bennett 980, strength in Patient Monitoring Nellcor pulse oximetry products, and growth in emerging markets.
The 2 percent rise experienced by the Restorative Therapies Group over the prior year’s $7.2 billion total could be attributed to solid gains in the Brain and Specialty Therapies group, which made up for the losses experienced by Pain Therapies. In Brain, progression was seen from sales of the Axium Prime Extra Soft detachable coil; growth in flow diversion from the Pipeline Flex embolization device; increases in stents due to the Solitaire revascularization device (which was slightly offset by a voluntary recall of certain product lines); and strong sales of neurosurgery capital equipment, disposables, and the O-arm O2 surgical imaging system. Specialties Therapies’ sales were bolstered by the performance of Advanced Energy (Aquamantys Transcollation and PEAK PlasmaBlade products), Pelvic Health (InterStim implant), and ENT (NuVent balloons and Fusion Compact navigation).
The 3 percent growth in the Diabetes Group was primarily driven by both U.S. and international sales of the MiniMed 630G, interest in the Priority Access Program for the aforementioned MiniMed 670G, and international sales of the MiniMed 640G with the Enhanced Enlite sensor.
Looking ahead, it’s challenging to determine from which segments Medtronic will see significant growth in its next annual report as the amount and size of M&A activity in which the company was involved in fiscal 2017 was significant. Certainly, it wasn’t the size of the mammoth deal that saw Covidien absorbed, but the transactions were still substantial in their own right.
Topping M&A headlines for the firm in the 2017 fiscal was the announcement that it had agreed to divest a portion of its Patient Monitoring & Recovery Division (part of Medtronic’s Minimally Invasive Therapies Group) to Cardinal Health for $6.1 billion. Specifically, the deal involved sending the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses (representing 23 total product categories), as well as 17 dedicated manufacturing facilities. The deal does allow for the retention of Medtronic’s respiratory and monitoring products, including ventilators and certain monitors, plus its renal care solutions business.
“This is a positive transaction for all involved—Medtronic, Cardinal Health, and our respective shareholders and employees—who we believe will all thrive under this change in ownership. In addition, it signifies our commitment to disciplined portfolio management,” Omar Ishrak, Medtronic chairman and CEO, said in a company news release first announcing the sale. “Medtronic has had a specific focus over the past several years on ensuring that we are delivering compelling clinical and economic value to health systems and patients around the world. Ultimately, we came to the conclusion that these products—while truly meaningful to patients in need—are best suited under ownership that can provide the investment and focus that these businesses require. At the same time, we can put these proceeds to work, investing over the long-term in higher returning internal and external opportunities that are more directly aligned with our growth strategies of therapy innovation, globalization, and economic value.”
The product lines involved in the deal arrived at Medtronic through the Covidien acquisition and contributed approximately $2.3 billion for the 12 months ending October 2016 with more than 70 percent of total U.S. sales. The types of products included dental/animal health, chart paper, wound care, incontinence, electrodes, SharpSafety, thermometry, perinatal protection, blood collection, compression, and enteral feeding offerings.
“We are thrilled about today’s announcement, as this well-established product line is complementary to our medical consumables business and fits naturally into our customer offering. For this reason, this product portfolio has been on our radar for many years,” George S. Barrett, Cardinal Health chairman and CEO, said in his company’s news release announcing the agreement. “We distribute some of these products today and have been collaborative partners with the leadership of this business. Given the current trends in healthcare, including aging demographics and a focus on post-acute care, this industry-leading portfolio will help us further expand our scope in the operating room, in long-term care facilities, and in home healthcare, reaching customers across the entire continuum of care.
The deal involving the former Covidien businesses was finalized during Medtronic’s next fiscal year in July 2017. Proceeds of the transaction, according to Medtronic, would be used to repurchase stock and pay down debt. David Heupel, senior analyst with Thrivent in Minneapolis, however, told the Star Tribune that he envisioned the funds from the sale could be used for acquisitions of innovative, higher-tech devices. Perhaps he was basing this prediction on the company’s acquisitions that occurred earlier in its 2017 fiscal year.
