07.28.10
$3.4 Billion
KEY EXECUTIVES:
William A. Hawkins, Chairman and CEO
Robert H. Blankemeyer, Sr. VP and President, Surgical Technologies
Jean-Luc Butel, Sr. VP and President, Medtronic International
H. James Dallas, Sr. VP, Quality and Operations
Kathleen Erickson DiGiorno, VP and Chief Ethics and Compliance Officer
Gary L. Ellis, Sr. VP and Chief Financial Officer
Stephen R. La Neve, Sr. VP and President, Spinal and Biologics
Stephen N. Oesterle, M.D., Sr. VP, Medicine and Technology
Catherine M. Szyman, Sr. VP, Strategy and Innovation
NO. OF EMPLOYEES: 38,000
GLOBAL HEADQUARTERS: Memphis, Tenn.
Not every company can overcome a litany of economic, regulatory and political challenges and still turn a profit. Medtronic Inc. managed such an unlikely feat in fiscal 2009 by striving to deliver better healthcare to both patients and the market.
That struggle, along with a tenacious focus on its core mission of alleviating pain, restoring health and extending patients’ lives, helped the device giant emerge from the most serious economic downfall since the Great Depression with double-digit earnings growth and top market positions in five of its seven business segments.
“This fiscal year saw an unprecedented convergence of challenges in the economy and our industry,” Medtronic Chairman and CEO William A. Hawkins told shareholders in a letter published within the company’s 2009 annual report. “The global economic crisis, public and government demands for greater financial transparency, challenges to the existing federal regulatory regime, a new administration, and looming healthcare reform have all contributed to an uncertainty that is expected to prevail into 2010. Despite these challenges—perhaps because of these challenges—we ended this past fiscal year stronger, more nimble and more resilient than ever before.”
Medtronic also ended the fiscal year much richer. Net sales rose 8 percent to $14.6 billion and gross profit climbed 10 percent to $11 billion for the year ended April 24, 2009. Executives attributed those sizable increases to double-digit sales growth in the company’s Cardiovascular and Surgical Technologies business segments, robust product sales outside the United States, and the successful integration of Kyphon Inc., a Sunnyvale, Calif.-based developer of minimally-invasive spinal technologies. Medtronic purchased Kyphon in November 2007 for $4.2 billion to “help accelerate the growth” of its spinal business; over the last five quarters Kyphon (as part of Medtronic’s Spinal segment) clearly has accomplished its mission, contributing $907 million to its parent company’s bottom line.
While they were not the most profitable, Kyphon products nevertheless recorded the highest sales growth rate in fiscal 2009. Sales more than doubled, according to Medtronic’s annual report, going from $298 million in fiscal 2008 to $609 million in 2009. Executives attributed the astronomical growth to the widespread use of balloon kyphoplasty procedures in the treatment of vertebral compression fractures and Kyphon’s interspinous devices in the treatment of lumbar spinal stenosis (LSS). Kyphon makes two products for the treatment of LSS—the X-Stop Spacer, which is a small implant that relieves pressure from pinched nerves, and the Aperius PercLID, an implant that restores space between the spinal cord and nerve root. The X-Stop Spacer is used worldwide, but the Aperius PercLID is only available outside of the United States.
Overall, the company’s Spinal segment—its second-largest business—generated $3.4 billion in sales, a 14 percent increase compared with the $2.9 billion it recorded in fiscal 2008. More than half of the fiscal 2009 revenue ($1.9 billion) came from the sale of core spinal devices such as the CD Horizon Legacy and Mast product lines. Biologics contributed $840 million to the segment’s total revenue, a 3 percent increase compared with the $815 million biological products generated in fiscal 2008.
The net proceeds in Biologics were driven by sales of Infuse Bone Graft in the first quarter of fiscal 2009, which was prompted in part by the U.S. Food and Drug Administration (FDA) approval of two additional Infuse configurations—the XX Small (0.7cc) and X Small (1.4cc) kits. Sales of Infuse products, however, quickly cooled as the material became implicated in a series of serious (and publically embarrassing) controversies throughout the year.
The first of those controversies occurred in July 2008 when the FDA issued a public health notice about the product. The notice claimed that use of the Infuse Bone Graft caused serious problems when used off label, including difficulty breathing, swallowing and speaking. According to The Wall Street Journal, at least three-quarters of the “adverse events” reported to the FDA involved off-label uses of Infuse. The Journal reported that most of the complications involved unwanted bone growths near nerves or in areas outside targeted fusion sites. These growths led to pain, repeat surgeries, and in some cases, emergency intervention.
