$4.97 Billion ($33.54B total)
Prior Fiscal: $4.76 Billion
Percentage Change: +4.6%
R&D Expenditure: $2.7B (total)
Best FY25 Quarter: Q4 $1.3B
Latest Quarter: Q4 $1.3B
No. of Employees: 95,000 (total)
Global Headquarters: Dublin, Ireland

The rumors have been about Spine [now part of the Cranial and Spinal Technologies (CST) unit] for at least 15 years. Going back as far as 2011, when the Spine unit for Medtronic faced substantial headwinds, it’s been speculated the company would be better off without its orthopedic component. At that time, analysts predicted a divestiture of the division could take place. But Omar Ishrak, named CEO earlier that same year, stated Big Blue was better off with different businesses under its roof, including the Spine segment. It did, however, seek to sell Physio-Control at that time.

Fast-forward to a few years ago when the organization announced it was expecting to spin out its Patient Monitoring and Respiratory Interventions businesses. This time, the impetus to do so wasn’t originating from analysts, but rather the head of Medtronic himself. Chairman and CEO Geoff Martha stated two portions of the firm’s Medical Surgical portfolio would be allowed to stand alone as a newly formed corporate entity. However, after further consideration, the spinout idea was ultimately nixed, as the two businesses would form the basis of a new unit called Acute Care and Monitoring. The only portion not remaining was the underperforming ventilator product line, which was announced to be winding down in February 2024. Again, not a peep about Spine.

Most recently, Medtronic once again announced a plan to separate from one of its businesses. For the third time, the declaration had nothing to do with Spine. Instead, on the same day the organization provided its latest fiscal year figures (FY25), it also told of its intent to split from its Diabetes unit. According to the company’s news release about the divestiture, MiniMed—a callback to its original name before Medtronic acquired the firm in 2001—would be established and on its own within 18 months. That would include an IPO and the subsequent spinout. Que Dallara, current executive vice president and president of Medtronic Diabetes, was announced to be taking the helm of MiniMed as its CEO.

And still, not even a whisper of the spine or any orthopedic segment of Medtronic being set adrift or sold off.

The $2.76 billion Diabetes contribution to the company’s 2025 revenue tally was the least among the organization’s four main segments. In total, all of the businesses combined to achieve a modest 3.6% rise over the prior fiscal year, with most enjoying gains while just a couple were flat against the prior year.

The company’s $33.54 billion revenue total for FY25 was led by Medtronic’s Cardiovascular division. Its 5.5% rise took it over the $12 billion mark to reach $12.48 billion for the fiscal year. Cardiac Rhythm & Heart Failure led the group’s trio of businesses, bringing in $6.39 billion—a 6.6% gain. Finishing second within the group, both in annual revenue and growth percentage, was Structural Heart & Aortic. Its $3.55 billion reflected a 5.8% expansion. Offering $2.54 billion to the company’s coffers, Coronary & Peripheral Vascular enjoyed an increase of 2.3%.

As well as sharing insights on the Cardiovascular division’s financial position at the close of the 2025 fiscal year, Medtronic also shared information on a leadership move. Sean Salmon announced he would be leaving MDT after a 20-year run. His departure left a vacancy at the position of executive vice president and president of the Cardiovascular Portfolio. To fill the role, Skip Kiil, senior vice president and president of the Medtronic CST business, was promoted, leaving the head spot of the CST unit empty. Michael Carter, vice president and general manager, Spine, took on that responsibility.

Neuroscience, the unit in which CST resides, also experienced a pair of leadership changes about a month after the start of the 2025 fiscal period. As a result of the opening created by Dan Volz’s promotion to senior vice president of global commercial transformation for Medtronic, Linnea Burman became senior vice president and president of the Neurovascular business. Burman had previously been vice president and general manager of Enabling Technologies (part of the CST business).

The other move involved Emily Elswick moving into the role of president of the Pelvic Health business. She was previously vice president, Office of the CEO, and prior to that, vice president and general manager of the Lung Health and Visualization business.

Leadership changes weren’t limited to the Neuroscience business. In late June, Medtronic said farewell to its executive vice president and CFO of eight years, Karen Parkhill, who left Big Blue to take on the position at HP Inc. Then, about six months later, the organization named Thierry Piéton as Parkhill’s replacement. Piéton came over from Renault Group, where he had served as its CFO since March 2022.

“Thierry is a strategic, creative, operationally focused, experienced CFO with a proven track record of delivering innovation-driven growth, margin improvement, and earnings power through strong financial leadership, which is directly aligned with our financial objectives,” said Martha. “We are confident he is the right choice at this important time for Medtronic and can’t wait to benefit from his expertise and leadership.”

In another change, the company saw the end of its ongoing litigation with Axonics over patent infringements. Months after a jury found for Axonics and stated the company did not infringe on any of the three patents-in-suit, Boston Scientific completed its acquisition of the organization. The two Top 30 members then worked to settle the dispute confidentially, which brought an end to all outstanding litigation between Medtronic and Axonics.

Returning to its 2025 financials, Medical Surgical, and its two segments were flat fiscal year over year by percentage. The combined segment generated $8.41 billion in sales. On its own, Surgical & Endoscopy was credited with $6.50 billion of that total, while Acute Care & Monitoring added $1.91 billion from its side.

Finally, the Neuroscience business enjoyed mid-single-digit percentage enlargement with its 4.7% gain over FY24. That resulted in a revenue contribution of $9.85 billion. Within the segment, CST and its two sister units also celebrated increases with Neuromodulation standing out as the most impressive. While its $1.93 billion was the lowest in actual dollars, it boasted 10.7% growth. Leading the segment was CST, which finished with a 4.6% surge ($4.97 billion). Rounding out the trio, Specialty Therapies notched $2.94 billion for a 1.2% advance.

As a group, the businesses offered several headlines centered primarily around its product innovations.

• Medtronic announced a partnership with Merit Medical Systems Inc. to offer a unipedicular, steerable balloon catheter for treating vertebral compression fractures in the U.S. The agreement was an expansion of an ongoing partnership between the firms, which sees Merit supplying Medtronic’s Kyphon Xpander Inflation Syringes used in balloon kyphoplasty procedures.
• Another partnership was announced with Siemens Healthineers to complement Medtronic imaging offerings. The two companies anticipated co-marketing the Siemens Healthineers Multitom Rax imaging system and integrating the platform into the Medtronic AiBLE ecosystem for spine surgery. The companies also planned to collaborate across technology development, marketing, and commercial activities to advance clinical outcomes.
• Launched several software, hardware, and imaging innovations designed to advance AiBLE, the Medtronic smart ecosystem of innovative navigation, robotics, data and AI, imaging, software, and implants that enable more predictable outcomes in spine and cranial procedures. These expansions included O-arm 4.3 software, UNiD Adaptive Spine Intelligence, Mazor robotic guidance system with 5.1 software, and a new implant innovation with ModuLeX Spinal System.
• FDA approval of the Inceptiv closed-loop rechargeable spinal cord stimulator (SCS) for the treatment of chronic pain. Inceptiv is the first Medtronic SCS device to offer a closed-loop feature that senses biological signals along the spinal cord and automatically adjusts stimulation in real time, keeping therapy in harmony with the motions of daily life.
• Breakthrough Device designation from the FDA for Infuse bone graft with an intervertebral fusion device and a commercially available metallic screw and rod system. This designation pertains to the use of Infuse bone graft in a transforaminal lumbar interbody fusion (TLIF) surgical approach at one or two adjacent levels from L2 – S1 in the treatment of degenerative disease of the lumbosacral spine.
• The CD Horizon ModuLeX spinal system for deformity procedures was launched. The system is amplified and enabled by AiBLE, the ecosystem of digital solutions that enable more predictable outcomes in spine procedures.
• FDA approval of Asleep Deep Brain Stimulation (DBS) surgery for people with Parkinson’s and people with essential tremor, making the organization the first and only company at the time to receive the agency’s OK to offer DBS surgery while a patient is asleep (under general anesthesia) or awake.
• FDA approval of expanded MRI labeling for the Percept PC and Percept RC, as well as Activa PC, RC, and SC. The approval allows additional active scan time for scans below specified B1+rms limits, increasing the options available for diagnostic and functional assessments.
• A CE mark approval in the EU and U.K. for BrainSense Adaptive deep brain stimulation and BrainSense Electrode Identifier. This was followed by FDA approval in the U.S. for the same technology soon after.
• Bookending the product news with another partnership announcement, Medtronic and Methinks AI, an AI-driven radiological triage and notification system provider, teamed to enhance stroke treatment across Central and Eastern Europe, Africa, Türkiye, and the Middle East.
• Still another agreement with a medical device manufacturer resulted in an exclusive arrangement that established Medtronic as the sole U.S. distributor for Contego’s product portfolio, which provides revascularization treatment for carotid and peripheral vascular disease. The agreement also included an increased investment in Contego and an option to acquire the company. Medtronic has held a minority investment in Contego since 2020.

$4.75 Billion
Prior Fiscal: $4.45 Billion
Percentage Change: +6.7%
R&D Expenditure: $2.73B (total)
Best FY24 Quarter: Q4 $1.29B
Latest Quarter: Q4 $1.29B
No. of Employees: 95,000 (total)

In November 2019, Medtronic filed a lawsuit against Axonics that alleged patent infringements over sacral neuromodulation (SNM) technologies. Axonics’ r-SNM platform has been a competitor to Medtronic’s Interstim system since its first U.S. Food and Drug Administration (FDA) approval in 2019, when the suit was first filed.

Axonics responded by filing seven claims over the ‘069 patent, which covers charging an implantable device having a battery.

In 2020, the U.S. Patent Trial and Appeal Board (PTAB) decided to reject one of Axonics’ claims to invalidate a Medtronic patent. It found Axonics’ argument concerning the ‘324 patent for technology related to implant recharging and temperature control lacked merit.

A year later, PTAB rejected Axonics’ play to invalidate three Medtronic patents in its intellectual property (IP) infringement lawsuit. It upheld claims in Medtronic’s U.S. patents ‘756 and ‘314, which protects technology related to its tined leads. Claim seven for patent ‘069 was also upheld, which protects technology associated with its recharge power control.

In February 2024, Medtronic then filed a complaint with the U.S. International Trade Commission (ITC) with a parallel action in the U.S. District Court for the District of Delaware to block Axonics from improperly importing and selling products that infringe two Medtronic patents related to MRI compatibility of implantable medical devices. The company wanted the ITC to investigate and exclude importation of the offending Axonics products alleged to infringe its patents.

