07.31.12
$3.4 Billion
KEY EXECUTIVES:
Omar Ishrak, Chairman and CEO
Christopher J. O’Connell, Exec. VP & Group President, Restorative Therapies Group
Richard Kuntz, M.D., M.Sc., Sr. VP & Chief Scientific, Clinical and Regulatory Officer
Stephen N. Oesterle, M.D., Sr. VP, Medicine and Technology
Doug King, Sr. VP, Medtronic and President, Medtronic Spinal
Rob Fredericks, Vice President, Innovation & Strategy, Medtronic Spinal
H. James Dallas, Sr. VP, Quality and Operations
NO. OF EMPLOYEES: 1,350
GLOBAL HEADQUARTERS: Memphis, Tenn.
When CEO Art Collins retired after six years at the helm of Medtronic Inc. in 2007, the buzz, of course, was about who would replace him. Two top internal candidates certainly were in the running. One was Michael DeMane, president of Medtronic’s spine business at the time, and the other was Chief Operating Officer Bill Hawkins. Hawkins was viewed as a steady hand as part of the company’s leadership team. DeMane was more of an aggressive maverick, whose drive for growth brought with it some legal and regulatory scrutiny (he later moved on to spine company Lanx Inc. as CEO in 2010 and then to spine stimulation firm Nevro Inc. in 2011).
As anyone who follows the industry knows, Hawkins won out, but his tenure of less than five years was relatively short-lived compared with his predecessors. He retired a little after the end of the company’s fiscal year (Medtronic’s fiscal cycle is earlier than most. Fiscal 2011 ended on April 29, 2011). It wasn’t that Hawkins was unsteady at the helm, but he took the helm during uncertain times. He tried to make the company more efficient—making key acquisitions and divestitures—but Wall Street remained unimpressed. During his tenure, Medtronic fell from around $54 to $37 (though that period includes the Great Recession). The company also had to deal with some legal wrangling over faulty defibrillator leads and issues with its Infuse bone graft product. Medtronic also is a company in transition. It’s a mature firm, and pacemaker and implantable cardioverter defibrillator businesses aren’t the growth drivers they used to be.
Medtronic looked outside the company for its next chief executive. They found him at GE Healthcare. Omar Ishrak, former CEO of GE Healthcare Systems, became Medtronic’s CEO in June 2011. During Ishrak’s 16-year tenure with Chalfront, St. Giles, United Kingdom-headquartered GE Healthcare, he also served as senior vice president of GE Corp. and was a member of the GE Corporate Executive Council. The company experienced significant growth in clinical systems and ultrasound devices; revenues for the Clinical Systems Division almost doubled from 2004 to 2009, reaching approximately $5 billion. Revenues in the ultrasound business grew from $400 million in 1998 to $1.8 billion in 2010.
The company hopes that Ishrak will be the new product marketing whiz that he was with GE and that he’ll be aggressive about pursuing new markets at home and abroad, particularly in developing countries.
As the new CEO grabbed the reins, Medtronic’s FY11 posted revenue of $15.9 billion, an increase of 1 percent as reported or an increase of 2 percent after adjusting for $12 million of favorable foreign currency impact and approximately $200 million of revenue benefit from the extra week in the first quarter of fiscal year 2010. Net earnings were $3.1 billion, which was flat, or $2.86 per diluted share, an increase of 3 percent.
International revenue of $6.8 billion grew 6 percent both as reported and after adjusting for a $12 million favorable foreign currency impact and the benefit of the extra week in fiscal year 2010.
International revenue represented 43 percent of total company revenues for the year. Strong market sales were reported in China, India and Latin America. Company executives reported that “steady growth” across most businesses and geographies was offset by “challenging dynamics” in the U.S. implantable cardiac defibrillator (ICD) and spinal markets. Starting in the first quarter of fiscal year 2011 began to operate under two reportable segments and two operating segments, the Cardiac and Vascular Group (composed of the Cardiac Rhythm Disease Management [CRDM], CardioVascular, and Physio-Control businesses—Physio-Control was sold to Bain Capital during fiscal 2012 for $487 million) and the Restorative Therapies Group (composed of the Spinal and Biologics, Neuromodulation, Diabetes, and Surgical Technologies businesses).