The largest of the purchases was announced in June 2016, involving HeartWare International. Medtronic shelled out approximately $1.1 billion for the manufacturer of less-invasive miniaturized circulatory support technologies for the treatment of advanced heart failure. The company is most notable for its HVAD System, which, at the time of the deal’s announcement, featured the world’s smallest full-support ventricular assist device (VAD) and was designed to reduce surgical invasiveness, improve patient recovery times, and enhance patient outcomes. HeartWare was also developing the MVAD system, a heart pump 40 percent smaller than the HVAD, according to a report by Reuters. The company, however, was apparently experiencing issues in clinical trials such as clotting-related side effects.
“The addition of HeartWare’s portfolio adds to our expanding portfolio of diagnostics, therapeutics, and services that address heart failure patients,” Mike Coyle, executive vice president and president of the Cardiac and Vascular Group at Medtronic, said at the time of the acquisition announcement. “The team at HeartWare has established excellent relationships with its hospital customers and built a strong position and reputation in the marketplace. This transaction, once closed, will be a further, important step toward Medtronic offering a complete suite of solutions to address patient needs across the heart failure care continuum.”
About a month prior to the HeartWare announcement, Medtronic primed its M&A activity by first nabbing the gynecology unit from fellow MPO Top 30 company Smith & Nephew. The deal, valued at $350 million, was centered around the TRUCLEAR System, a medical technology platform used to remove abnormal uterine tissue such as polyps and fibroids offering a less invasive option to surgical procedures such as a hysterectomy. The gynecology division produced $56 million in revenue for Smith & Nephew in 2015.
“We believe gynecology is one of the most underserved specialty procedure areas. Smith & Nephew has developed a rapidly growing business that expands minimally invasive treatment options for gynecology patients,” Chris Barry, senior vice president and president of the Surgical Innovations business, Minimally Invasive Therapies Group at Medtronic, said in a company statement. “This acquisition expands our existing GYN portfolio and we believe creates opportunities to further explore and develop global therapies and solutions that improve GYN surgery.”
Finally, while not a full acquisition, Medtronic still made a splash in the surgical robots space with investments in Mazor Robotics. The Israeli-based firm has been developing a robotically assisted spine-surgery system called Mazor X. According to a report in the Star Tribune in July 2016, the company’s flagship guidance system, the Renaissance, as well as its predecessor, has been used in over 16,000 successful spinal surgeries. Medtronic’s investments grant the company exclusive distribution rights as well as a percentage stake in Mazor.
Navigating these M&A waters can be a challenging task and requires someone at the helm with strategic financial skills. Recognizing this, the firm announced in May 2016 that Karen L. Parkhill would be moving into the role of CFO, replacing the retiring Gary Ellis. Ellis had played a critical role in closing a number of acquisitions, including the blockbuster Covidien deal, which also saw the company’s headquarters relocate to Dublin, Ireland via an inversion. With these types of maneuvers in mind, Medtronic recruited Parkhill from Comerica, a Dallas-based financial-services company. She also lists J.P. Morgan Chase & Co. as a former employer, where she was involved with its investment bank.
“I am delighted to add someone with Karen’s deep expertise and insights to the Medtronic leadership team,” Ishrak said in a company statement. “Given Karen’s extensive background across all of the major disciplines within finance, and her direct experience as an investment banker, CFO at JP Morgan’s Commercial banking business, and CFO at Comerica, I am confident in her ability to lead our global finance organization and believe she will be a strong representative to our investors and Wall Street. I look forward to the ideas and perspectives she will bring to our leadership team—including from her experience as a director with the Methodist Health System—during this transformational time at Medtronic and in the healthcare industry.”