“Medtronic is continuing our efforts to stop Axonics from profiting off of their unauthorized use of our innovations and intellectual property,” Medtronic’s president of pelvic health Mira Sahney told the press. “The pattern is clear: Axonics uses Medtronic technologies to improperly compete in the market. It is time for Axonics to be held accountable for these unlawful acts.”

Axonics believes that the legal action is an attempt to intimidate the smaller company and stifle competition.

“We believe Medtronic’s claims are designed to stifle competition, limit patient and physician choice, and protect the incumbent’s market position,” said Axonics CEO Raymond W. Cohen. “For over 20 years, Medtronic took advantage of its monopoly position in this category and chose not to innovate, develop full-body MRI compatible sacral neuromodulation devices or invest in creating public awareness of advanced therapies for people with incontinence. Axonics took a different path and created a renaissance in sacral neuromodulation therapy by developing long-lived implantable devices and introducing full-body MRI compatibility in this category for the first time. Axonics refuses to be intimidated by Medtronic and intends to defend itself vigorously.”

Axonics’ lawsuit took another hit in March, when the U.S. Patent Office rejected its latest challenge by affirming the validity of two Medtronic patents. Medtronic is now asking the federal court in the Central District of California, where the patent infringement lawsuit is pending, to lift its stay on the lawsuit. The company hopes to proceed to trial on the five valid and affirmed patents so it can present its case in front of a jury.

Medtronic’s Cranial & Spinal Technologies revenues rose 7% over the previous year to $4.76 billion. Medtronic cited strong performance of AiBLE spinal ecosystem capital and biologics product pull-through as the main reasons for this business’s success.

The OsteoCool 2.0 bone tumor ablation system grabbed U.S. Food and Drug Administration (FDA) clearance in March 2024. OsteoCool 2.0 treats painful bone metastases and benign bone tumors like osteoid osteoma.

Its new design features four internal probes that cool at the same time to ablate two vertebral bodies at once, creating larger ablation zones in applications outside of the spine. Medtronic touts it as the most powerful bone tumor ablation on the market with 20W per channel. It also has the widest choice of probe sizes in the U.S. market. Medtronic began a limited release upon FDA clearance and plans to broaden the U.S. launch later this year.

“OsteoCool 2.0 is a welcome upgrade to our interventional portfolio and further cements our status as offering the most innovative and comprehensive pain management portfolio in the industry,” said David Carr, VP and GM of Medtronic’s Pain Interventions business.

In the same week, the UNiD ePRO intelligent data collection for spine surgery debuted in the U.S. Medtronic The company partnered with OBERD, a practice intelligence data collection company, to give spine surgeons the electronic Patient Reported Outcomes (ePRO) system. UNiD ePRO integrates with a customer’s electronic medical record (EMR) system in the hospital and clinic, as well as the UNiD ASI (Adaptive Spine Intelligence) platform.

UNiD ASI uses artificial intelligence (AI) to make spine surgery using UNiD rods predictable and repeatable. Powered by data aggregation of thousands of spinal procedures, it spans pre-op, intra-op, and post-op services using UNiD rods for sagittal alignment.

UNiD ePRO is a valuable tool that will centralize the collection of PROs, complement radiographic outcomes on the UNiD Hub, enhance clinic workflows, and ultimately allow surgeons and medical staff to maximize their focus on patient care and treatment,” Haag went on. “Having surpassed the milestone of 20,000 cases on the UNiD ASI platform, the new UNiD ePRO solution further solidifies our position as a data-centric spine company dedicated to advancing predictability and patient outcomes.”

A month following the end of the company’s fiscal year 2024 saw the Infuse bone graft obtaining FDA breakthrough device status for a new indication—transforaminal lumbar interbody fusion (TLIF) at one or two adjacent levels from L2-S1 to treat degenerative disease of the lumbosacral spine.

The breakthrough nod covers Infuse’s use in TLIF with an intervertebral fusion device and commercially available metallic screw and rod system. The company is currently enrolling patients in a prospective, randomized clinical trial of Infuse in a TLIF approach at one or two adjacent levels from L2-S1. The trial’s goal is to prove safety and effectiveness sufficient to expand indications in TLIF.

“We appreciate the FDA’s recognition that Infuse has the potential to raise the standard of care in TLIF. With this designation, our goal is to broaden the availability of this established technology, reaching more patients affected by debilitating spine conditions,” said Michael Carter, VP and GM of Medtronic’s Spine and Biologics business. “By expanding access to Infuse, we aim to empower healthcare providers with effective tools to address the challenges posed by degenerative spine conditions. Ultimately, our mission is to enhance the quality of life for individuals suffering from these conditions, fostering a future where patients can enjoy improved mobility and comfort.”

$4.45 Billion ($31.23 Billion)
Prior Fiscal: $4.46 Billion
Percentage Change: -0.1%
R&D Expenditure: $2.7B (total)
Best FY23 Quarter: Q4 $1.20B
Latest Quarter: Q4 $1.20B
No. of Employees: 95,000 (total)

For some time now, there’s been speculation around Medtronic’s seemingly disparate business units and which would be best served separating from the company either through spinout or divestiture. The firm has its hands in cardiovascular, neurological, and surgical technologies, as well as business segments focused on diabetes and orthopedic spine, among others. The latter two have probably generated the most rumors with talk of spine being sent off as far back as 2011.

At the time, then-CEO Omar Ishrak told Reuters spinning out the Spine division [now integrated into the Cranial and Spinal Technologies (CST) business] offered “no advantage.” The segment, however, had been viewed by some as a drag on the growth of the overall organization. Several analysts speculated the firm would be better off dumping lower performing segments, such as Spine, to focus on those with seemingly more promise.

Fast-forward to Medtronic’s latest fiscal year and the firm is still offering orthopedic spine solutions for surgeons and their patients. Meanwhile, the company made an announcement regarding other business units and their eventual departure from Big Blue. It was revealed the organization would reduce the focus of its clinical scope with the decision to shed the combined Patient Monitoring and Respiratory Interventions units.

A part of the Medical Surgical unit, the Patient Monitoring and Respiratory Interventions businesses would be spun out into a new company entity (yet to be named), rendering parent Medtronic free to focus its attention on higher-growth markets and revenue acceleration.

The combined businesses would tally anticipated worldwide sales figures in the neighborhood of $2.2 billion, based on the firm’s 2022 fiscal. The units would be equipped with a number of recognizable brands upon which to build its future business. The Patient Monitoring portion includes Nellcor pulse oximetry, Microstream capnography, BIS brain monitoring, INVOS perfusion monitoring, and HealthCast connected care solutions. The robust portfolio of Respiratory Interventions boasts Puritan Bennett ventilators, Shiley airway portfolio, McGrath MAC video laryngoscopy, DAR breathing systems, as well as PAV+, NIV+, and IE Sync ventilation software solutions.

ANALYST INSIGHTS: As anticipated in my comments last year, MDT began to make portfolio moves by announcing the spin-off of its ~$2 billion Respiratory and Monitoring group. This business unit originally came from Covidien. Due to its ventilation products (capital equipment), this market segment was never a good strategic fit for one of the world’s largest disposable medical device companies. Look for a large strategic (e.g., GE, Siemens, Philips) to purchase this business unit. The only question is, “Will it be before or after it is spun out of MDT?”

—Dave Sheppard, Co-Founder and Managing Director, MedWorld Advisors

“We are executing on our portfolio management strategy, taking action to create value for Medtronic and our shareholders. This separation will allow Medtronic to focus our company and our capital on opportunities better aligned with our long-term strategies to accelerate innovation-driven growth, and will position NewCo to unlock value. Independently, NewCo will be a leading connected care company with a compelling leadership position, attractive margins, and potential for growth acceleration with increased investment and dedicated capital allocation,” said Geoff Martha, chairman and CEO of Medtronic. “Looking ahead, we remain focused on active portfolio management with an ongoing process of evaluating potential additions and subtractions to further accelerate Medtronic’s growth over the long-term.”

At the time of the announcement, which was made in October 2022, it was anticipated the separation would be finalized in roughly 12 to 18 months. Whether the portfolio management strategy Martha mentioned still has plans for the CST business or even just the orthopedic spine portion remains to be seen.

While the spinout plan could ultimately be what materializes and the industry will bear witness to the formation of a new multi-billion dollar medtech firm, there could be another pathway for the two businesses.

According to a December Bloomberg article, which cited “people familiar with the matter,” Siemens Healthineers and GE HealthCare both expressed interest in acquiring the units. Further, multiple private equity firms have also inquired about the availability of the spun-out segments. It was reported Medtronic was open to such discussions, but nothing has been made public to indicate the original plan was not still in place. If such a sale was to occur, the Bloomberg article put the value of the transaction at around $7 billion.

Such a sale would represent a greater dollar figure than any of the recent M&A moves Medtronic made to bring in firms and technologies in recent years, including those during its latest fiscal. One such deal within the Neuroscience segment (the parent business of CST) involved the completion of the Intersect ENT purchase, which was originally announced August 2021. The buy included the firm’s PROPEL and SINUVA sinus implant product lines and technology, intellectual property, and Menlo Park, Calif., facility. At the time of the close, Intersect ENT’s Fiagon brand (which includes the Cube navigation system and VenSure balloon sinus dilation system) was divested to Hemostasis LLC as required by the FTC.

Medtronic was involved with other M&A transactions and forged partnerships with organizations presumably to spur revenue growth, as the company experienced a relatively mediocre fiscal. In fact, the 2020 pandemic year aside, it was the first year-over-year percentage loss for the organization in quite some time. While many of those previous fiscals reported modest, single-digit gains, they were still heading in the right direction. Big Blue’s overall 2023 fiscal decrease of 1.4% did not.

Still, the firm’s $31.23 billion in total net sales keeps it in rare territory, as it remains one of only two medtech companies to crack the $30 billion mark (with Abbott joining the club during its 2021 fiscal period, thanks primarily to the gains from COVID-19 diagnostic test sales). Further, it remains a leader in a number of clinical segments and is unlikely to remain as quiet as it was during its latest fiscal year (relatively speaking).

The company’s largest business segment, Cardiovascular, saw a small 1% bump to tally $11.57 billion for the 12 month period, credited primarily to strong sales of Micra, TAVR, and diagnostics. The Diabetes business saw a loss (-3%) compared to the company’s prior fiscal, closing its books at $2.26 billion. Within the Medical Surgical segment, unfortunately all aspects saw diminished sales figures with the overall unit down by 8%, which was reflected in a $8.43 billion total.