The Restorative Therapies Group reported worldwide sales of $7.4 billion, which increased 2 percent. Within the group, spinal sales totaled $3.4 billion (core spinal was a $2.5 billion, while biologics sales were $884 million), down 2 percent. Neurovascular sales were $1.6 billion, up 2 percent. Diabetes-related sales were $1.3 billion, up 9 percent. Surgical technologies were up 8 percent to $1 billion.
Medtronic announced plans in February 2011 to reduce its workforce by 4-5 percent by the end of April the same year due to slower growth in some of the markets the company serves.
In a move to expand biologics product offerings, Medtronic purchased Osteotech late in 2010 for $123 million. According to company leadership at the time, the acquisition was an important step to building a broader business in regenerative biologics and complements Medtronic’s bone healing portfolio as well as expands the company’s spine, orthopedic trauma and dental offerings into new treatment areas including joint reconstruction, foot and ankle, sports medicine and neurosurgery. Osteotech’s product line includes Grafton demineralized bone matrix, and MagniFuse bone grafts and Plexur biocomposites, which are used in a broad range of musculoskeletal surgical procedures.
A number of new Medtronic products were released or received regulatory approval in fiscal 2011.
Medtronic received approval from the U.S. Food and Drug Administration (FDA) for the CD Horizon Legacy Spinal System for the treatment of adolescent idiopathic scoliosis (AIS), a condition that affects nearly 6 million people in the United States (1 million of those patients are children). Characterized by a side-to-side curvature of the spine, AIS usually develops in children older than 10; its cause currently is unknown. Medtronic’s CD Horizon Spinal System consists of rods, hooks, and screws that are implanted in the spine to correct the curve. The system is available in multiple rod diameters and screw sizes so surgeons can choose the appropriate size based on a child’s condition, anatomy, and activity level (3.5 millimeter rods are most commonly used in pediatric cases), according to the company’s 510(k) application to the FDA. Doctors have used the CD Horizon Legacy Spinal System since 2004 in more than 500,000 surgeries. Medtronic applied for the 510(k) clearance to allow surgeons to use “pedicle screw-based constructs” to treat pediatric cases of AIS, the firm’s application stated. Besides information about the system such as materials used and precise sizes of components, Medtronic provided the FDA with published clinical data of pediatric AIS patients treated with the CD Horizon pedicle screw instruments. The data included the results of more than 600 pediatric patients treated with pedicle screw constructs alone and more than 900 patients treated with a hybrid construct of both pedicle screws and hooks. David L. Skaggs, M.D., professor and chief of orthopedic surgery at the Children’s Hospital in Los Angeles, Calif., said pedicle screws can help children retain their active lifestyles and possibly reduce the need for future surgeries. “Using pedicle screws in the treatment of adolescent idiopathic scoliosis gives my patients the best chance of correcting their spine and chest deformities, and preventing future surgeries,” Skaggs said.
In the United States, the company launched the Vertex Select reconstruction system posted screw module, expanding the Vertex Select line for treating patients who require fixation of the vertebrae in the upper-thoracic spine. The system consists of implants and general instruments that can be used to surgically treat patients with a variety of conditions that can contribute to spinal instability, including degenerative disc disease, spinal stenosis, fracture, tumors, and/or spondylolisthesis. The system provides surgeons multiple options to better accommodate patient anatomy, according to the company. It also offers surgeons the option of using a system that includes headless, posted screws and adjustable connectors for procedures requiring fixation in the upper-thoracic spine. These components allow for and enable connection from any direction, angle, and/or height. The connectors provide for variable rod and screw angles, and also rotate around the rod.
The company also launched the Kyphon Express Curette for scraping or scoring bone in the spine, including during treatment of vertebral compression fractures (VCF) with minimally invasive Kyphon balloon kyphoplasty. The device is designed to maximize control when scraping or scoring bone in the spine. Vertebral compression fractures are the most common osteoporotic fractures with an estimated 900,000 spinal fractures occurring in the United States every year. Left unrepaired, spinal fractures can cause additional health problems that increase the risk of mortality. Balloon kyphoplasty differs from other surgical therapies for VCFs such as vertebroplasty, which is designed to stabilize the fracture without correcting vertebral body deformity or providing a controlled fill for bone cement distribution.