Shortly after the FDA issued its public health notice, a federal whistleblower lawsuit came to light that accused Medtronic-funded doctors with lobbying their colleagues to use Infuse products in non-FDA-approved ways. The suit claimed the doctors promoted Infuse through off-label studies, promotional efforts at professional meetings and instruction provided at a clinic in Memphis, Tenn.
Infuse Bone Graft contains recombinant human Bone Morphogenetic Protein (rhBMP-2), which is released naturally by the body. It is used to treat degenerative disc disease, open tibia fractures and two dental bone grafting procedures—sinus augmentation and localized alveolar ridge augmentation.
The Infuse whistleblower lawsuit wasn’t the only public black eye Medtronic received in fiscal 2009. The company also was forced to contend with the fallout from a $75 million settlement with the federal government over Medicare fraud allegations. According to a civil lawsuit, Kyphon improperly persuaded hospitals to perform kyphoplasties on an inpatient basis rather than on a less costly and clinically appropriate outpatient basis (the procedure was developed as a non-invasive approach that could be done in about an hour). By improperly marketing the procedure, Kyphon executives artificially drove up demand among hospitals, bolstering the company’s revenue and driving up its stock price.
The controversies—though damaging—were not deadly to Medtronic’s bottom line. In fact, the company managed to counteract some of the negative press by releasing new products throughout the fiscal year, including the X-Stop PEEK IPD System (a PEEK-bone interface for treating symptoms of lumbar spinal stenosis), the Integrated Power Console platform (a multi-specialty surgical power console used in spinal, cranial, and ear, nose, and throat surgeries), the PEEK Prevail Interbody device, the Vertex Select Reconstruction System Occipitocervical Module, and a bone cement that can be used during kyphoplasty procedures for the treatment of vertebral compression fractures.
Products such as the X-Stop, Vertex Select and Integrated Power Console were not the only newcomers to the Medtronic family in fiscal 2009. Steve LaNeve, who served as president of Medtronic Japan, was named senior vice president and president of Medtronic’s Spinal and Biologics business. He replaced Peter Wehrly, who left the company. LaNeve is responsible for the continued integration of Kyphon, the biologics business and the core spine business.
In an effort to streamline operations and align the firm with its long-term growth outlook, Medtronic announced plans last year to reduce its global workforce by 1,500 to 1,800 employees. The plan cost the company $27 million (in restructuring charges) in the final quarter of fiscal 2009 and $41 million (after taxes) in the first quarter of fiscal 2010.
KEY EXECUTIVES:
William A. Hawkins, Chairman and CEO
Robert H. Blankemeyer, Sr. VP and President, Surgical Technologies
Jean-Luc Butel, Sr. VP and President, Medtronic International
H. James Dallas, Sr. VP, Quality and Operations
Kathleen Erickson DiGiorno, VP and Chief Ethics and Compliance Officer
Gary L. Ellis, Sr. VP and Chief Financial Officer
Stephen R. La Neve, Sr. VP and President, Spinal and Biologics
Stephen N. Oesterle, M.D., Sr. VP, Medicine and Technology
Catherine M. Szyman, Sr. VP, Strategy and Innovation
NO. OF EMPLOYEES: 38,000
GLOBAL HEADQUARTERS: Memphis, Tenn.
Not every company can overcome a litany of economic, regulatory and political challenges and still turn a profit. Medtronic Inc. managed such an unlikely feat in fiscal 2009 by striving to deliver better healthcare to both patients and the market.
That struggle, along with a tenacious focus on its core mission of alleviating pain, restoring health and extending patients’ lives, helped the device giant emerge from the most serious economic downfall since the Great Depression with double-digit earnings growth and top market positions in five of its seven business segments.
“This fiscal year saw an unprecedented convergence of challenges in the economy and our industry,” Medtronic Chairman and CEO William A. Hawkins told shareholders in a letter published within the company’s 2009 annual report. “The global economic crisis, public and government demands for greater financial transparency, challenges to the existing federal regulatory regime, a new administration, and looming healthcare reform have all contributed to an uncertainty that is expected to prevail into 2010. Despite these challenges—perhaps because of these challenges—we ended this past fiscal year stronger, more nimble and more resilient than ever before.”
Medtronic also ended the fiscal year much richer. Net sales rose 8 percent to $14.6 billion and gross profit climbed 10 percent to $11 billion for the year ended April 24, 2009. Executives attributed those sizable increases to double-digit sales growth in the company’s Cardiovascular and Surgical Technologies business segments, robust product sales outside the United States, and the successful integration of Kyphon Inc., a Sunnyvale, Calif.-based developer of minimally-invasive spinal technologies. Medtronic purchased Kyphon in November 2007 for $4.2 billion to “help accelerate the growth” of its spinal business; over the last five quarters Kyphon (as part of Medtronic’s Spinal segment) clearly has accomplished its mission, contributing $907 million to its parent company’s bottom line.