The last of Medtronic’s four segments, Neuroscience—home to CST—presented an up-and-down financial tale. On the whole, the business was up 2% to add $8.96 billion to the company’s coffers. The net sales increase was primarily due to growth in U.S. Core Spine, Neurovascular, ENT, and continued supply risk mitigation. Individually, however, the three sub-sectors all provided different results. Cranial & Spinal Technologies was flat year-over-year to post a contribution of $4.45 billion. Specialty Therapies gained 9% over the prior fiscal, reflected by a $2.82 billion figure. In contrast, Neuromodulation shrank by 2% for a $1.69 billion tally.

Product news originating from the CST business involved FDA clearance of the UNiD Spine Analyzer v4.0 planning platform, which includes a new Degen Algorithm for degenerative spine procedures. The algorithm leverages machine learning to help surgeons plan and personalize procedures for patients undergoing lower lumbar spine surgery and predicts spinal compensation mechanisms six months after the operation.

The update also included enhancements to the pediatric and adult deformity algorithms predicting compensatory changes to the spine. According to the company, the announcement identified Medtronic as the first and only company to have FDA cleared predictive models for spine surgery. In addition, the release came with a new UNiD Hub patient-centric platform that enables surgeons to track patients throughout the perioperative care pathway and assess surgical results through long-term radiographic and patient-reported outcomes data collection.

Big Blue also announced the FDA clearance and Breakthrough Device designation for its novel LigaPASS 2.0 Ligament Augmentation System. According to the company, LigaPASS is the first and only FDA-cleared device with indication for ligament augmentation in spine surgery.

The system can also be paired with the UNiD Adaptive Spine Intelligence (ASI) platform. UNiD ASI leverages data science and artificial intelligence to help surgeons plan, execute, and analyze their procedures. The LigaPASS 2.0 system connectors and bands may also be used in conjunction with the CD Horizon Solera spinal system.

$4.46 Billion
Prior Fiscal: $4.29 Billion
Percentage Change: +4%
R&D Expenditure: $2.7B (total)
Best FY22 Quarter: Q4 $1.17B
Latest Quarter: Q4 $1.17B
No. of Employees: 95,000 (total)

Medtronic has been atop the medtech industry since 2016 when it became the largest medical device manufacturer in the world (by revenue) and has not surrendered the spot since. In October 2021, the company announced a “bold new look” to better reflect that position and its desire to remain as the leading medtech organization going forward.

As part of this announcement, CEO Geoff Martha sat down for a video interview to outline a number of important factors critical to Medtronic’s strategy moving forward. He covered topics including robotics in healthcare, innovative diagnostic technologies, and working with tech industry leaders.

“We are at a pivotal moment in human health. Healthcare budgets are severely stressed, access to quality care is limited, and pervasive systemic healthcare inequities remain for too many,” said Martha. “Technology will be part of the solution to drive better outcomes for our world and dismantle global disparities in healthcare.”

Another part of this brand refresh involved adding the tagline “Engineering the extraordinary.” The message is said to be a “call to action” to all employees of the organization. Regardless of title, they should try to help drive better outcomes around the globe. In addition to the tagline, the company updated its Medtronic Symbol, which has only changed a few times since Medtronic’s founding approximately 60 years ago.

“Medtronic’s brand must be intentionally and thoughtfully tied to our business objectives and strategy. Our new brand reflects our goal to become the leading healthcare technology company and a cornerstone for societal change,” said Torod Neptune, senior vice president and chief communications officer. “We’ll think about healthcare differently and push that change forward by going beyond our medical devices that already serve millions. We will engineer extraordinary, next-generation healthcare technology—and enable access to that technology for populations all around the world.”

Big Blue will work to hold its leadership position within the medtech space via a number of means, including organic internal development, tactical partnerships, and strategic M&A. Within the orthopedic arena, however, it still has ground to make up as it currently sits fifth among its peers within the sector.

Its Neuroscience segment, which encompasses three divisions, enjoyed a 7% rise to finish the fiscal at $8.78 billion. The largest of the three is home to Medtronic’s orthopedic device offerings—Cranial & Spinal Technologies (CST). This business ballooned by 4% to tally $4.46 billion. The gain was primarily bolstered by strong sales of the Midas Rex powered surgical instruments and StealthStation Navigation and O-arm Imaging System.

CST’s sister businesses—Specialty Therapies and Neuromodulation—both enjoyed similar growth with a 12% and 8% gain respectively. This resulted in a revenue contribution of $2.59 billion from Specialty Therapies and $1.74 billion from Neuromodulation.

Alongside a branding change at Medtronic came a leadership change at CST. Former President of the unit, Jacob Paul, left to serve as CEO of Corin Group, an orthopedic device maker with solutions for the hip, knee, ankle, and shoulder. Stepping in to fill the role was Harry “Skip” Kiil, who joined the company from Smith+Nephew, where he served as president of the Global Orthopaedics business. Prior to that, Kiil was executive vice president and president of Global Commercial Operations at NuVasive. He also served as surgical head, Europe, Middle East, Africa, and Russia, in the Alcon Eye Care Division of Novartis Corporation, where he was responsible for leading the commercial transformation of the surgical business across developed and emerging growth markets. Before joining Alcon, Kiil spent 12 years with Stryker Corporation, where he held several leadership roles, including vice president and general manager for Europe, and general manager for Japan.

In addition to the personnel change, Medtronic’s CST unit provided a number of headline worthy announcements regarding products emerging from the division.

In June 2021, the organization gained clearance from the U.S. FDA for its patient-specific UNiD Rods to be used with CD Horizon Solera Voyager and Infinity OCT spinal systems. The agency’s OK expanded the utility of the company’s UNiD Adaptative Spine Intelligence (ASI) technology. UNiD Rods are designed for each patient and industrially pre-bent prior to surgery to accurately match an artificial intelligence-driven pre-operative surgical plan, which is created with UNiD ASI technology to precisely align patients’ spines, reducing the risk of malalignment and associated revision surgeries. The UNiD Rods are used to treat scoliosis, trauma, tumors, and complex degenerative conditions in adults and adolescent idiopathic scoliosis.

In September, the company announced the start of a clinical trial centered around evaluating the safety and effectiveness of the Braive growth modulation system for treatment of progressive juvenile or adolescent idiopathic scoliosis. The technology uses a braid secured to the spine with screws to slow growth on the curved side of the spine, while allowing growth to continue on the other side. The BRAIVE IDE study was designed to evaluate the use of the system in correcting the spine’s curve in patients with juvenile or adolescent idiopathic scoliosis.

About a week after that announcement, the company added three solutions to its minimally invasive spine surgery ecosystem. With these offerings, Medtronic claimed to be the only company to combine spinal implants, biologics, navigation, robotics, and AI-powered data to surgeons and patients.

“At Medtronic, we continue to raise the bar in minimally invasive spine surgery through our commitment to driving innovation and expanding our MIS capabilities,” said Carlton Weatherby, vice president and general manager of Spine & Biologics within the Cranial & Spinal Technologies business. “Our seamless integration of implants, instrumentation, and enabling technologies into a single ecosystem is helping surgeons remove variability in the surgical procedure, streamline and personalize care, and enable better patient outcomes.”

The first of the product additions was the Catalyft PL and PL40, the first releases in the new Catalyft Expandable Interbody System. Catalyft PL and PL40 feature a unique design for anterior rim engagement, a beveled tip for ease of insertion, seamless integration with StealthStation Navigation, simplified bone graft delivery, and active expansion at the precise angle and lift surgeons need to meet sagittal alignment goals.

The Space-D Access System, the second addition, enables pedicle-screw-based distraction, retraction, and compression. It is compatible with the CD Horizon Solera Voyager, enabling simpler, all-in-one access for surgeons, making procedures more efficient and reproducible.

Last, the Accelerate Graft Delivery System with Grafton DBF enables more controlled and efficient delivery of graft material into the disc space or other locations. Accelerate enables placement of more bone graft to facilitate fusion and is nine-times faster than traditional graft delivery methods, according to Medtronic. Bone grafting is also more controlled and easier for surgeons to visualize.

$4.29 Billion ($30.12 Billion)
Prior Fiscal: $4.08 Billion
Percentage Change: +5%
No. of Employees: 90,000 (total)

Medtronic’s 2021 fiscal period marked quite the debut for its new CEO. Although taking a spot on the Board of Directors in November 2019, the firm’s latest fiscal (which began April 27, 2020) marked Geoff Martha’s first full 12-month recorded financial period at the helm of the world’s largest medical device manufacturer.

Not only did he help the organization navigate the challenges brought on by a worldwide pandemic, but Martha also steered the company to revenues of over $30 billion for only the second time in its history. More impressive still, that final tally came after a 13 percent decrease in Q1 and a 1 percent drop in Q2 when compared to the same periods during its 2020 fiscal.

Perhaps a beneficiary of the unusual timeframe the firm uses for its fiscal year (a nod to its founding; always ends on the last Friday of April), the organization saw a return of pre-COVID level sales during its fourth quarter, which rose an astounding 37 percent over the prior year.

“We reported a strong end to our fiscal year, with our fourth quarter results demonstrating continued momentum. Our recovery improved throughout the quarter, with most of our markets returning to near normal, pre-COVID growth rates,” said Martha. “In addition to supporting our employees, customers, and communities during the pandemic, we accomplished important milestones, including launching new products, investing in our pipeline, and changing our operating model, just to name a few. As we look ahead, these actions set us up to drive accelerated revenue growth in the year ahead and over the long term.”

Once the dust settled, Big Blue found itself with revenues 4 percent higher than the previous fiscal. The rise saw the company’s coffers grow from $28.91 billion in 2020 to $30.12 billion in 2021.

The change in operating model Martha referenced in his statement regarding the fourth quarter had no impact on the company’s reportable segments, but it did establish new labels for its business groups. Put into effect on Feb. 1, the new model reflected the company’s segments as clinical portfolios rather than groups. The new names are Cardiovascular Portfolio (formerly Cardiac and Vascular Group), Neuroscience Portfolio (formerly Restorative Therapies Group), Medical Surgical Portfolio (formerly Minimally Invasive Therapies Group), and Diabetes Operating Unit (formerly Diabetes Group).

There was a change within the Neuroscience sub-portfolio, however, that did impact Medtronic’s Spine division. With the reshuffling of names among reporting groups, the previously solo Spine division found itself paired with Cranial therapies to form the Cranial & Spinal Technologies unit. As a whole, the division provides technologies to support the spine and musculoskeletal system, in addition to products used in neurosurgical procedures.