With balloon kyphoplasty, inflation of the balloons compacts the cancellous bone, which may fill fracture lines and reduce leak pathways. The presence of the space also allows a more viscous bone cement to be injected under low manual pressure.
Also in the Kyphon line of new product releases was the Kyphon cement delivery system in Europe, which allows physicians to keep a farther distance from the radiation source during the cement delivery phase than with Medtronic’s current delivery system used in the balloon kyphoplasty procedure. It allows for the delivery of Kyphon ActivOs and HV-R bone cement with one-handed operation, preserving some tactile feel during delivery with the ability to halt bone cement flow on demand with the quick-release button. The system was launched in the United States in September 2009.
Early in 2011, Medtronic released the CD Horizon Solera spinal system in the United States—part of the CD Horizon family of fixation devices, designed to provide spinal stabilization and correction as an adjunct to fusion in patients suffering from painful and function-limiting disorders of the middle and lower back. Solera is designed to be compatible with Medtronic’s minimally invasive technologies, known as MAST, and is integrated with Medtronic’s surgical navigation and imaging systems and the NIM-Eclipse neuromonitoring system. The system, according to Medtronic, accommodates multiple rod material options, allowing choice in rod flexibility and strength to match the demands of a variety of spinal conditions. Additionally, smaller implants may provide the advantages of increased room for bone graft required for fusion, and reduced impingement on the facet joints. The facet joints are the small stabilizing joints located at the intersection of adjacent vertebrae. The system also includes the Verifi implant tracking system technology, which is similar to barcode technology, and provides device quality and utilization-related data for customers to meet FDA requirements for unique device identification. Solera is Medtronic’s fifth generation spinal fusion system and is cleared to treat patients with degenerative disc disease, spinal stenosis, fracture, dislocation, failed previous fusions, tumors and, uniquely adolescent idiopathic scoliosis.
Medtronic released its PEEK Prevail cervical interbody device for patients who suffer from a disc disease that affects the neck, or cervical spine in clinical parlance. When a spinal disc is diseased, it can lose height, compressing nerves and causing pain in the neck and arms. The Prevail device is designed to provide stability during spinal fusion, which involves joining two bones together, such as adjacent vertebrae. There are an estimated 60,000 cervical fusion procedures performed in Europe each year to relieve compression on the spinal cord or nerve roots. The device received 510(k) clearance in May 2008. Made of polyetheretherketone (PEEK), the new implant is invisible on X-rays, which allows the surgeon to view the spinal fusion during a follow-up visit. Featuring an “I-beam” shape with a two-screw configuration, the device incorporates a nitinol wire locking mechanism to keep the screws securely in place. Cervical disc disease is defined as radiating pain and/or weakness with herniated disc and/or osteophyte formation on posterior vertebral end plates producing symptomatic nerve root and/or spinal cord compression confirmed by radiographic studies.
February 2011 brought with it some resolution to ongoing legal wrangling with Globus Medical Inc. The United States Court of Appeals for the Federal Circuit affirmed that the Pivot system offered by Audubon, Pa.-based Globus Medical infringed two patents owned by Medtronic. The decision validates a jury’s previous finding in October 2008 that the claims of specific Medtronic CD Horizon Sextant patents were infringed. Sextant is a surgical instrumentation system that offers a minimally invasive method of placing implants that provide stabilization during spinal fusion surgery.