While the purchasing of companies and technologies is a fantastic way to get innovative products to market faster, Medtronic also maintains a very healthy development pipeline with new offerings for healthcare professionals emerging throughout the year. The firm’s 2017 fiscal year saw a variety of fruits come to bear, whether through regulatory clearance or approval or market launch. Following is a list of some of the more notable announcements:
Then, just before the end of the company’s 2017 fiscal year in late April, Medtronic announced it was pulling its latest stents from India due to the country’s price cap. It submitted an application for withdrawal of its Resolute Onyx product. The firm made the decision only two months after the National Pharmaceutical Pricing Authority had slashed prices of stents by up to 85 percent. The response to the price cap followed on the heels of fellow device maker, Abbott, which was seeking to withdraw two types of its own stents.
KEY EXECUTIVES:
Omar Ishrak, Chairman and CEO
Michael J. Coyle, Exec. VP and Group President, Cardiac and Vascular Group
Hooman C. Hakami, Exec. VP and Group President, Diabetes Group
Bob White, Exec. VP and Group President, Minimally Invasive Therapies Group
Richard Kuntz, M.D., Sr. VP and Chief Scientific, Clinical and Regulatory Officer
Bradley E. Lerman, Sr. VP, General Counsel and Corporate Secretary
Geoffrey S. Martha, Exec. VP and President, Restorative Therapies Group
Karen L. Parkhill, Exec. VP and CFO
Carol A. Surface, Sr. VP and Chief Human Resources Officer
Robert ten Hoedt, Exec. VP and President, EMEA
NO. OF EMPLOYEES: 91,267
GLOBAL HEADQUARTERS: Dublin, Ireland
Stephanie Rodenberg-Lewis, a Katy, Texas, elementary school teacher, has Type 1 diabetes. She used a Medtronic insulin pump for 15 years before switching to another brand due to concerns with accuracy and personal preference. When it was announced in May 2016 that UnitedHealthcare was going to have an exclusive coverage agreement with Medtronic for insulin pumps, she was not pleased. She had previously determined that she would not return to the Medtronic product and was decidedly not pleased when her health insurance provider was asking her to do just that.
“I have this disease that I did not ask for, did not cause, and now you’re telling me you’re going to make the decision for me (about) the device that keeps me alive?” Rodenberg-Lewis told the Associated Press (AP) in June 2016.
UnitedHealthcare, on the other hand, saw the move as a necessary means to find ways in which to cut costs from healthcare, which continue to rise. “We can’t just wish away the high cost of medical care,” Linda Blumberg, a health economist with the nonprofit Urban Institute, told the AP. “We’ve got to think about…ways in which we can bring down costs while not significantly hurting quality.”
While Dr. Richard Migliori, UnitedHealthcare’s chief medical officer, did cite cost as a contributing factor in the company’s selection of Medtronic’s diabetes care technology offerings to back in the exclusive agreement, he also specifically noted a clinical feature as a reason as well. Medtronic’s insulin pump has the option where the device stops insulin flow if a user’s blood sugar levels drop dangerously low.
While agreements between health insurers and pharmaceutical and medical device companies are not unusual, the UnitedHealthcare/Medtronic arrangement was one of the first to impact a traditionally consumer-made decision regarding choice of healthcare technology. Other contracts have not directly impacted patients, such as those centered around devices like implants where the patient would not have a particular choice on the technology used anyway. Followers of healthcare trends, however, point to this decision possibly affecting patients more in the future as other firms follow suit with their own arrangements. In an era of growing consumer-based healthcare, patients are likely to face this type of exclusivity agreement more often.
The news marked an unfortunate start to Medtronic’s fiscal year, which began April 29, 2016, but the company was quick to recover with regard to positive PR, specifically from the diabetes community. In September, the firm announced its hybrid closed loop system—the MiniMed 670G system—had earned FDA approval. The system was the first such technology for Type 1 diabetics to automatically deliver the correct dosage of insulin to the user without requiring intervention. Powered by a sophisticated algorithm called SmartGuard HCL, the device was a significant milestone for diabetes care management and, hopefully, eliminated some of the resentment over the UnitedHealthcare arrangement.