This new combination accounted for the significant increase in revenue presented this year when compared to last year’s ODT Top Company list, but as reported by Medtronic, the gain year over year was only 5 percent. In real dollars, that translates to $4.29 billion in 2021, up from $4.08 billion in 2020. The gains were driven primarily by increases within Enabling Technologies and Spine, which were due to the recovery in surgical procedure volume and capital equipment purchases.

In addition to the aforementioned operating model changes, Medtronic also saw a revision at its upper leadership level. In an expected move, former CEO Omar Ishrak continued his separation from the medtech giant with the announcement that he would retire from his position as executive chairman and chairman of the board on Dec. 11, 2020.

“I am excited about the future of the company, and I am certain that under Geoff’s leadership and the collective guidance of the Board of Directors, Medtronic will reach new heights,” said Ishrak. “The Medtronic Mission provides the company with a true and genuine sense of purpose, which the leadership of the company has followed diligently for over 60 years. I know that continued adherence to the guiding principles embodied in the six tenets of the Mission will ensure long-term success.”

As always seems to be the case with Medtronic, the changes didn’t stop there. The company made several strategic acquisitions to help strengthen its offerings in key areas, one of which will hopefully positively impact the Cranial & Spinal Technologies division. In July 2020, the organization announced it would purchase Medicrea for 7 euros per share (or approximately 139 million euros/$158 million). The transaction, which was finalized in November 2020, brought more than 30 510(k)-cleared or CE marked implant technologies utilized in spinal surgeries for adult deformity, pediatric deformity, and degenerative disease to Medtronic. The deal was also expected to enhance Medtronic’s artificial intelligence and robotic surgery capabilities for spine procedures.

“We have entered the age of augmented intelligence in spinal surgery at the point of care,” said Christopher Ames, M.D., director of spinal tumor and spinal deformity surgery at UCSF Medical Center in California. “Through the power of predictive models, data collection and machine learning, a unique capability is created, allowing for a continuous cycle of improvement. Physicians will have augmented eyes through surgical navigation, augmented hands with robotics, and most importantly, augmented intelligence through full integration with machine intelligence impacting all aspects of the care pathway. This type of technology will likely lead to safer procedures and more reliable outcomes while preventing costly revision surgery. It is rewarding to see the spine industry fully embracing these new capabilities and investing in the future.”

When it wasn’t growing through a purchase, Medtronic still expanded its reach with strategic partnerships. For one such arrangement, Medtronic partnered with Surgical Theater to allow an interface between the latter’s SyncAR augmented reality (AR) and Medtronic’s StealthStation S8 surgical navigation system. The end result is expected to enable neurosurgeons to use AR technology in real-time to enhance visualization during complex cranial procedures. Using fighter-jet simulation technology, the SyncAR platform allows surgeons to visualize structures in the brain, test virtual surgical tools, and plan surgeries before entering the operating room.

The firm also made a substantial product announcement that harkens back to its previous acquisition of Titan Spine, a deal finalized in June 2019. The news centered around the U.S. launch of the Adaptix Interbody System, the first navigated titanium implant with Titan nanoLOCK Surface Technology—a proprietary blend of surface textures on the macro, micro, and nano levels. The offering represents the first 3D printed titanium implant, developed in house by Medtronic engineers, to incorporate the Titan product.

“Adaptix Interbody System allows me the best chance to meet my patients’ needs by confidently placing the implant under navigation and trusting the Titan nanoLOCK Surface Technology to allow the implant to promote fusion. Surface technology, material type, and implant design all play a role in bone growth process during fusion,” said J. Justin Seale, M.D. of OrthoArkansas Spine Institute. “The unique features and world-class technologies make the Adaptix Interbody System a truly differentiated implant.”

$2.50 Billion ($28.91B total)
Prior Fiscal: $2.65 Billion
Percentage Change: -6%
No. of Employees: 93,792 (total)

Last year, Medtronic made a significant announcement with regard to a change in leadership. At the start of its next fiscal (which began April 27, 2020), the firm would have a new CEO in place. The previous chairman and CEO of the world’s largest medical device manufacturer—Omar Ishrak—would retire as its chief executive, but remain as part of the board as the newly created position of executive chairman as well as serving as chairman of the board. Ishrak held the CEO role for nine years, during which time Medtronic grew significantly.

“As Omar approaches the company’s mandatory executive officer retirement of 65 years of age next year, we have ensured Medtronic has the right leadership at the right time to advance its mission and deliver shareholder return through a seamless transition,” said Scott Donnelly, Medtronic’s lead director, and chairman, president, and CEO of Textron Inc. “The Board is extremely grateful to Omar for his outstanding leadership—as the company’s annual revenues have doubled and its market capitalization has increased by more than $100 billion during his tenure. We are confident Omar’s contributions to Medtronic will continue as executive chairman.”

During his tenure, Medtronic made the largest acquisition in medtech history when it bought Covidien in 2014 for $42.9 billion. The move was part of a redefined growth strategy that saw M&A used strategically to increase the company’s reach. Ishrak is also credited with inspiring the firm to embrace the concept of value-based healthcare, while also strengthening its position in emerging markets.

“Leading Medtronic as CEO is an honor and a privilege, and I know that Geoff is the right leader to take Medtronic to the next level of its growth and evolution. Geoff is a results-oriented, dynamic, and innovative business leader who is passionately committed to our mission, the advancement of our growth strategy, and the development and diversity of our people. I am confident he has the right track record, commitment, vision, and judgment to lead our company,” explained Ishrak.

The former CEO was referring to Geoff Martha, previously executive vice president (EVP) and president of the Restorative Therapies Group (RTG). Medtronic’s Board of Directors unanimously appointed Martha to assume the newly created role of president as of Nov. 1, 2019. He would also be made a member of the board as of the same date. Then, at the start of the new fiscal, he would move into the CEO role.

“I’ve had the pleasure of working closely with Omar throughout his tenure,” said Martha. “I think I speak for all of us when I say we are tremendously grateful for his leadership over the past nine years, and for his steadfast commitment to the Medtronic Mission. He has provided us with a solid foundation on which to continue the journey.”

ANALYST INSIGHTS: MDT continues to operate generally under four main business units, focusing on more than 30 chronic diseases. They continue with acquisitions in all four business units. The acquisition of Digital Surgery, a surgical AI company, earlier this year follows on the heels of their 2019 acquisitions of AV Medical, Titan spine, Klue, and EPIC Therapeutics. Look for this trend to continue as connected health and telehealth have accelerated their rapid rise further with the arrival of the COVID-19 pandemic. MDT sees this change happening and will not be left behind.

—Mark Bonifacio, President, BCS LLC

Martha joined the organization in 2011 and was named EVP and president of Medtronic’s RTG in 2015. He reorganized the group around key therapy areas and helped to restore consistent sales growth. Martha oversaw a record performance in fiscal year 2019, contributing more than $8 billion in revenue to the firm. During the same period, the $2 billion quarterly average represented historic highs for the company.

Also moving into a new position, Brett Wall, who had been senior vice president and president of the Brain Therapies division of RTG (which is also home to the Spine division), was promoted to EVP and group president of RTG in November. Wall made his way to Medtronic via the Covidien purchase, where he was president of Neurovascular and International. His 25 years of industry experience has seen him in roles including senior sales, marketing, and operational leadership positions with ev3, Boston Scientific, and C.R. Bard.

These moves were announced during a time marred by Medtronic’s first down fiscal period in some time. The organization dropped from its previous record revenue high of $30.56 billion in its 2019 fiscal—the first time a medical device manufacturer topped the $30 billion mark. In 2020’s fiscal, all businesses and segments saw decreases with one exception to finish the period at $28.91 billion. The tally was just slightly above the revenue total for the firm’s 2016 fiscal.

The segment most directly impacted by the aforementioned leadership moves, RTG, shrank 6 percent overall to tally $7.73 billion. Responsible for devices and therapies indicated for the treatment of neurological disorders and diseases, as well as surgical technologies designed to improve the precision and workflow of neuro procedures, Brain Therapies withdrew by 1 percent to finish at $2.92 billion. The Specialty Therapies business delivers products and therapies to treat diseases of the ear, nose, and throat, as well as help control the systems of overactive bladder, urinary retention, and chronic fecal incontinence. It wrapped up the term with $1.19 billion in revenue, a 9 percent loss. Pain Therapies had the most dramatic decrease in the segment with a 14 percent fall. The $1.11 billion in sales was for technologies including spinal cord stimulation systems, implantable drug infusion systems for chronic pain, and interventional products.

The last segment of RTG is the Spine division. This sector, which develops and sells medical devices and implants used in the treatment of the spine and musculoskeletal system, fell 6 percent in the latest fiscal to complete the period at $2.5 billion. According to the company’s fiscal report, much of this was attributed to the COVID-19 pandemic and a decrease in spending on products within the Spine division.

ANALYST INSIGHTS: Wall street continues it’s positive outlook on MDT, despite the well documented COVID-19-related slowing in elective procedures, which has had a short term effect. MDT has made it clear they will continue to invest both organically and inorganically in order to keep pace with the rapidly changing landscape in our post COVID-19 world.

—Mark Bonifacio, President, BCS LLC

In an attempt to add support to the Spine division, Medtronic announced in May 2019 it had entered into an agreement to acquire Titan Spine. The firm to be purchased was a privately held titanium spine interbody implant and surface technology company. The products were used in spinal fusion procedures.

Jacob Paul, senior vice president and president of the Spine division, said, “Titan Spine has pioneered the spine implant surface technology category over the past several years. We feel that surface-enhanced titanium implants combined with our comprehensive biologics portfolio can have a positive impact on patient outcomes in spinal procedures.”

While the deal closed in late June of the same year, the financial details of the purchase were not disclosed.

Meanwhile, Big Blue was pleased with the results of another transaction it made during a previous fiscal period. “It’s only beginning to pay off,” then CEO Omar Ishrak told Jim Cramer (of “Mad Money”) at the 2020 J.P. Morgan Healthcare Conference in San Francisco. “We’re delighted with the results that we’re seeing and our spine business this last year—ever since I’ve been here—has had its strongest year, and the robot has played a big role in that.”

ANALYST INSIGHTS: With Geoff Marta taking over at CEO at MDT, don’t expect much to change as Omar Ishrak (former CEO) remains as executive chairman. MDT will continue to focus on growth across their platforms, both inorganically and organically. The COVID impacts will quickly be in their rearview mirror.

—Dave Sheppard, Co-Founder and Managing Director, MedWorld Advisors

Unfortunately, not all the news around the company’s spinal robotic system was positive. In December 2019, the company issued an Urgent Field Safety Notice regarding its Mazor X system. The warning was with regard to a part of the system unlocking once securely positioned in place. The firm had received seven complaints of the issue occurring, triggering the response. Fortunately, there were no reports of patient injury as a result, and Medtronic issued a temporary fix while developing a permanent solution.