For fiscal 2012 (ended April 30), Medtronic posted gains. The company reported revenue of $16.2 billion, an increase of 3 percent on a constant currency basis after adjusting for a $273 million positive foreign currency impact or 4 percent as reported. Net earnings were $3.6 billion or $3.41 per diluted share, an increase of 17 percent and 19 percent, respectively. The Restorative Therapies Group posted sales in the quarter of $2 billion, representing an increase of 4 percent as reported and on a constant currency basis. Group revenue was driven by solid performances in Surgical Technologies, Neuromodulation, and Diabetes, partially offset by a decline in the Spinal division in the United States, the company reported. Spinal sales were nearly $2.5 billion, which grew 12 percent in international markets, including 22 percent growth in emerging markets. Biologics sales were $800 million. Despite sluggish sales, CEO Ishrak denied rumors in fiscal 2012 that Medtronic would jettison its Spinal business. He said he expects the spine business to eventually recover from troubles such as a U.S. Senate investigation and negative articles in The Spine Journal about whether doctors who were paid by Medtronic failed to report significant side effects of the Infuse spinal fusion product. The growth should return as an aging population demands treatment for common back ailments, Ishrak said during an investor call, emphasizing that the company has done and would continue to do whatever it takes to maintain integrity and patient safety, and that hiding adverse side effects would not be tolerated.
In April this year, Medtronic agreed to pay $85 million to settle a shareholder lawsuit originally brought against the company by the Minneapolis Firefighters’ Relief Association in December 2008. The lawsuit, which was consolidated into a class action in 2009, claimed that the Minneapolis, Minn.-based company was deliberately misleading about Infuse, a genetically engineered bone graft used in spinal, oral and dental graft procedures. Medtronic was accused of withholding that as much as 85 percent of Infuse sales depended on “off-label” uses, which means that sales representatives allegedly were promoting the product for uses not approved by the FDA. Some of the doctors who used Infuse, according to the lawsuit, were paid by Medtronic. According to shareholders, when Medtronic revealed that the U.S. Department of Justice and the U.S. Senate were looking closely at possible off-label marketing, share prices and Infuse sales dropped. Under the settlement, Medtronic explicitly denied withholding any information and also denies any wrongdoing. In the interest of transparency, Medtronic hired Yale University in August 2011 to run an independent review of Infuse and its sales practices. The study is, however, funded by Medtronic. Results are expected within 18 months of the start date of the study.
In May, the U.S. Department of Justice and U.S. Attorney’s Office closed their investigation into the company related to the Infuse bone graft. Medtronic has regularly reported on the status of the federal, civil and criminal investigation in its quarterly disclosures. “After several years of investigation, we are pleased that the Department of Justice and the U.S. Attorney’s Office have come to the decision to close their investigation of the company related to Infuse bone graft,” said Chris O’Connell, executive vice president and group president of Restorative Therapies Group, which includes Medtronic’s spinal business.
KEY EXECUTIVES:
Omar Ishrak, Chairman and CEO
Christopher J. O’Connell, Exec. VP & Group President, Restorative Therapies Group
Richard Kuntz, M.D., M.Sc., Sr. VP & Chief Scientific, Clinical and Regulatory Officer
Stephen N. Oesterle, M.D., Sr. VP, Medicine and Technology
Doug King, Sr. VP, Medtronic and President, Medtronic Spinal
Rob Fredericks, Vice President, Innovation & Strategy, Medtronic Spinal
H. James Dallas, Sr. VP, Quality and Operations
NO. OF EMPLOYEES: 1,350
GLOBAL HEADQUARTERS: Memphis, Tenn.
When CEO Art Collins retired after six years at the helm of Medtronic Inc. in 2007, the buzz, of course, was about who would replace him. Two top internal candidates certainly were in the running. One was Michael DeMane, president of Medtronic’s spine business at the time, and the other was Chief Operating Officer Bill Hawkins. Hawkins was viewed as a steady hand as part of the company’s leadership team. DeMane was more of an aggressive maverick, whose drive for growth brought with it some legal and regulatory scrutiny (he later moved on to spine company Lanx Inc. as CEO in 2010 and then to spine stimulation firm Nevro Inc. in 2011).
As anyone who follows the industry knows, Hawkins won out, but his tenure of less than five years was relatively short-lived compared with his predecessors. He retired a little after the end of the company’s fiscal year (Medtronic’s fiscal cycle is earlier than most. Fiscal 2011 ended on April 29, 2011). It wasn’t that Hawkins was unsteady at the helm, but he took the helm during uncertain times. He tried to make the company more efficient—making key acquisitions and divestitures—but Wall Street remained unimpressed. During his tenure, Medtronic fell from around $54 to $37 (though that period includes the Great Recession). The company also had to deal with some legal wrangling over faulty defibrillator leads and issues with its Infuse bone graft product. Medtronic also is a company in transition. It’s a mature firm, and pacemaker and implantable cardioverter defibrillator businesses aren’t the growth drivers they used to be.