While they were not the most profitable, Kyphon products nevertheless recorded the highest sales growth rate in fiscal 2009. Sales more than doubled, according to Medtronic’s annual report, going from $298 million in fiscal 2008 to $609 million in 2009. Executives attributed the astronomical growth to the widespread use of balloon kyphoplasty procedures in the treatment of vertebral compression fractures and Kyphon’s interspinous devices in the treatment of lumbar spinal stenosis (LSS). Kyphon makes two products for the treatment of LSS—the X-Stop Spacer, which is a small implant that relieves pressure from pinched nerves, and the Aperius PercLID, an implant that restores space between the spinal cord and nerve root. The X-Stop Spacer is used worldwide, but the Aperius PercLID is only available outside of the United States.
Overall, the company’s Spinal segment—its second-largest business—generated $3.4 billion in sales, a 14 percent increase compared with the $2.9 billion it recorded in fiscal 2008. More than half of the fiscal 2009 revenue ($1.9 billion) came from the sale of core spinal devices such as the CD Horizon Legacy and Mast product lines. Biologics contributed $840 million to the segment’s total revenue, a 3 percent increase compared with the $815 million biological products generated in fiscal 2008.
The net proceeds in Biologics were driven by sales of Infuse Bone Graft in the first quarter of fiscal 2009, which was prompted in part by the U.S. Food and Drug Administration (FDA) approval of two additional Infuse configurations—the XX Small (0.7cc) and X Small (1.4cc) kits. Sales of Infuse products, however, quickly cooled as the material became implicated in a series of serious (and publically embarrassing) controversies throughout the year.
The first of those controversies occurred in July 2008 when the FDA issued a public health notice about the product. The notice claimed that use of the Infuse Bone Graft caused serious problems when used off label, including difficulty breathing, swallowing and speaking. According to The Wall Street Journal, at least three-quarters of the “adverse events” reported to the FDA involved off-label uses of Infuse. The Journal reported that most of the complications involved unwanted bone growths near nerves or in areas outside targeted fusion sites. These growths led to pain, repeat surgeries, and in some cases, emergency intervention.
Shortly after the FDA issued its public health notice, a federal whistleblower lawsuit came to light that accused Medtronic-funded doctors with lobbying their colleagues to use Infuse products in non-FDA-approved ways. The suit claimed the doctors promoted Infuse through off-label studies, promotional efforts at professional meetings and instruction provided at a clinic in Memphis, Tenn.
Infuse Bone Graft contains recombinant human Bone Morphogenetic Protein (rhBMP-2), which is released naturally by the body. It is used to treat degenerative disc disease, open tibia fractures and two dental bone grafting procedures—sinus augmentation and localized alveolar ridge augmentation.
The Infuse whistleblower lawsuit wasn’t the only public black eye Medtronic received in fiscal 2009. The company also was forced to contend with the fallout from a $75 million settlement with the federal government over Medicare fraud allegations. According to a civil lawsuit, Kyphon improperly persuaded hospitals to perform kyphoplasties on an inpatient basis rather than on a less costly and clinically appropriate outpatient basis (the procedure was developed as a non-invasive approach that could be done in about an hour). By improperly marketing the procedure, Kyphon executives artificially drove up demand among hospitals, bolstering the company’s revenue and driving up its stock price.
The controversies—though damaging—were not deadly to Medtronic’s bottom line. In fact, the company managed to counteract some of the negative press by releasing new products throughout the fiscal year, including the X-Stop PEEK IPD System (a PEEK-bone interface for treating symptoms of lumbar spinal stenosis), the Integrated Power Console platform (a multi-specialty surgical power console used in spinal, cranial, and ear, nose, and throat surgeries), the PEEK Prevail Interbody device, the Vertex Select Reconstruction System Occipitocervical Module, and a bone cement that can be used during kyphoplasty procedures for the treatment of vertebral compression fractures.
Products such as the X-Stop, Vertex Select and Integrated Power Console were not the only newcomers to the Medtronic family in fiscal 2009. Steve LaNeve, who served as president of Medtronic Japan, was named senior vice president and president of Medtronic’s Spinal and Biologics business. He replaced Peter Wehrly, who left the company. LaNeve is responsible for the continued integration of Kyphon, the biologics business and the core spine business.
In an effort to streamline operations and align the firm with its long-term growth outlook, Medtronic announced plans last year to reduce its global workforce by 1,500 to 1,800 employees. The plan cost the company $27 million (in restructuring charges) in the final quarter of fiscal 2009 and $41 million (after taxes) in the first quarter of fiscal 2010.