The organization also announced a new clinical trial to study the use of its Infuse Bone Graft in transforaminal lumbar interbody fusion procedures. A successful result of the study could lead to broader clinical and scientific evidence regarding the use of Infuse, which has been available since 2002.

COVID-19 Consequences

Q4 2020 Revenue: $6.0 billion (ended April 24, 2020)
Q4 2019 Revenue: $8.1 billion (ended April 26, 2019)
Percentage Change: -26%

The financial impact COVID-19 had on the world’s largest medical device manufacturer offers an ominous preview of what’s potentially ahead for next year’s Top Company Reports. Medtronic saw a 26 percent shortfall year over year in its last fiscal quarter. As such, it can be attributed as the most significant factor in the firm’s 5 percent overall loss for the year. The reduction in medical procedures during the period had an obvious impact on sales and, ultimately, the bottom line.

That’s not to say, however, that Medtronic hasn’t been quite active in lending its assistance in whatever ways it could in battling the virus. In a surprising yet generous move, the firm made the full design specifications, including manuals, design documents, and software code, open-source. This enabled anyone to access the files for the Puritan Bennett (PB) 560 portable ventilator in order to manufacture it. The unit had originally been introduced in 2010 and offers a compact design, enabling easy portability.

In a related story, the company also announced it’s team-up with Foxconn Industrial Internet, a business group within Foxconn Technology Group, to produce 10,000 of the PB560 ventilators. Foxxconn passed the regulatory and quality requirements of Medtronic to enable it to manufacture the units for the medtech firm. The arrangement has the units being produced in Foxconn’s Wisconn Valley Science and Technology Park in Mount Pleasant, Wis., while they would be marketed and sold by Medtronic. The partnership was established as a direct result of Medtronic’s ventilator open source initiative.

These efforts are in addition to the company stating in March that it had increased ventilator production by 40 percent and was attempting to double its capacity to manufacture the device.

Further, the organization also launched two solutions from its Medtronic Care Management Services (MCMS) business, each designed to help assess, monitor, and triage support for patients who may be concerned about COVID-19. One was the Respiratory Infectious Disease Health Check, which was offered to existing MCMS customers. The second was a new COVID-19 Virtual Care Evaluation and Monitoring solution Medtronic made available to U.S. health systems, health plans, and employers. The latter offering uses a virtual assistant to evaluate patients through a CDC guideline-based survey for COVID-19 symptoms.

AT A GLANCE
$2.65 Billion
Prior Fiscal: $2.67 Billion
Percentage Change: -0.7%
No. of Employees: 90,017

Medtronic’s Spine division has been out of alignment for some time. It all began with the maligned Kyphon acquisition—in 2007, Medtronic bought the company for about $4.1 billion, a month before CEO Art Collins retired to be replaced by Bill Hawkins. Industry insiders believed at the time the price Medtronic paid was far too high, and Kyphon’s financial performance didn’t quite pan out as hoped.

Just after current CEO Omar Ishrak took the reins in 2011, the firm’s blockbuster InFuse bone growth biologic came under fire. InFuse was approved in 2002 to treat lumbar degenerative disc disease, but had made millions over the year in off-label procedures—which, in some cases, had deadly results. Several lawsuits ensued charging Medtronic with promoting off-label use, and the company settled many with as much as $300 million. Although Medtronic wasn’t convicted of any wrongdoing, sales suffered. Many experts speculated whether it was time for the company to sell its Spine unit. However, Geoff Martha, president of Medtronic’s Restorative Therapies Group, who followed Ishrak from GE Healthcare in 2011, set out on a journey to stabilize the business when he took over as head of the group in 2015.

His next move: Medtronic began the deal to acquire Israel’s Mazor Robotics for $1.7 billion last September, building on a prior arrangement between the two that had included Medtronic taking a stake in Mazor and serving as the sole distributor of the robotics company’s Mazor X system. By combining its spine implants, navigation, and intraoperative imaging technology with Mazor’s robotic-assisted systems, Medtronic intends to offer a fully-integrated procedural solution for surgical planning, execution, and confirmation.

ANALYST INSIGHTS: Medtronic continues to expand its business through M&A across multiple market segments. While it has placed many bets for future growth, none of its investments are greater than its commitment to robotics. CEO Omar Ishrak has made it clear 2020 will be ‘the year of the robot’ for Medtronic. It will be interesting to observe whether they can create adoption for its Mazor, SuperD, and other robotic platform investments.

—Dave Sheppard, Co-Founder and Managing Director, MedWorld Advisors

“Over the past two years it’s become clear to us that enabling technology like this is the future,” Martha told Bloomberg. “It improves outcomes in spinal surgery and reduces the variability. Once we realized this is clearly the future, we knew we had to integrate all this technology.”

The deal was an effort to hasten the move toward guided, robotic procedures. Medtronic and Mazor unveiled their new Mazor X system at last year’s North American Spine Society conference. Mazor X identifies spine abnormalities and creates a patient-specific surgical implant, potentially positioning Medtronic to better compete with rival Globus Medical. The deal for Mazor was completed last December, valued at about $1.7 billion.

But a robotic system, advanced as it may be, raised questions about whether it would fit into the cost-conscious era of value-based care. In response to these concerns, Martha told MedCity News that certain surgical steps could be automated and if all the technology’s innovations occur as planned, 40 percent of operating room time could be removed from a basic degenerative procedure. Saving time in the OR is invaluable to health systems.

“You can automate some of the bone cutting, some of the tissue resection using all this technology together,” Martha told MedCity News.

Though certainly a boost for Medtronic’s spine procedure capabilities, Mazor is technically not a part of the company’s Spine franchise. Mazor is housed in the company’s Brain Therapies division, which includes neurovascular, brain modulation, and neurosurgery offerings. Medtronic’s Spine division encompasses interbody spacers, fixation systems, cervical plates, artificial discs, orthobiologics, bone grafts, and demineralized bone matrix products. Spinal products are often used in concert with the firm’s Neurosurgery solutions, meaning larger sales of Mazor products will likely correlate with rising Spine product revenue as more healthcare organizations adopt the robotic technology.

The Spine franchise accrued $2.66 billion in revenue, dropping 1 percent. Despite the slip, the segment saw incremental growth due to increased spinal impact attachment rates in conjunction with the company’s Surgical Synergy strategy, which integrates spinal implants with robotics, imaging, navigation, power instruments, and nerve monitoring. The firm’s “Speed to Scale” initiative, which relies on quicker innovation cycles and launching a steady cadence of new products at scale with sets immediately available for the market, also contributed to growth.

ANALYST INSIGHTS: Medtronic continues to be a juggernaut with strong fundamentals. However, the company had a bit of a wobble recently with their false start in orthopedics, flagging spine revenue, and slow move into robotics.

—Patrick West, Partner, Mirus Capital Advisors

Infuse Bone Graft was FDA approved for two new spine surgery indications last April. The second expanded indication for Infuse in just over two years, it can now be used with polyetheretherketone (PEEK) implants in oblique lateral interbody fusion (OLIF) 25 and 51 and anterior lumbar interbody fusion (ALIF) procedures at a single level.

A day later at the American Association of Neurological Surgeons (AANS) annual meeting, Medtronic launched TiONIC technology—a titanium 3D printed platform for spine surgery implants. TiONIC technology’s enhanced surface textures are created with a differentiated laser method, increasing osteoconductivity and promoting bone response. ARTiC-L, for use in transforaminal lumbar interbody fusion (TLIF) spine surgery, was the first implant to feature TiONIC technology. The implant’s 3D printed honeycomb design provides an osteoconductive scaffold for bony ingrowth and improved mechanical load distribution.

The Synergy TLIF workflow was also unveiled at last year’s AANS meeting. The spine surgery procedural workflow combines Medtronic’s O-arm System imaging and SteathStation imaging guidance technologies to create a completely navigated, minimally invasive procedure allowing for fewer intraoperative surgical steps. The new CD Horizon Solera Voyager 5.5 System has percutaneous and mini-open rod insertion options for treating both degenerative and adult deformity conditions. The system’s non-cannulated ATS screw reduces the number of screw placement steps from nine to three (vs. traditional pedicle screw placement).

Last September saw the Infinity OCT (occipitocervical-upper thoracic) Spinal System’s launch. Infinity OCT immobilizes and stabilizes the spine while it fuses. It includes a multi-axial screw with 60 degrees of angulation in any direction, a locking cap with a quick-start thread, and 3.0 and 5.5 mm screws. When paired with the company’s O-arm imaging and StealthStation navigation system, Infinity OCT can simplify complex posterior cervical procedures. It can be used in cases of degenerative disc disease, instability or deformity, tumors, and traumatic spinal fractures or traumatic dislocations.

$2.6 Billion
NO. OF EMPLOYEES: 91,267 total

Since Medtronic made its blockbuster acquisition of Covidien several years ago (and that not-so-minor Zimmer-Biomet merger), it seems each year since, the medtech industry sees at least one (but often multiple) mega-deals. Many of these major transactions involve the absorption of one company by another, such as Abbott adding both St. Jude and Alere, BD gobbling up C.R. Bard, and Essilor merging with Luxottica.

On the other hand, some of these arrangements involve device firms divesting significant portions of their business to streamline operations to focus on key therapeutic areas. It was this type of agreement that had Medtronic in financial news headlines once again. The company divested a portion of its Patient Monitoring & Recovery Division (a segment of its Minimally Invasive Therapies Group) to Cardinal Health for $6.1 billion. Specifically, the deal involved the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses (representing 23 total product categories), as well as 17 dedicated manufacturing facilities.

Within orthopedic circles, however, that deal wasn’t the one piquing the interest of investors. Rather, Big Blue was involved in a much more intriguing financial (albeit significantly less substantial from a “dollars and cents” aspect) arrangement during the same time period.

Early in the company’s 2017 fiscal year, Medtronic announced a collaboration with Mazor Robotics. While not a full acquisition, Medtronic threw its proverbial hat into the surgical robotics ring via investments into the surgical robotics company. The Israeli-based firm had been developing a robotically-assisted spine-surgery system called Mazor X. According to a report in the Star- Tribune in July 2016, Mazor Robotics’ flagship guidance system, the Renaissance, as well as its predecessor, had been used in over 16,000 successful spinal surgeries. The Mazor X represented the next-generation solution for the company’s product portfolio.