Above: The Vertex Select reconstruction system occioitocervical module. During the 2011 fiscal year, the company launched the Vertex Select reconstruction system posted screw module in the United States, expanding the Vertex Select line for treating patients who require fixation of the vertebrae in the upper-thoracic spine. Photo courtesy of Medtronic Inc. |
The company hopes that Ishrak will be the new product marketing whiz that he was with GE and that he’ll be aggressive about pursuing new markets at home and abroad, particularly in developing countries.
As the new CEO grabbed the reins, Medtronic’s FY11 posted revenue of $15.9 billion, an increase of 1 percent as reported or an increase of 2 percent after adjusting for $12 million of favorable foreign currency impact and approximately $200 million of revenue benefit from the extra week in the first quarter of fiscal year 2010. Net earnings were $3.1 billion, which was flat, or $2.86 per diluted share, an increase of 3 percent.
International revenue of $6.8 billion grew 6 percent both as reported and after adjusting for a $12 million favorable foreign currency impact and the benefit of the extra week in fiscal year 2010.
International revenue represented 43 percent of total company revenues for the year. Strong market sales were reported in China, India and Latin America. Company executives reported that “steady growth” across most businesses and geographies was offset by “challenging dynamics” in the U.S. implantable cardiac defibrillator (ICD) and spinal markets. Starting in the first quarter of fiscal year 2011 began to operate under two reportable segments and two operating segments, the Cardiac and Vascular Group (composed of the Cardiac Rhythm Disease Management [CRDM], CardioVascular, and Physio-Control businesses—Physio-Control was sold to Bain Capital during fiscal 2012 for $487 million) and the Restorative Therapies Group (composed of the Spinal and Biologics, Neuromodulation, Diabetes, and Surgical Technologies businesses).
Medtronic Spinal's CD Horizon Eclipse system. Photo courtesy of Medtronic Inc. |
Medtronic announced plans in February 2011 to reduce its workforce by 4-5 percent by the end of April the same year due to slower growth in some of the markets the company serves.
In a move to expand biologics product offerings, Medtronic purchased Osteotech late in 2010 for $123 million. According to company leadership at the time, the acquisition was an important step to building a broader business in regenerative biologics and complements Medtronic’s bone healing portfolio as well as expands the company’s spine, orthopedic trauma and dental offerings into new treatment areas including joint reconstruction, foot and ankle, sports medicine and neurosurgery. Osteotech’s product line includes Grafton demineralized bone matrix, and MagniFuse bone grafts and Plexur biocomposites, which are used in a broad range of musculoskeletal surgical procedures.
A number of new Medtronic products were released or received regulatory approval in fiscal 2011.
Medtronic received approval from the U.S. Food and Drug Administration (FDA) for the CD Horizon Legacy Spinal System for the treatment of adolescent idiopathic scoliosis (AIS), a condition that affects nearly 6 million people in the United States (1 million of those patients are children). Characterized by a side-to-side curvature of the spine, AIS usually develops in children older than 10; its cause currently is unknown. Medtronic’s CD Horizon Spinal System consists of rods, hooks, and screws that are implanted in the spine to correct the curve. The system is available in multiple rod diameters and screw sizes so surgeons can choose the appropriate size based on a child’s condition, anatomy, and activity level (3.5 millimeter rods are most commonly used in pediatric cases), according to the company’s 510(k) application to the FDA. Doctors have used the CD Horizon Legacy Spinal System since 2004 in more than 500,000 surgeries. Medtronic applied for the 510(k) clearance to allow surgeons to use “pedicle screw-based constructs” to treat pediatric cases of AIS, the firm’s application stated. Besides information about the system such as materials used and precise sizes of components, Medtronic provided the FDA with published clinical data of pediatric AIS patients treated with the CD Horizon pedicle screw instruments. The data included the results of more than 600 pediatric patients treated with pedicle screw constructs alone and more than 900 patients treated with a hybrid construct of both pedicle screws and hooks. David L. Skaggs, M.D., professor and chief of orthopedic surgery at the Children’s Hospital in Los Angeles, Calif., said pedicle screws can help children retain their active lifestyles and possibly reduce the need for future surgeries. “Using pedicle screws in the treatment of adolescent idiopathic scoliosis gives my patients the best chance of correcting their spine and chest deformities, and preventing future surgeries,” Skaggs said.
