KEY EXECUTIVES:
Omar Ishrak, Chairman and CEO
Caroline Stockdale, Sr. VP and Chief Talent Officer
Robert H. Blankemeyer, Sr. VP and President,Surgical Technologies
Jean-Luc Butel, Exec. VP and Group President, International
H. James Dallas, Sr. VP, Quality and Operations
Thomas J. Schumacher, VP and Chief Ethics andCompliance Officer
Gary L. Ellis, Sr. VP and Chief Financial Officer
Stephen R. La Neve, Sr. VP and President, Spinal and Biologics
Christopher J. O’Connell, Exec. VP and Group President, Spinal and Biologics, Neuromodulation, Diabetes and Surgical Technologies
NO. OF EMPLOYEES: 1,350
GLOBAL HEADQUARTERS:Memphis, Tenn.
Not many companies still adhere to a mission that was hatched half a century ago, well before medical device manufacturing was considered a bona fide industry and outsourcing became an accepted business practice. Yet Medtronic Inc. has always remained true to its core objective, written by co-founder Earl Bakken in 1960 to provide a strategic focus for the promising young firm. Still in its original format (Medtronic executives refuse to change a word of it), the mission tasks employees with working toward a common goal: to “alleviate pain, restore health, and extend life.”
Medtronic executives attribute much of the company’s past success to Bakken’s mission, claiming the engineer, entrepreneur and hospital equipment repairman provided the 62-year-old firm with both a purpose and a roadmap for fulfilling it. However, there is another word executives usually associate with the mission, one that was not originally penned by Bakken (and won’t be added to the mission anytime soon) but is just as critical to the company’s past and future accomplishments: Innovation.
“This year marks the 50th anniversary of our Mission,” former Medtronic Chairman and CEO William A. Hawkins reminded shareholders in a letter published within the company’s 2010 annual report, his last with the company. (Hawkins retired at the end of FY2011 and was succeeded by Omar Ishrak, former president and CEO of GE Healthcare). “As I reflect on this milestone and its relevance today, I am reminded of what Earl intended when he put pen to paper. Implicit in the Medtronic Mission is the idea that innovation has the fundamental power to transform the lives of the patients we serve. Innovation is in our DNA; it’s cultural, informing everything we think and do…A common theme is why we innovate—our Mission—to alleviate pain, restore health, and extend life. Innovation has been at the root of our success and will continue to fuel our global growth…” Innovation certainly fueled Medtronic’s global growth in fiscal 2010. Net sales rose 8.3 percent to $15.8 billion and gross profit climbed 8.3 percent to $12 billion for the year ended April 30, 2010. Executives attributed the increases to double-digit revenue growth in four of the company’s seven operating segments, robust device sales outside the United States and, to a certain extent, a spate of new cardiovascular and spinal product launches.
Orthopedic-related devices that premiered in FY2010 included the T2 Sceptor Distractible End Cleats System, a replacement device for the thoracic and lumbar spine; the Mastergraft Strip, a flexible ceramic scaffold used in combination with bone to fuse multiple levels of the posterolateral spine; the TSRH 3Dx Spinal System and the Vertex Select Reconstruction System Occipitocervical Module, a device that provides orthopedic surgeons with additional options to repair neck and upper back injuries. Old favorites such as the CD Horizon Legacy Spinal System (used since 2004 to treat scoliosis) and the TSRH 3Dx Spinal System (a set of screws to address multiple pathologies) contributed to higher Spinal segment sales, though the increase was significantly smaller than the 14 percent spike the division recorded in FY2009.
Technically, Spinal segment sales more than doubled in FY2010 but that surge was created by the second-quarter consolidation of Medtronic’s seven reporting segments into two operating groups: Cardiac Rhythm Disease Management, CardioVascular and Physio-Control; and Spinal and Biologics, Neuromodulation, Diabetes and Surgical Technologies. Hawkins said the move was designed to capitalize on existing synergies across the businesses and advance the firm’s goal of operating as an integrated company focused on chronic disease.
Lumping together sales from the company’s spinal, neuromodulation, diabetes and surgical technologies product lines brought the restructured segment’s fiscal 2010 revenue total to $7.2 billion, a staggering 113 percent increase compared with the $3.4 billion spinal devices and biologics garnered for Medtronic in the 2009 fiscal year. When comparing only spinal and biologics product sales, year-on-year growth slowed to a virtual trickle, rising just 3 percent to $3.5 billion.
Core spinal products raised $2.6 billion for Medtronic while biologics, including the company’s MasterGraft, Progenix and INFUSE Bone Graft, garnered $868 million, according to the firm’s fiscal 2010 annual report. Growth in both product categories was 3 percent, considerably less than the 18 percent increase core spinal product sales achieved in fiscal 2009.