Specifically, Medtronic had agreed to a three-tiered investment in Mazor Robotics. The first phase, announced in May 2016, was an $11.9 million purchase of 4 percent of the company’s shares. The next stage was a $20 million infusion from Medtronic tied to the commercial unveiling of the surgical solution, which cost approximately $850,000. This second leg of the agreement occurred in July 2016 when Mazor declared the Mazor X would go on sale in the fall (further, it was already approved by the U.S. Food and Drug Administration). As a result, Medtronic obtained an additional 6 percent stake in the firm. The third investment payment from Medtronic was tied to another 5 percent of shares in the company for as much as $20 million. The total agreement would result in Medtronic having a 15 percent stake in Mazor Robotics. A separate agreement announced in May 2016 would provide distribution rights to Medtronic.

“The structure of the commercial agreement features some very important points for our customers as well as our shareholders,” Ori Hadomi, Mazor Robotics’ CEO, said at the time of the Medtronic agreement. “New developments, such as synergistic implants, could generate new revenue streams for Mazor, beyond the anticipated growth in our current revenue streams from capital equipment, service agreements, and disposables. The synergy between the organizations’ teams will potentially yield operational efficiency benefits for Mazor.”

Undoubtedly, the cash infusion from Medtronic was welcomed by the fledgling surgical robotics firm, as it had not turned a profit since being founded in 2000. In fact, in 2015, the company reported a $15 million loss on $26 million in sales. By the end of 2015, it had built up a total deficit of $103 million. Since then, sales of the Mazor X have been positive and the company may be on its way to generating profit. Unless, of course, Medtronic makes yet another strategic acquisition.

Since navigating these types of financial transactions and other M&A agreements can be a challenging task, leadership sought to put someone at the helm with appropriate financial skills. In May 2016, Medtronic appointed Karen L. Parkhill as CFO to replace the retiring Gary Ellis. Ellis had played a critical role in closing a number of acquisitions, including the blockbuster Covidien deal, which also saw the company’s headquarters relocate to Dublin via an inversion. With these types of maneuvers in mind, Medtronic recruited Parkhill from Comerica, a Dallas-based financial services company. She also lists J.P. Morgan Chase & Co. as a former employer, where she was involved with its investment bank.

“I am delighted to add someone with Karen’s deep expertise and insights to the Medtronic leadership team,” Chairman and CEO Omar Ishrak said in a statement. “Given Karen’s background across all of the major disciplines within finance, and her direct experience as an investment banker, CFO at JP Morgan’s Commercial banking business, and CFO at Comerica, I am confident in her ability to lead our global finance organization and believe she will be a strong representative to our investors and Wall Street. I look forward to the ideas and perspectives she will bring to our leadership team—including from her experience as a director with the Methodist Health System—during this transformational time at Medtronic and in the healthcare industry.”

While strategic M&A and distribution agreements that leverage the efforts of companies developing complementary technologies offer a fantastic pathway to new markets and customers, Medtronic also maintains a very healthy development pipeline. In the 2017 fiscal year, a variety of fruits came to bear out of the Spine Division.

During the time period, the FDA granted clearance of Medtronic’s CD Horizon Fenestrated Screw Set, indicated for patients with advanced stage tumors involving the thoracic and lumbar spine. The company stated at the time the product was the first U.S. clearance of cement-augmented pedicle screws. The product is used with the company’s HV-R Fenestrated Screw Cement.

“Palliative care is important for people with cancer, and Medtronic’s cement-augmented screws are a meaningful innovation that are designed to restore the integrity of the spinal column in patients with debilitating spinal tumors,” said Doug King, senior vice president and president of Medtronic’s Spinal division. “The availability of our CD Horizon Fenestrated Screw Set represents an important advance for surgeons and provides them with another option for a complex procedure.”

Big Blue also launched two additional pieces of its OLIF (Oblique Lumbar Interbody Fusion) platform. At the International Meeting on Advanced Spine Techniques (IMAST) in Washington, D.C., the company noted the availability of the Pivox Oblique Lateral Spinal System with Lateral Plate for OLIF25 and the Divergence-L Anterior/Oblique Lumbar Fusion System for OLIF51. The technologies enable the use of a minimally invasive technique to minimize muscle disruption and allow for increased access to certain levels of the spine.

“In my opinion, OLIF is one of the least invasive manners in which to achieve successful fusion in the lumbar spine. OLIF minimizes disruption of the tissues surrounding the spine, particularly the psoas muscle and the embedded nerves. There is no need to use neuromonitoring, and the entire procedure can be done without repositioning the patient,” said Kamal R. Woods, M.D., FAANS, a neurosurgeon in Murrieta, Calif. “As with any anterolateral procedure, safe access to the spine is critical. The OLIF25 and OLIF51 retractor systems enhance the ease and reproducibility of the procedure.”

Internationally, in July 2016, Medtronic brought its VariLoc Locking Compression Plate System to China, Chile, Kenya, Pakistan, and other select countries around the world. According to the company, the system enables surgeons to adapt screw angulations to patient anatomy, capture fracture fragments, fine-tune screw trajectory after plate placement, and position screws precisely to avoid unnecessary penetration of the nearby joints. In addition to the implants, a comprehensive, color-coded instrument set was released simultaneously.

Addressing the specific needs that arise from the transition to a value-based healthcare model, the firm launched Medtronic Orthopedic Solutions in November. The service, according to Medtronic, is a comprehensive offering for total joint replacement episodes of care designed to drive clinical and economic outcomes. The solution is provided to hospital customers in response to the high costs associated with hip and knee replacements as well as the CJR model.

“Medtronic is here to help speed the adoption of value-based healthcare in orthopedics by helping hospitals drive down costs while keeping outcomes top of mind,” said Geoff Martha, executive vice president and president of Medtronic Restorative Therapies Group. “Our technological and operational efficiency know-how—along with our insight into the various points along the care continuum—helps us develop solutions tailored to client needs. And we back this up by sharing potential savings with our customer, which means we get paid if our program is successful in reducing episode costs for customers. This is about more than just offering implants or individual technologies and services; it’s about partnering with all stakeholders throughout the entire episode of care to enable patient-centered care at the best value.”

These new product and service offerings will perhaps help to bolster the company’s flat performance within the Spine Division in fiscal 2017. Overall, Medtronic inched closer to the elusive $30 billion sales figure, up from its 2016 $28.8 billion—an increase of 3 percent. In fact, the elevation was markedly diminished when compared to the prior year’s meteoric rise, in which sales jumped from $20.3 billion in 2015 (a number that represents company sales prior to full integration of Covidien into its report, which is now represented as the majority of the Minimally Invasive Therapies Group).

The 2 percent rise experienced by the Restorative Therapies Group, home to the Spine Division, over the prior year’s $7.2 billion could be attributed to solid gains in the Brain and Specialty Therapies group, which made up for the losses experienced by Pain Therapies. In Brain, progression was seen from sales of the Axium Prime Extra Soft detachable coil; growth in flow diversion from the Pipeline Flex embolization device; increases in stents due to the Solitaire revascularization device (which was slightly offset by a voluntary recall of certain product lines); and strong sales of neurosurgery capital equipment, disposables, and the O-arm O2 surgical imaging system. Specialty Therapies’ sales were bolstered by the performance of Advanced Energy (Aquamantys Transcollation and PEAK PlasmaBlade products), Pelvic Health (InterStim implant), and ENT (NuVent balloons and Fusion Compact navigation).

$2.9 Billion
NO. OF EMPLOYEES: 5,600

One of the most beloved movie endings ever filmed almost never made it onscreen.

The script for the 1971 musical fantasy “Willy Wonka and the Chocolate Factory” originally ended with Grandpa Joe shouting, “Yippie!” and then fading to black. But Emmy award-winning director Mel Stuart wanted a better closing line, and reportedly phoned writer David Seltzer from the set to request a more memorable finale.

Seltzer could only come up with one idea, though it was a bit cliché. In the film’s final scene—cherished by millions of fans worldwide—the eccentric title character announces he is giving his entire factory to Charlie Bucket, a kind-hearted, honest, but poor boy who lives with his widowed mother and four bedridden grandparents in the slums of an unnamed European city. As Charlie’s disbelief turns to gratitude, Wonka hugs the boy, then tells him, “But Charlie, don’t forget what happened to the man who suddenly got everything he always wanted.”

“What happened?” Charlie asks, amazed.

“He lived happily ever after,” Wonka replies, smiling.

Of course he did. It is a movie, after all.

Hollywood is notorious for its happy endings, but such closure is not as readily found off-screen. Fairy tales and their all-is-well finales are pure fiction; the real world doesn’t work that way—it’s cold, inconsistent, and oftentimes unfair. It offers no guarantees on contentment.

Joy can be particularly elusive in business, even for companies that follow Wonka’s guide to eternal euphoria. Apple Inc.’s Cinderella-like evolution, for example, should theoretically ensure the multinational technology firm lives happily ever after. But since ascending to the Most Valuable Company throne six years ago, Apple has grappled with a litany of serious issues—among them the death of co-founder Steve Jobs, concerns about its innovative prowess, declining iPhone sales, underwhelming products (think Apple TV and the Apple watch), and stagnating stock value.

Certainly not the enchanted future Tinseltown would have dreamed up.

Medtronic plc is experiencing similar dream disillusionment as it settles into its new role as the planet’s top medtech firm. Bolstered by the integration of a historic $50 billion acquisition, Medtronic garnered $28.8 billion in fiscal 2016 sales to surpass rival Johnson & Johnson for top industry billing and bragging rights. It was a crowning achievement, as transformative for the company as it was impressive in both size and scope.

Perhaps more important than the prestige of Medtronic’s achievement, however, is the opportunity it provides the 68-year-old multinational firm to improve healthcare worldwide.“…the full integration of Covidien—acquired in late FY2015—has greatly expanded our global reach and impact,” Chairman and CEO Omar Ishrak wrote in his introduction to the 2016 Integrated Performance Report. “More than 65 million people benefited from Medtronic technologies—two every second—as we helped our customers deliver more seamless, integrated care for patients across the healthcare continuum.”

Two people every second.

Not too shabby for an enterprise that began in a 600-square-foot-garage and grossed a mere $8 in its first month of operation.

Indeed, Medtronic’s journey from humble beginnings to world domination is a remarkable feat that deserves recognition. On the Silver Screen, it would represent the perfect ending to the perfect rags-to-riches story, save for the post-credit affirmation of the company’s everlasting joy.

But perfection is an anomaly in the real world, muddling efforts by true larger-than-life entities like Apple and Medtronic to secure a happy ending. Certainly, Medtronic’s prospects for eternal bliss dimmed moderately in FY16 due to product recalls, a consent decree, slumping spinal and neuromodulation sales, and lingering discord over its controversial bone fusion technology.