In the United States, the company launched the Vertex Select reconstruction system posted screw module, expanding the Vertex Select line for treating patients who require fixation of the vertebrae in the upper-thoracic spine. The system consists of implants and general instruments that can be used to surgically treat patients with a variety of conditions that can contribute to spinal instability, including degenerative disc disease, spinal stenosis, fracture, tumors, and/or spondylolisthesis. The system provides surgeons multiple options to better accommodate patient anatomy, according to the company. It also offers surgeons the option of using a system that includes headless, posted screws and adjustable connectors for procedures requiring fixation in the upper-thoracic spine. These components allow for and enable connection from any direction, angle, and/or height. The connectors provide for variable rod and screw angles, and also rotate around the rod.
The company also launched the Kyphon Express Curette for scraping or scoring bone in the spine, including during treatment of vertebral compression fractures (VCF) with minimally invasive Kyphon balloon kyphoplasty. The device is designed to maximize control when scraping or scoring bone in the spine. Vertebral compression fractures are the most common osteoporotic fractures with an estimated 900,000 spinal fractures occurring in the United States every year. Left unrepaired, spinal fractures can cause additional health problems that increase the risk of mortality. Balloon kyphoplasty differs from other surgical therapies for VCFs such as vertebroplasty, which is designed to stabilize the fracture without correcting vertebral body deformity or providing a controlled fill for bone cement distribution.
With balloon kyphoplasty, inflation of the balloons compacts the cancellous bone, which may fill fracture lines and reduce leak pathways. The presence of the space also allows a more viscous bone cement to be injected under low manual pressure.
Also in the Kyphon line of new product releases was the Kyphon cement delivery system in Europe, which allows physicians to keep a farther distance from the radiation source during the cement delivery phase than with Medtronic’s current delivery system used in the balloon kyphoplasty procedure. It allows for the delivery of Kyphon ActivOs and HV-R bone cement with one-handed operation, preserving some tactile feel during delivery with the ability to halt bone cement flow on demand with the quick-release button. The system was launched in the United States in September 2009.
Early in 2011, Medtronic released the CD Horizon Solera spinal system in the United States—part of the CD Horizon family of fixation devices, designed to provide spinal stabilization and correction as an adjunct to fusion in patients suffering from painful and function-limiting disorders of the middle and lower back. Solera is designed to be compatible with Medtronic’s minimally invasive technologies, known as MAST, and is integrated with Medtronic’s surgical navigation and imaging systems and the NIM-Eclipse neuromonitoring system. The system, according to Medtronic, accommodates multiple rod material options, allowing choice in rod flexibility and strength to match the demands of a variety of spinal conditions. Additionally, smaller implants may provide the advantages of increased room for bone graft required for fusion, and reduced impingement on the facet joints. The facet joints are the small stabilizing joints located at the intersection of adjacent vertebrae. The system also includes the Verifi implant tracking system technology, which is similar to barcode technology, and provides device quality and utilization-related data for customers to meet FDA requirements for unique device identification. Solera is Medtronic’s fifth generation spinal fusion system and is cleared to treat patients with degenerative disc disease, spinal stenosis, fracture, dislocation, failed previous fusions, tumors and, uniquely adolescent idiopathic scoliosis.
