07.24.08
6. Medtronic Sofamor Danek
$2.5 Billion
KEY EXECUTIVES:
Art Collins, Chairman
William A. Hawkins, President and CEO
Gary Ellis, Sr. VP and CFO
Susan Alpert, Sr. VP and Chief Regulatory Officer
Stephen La Neve, Sr. VP and President, Spinal and Biologics
(ie, Sofamor Danek)
NO. OF EMPLOYEES:
1,800HEADQUARTERS:
Memphis, TNAs certain segments of the cardiovascular sector took a beating in 2007 (compliments of various quality problems and product recalls), manufacturers in that market faced tough challenges in regaining the heady profits formerly seen with sales of their implantable cardioverter defibrillators and stents. But a diverse product portfolio can help soften blows to a company’s bottom line. Medtronic, one of the medical device industry’s top performers (ranking fourth in total net sales among global medical device companies), has been able to maintain its market leadership as it continues to diversify—particularly in the orthopedic market.
Among the myriad divisions achieving double-digit growth in fiscal year 2007 (ended April 27 that year), Medtronic’s Spinal and Navigation segment, which operates under the name Sofamor Danek, was a top performer. This unit offers a variety of cranial and spinal products—ie, thoracolumbar, cervical and interbody spinal products and bone growth substitutes—as well as surgical navigation tools. For fiscal year 2007, this unit reported sales of $2.54 billion, representing 13% growth compared with fiscal year 2006. Breaking these numbers down further, Spinal net sales increased 13% to $2.42 billion.
Capstone and Cres-cent Vertebral Body Spacers, which are minimal access devices and techniques de-signed to replace and restore vertebral height, led to 10% growth within Medtronic’s Spinal Instrumentation business, which reported net sales of $1.72 billion, compared with $1.57 billion in fiscal year 2006. Within the company’s minimal access technology portfolio, the CD Horizon Sextant II (part of the CD Horizon family of products), a percutaneous lumbar fixation system with minimal access technologies that reduce procedural steps, was another growth driver. An increase in dynamic stabilization products—led by the Diam System—outside the United States also helped the bottom line. Furthermore, the company benefited from the introduction of two Arcuate vertebral augmentation systems that offer physicians control over the flow and direction of medical cement when treating painful vertebral compression fractures.
Biologics, which had net sales of $696 million (a 22% increase from fiscal 2006), had continued success with the Infuse bone graft, which contains a recombinant human bone morphogenetic protein (eliminating the need for additional surgeries to harvest bone from other body parts). Introduced in fiscal 2003 for spine use, Infuse received FDA approval in late fiscal 2007 for use in certain oral maxillo-facial and dental regenerative bone grafting procedures.
Medtronic appears focused on bringing other new biologics to market, if some of its alliances are any indication. In March 2007, Medtronic announced that it had entered into a development agreement with OsteoGenix Inc., a private orthobiologic pharmaceutical company based in Palo Alto, CA. Per the agreement, Medtronic will have an additional source of bone growth therapies for surgeons, since OsteoGenix has been completing preclinical work on its proprietary bone anabolic agent and preparing for clinical trials. Also, in May 2007, Medtronic started distributing Progenix DBM putty through its wholly owned subsidiary SpinalGraft Technologies LLC. Progenix is a bone-graft substitute and bone void filler used in the pelvis, ilium and extremities.
Sofamor Danek’s smallest unit, the Navigation business, increased 18% to $127 million due to strong sales of the PoleStar N2O, an intra-operative MRI Guidance System and O-arm Imaging System, a multi-dimensional surgical imaging platform for use in spine and other orthopedic surgery.
As small companies increasingly enter the spine market, Medtronic is aware that pressure is growing in the market. To counter new competition, Medtronic implemented several major facility expansions In addition, Medtronic executives said they expect continued growth from the CD Horizon lines and Vertex Max Reconstruction System in Japan and Western Europe; greater use of the Infuse bone graft (especially if additional indications are approved by regulators); continued acceptance internationally of dynamic stabilization products such as the Diam System, the Maverick Lumbar Artificial Disk and Prestige LP Cervical Disc Systems; and growing use of the Synergy Experience StealthStation System, a combination of navigational procedure solutions and MAST techniques that facilitate less-invasive procedures. In another major coup for Medtronic, the Prestige Cervical Disc System was approved by the FDA in July 2007, making it the first artificial disc commercially available in the United States for use in the neck.
The biggest news coming from the Sofamor Danek unit, however, was announced in July 2007 (which was part of fiscal year 2008 for the company). Medtronic announced that it would acquire Kyphon Inc., a Sunnyvale, CA-based spinal developer, for approximately $3.9 billion. The merger was completed in November.
“We expect our combination with Kyphon to help accelerate the growth of Medtronic’s existing spinal business by extending our product offerings into some of the fastest growing product segments and enabling us to provide physicians with a broader range of therapies for use at all stages of the care continuum,” said Art Collins, chairman of Medtronic. “Importantly, the combination will also enable more patients of all ages to receive the benefits of modern, minimally invasive spinal treatments earlier in their care, with lifestyle friendly options that are simpler, faster and less invasive than many traditional surgical treatments.”
Just as notable as this acquisition, Collins ended his tenure as president and CEO (positions from which he transitioned in August 2007) on a strong note, with fiscal 2007 net sales of $12.3 billion, 9% growth from $11.3 billion for fiscal 2006. Net earnings also grew 10% to $2.8 billion. Along with growth in the Vascular, Diabetes and Neurological businesses, Medtronic’s bottom line was well benefited by the Spinal and Navigation unit’s performance.
Current President and CEO Bill Hawkins should be poised to continue Medtronic’s long-term growth, as the company had more than 200 clinical trials underway or planned by the close of the fiscal year. Approximately two-thirds of fiscal 2007’s revenue came from sales of products introduced within the previous two years. Aiding the effort was the addition of more than 2,000 employees as well as facility expansions to increase capacity. New facilities in the United States, Puerto Rico, Switzerland and Ireland played a role, too.
For fiscal 2008, it should come as no surprise that Medtronic brought back the days of double-digit gains for overall net sales—the company recorded a 10% increase to $13.5 billion compared with fiscal 2007. Spinal revenue was even healthier than it was in fiscal 2007, with revenues totaling $2.98 billion, a 23% increase.
The company is looking to streamline operations and restructure its organization. Earlier this year, Medtronic announced it would reduce its staff by approximately 1,100 as part of its global restructuring and in response to a slower ICD and stent market. This spring, Michael DeMane, chief operating officer, also left the company. Several other additions were named, however, including the appointment of Jean-Luc Butel as president of Medtronic International. Steve LaNeve, formerly president of Medtronic Japan, also was named senior vice president and president of Medtronic’s Spinal and Biologics business, replacing Pete Wehrly, who left the company.
For fiscal 2009, the company expects revenue of between $15 billion and $15.5 billion.