“With SmartGuard HCL, the ability to automate basal insulin dosing 24-hours-a-day is a much-anticipated advancement in the diabetes community for the profound impact it may have on managing diabetes—particularly for minimizing glucose variability and maximizing time in the target range,” Richard M. Bergenstal, M.D., principal investigator of the pivotal study and executive director of the Park Nicollet International Diabetes Center in Minneapolis, said in a news release issued by Medtronic. “The data from the pivotal trial were compelling and I am confident this therapy will be well-received by both the clinical and patient community.”
A first of its kind, the 670G system—colloquially referred to as an “artificial pancreas,” although Medtronic shies away from the use of that name—leverages a glucose sensor that communicates with an insulin pump to automatically regulate the insulin flow. While it would still be approximately nine months before the device would see its U.S. market launch (June 2017), those familiar with the development effort for such a device to be made available were thrilled.
“It is a major news event that a system of this kind has been approved—the first time a pump will administer insulin as a result of information it receives from a sensor,” Derek Rapp, CEO of the Juvenile Diabetes Research Foundation, said in a Medtronic news release.
Indeed, the news tied to Medtronic’s Diabetes Group—made up of Intensive Insulin Management, Non-Intensive Diabetes Therapies, and Diabetes Services & Solutions—was some of the loudest for the firm during its 2017 fiscal year. Conversely, the unit was a distant fourth in order of sales contributions to Medtronic’s $29.7 billion in net sales. The company’s three other business segments offered significantly higher sales figures. Leading the firm, the Cardiac and Vascular Group, home to the Cardiac Rhythm & Heart Failure, Coronary & Structural Heart, and Aortic & Peripheral Vascular divisions, posted $10.5 billion in sales. Surgical Solutions and Patient Monitoring & Recovery divisions make up the Minimally Invasive Therapies Group, which provided $9.9 billion in sales. Rounding out the top three segments, Restorative Therapies, which covers the divisions for Spine, Brain Therapies, Specialty Therapies, and Pain Therapies, saw $7.4 billion in net sales during the fiscal year.
ANALYST INSIGHTS: While performing well in revenue growth but underperforming in bottom line increases (since the Covidien acquisition), the recent hiring of former JPMorgan Medical Industry analyst Mike Weinstein was seen as a positive for the future portfolio management of Medtronic. Watch for Medtronic to continue to leverage their portfolio depth and lead the way in “risk sharing” arrangements with their hospital customers.
—Dave Sheppard, Co-Founder and Principal, MedWorld Advisors
The company inched closer to the elusive $30 billion in medical device and technology sales figure in fiscal 2017, up from its 2016 total of $28.8 billion—an increase of 3 percent. In fact, the elevation was markedly diminished when compared to the prior year’s meteoric rise, which saw sales jump from $20.3 billion in 2015, a number that represents sales for the company prior to full integration of former Top 30 company Covidien, into its report, which is now represented as the majority of the Minimally Invasive Therapies Group.
That modest growth over 2016 was reflected across all segments as well. Cardiac and Vascular Group increased 3 percent from $10.2 billion, bolstered primarily by strong net sales in Arrhythmia Management within Cardiac Rhythm & Heart Failure, largely due to growth in AF Solutions and Diagnostics (most attributable to acceptance of the Arctic Front Advance Cardiac CryoAblation Catheter system). Coronary & Structural Heart also contributed to the rise due primarily to the ongoing launch of the Evolut R 34mm transcatheter aortic heart valve in the United States and Europe.