The spine division extended its multi-year sales slide in FY16 (period ended April 29, 2016), losing 2 percent in revenue from the previous fiscal term to drop to $2.92 billion. Medtronic attributed the declivity to dwindling core spine and interventional revenue, both of which succumbed to global pricing pressures—a culprit that also undermined much of the single-digit growth that occurred in the U.S. core spine market. Even with the handicap, however, core spine still experienced “sequential improvement” in its overall growth rate, due largely to incremental revenue from differentiated oblique lateral interbody fusion procedures, new products, and the company’s Speed to Scale initiative, a program designed to accelerate innovation and deployment of new products and procedures.

ANALYST INSIGHTS: Medtronic continues to deliver on the promises made at the time of the Covidien acquisition. The $800 million annual savings has largely come to pass. The company has market share leadership in a majority of categories of high-value devices. While the transition was bumpy for some divisions and unclear for their supply chain partners, Medtronic has made it through the acquisition to the other side. Watch for additional moves to ensure dominance in their selected markets, along with a willingness to shed the remainder of their non-strategic assets.

—Tony Freeman, President, AS Freeman Advisors LLC

Among the growth engendering products were the CD Horizon Solera Voyager Spinal System and Medtronic’s platform of PTC Interbody fusion devices. The latter product line—comprised of titanium and the ever-popular material polyetheretherketone (PEEK)—is designed to treat back pain caused by spinal cord or nerve root compression, while the CD Horizon Solera system (launched in July 2015) is designed specifically for minimally invasive spinal surgery.

Available worldwide, the CD Horizon Solera Voyager System expands upon the transforaminal lumbar interbody fusion procedure by offering multiple, minimally invasive rod insertion options and enabling a seamless 3D-navigated surgical experience. The product gives surgeons the flexibility to use either a percutaneous or Wiltse minimally invasive approach for rod insertion, depending upon their preference. The system also features a low-profile, extended-tab screw with inner threading, which eases rod insertion and facilitates rod reduction.

“This system represents our commitment to take minimally invasive techniques and 3D-navigated surgery even further and develop solutions with clinical and economic value,” Doug King, president of Medtronic’s spinal business and senior vice president, said when the Solera system debuted.

Solid bone morphogenetic protein (BMP) growth in the United States partly neutralized the core spine and interventional sales shortfall, but that gain was itself negated by falling BMP revenue overseas due to an InductOs shipping hold in Europe. BMP’s strong American showing likely benefitted by U.S. regulators’ December 2015 approval of Infuse Bone Graft for three new spinal surgery indications: single-level fusion OLIF51 procedures from the L5 vertebra to S1 with Medtronic’s PEEK Perimeter implant; OLIF25 fusions from L2 to L5 using the PEEK Clydesdale implant; and ALIF procedures from L2 to S1 using the Perimeter device. The expanded indications represent the first U.S. Food and Drug Administration (FDA)-sanctioned use of Infuse for lower back surgery using plastic rather than titanium components.

The FDA’s blessing of Infuse, however, failed to quell the controversy that continued to plague the bone-growth protein product in FY16. A front-page story in the Minneapolis Star Tribune last April detailed the circumstances surrounding Medtronic’s “misfiled” report on treatment complications with its bone fusion product, Infuse. The newspaper claimed the company informed the FDA of over 1,000 Infuse-related “adverse events” more than five years after they occurred.

ANALYST INSIGHTS: Omar Ishrak has made a positive impact on revenue and EBITDA thru “pulling the right levers” since taking over Medtronic. Acquisitions, Cash-Flow and Portfolio Management will continue to be a key emphasis in the months to come. Watch for Medtronic to continue to defend its market position by furthering its leadership in “risk-sharing” agreements with its customers.

—Dave Sheppard, Co-Founder and Principal, MedWorld Advisors

Medtronic, naturally, criticized the article, claiming it made “false insinuations” and failed to include important information about a retrospective chart review (RCR) of Infuse data and the company’s remedial actions. “…the article suggests Medtronic attempted to conceal information about the RCR, including information about adverse events reported in the data. This suggestion is false…” the company contended in direct response to the Star Tribune story. “Medtronic has acknowledged that at the time the RCR was discontinued back in 2008, it was not properly archived and the information collected was not fully assessed for reportability to the FDA. We have taken a number of steps to update our clinical policies and our training to enhance our reporting practices.”

While hardly overblown, the company’s Star Tribune spat nevertheless attracted the attention of U.S. Sen. Al Franken (D-Minn.), a member of the Senate Health, Education, Labor and Pensions Committee, and ardent medtech industry advocate. In a surprising departure from past viewpoints, Franken asked both Medtronic and the FDA for detailed information about patient injuries, including the severity of the trauma and their relationship to Infuse. He also requested an accounting of approved and off-label treatment uses.

In late December 2015, the U.S. Food and Drug Administration cleared Medtronic’s controversial Infuse Bone Graft biologic product for lower back surgery for use with plastic rather than titanium spinal components. The agency’s decision gave surgeons three additional FDA-approved procedures, according to the company. Image courtesy of Medtronic plc.

“The information portrayed in the [Star Tribune] article suggests that Medtronic conducted a study of its Infuse device, and for five years, failed to report thousands of complications related to the device to the FDA,” Franken wrote in an April 12, 2016, letter to the FDA outlining his requests. “This lack of information potentially skewed the risk profile of the device, which may have affected the treatment of thousands of additional patients.”

Franken’s assertion is at the crux of a new class-action lawsuit filed against Medtronic by thousands of patients treated with Infuse. The suit alleges product liability and fraud over the company’s Infuse Bone Graft LT-Cage Lumbar Tapered Fusion Device System, a thimble-like titanium product that keeps bone graft at the fusion site, maintains proper height between vertebrae, and stabilizes the spine during fusion. Court documents accuse Medtronic of employing an illegal, false, and deceptive marketing scheme to promote the sale of Infuse for off-label uses.

With a happy ending in Spine marred by declining revenue and recurrent Infuse controversy, Medtronic was forced to look elsewhere for a fairy tale-like finale to its fiscal 2016 finances. And it found such closure in all other product franchises.

In fact, the gains realized in Medtronic’s seven other reporting divisions more than compensated for losses in Spine and Neuromodulation, thanks to the full integration of Covidien. In the Restorative Therapies Group alone, the more than four-fold increase in Neurovascular net sales (345 percent to $587 million) single-handedly annihilated any negative impact the two backsliding sectors may have had on overall company revenue, which mushroomed 42.3 percent. Likewise, the losses had no effect on Medtronic’s FY16 net income or operating profit, which surged 32.2 percent and 40.5 percent respectively.

ANALYST INSIGHTS: What’s next? With the Covidien acquisition now three years away, and after shedding the Covidien legacy medical supplies business, what is the device behemoth’s next move? Most likely more acquisitions, maybe even another blockbuster. Stay tuned.

—Mark Bonifacio, Founder & President, Bonifacio Consulting Services

One of four product franchises formed from the Covidien acquisition, the Neurovascular division outshined its Group brethren through strong sales of the Solitaire FR mechanical thrombectomy device, Pipeline Flex (United States and Japan), and Pipeline Flex with Shield technology (Europe). The Pipeline Flex is a flow diversion device used to treat large and giant wide-necked brain aneurysms that are attached to parent vessels measuring between 2.5 and 5 mm in diameter; the version with Shield technology includes a surface synthetic biocompatible polymer.

$2.9 Billion
NUMBER OF EMPLOYEES: 5,000

It’s going to be difficult, if not downright impossible, for Medtronic plc to top its 2015 fiscal year. During that historic 12-month period, the company purchased Covidien plc for a record $50 billion, creating the world’s second-largest medical device company (Johnson & Johnson still leads, even with slumping device revenue) and sparking a national debate over the deal’s structure. Under terms of the all cash-and-stock purchase, Medtronic redomiciled overseas, reducing its corporate tax rate in a controversial practice known as an inversion. The move was among a slew of inverted deals that eventually prompted the U.S. Treasury Department to impose limits on re-incorporations and restrict related-party debt for American subsidiaries.

Besides trimming its tax rate, the blockbuster merger enabled Medtronic to increase its fiscal year revenue by 19 percent and helped the company become more diversified and balanced, given Covidien’s focus on surgical tools and hospital-based technologies. It also expanded Medtronic’s exposure to smaller cities in emerging markets, which currently constitute 12.7 percent of total revenue, up slightly from 12.3 percent in FY14. And it better positions the company to lead the push toward value-based healthcare by integrating patient care services that balance cost and access challenges.

“[Omar] Ishrak changed the ethos of the company, expanding it from a device maker into one that also offers services and partners with healthcare providers,” Raj Denhoy, a medical technology research analyst at Jefferies LLC told Barron’s last fall. “It was a bold move.”

And a necessary one as well. With the U.S. healthcare industry favoring risk- and value-based business models over traditional fee-for-service systems (thanks to Obamacare), medtech companies are increasingly reducing their dependence solely on medical devices to sustain growth. At Medtronic, that newfound freedom has inspired collaborations with hospital systems, payers, governments, and companies to develop integrated health solutions that complement and enhance product value through traditional wraparound services and solutions.

In FY15, those solutions targeted diabetes and patient home monitoring. Medtronic partnered with both Sanofi S.A. and IBM on diabetes treatment and management, leveraging its devices and care management products with its cohorts’ existing solutions to improve patient outcomes. The company is matching its insulin pumps and glucose monitoring technology with Sanofi’s insulin products to ameliorate type 2 diabetes management, particularly for patients having trouble controlling their blood sugar levels. The pair has been battling type 1 diabetes with a similar agreement, offering an implantable insulin delivery system to European patients.

Medtronic and Sanofi also are working together on care management services, developing an education plan for type 2 diabetics who cannot control their glucose levels through medication. The program will guide these patients through the initial phase of insulin treatment.

Medtronic’s hookup with IBM aims to improve outcomes as well, albeit via personalized care plans that provide decision support for healthcare providers and patients. The companies also are exploring ways to leverage IBM’s Watson Health Cloud platform to improve Medtronic and other partners’ closed loop algorithms, which attempt to mimic the functions of a healthy pancreas.

