6. Medtronic Sofamor Danek
$3 Billion
KEY EXECUTIVES:
Arthur D. Collins, Chairman
William A. Hawkins, President and CEO
Stephen H. Mahle, Exec. VP, Healthcare Policy and Regulatory
Gary L. Ellis, Sr. VP and CFO
Susan Alpert, Sr. VP and Chief Regulatory Officer
Steve La Neve, Sr. VP and President, Spinal and Biologics
NO. OF EMPLOYEES: 1,800
GLOBAL HEADQUARTERS: Memphis, Tenn.
That is the theme Medtronic Inc. used in its 2008 annual report, and it was an appropriate one, given the steps the company took in the last fiscal year to help shape the future of healthcare. Recognizing that many of its markets were changing, Medtronic funneled more of its fiscal 2008 resources into areas that foster innovation and growth.
Medtronic expanded its role in the spinal market with the November 2007 acquisition of Kyphon Inc., a Sunnyvale, Calif.-based company that develops devices that restore and preserve spinal function using minimally invasive technology.
Executives with both companies said the $4.2 billion acquisition enabled Medtronic to solidify its footprint in the spinal device sector. The merger has already had an impact on Medtronic’s bottom line: In fiscal 2008, Kyphon contributed $298 million of revenue to the Spinal & Biologics business (which operates under the name Sofamor Danek USA Inc.). Most of the revenue from Kyphon came from “continued acceptance” of balloon kyphoplasty procedures to treat vertebral compression fractures, and sales of products that treat lumber spinal stenosis, notably the X-Stop IPD (interspinous process decompression) and Aperius PercLID.
With products such as bone growth substitutes, artificial cervical discs, and fusion systems that correct and stabilize abnormal spinal curves, the Sofamor Danek unit is the company’s second-largest business. In fiscal 2008 (ended April 25, 2008), Sofamor Danek generated $3 billion, or 22 percent of the $13.5 billion in total revenue posted by Medtronic.That $3 billion represented a 23 percent increase compared with the $2.54 billion the unit posted in fiscal 2007. Core net sales jumped 9 percent to $1.869 billion; while that increase matched the growth Sofamor Danek achieved in fiscal 2007, executives said sales were hampered in 2008 by increased competition from small companies.
“Today, there are over 200 small physician-owned companies competing in the marketplace, increasing their presence and placing pressure on the Core Spinal market,” Medtronic’s 2008 annual report stated.Despite the increased competition, Medtronic’s products remained popular with customers in fiscal 2008. Growth in thoracolumbar net sales was driven by sales of the CD Horizon Legacy spinal system, a device used to treat scoliosis. The company claims that surgeons have used the CD Horizon system in more than 500,000 procedures since 2004.
Thoracolumbar revenue also was driven by sales of the Capstone Vertebral Body Spacer outside the United States, and domestic sales of the Verte-Stack Crescent Vertebral Body Spacer device. The Capstone Vertebral Body Spacer is used to treat patients with degenerative disc disease while the Verte-Stack Body Spacer is used to surgically correct and stabilize the spine.Sofamor Danek’s Lumbar Dynamic platform of products was popular as well last year.
Demand was strong domestically for the company’s PEEK Rod system (rods made of polyetheretherketone that fit screws from the CD Horizon system), while overseas customers preferred the DIAM System, which is part of the company’s minimal access spinal technology product line. The DIAM System is used to alleviate pain in degenerative disc disease patients who suffer from lower back pain.
Cervical product growth was driven by robust sales of the Vertex Max Reconstruction System, a set of multi-axial screws, rods, hooks and connecting components used to help stabilize the cervical and upper thoracic spine during fusion procedures.Sofamor Danek’s Biologics unit reported $815 million in net sales in fiscal 2008, a 17 percent increase compared with the $696 million that unit posted in the prior fiscal year. Executives attributed the growth to strong sales of the company’s Infuse Bone Graft in the United States and InductOs Bone Graft overseas.
The Infuse and InductOs bone grafts contain a protein (albeit different types) that helps the body grow its own bone, thereby eliminating the need to harvest bone from other parts of the body. The Infuse and InductOs grafts are used most often in spine fusion surgeries to correct lower back problems, and both products can be used to treat certain kinds of shin fractures. The Infuse graft also has been approved for use in the United States for two dental bone grafting procedures: sinus augmentation and localized alveolar ridge augmentation.
In addition to enjoying strong sales of its existing products in fiscal 2008, Sofamor Danek invested in its future with the first-quarter launch of Prestige, the first cervical artificial disc for the spine to receive U.S. Food and Drug Administration approval. The Prestige artificial disc gives patients an alternative to spine fusion surgery. The stainless steel device is composed of a ball on top and a trough on the bottom, and gives patients a nearly full range of motion.
In addition to its acquisition of Kyphon, Medtronic acquired Restore Medical Inc. infiscal 2008, a St. Paul, Minn.-based firm that makes medical devices to treat sleep disorders such as snoring and sleep apnea. A Medtronic executive said the $29 million merger helped fill a hole in the company’s product portfolio. Though Medtronic sells products that help surgeons remove soft tissue from upper airways, the July 2008 acquisition has enabled the company to offer doctors alternative systems that are less invasive and traumatic and can be used on patients that do not undergo surgery.