Minimally Invasive Therapies enjoyed 4 percent growth from $9.6 billion in 2016. The gains here were primarily driven by strong sales in Advanced Stapling and Advanced Energy (Surgical Solutions). Gains were experienced in Stapling from increased adoption of endo stapling specialty reloads with Tri-Staple technology. In Energy, the LigaSure vessel sealing instruments launch and Valleylab FT10 energy platform adoption were primarily responsible for the rise. Also contributing to the growth was a combination of factors in Airways and Ventilation Management (Patient Monitoring & Recovery). Most notable in this unit were strong sales of the Puritan Bennett 980, strength in Patient Monitoring Nellcor pulse oximetry products, and growth in emerging markets.
The 2 percent rise experienced by the Restorative Therapies Group over the prior year’s $7.2 billion total could be attributed to solid gains in the Brain and Specialty Therapies group, which made up for the losses experienced by Pain Therapies. In Brain, progression was seen from sales of the Axium Prime Extra Soft detachable coil; growth in flow diversion from the Pipeline Flex embolization device; increases in stents due to the Solitaire revascularization device (which was slightly offset by a voluntary recall of certain product lines); and strong sales of neurosurgery capital equipment, disposables, and the O-arm O2 surgical imaging system. Specialties Therapies’ sales were bolstered by the performance of Advanced Energy (Aquamantys Transcollation and PEAK PlasmaBlade products), Pelvic Health (InterStim implant), and ENT (NuVent balloons and Fusion Compact navigation).
The 3 percent growth in the Diabetes Group was primarily driven by both U.S. and international sales of the MiniMed 630G, interest in the Priority Access Program for the aforementioned MiniMed 670G, and international sales of the MiniMed 640G with the Enhanced Enlite sensor.
Looking ahead, it’s challenging to determine from which segments Medtronic will see significant growth in its next annual report as the amount and size of M&A activity in which the company was involved in fiscal 2017 was significant. Certainly, it wasn’t the size of the mammoth deal that saw Covidien absorbed, but the transactions were still substantial in their own right.
Topping M&A headlines for the firm in the 2017 fiscal was the announcement that it had agreed to divest a portion of its Patient Monitoring & Recovery Division (part of Medtronic’s Minimally Invasive Therapies Group) to Cardinal Health for $6.1 billion. Specifically, the deal involved sending the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses (representing 23 total product categories), as well as 17 dedicated manufacturing facilities. The deal does allow for the retention of Medtronic’s respiratory and monitoring products, including ventilators and certain monitors, plus its renal care solutions business.
“This is a positive transaction for all involved—Medtronic, Cardinal Health, and our respective shareholders and employees—who we believe will all thrive under this change in ownership. In addition, it signifies our commitment to disciplined portfolio management,” Omar Ishrak, Medtronic chairman and CEO, said in a company news release first announcing the sale. “Medtronic has had a specific focus over the past several years on ensuring that we are delivering compelling clinical and economic value to health systems and patients around the world. Ultimately, we came to the conclusion that these products—while truly meaningful to patients in need—are best suited under ownership that can provide the investment and focus that these businesses require. At the same time, we can put these proceeds to work, investing over the long-term in higher returning internal and external opportunities that are more directly aligned with our growth strategies of therapy innovation, globalization, and economic value.”
The product lines involved in the deal arrived at Medtronic through the Covidien acquisition and contributed approximately $2.3 billion for the 12 months ending October 2016 with more than 70 percent of total U.S. sales. The types of products included dental/animal health, chart paper, wound care, incontinence, electrodes, SharpSafety, thermometry, perinatal protection, blood collection, compression, and enteral feeding offerings.
“We are thrilled about today’s announcement, as this well-established product line is complementary to our medical consumables business and fits naturally into our customer offering. For this reason, this product portfolio has been on our radar for many years,” George S. Barrett, Cardinal Health chairman and CEO, said in his company’s news release announcing the agreement. “We distribute some of these products today and have been collaborative partners with the leadership of this business. Given the current trends in healthcare, including aging demographics and a focus on post-acute care, this industry-leading portfolio will help us further expand our scope in the operating room, in long-term care facilities, and in home healthcare, reaching customers across the entire continuum of care.