Medtronic released its PEEK Prevail cervical interbody device for patients who suffer from a disc disease that affects the neck, or cervical spine in clinical parlance. When a spinal disc is diseased, it can lose height, compressing nerves and causing pain in the neck and arms. The Prevail device is designed to provide stability during spinal fusion, which involves joining two bones together, such as adjacent vertebrae. There are an estimated 60,000 cervical fusion procedures performed in Europe each year to relieve compression on the spinal cord or nerve roots. The device received 510(k) clearance in May 2008. Made of polyetheretherketone (PEEK), the new implant is invisible on X-rays, which allows the surgeon to view the spinal fusion during a follow-up visit. Featuring an “I-beam” shape with a two-screw configuration, the device incorporates a nitinol wire locking mechanism to keep the screws securely in place. Cervical disc disease is defined as radiating pain and/or weakness with herniated disc and/or osteophyte formation on posterior vertebral end plates producing symptomatic nerve root and/or spinal cord compression confirmed by radiographic studies.
February 2011 brought with it some resolution to ongoing legal wrangling with Globus Medical Inc. The United States Court of Appeals for the Federal Circuit affirmed that the Pivot system offered by Audubon, Pa.-based Globus Medical infringed two patents owned by Medtronic. The decision validates a jury’s previous finding in October 2008 that the claims of specific Medtronic CD Horizon Sextant patents were infringed. Sextant is a surgical instrumentation system that offers a minimally invasive method of placing implants that provide stabilization during spinal fusion surgery.
For fiscal 2012 (ended April 30), Medtronic posted gains. The company reported revenue of $16.2 billion, an increase of 3 percent on a constant currency basis after adjusting for a $273 million positive foreign currency impact or 4 percent as reported. Net earnings were $3.6 billion or $3.41 per diluted share, an increase of 17 percent and 19 percent, respectively. The Restorative Therapies Group posted sales in the quarter of $2 billion, representing an increase of 4 percent as reported and on a constant currency basis. Group revenue was driven by solid performances in Surgical Technologies, Neuromodulation, and Diabetes, partially offset by a decline in the Spinal division in the United States, the company reported. Spinal sales were nearly $2.5 billion, which grew 12 percent in international markets, including 22 percent growth in emerging markets. Biologics sales were $800 million. Despite sluggish sales, CEO Ishrak denied rumors in fiscal 2012 that Medtronic would jettison its Spinal business. He said he expects the spine business to eventually recover from troubles such as a U.S. Senate investigation and negative articles in The Spine Journal about whether doctors who were paid by Medtronic failed to report significant side effects of the Infuse spinal fusion product. The growth should return as an aging population demands treatment for common back ailments, Ishrak said during an investor call, emphasizing that the company has done and would continue to do whatever it takes to maintain integrity and patient safety, and that hiding adverse side effects would not be tolerated.
In April this year, Medtronic agreed to pay $85 million to settle a shareholder lawsuit originally brought against the company by the Minneapolis Firefighters’ Relief Association in December 2008. The lawsuit, which was consolidated into a class action in 2009, claimed that the Minneapolis, Minn.-based company was deliberately misleading about Infuse, a genetically engineered bone graft used in spinal, oral and dental graft procedures. Medtronic was accused of withholding that as much as 85 percent of Infuse sales depended on “off-label” uses, which means that sales representatives allegedly were promoting the product for uses not approved by the FDA. Some of the doctors who used Infuse, according to the lawsuit, were paid by Medtronic. According to shareholders, when Medtronic revealed that the U.S. Department of Justice and the U.S. Senate were looking closely at possible off-label marketing, share prices and Infuse sales dropped. Under the settlement, Medtronic explicitly denied withholding any information and also denies any wrongdoing. In the interest of transparency, Medtronic hired Yale University in August 2011 to run an independent review of Infuse and its sales practices. The study is, however, funded by Medtronic. Results are expected within 18 months of the start date of the study.
In May, the U.S. Department of Justice and U.S. Attorney’s Office closed their investigation into the company related to the Infuse bone graft. Medtronic has regularly reported on the status of the federal, civil and criminal investigation in its quarterly disclosures. “After several years of investigation, we are pleased that the Department of Justice and the U.S. Attorney’s Office have come to the decision to close their investigation of the company related to Infuse bone graft,” said Chris O’Connell, executive vice president and group president of Restorative Therapies Group, which includes Medtronic’s spinal business.