Executives attribute the sluggish growth in part to the proliferation of smaller, public and privately held companies competing in the market, firms such as Amedica Corporation of Salt Lake City, Utah, which introduced the orthopedic industry to silicon nitride; Captiva Spine, a Jupiter, Fla.-based organization that bred the CapLox Spinal Fixation System and also developed cage and rod implantation technology; Genysys Spine, the Austin, Texas, company that sells the TiLock Pedicle Screw System and the Apache IBFD/VBR; and x-spine Systems Inc., the Miamisburg, Ohio-based manufacturer of the Capless Pedicle Screw and Spider Cervical Plating systems.
Net spinal growth also was impacted in fiscal 2010 by a decrease in demand for the company’s Kyphon Balloon kyphoplasty, which, according to some studies, provide little or no benefit to patients. Designed to relieve pain from spinal fractures, the minimally invasive procedure uses tubes to create small pathways into fractured bone, generally on both sides of the vertebrae. The tubes are filled with balloons which then are inflated (inside the fractured bone) in an attempt to return the bone to its correct position. The inflation and removal of the balloons creates cavities in the vertebral column that eventually are filled with bone cement, forming an “internal cast.”
Balloon kyphoplasty differs from other surgical procedures for vertebral compression fractures such as vertebroplasty, which is designed to stabilize the fracture without correcting vertebral body deformity or providing a controlled fill and distribution of bone cement. In balloon kyphoplasty procedures, inflation of the balloons compacts the cancellous bone; the resulting space allows a more viscous bone cement to be injected under low manual pressure.
Earlier this year, Medtronic unveiled two-year data from a large multi-center randomized controlled study of Kyphon Balloon kyphoplasty for spine fractures. The results—taken from 300 patients at 21 centers in eight countries—concluded that the procedure relieved back pain, increased patient satisfaction and improved both mobility and patients’ quality of life more than non-surgical care.
While such validation should have been a boon to sales, it could not completely wipe off the tarnish created by two other studies that questioned the surgery’s efficacy. Early tests reporting positive results for the Kyphon procedure generally did not have control groups, making it difficult for clinicians to determine whether the purported benefits simply were due to a placebo effect or the natural tendency of chronic back pain to subside over time.
The damning studies, published in the New England Journal of Medicine in August 2009, tested the Kyphon balloon surgery in a more rigorous way. Clinicians randomly assigned patients to undergo either kyphoplasty or a fake procedure in which they were injected with local anesthetic but no cement. Researchers followed patients for a few months to see if there was any difference in pain or functioning.
The results? Those who received a fake procedure did just as well as patients who underwent the true surgery, with both groups improving at roughly the same level.
“It is absolutely shocking,” Mayo Clinic interventional neuroradiologist David Kallmes, who led one of the studies in conjunction with researchers at the University of Washington, told Forbes magazine. “Vertebroplasty as currently practiced in this country and around the world doesn't seem to work.”
With that kind of conclusion resonating in professional medical circles, Medtronic’s kyphoplasty technology stood little chance of making a significant impact on FY2010 sales. Compounding the proverbial beating it took from the New England Journal of Medicine studies was the release of a competing kyphoplasty product by CareFusion Corporation (a spinoff of Cardinal Health). The San Diego, Calif.-based company unveiled its AVAmax vertebral balloon last year; the device is part of a system that includes needles, bone cement and delivery instruments for both kyphoplasty and vertebroplasty, giving doctors the choice and flexibility to perform either procedure. CareFusion established a dedicated sales force to sell the product in the United States, and is strategizing a commercialization plan for Europe in 2011.
Still, Medtronic is hopeful it can regain some lost ground in the worldwide kyphoplasty device market, estimated to range between $500 million and $600 million. Executives expect sales boosts in fiscal 2011 from the launch of “high pressure balloons and syringes, curettes and fixation materials” as well as the regulatory approval in Japan for kyphoplasty.
Additional sales drivers in 2011 include the Atlantis Translational Cervical Plate System (a ratcheting plate featuring segments that translate under compression, but maintain their position under tension); the Vertex Select Reconstruction System; the PEEK Prevail Cervical Interbody Device (featuring an “I-beam” shape with a two-screw configuration, this implant incorporates a nitinol wire locking mechanism to keep the screws securely in place), and the CD Horizon Solera Spinal System, a spinal fusion device for those suffering from severe middle- and lower-back pain, and those with degenerative disc disease. Sales of the Solera system and its sister device, Legacy, were up 20 percent during a limited rollout in the United States, executives told analysts in November 2010.