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6. Medtronic Sofamor Danek

$2.2 Billion

Key Executives:
Art Collins, Chairman and CEO
William A. Hawkins, President and COO
Gary Ellis, Sr. VP and CFO
Susan Alpert, Sr. VP and Chief Quality and Regulatory Officer
Stephen Oesterle, Sr. VP, Medicine and Technology
Peter L. Wehrly, President, Sofamor Danek

No. of Employees: 1,800

Headquarters: Memphis, TN

Minneapolis, MN-based Medtronic may be widely known for its strong presence in the cardiovascular market, but its Sofamor Danek orthopedic division is an industry powerhouse in its own right. The division, headquartered in Memphis, TN, posted significant gains for fiscal year 2006—the second largest revenue driver for the company after cardiac rhythm management.

The spinal and navigation businesses reported annual revenue of $2.2 billion, which is a 19% jump compared to 2005. Spinal net sales for fiscal year 2006 increased 20% from the prior fiscal year to $2.1 billion. Biologics net sales were $570.2 million, a 38% increase compared to 2005.

The company’s line of spinal and navigation products include thoracolumbar, cervical and interbody spinal devices, bone growth substitutes and surgical navigation tools. Medtronic attributed the impressive gain to “continued strong acceptance” of its Infuse line of bone graft products and the introduction of the Capstone vertebral body spacer. The company’s Horizon Legacy series of spinal implant devices also grew by double digits at roughly 24%.

Overall, for fiscal year 2006, Medtronic reported $11.3 billion (12% growth) in company-wide net sales, while net earnings showed a significant 42% bump to $2.6 billion compared to 2005.

For fiscal year 2007, which the company reported in May, Medtronic reported revenue of $12.3 billion, an increase of 9% compared to 2006. Income grew less aggressively, up 10% to $2.8 billion. The company reported annual revenue of $2.4 billion for its spinal division, an increase of 13%. Once again, growth in spinal sector revenue was attributed to sales of the Infuse product line and the CD Horizon Legacy Peek Rod System, in addition to the Verte-Stack Crescent Vertebral Body Spacer.

On the product approval front, in November, the company received FDA approval for the third indication for its Infuse bone graft product—this time for certain oral and maxillofacial bone grafting procedures.

To add to its bone graft product offerings, the company entered into a development agreement in March with California-based pharmaceutical company OsteoGenix. According to Medtronic, the agreement will enable OsteoGenix to complete preclinical work on its proprietary bone anabolic agent and advance this program through clinical trials, while providing Medtronic an additional source of bone growth therapies for surgeons whose patients require bone-grafting options.

Pete Wehrly, Medtronic senior vice president and president of Sofamor Danek, said the partnership would offer a “new option to patients and one that will nicely complement our existing industry-leading bone growth therapies.”

Also in March, the US Court of Appeals for the Federal Circuit ruled in favor of Medtronic in its ongoing patent litigation against Cross Medical Products, Inc., a subsidiary of Biomet. In its decision, the appeals court ruled that Medtronic’s current multi-axial pedicle screw products did not infringe any claim of Cross Medical’s US Patent No. 5,474,555. The Medtronic products included the CD Horizon Legacy, Vertex and CD Horizon Sextant multi-axial screw products.

The original case, which has been going on for many years, involved several patents surrounding spinal surgery. The lower court found in Medtronic’s favor in all instances, with the exception of one claim made on the aforementioned patent. This appellate court decision relates to this claim. Medtronic, in turn, asserts that Biomet products infringe certain Medtronic patents, and the company plans to continue to pursue those claims in court.

In July this year, Medtronic received approval to market the Prestige Cervical Disc. Made of stainless steel, it is the first artificial disc commercially available in the United States for replacing diseased vertebrae in the neck, the company said. The product already had been approved for use in Europe. Prestige is designed to provide certain patients suffering from degenerative disc disease (DDD)—which can cause intolerable neck and/or arm pain—the potential for motion, as well as another option for pain relief and function. Traditional treatment for this condition is spinal fusion, which often can severely limit motion.     

As part of the approval conditions requested by the FDA’s review panel in September, Medtronic has agreed to conduct a seven-year post-approval study to evaluate long-term safety and effectiveness. Medtronic also is going to perform a five-year enhanced surveillance study. More than 200,000 cervical procedures are performed each year to relieve compression on the spinal cord or nerve roots and to implant an interbody graft and metal plate to rigidly fuse the vertebrae together, according to Medtronic.

Following on the heels of the FDA approval of Prestige, an FDA review panel kept the good news flowing for Medtronic in July with the recommended approval of the company’s Bryan Cervical Disc as another treatment option for patients suffering from DDD in the upper part of the spine. Composed of a polyurethane nucleus surrounded by titanium endplates, the device is designed to replicate normal, physiologic motion in the upper spine. Despite the vote in favor of the device, advisory panel members expressed concern that the clinical trials did not prove Medtronic’s claims of superiority to traditional spinal fusion procedures.

Jason Wittes, analyst for Leerink Swann, said in a CNN interview that the Bryan and Prestige discs could represent “potentially a billion-dollar market” for Medtronic, but that it would take years to achieve that level. He said the $7,000 to $10,000 disc replacement procedure would be slow to catch on with insurers and that initial sales growth could be sluggish as a result. “They're not going to have reimbursement right out of the gate,” Wittes told CNN/Money. “It’s going to take some time to get the insurers on board.”

Medtronic currently is waiting for an FDA decision of its Maverick disc for the lower spine. Maverick already is approved in Europe.

In management news, Medtronic will change at the top when Chief Executive Art Collins retires in August this year. He will be replaced by President and Chief Operating Officer William Hawkins. Collins, who has been with the company since 1992, will remain as chairman until August 2008. He was named CEO in 2001 and became chairman in 2002.

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