The deal involving the former Covidien businesses was finalized during Medtronic’s next fiscal year in July 2017. Proceeds of the transaction, according to Medtronic, would be used to repurchase stock and pay down debt. David Heupel, senior analyst with Thrivent in Minneapolis, however, told the Star Tribune that he envisioned the funds from the sale could be used for acquisitions of innovative, higher-tech devices. Perhaps he was basing this prediction on the company’s acquisitions that occurred earlier in its 2017 fiscal year.
The largest of the purchases was announced in June 2016, involving HeartWare International. Medtronic shelled out approximately $1.1 billion for the manufacturer of less-invasive miniaturized circulatory support technologies for the treatment of advanced heart failure. The company is most notable for its HVAD System, which, at the time of the deal’s announcement, featured the world’s smallest full-support ventricular assist device (VAD) and was designed to reduce surgical invasiveness, improve patient recovery times, and enhance patient outcomes. HeartWare was also developing the MVAD system, a heart pump 40 percent smaller than the HVAD, according to a report by Reuters. The company, however, was apparently experiencing issues in clinical trials such as clotting-related side effects.
“The addition of HeartWare’s portfolio adds to our expanding portfolio of diagnostics, therapeutics, and services that address heart failure patients,” Mike Coyle, executive vice president and president of the Cardiac and Vascular Group at Medtronic, said at the time of the acquisition announcement. “The team at HeartWare has established excellent relationships with its hospital customers and built a strong position and reputation in the marketplace. This transaction, once closed, will be a further, important step toward Medtronic offering a complete suite of solutions to address patient needs across the heart failure care continuum.”
About a month prior to the HeartWare announcement, Medtronic primed its M&A activity by first nabbing the gynecology unit from fellow MPO Top 30 company Smith & Nephew. The deal, valued at $350 million, was centered around the TRUCLEAR System, a medical technology platform used to remove abnormal uterine tissue such as polyps and fibroids offering a less invasive option to surgical procedures such as a hysterectomy. The gynecology division produced $56 million in revenue for Smith & Nephew in 2015.
“We believe gynecology is one of the most underserved specialty procedure areas. Smith & Nephew has developed a rapidly growing business that expands minimally invasive treatment options for gynecology patients,” Chris Barry, senior vice president and president of the Surgical Innovations business, Minimally Invasive Therapies Group at Medtronic, said in a company statement. “This acquisition expands our existing GYN portfolio and we believe creates opportunities to further explore and develop global therapies and solutions that improve GYN surgery.”
Finally, while not a full acquisition, Medtronic still made a splash in the surgical robots space with investments in Mazor Robotics. The Israeli-based firm has been developing a robotically assisted spine-surgery system called Mazor X. According to a report in the Star Tribune in July 2016, the company’s flagship guidance system, the Renaissance, as well as its predecessor, has been used in over 16,000 successful spinal surgeries. Medtronic’s investments grant the company exclusive distribution rights as well as a percentage stake in Mazor.
Navigating these M&A waters can be a challenging task and requires someone at the helm with strategic financial skills. Recognizing this, the firm announced in May 2016 that Karen L. Parkhill would be moving into the role of CFO, replacing the retiring Gary Ellis. Ellis had played a critical role in closing a number of acquisitions, including the blockbuster Covidien deal, which also saw the company’s headquarters relocate to Dublin, Ireland via an inversion. With these types of maneuvers in mind, Medtronic recruited Parkhill from Comerica, a Dallas-based financial-services company. She also lists J.P. Morgan Chase & Co. as a former employer, where she was involved with its investment bank.
“I am delighted to add someone with Karen’s deep expertise and insights to the Medtronic leadership team,” Ishrak said in a company statement. “Given Karen’s extensive background across all of the major disciplines within finance, and her direct experience as an investment banker, CFO at JP Morgan’s Commercial banking business, and CFO at Comerica, I am confident in her ability to lead our global finance organization and believe she will be a strong representative to our investors and Wall Street. I look forward to the ideas and perspectives she will bring to our leadership team—including from her experience as a director with the Methodist Health System—during this transformational time at Medtronic and in the healthcare industry.”
While the purchasing of companies and technologies is a fantastic way to get innovative products to market faster, Medtronic also maintains a very healthy development pipeline with new offerings for healthcare professionals emerging throughout the year. The firm’s 2017 fiscal year saw a variety of fruits come to bear, whether through regulatory clearance or approval or market launch. Following is a list of some of the more notable announcements:
- FDA approval for the Visia AF MRI SureScan and Visia AF single-chamber implantable cardioverter defibrillators, which detect previously undiagnosed and/or asymptomatic atrial fibrillation (AF) and monitor recurrent AF while treating life-threatening rhythms in the lower chambers of the heart.
- FDA approval and U.S. launch of the CoreValve Evolut PRO valve for the treatment of severe aortic stenosis for symptomatic patients who are at high or extreme risk for open heart surgery.
- FDA clearance of NuVent, an EM sinus dilation system, for patients with scarred, granulated, or previously surgically-altered tissue.
- FDA clearance of StrataMR valves and shunts, an addition to Medtronic’s family of Strata Adjustable Valve Systems used in the treatment of patients with hydrocephalus and cerebrospinal fluid (CSF) disorders.
- FDA approval for the Claria MRI Quad Cardiac Resynchronization Therapy Defibrillator (CRT-D) SureScan device for patients with heart failure.
- FDA approval, U.S. launch, CE mark, and European launch of the CoreValve Evolut R 34 mm valve—the largest sized transcatheter aortic valve replacement (TAVR) system available in the United States and Europe (at the time of the announcement).
- FDA clearance of the HawkOne Directional Atherectomy System in a new size for treating patients with peripheral artery disease.
- FDA approval for its suite of cardiac rhythm and heart failure devices and leads to be scanned in both 3 and 1.5 Tesla (T) magnetic resonance imaging (MRI) machines.
- FDA clearance of the TrailBlazer angled support catheter for use in the peripheral vascular system.
- FDA clearance of StealthStation Cranial Software as an aid for deep brain stimulation lead placement.
- Japan’s MHLW approval of the Reveal LINQ Insertable Cardiac Monitor System, the smallest insertable cardiac monitoring device available (at the time of the announcement).
- FDA approval of the IN.PACT Admiral drug-coated balloon as a treatment for in-stent restenosis in patients with peripheral artery disease.
- FDA approval of the Enlite sensor for use with iPro2 Professional Continuous Glucose Monitoring system, which enables healthcare providers to obtain a more complete picture of glucose control for the diabetes patients they treat
- CE mark for SureTune2 software, which provides patient-specific visualization to help physicians make decisions on how to program—or tune—their patient’s deep brain stimulation therapy.
- Reimbursement approval from the Japanese MHLW for the recapturable, self-expanding transcatheter CoreValve Evolut R System for patients with severe aortic stenosis unable to undergo surgery.
- CE mark approval for the HawkOne directional atherectomy system in a lower profile size for treating patients with peripheral artery disease.
- FDA clearance for the CardioInsight Noninvasive 3D Mapping System, used to map a wide range of irregular heart rhythms in the upper and lower chambers of the heart, and provide electroanatomic 3D maps of the heart.
- FDA approval of the Freezor Xtra Cryoablation Catheter for treating patients with atrioventricular nodal re-entrant tachycardia.
Then, just before the end of the company’s 2017 fiscal year in late April, Medtronic announced it was pulling its latest stents from India due to the country’s price cap. It submitted an application for withdrawal of its Resolute Onyx product. The firm made the decision only two months after the National Pharmaceutical Pricing Authority had slashed prices of stents by up to 85 percent. The response to the price cap followed on the heels of fellow device maker, Abbott, which was seeking to withdraw two types of its own stents.