While certainly a sound investment, partnerships like those between Medtronic and IBM are most likely to increase as the medtech behemoth embraces emerging bundle payment and risk-sharing business models, and distances itself from product-only growth strategies. “Of all the healthcare industries, medical devices faces the biggest challenge from the shift to a fee-for-outcome system. Hospitals are gaining clout when it comes to deciding if a medical device gets used by doctors and the price they pay,” Jean Hynes, manager of the Vanguard Health Care Fund (a Medtronic shareowner), explained to Barrons. “Omar (Ishrak) is way ahead of the curve in figuring out this new world in terms of how to compete.”

Indeed, Medtronic Chairman and CEO Omar Ishrak’s ingenuity has yielded significant financial gains for his company. In fiscal 2015 (year ended April 24, 2015), revenue jumped 19 percent to $20.2 billion—due largely to the Covidien acquisition—and the company’s stock appreciated 33 percent, or 20 percentage points better than the S&P 500’s overall performance. In addition, operating margin improved by roughly 60 basis points, which corresponded to about 200 basis points of operating leverage. Operating profit, however, slipped 1.2 percent to $3.76 billion and net income fell 12.7 percent to $2.67 billion as volatile currency rates undercut earnings by $666 million.

That instability had a negligible effect on foreign sales, though. Non-U.S. developed markets revenue ballooned 13 percent to $6.37 billion, and emerging market proceeds surged 23 percent to $2.58 billion, according to Medtronic’s fiscal 2015 annual report. Executives attributed the rise in foreign sales to the fourth-quarter creation of the Minimally Invasive Therapies Group, solid gains in the company’s three other business segments, significant new product growth in the Australia-New Zealand region, and steady sales in Western Europe of catheter lab managed services. Similarly, broad-based procedural growth and new product launches bolstered U.S. sales 22 percent to $11.3 billion.

“We delivered solid results in FY15,” Ishrak wrote in his annual letter to shareholders. “The most important event of our fiscal year was the Covidien transaction. The combination of Medtronic and Covidien positions us as a clear industry leader and has set the stage for us to lead the transformation of healthcare. In many ways, this acquisition has initiated a new era for Medtronic.”

The company’s new era began quite auspiciously, with solid gains reported in all business segments. Medtronic’s Restorative Therapies Group posted its best gains in five years, but the final numbers were still below management’s expectations. Growth in Surgical Technologies proceeds was partially offset by sagging spine sales and a $127 million loss to foreign currency volatility. Even so, Restorative Therapies still achieved an overall 4 percent increase compared to FY14, generating $6.75 billion in sales. The Group’s overall health was driven by the birth of the Neurovascular division (formerly part of Covidien), and solid growth in both the Surgical Technologies and Neuromodulation divisions.

Acquisitions figured prominently into Neuromodulation’s 2015 fiscal year but did not impact net sales. Proceeds rose 4 percent over FY14 to $1.97 billion on the strength of Medtronic’s gastro/urology products and deep brain/pain stimulation technology, particularly the RestoreSensor SureScan MRI system, an implantable pain-relieving device for the spinal cord.

Spine spoiled Restorative Therapy’s (and Medtronic’s) near-perfect financial report card, posting FY15’s only loss. Division sales slipped 2 percent to $2.97 billion as Interventional spine proceeds fell victim to weak demand in Europe, pricing pressures in Germany, and overall foreign currency volatility. Neither modest U.S. procedural growth nor new product launches—namely, the Prestige LP Cervical Disc and Pure Titanium Coated interbody fusion devices—could overcome domestic pricing pressures and lingering stagnation in the bone morphogenetic protein market.

Debuting in July 2014, the Prestige LP Cervical disc is intended to treat single-level diseased discs. The implant is an upgrade to the Prestige disc Medtronic released in 2007 featuring a ball-and-trough socket that maintains natural bending, rotation, and translation of the two components relative to each other.

The LP disc features an improved fixation mechanism that uses two rails that press into pre-drilled holes instead of the commonly used bone screws. The device is made of a proprietary titanium-ceramic composite that reportedly has demonstrated slower wear while producing less visual scatter during magnetic resonance imaging scans when compared to stainless steel. Available worldwide for a decade, U.S. Food and Drug Administration (FDA) approval of the disc occurred following a prospective, multicenter, historical-controlled investigational device exemption trial in the United States.

FDA approval of the Prestige LP disc coincided with CE marking of the pure titanium-coated Capstone PTC and Clydesdale PTC Spinal systems—devices intended to help reduce pressure on spinal cords or nerve roots during recovery from spinal surgery. The Clydesdale system comprises tantalum markers and PEEK (polyether ether ketone) cages of various widths and heights that can be inserted between two lumbar or lumbosacral vertebral bodies for support and correction during lumbar interbody fusion surgeries. The implants’ hollow geometry allows them to be packed with autogenous bone graft, according to Medtronic. Both systems received FDA clearance in March 2014 and hit the U.S. market in August that year.

Rounding out Spine’s string of July (2014) christenings was the Cornerstone-SR titanium-coated cervical cage, which received CE mark approval and began selling in Western Europe. The device is designed to treat cervical disc disease at one level from the C2-C3 disc to the C7-T1 disc.

The Cornerstone’s American counterpart—the titanium-coated Anatomic PEEK Cervical Fusion System—launched in September 2014 and kicked off the company’s autumn product introductions. Nipping at the heels of the Anatomic system was the Kyphon Express II Balloon Kyphoplasty platform, including the next-generation Kyphon Cement Delivery system.

The Kyphon platform features new 700 psi balloons as well as a redesigned cement delivery system that enables one balloon to remain inflated during contralateral cement fill, thereby helping to reduce fractures. An expanded tools portfolio also makes the system generally more adaptable; a Quick Release button, for example, stops bone cement flow on demand, giving surgeons precise control over the amount of cement used in procedures. “…physicians can now treat more spine levels by choosing the sizes, length, and volume most appropriate for the individual patient’s anatomy and fracture,” proclaimed Dr. Doug Beall, chief of radiology services for Clinical Radiology of Oklahoma.

Medtronic followed up the Kyphon platform release with the U.S. debut (in October 2014) of the Divergence Anterior Cervical Fusion system for single-level cervical disc disease treatment. Featuring a plate and interbody cage that can be inserted simultaneously, the system incorporates a laterally divergent screw insertion technique, which reportedly requires less retraction compared to traditional medially convergent screw insertion techniques used with other anterior cervical plating systems.

The company bounced back from a four-month drought in new product releases with the FDA clearance for expanded indications of the Vertex Reconstruction system. Initially, the system was approved for use in upper thoracic screw fixation, but the most recent clearance (in February 2015) allows for lateral mass and pedicle screws to be used as a form of fixation to treat different pathologies of the cervical spine.

$3.04 Billion ($17B total)
NO. of EMPLOYEES: 5,000

Without a doubt, Medtronic is a company of firsts.

Most of its milestones, of course, are breakthroughs in healthcare technology—the first battery-operated external pacemaker (1957); the first commercially produced implantable pacemaker (1960); the first implantable, programmable neurostimulation device for chronic pain (1983); the first implantable cardioverter defibrillator (1993); the first insulin pump with real-time glucose monitoring (2006); and there are many other examples, in innovation as well as in the company’s far-reaching philanthropic work.

But 2014 saw another—and perhaps less auspicious, depending upon your point of view—first for the world’s largest standalone medical device company. With its nearly $50 billion purchase of Dublin, Ireland-based Covidien plc, Medtronic pulled off the largest-ever “inversion” deal (at the time) in U.S. history. Medtronic Inc., once headquartered just outside Minneapolis in Fridley, Minn., became Medtronic plc, now rooted in its acquisition’s base in Dublin. Inversion deals are structured to reduce U.S. income taxes and typically involve a U.S.-based company acquiring a foreign firm and relocating there for tax purposes.

The deal for Covidien was announced in June 2014, just after the start of Medtronic’s 2015 fiscal year. The deal was completed in January this year. The cash-and-stock transaction was valued at approximately $49.9 billion, based on Medtronic’s closing stock price of $75.59 per share on Jan. 26. Under the terms of the transaction, each ordinary share of Covidien outstanding as of the closing was converted into the right to receive $35.19 in cash and 0.956 percent of an ordinary share of Medtronic plc. Each share of Medtronic Inc. common stock outstanding as of the closing was converted into the right to receive one ordinary share of Medtronic plc. (Editor’s note: Though ODT’s Top Company ranking is compiled using fiscal 2014 figures, our coverage of Medtronic in this issue in large part will examine the company’s history-making purchase, which happened in the company’s 2015 fiscal year. And though not specific to the company’s spine business, the purchase of Covidien is significantly transformative for the company as a whole and worth chronicling here.)

According to Joanne Wuensch, an analyst with BMO Capital Markets in New York, N.Y., the deal for Covidien puts Medtronic in a better position to negotiate with hospital administrators, a group that has gained purchasing power as doctors increasingly become employees and hospitals limit what brands they carry. The expanded Medtronic will have offerings in six of the top 10 purchasing arms of the hospital, she said.

“They can go in not just with a bucket of products as they have previously, but with a full buffet table,” she told Bloomberg Business after the deal was completed. “It does facilitate the partnership between the device manufacturers and the hospital providers, being able to make more purchases from a fewer number of sellers.”

Despite moving overseas to seek a lower tax rate, Medtronic officials said they would spend an additional $10 billion over the next decade in investments, acquisitions and research and development in the United States (in part, from the tax savings, according to the company). The company’s headquarters will move to Ireland, but officials said it would retain its facilities in Minnesota—and largely be run from there, as most of its executives will continue to be based in the Gopher State.

When the deal was announced, Richard Cohen, a retired Twin Cities stockbroker and decades-long Medtronic investor, noted that Medtronic’s effective departure from Minnesota felt like a slap in the face to a state that nurtured it in its initial stages with funding and investment.

“The thing that bothers me the most is that this is a Minneapolis-based company that depended on the Minnesota investment community for its initial financing, that attracted investment from Minnesota investors first,” Cohen told the Minneapolis Star-Tribune newspaper. “The ones that were there in the beginning are the ones that are going to get screwed.”

Omar Ishrak, Medtronic’s CEO, took a much broader view of the deal.

“The medical technology industry is critical to the U.S. economy, and we will continue to invest and innovate and create well-paying jobs,” Ishrak said in a statement. “These investments ultimately produce new therapy and treatment options that improve or save lives for millions of people around the world. We are excited to reach this agreement with Covidien, which further advances our mission to alleviate pain, restore health and extend life for patients around the world. This acquisition will allow Medtronic to reach more patients, in more ways and in more places.”

Many U.S. lawmakers were not convinced. Medtronic’s purchase of Covidien along with other similar deals where domestic companies use mergers to reincorporate overseas for tax reasons created consternation on Capitol Hill. U.S. lawmakers moved swiftly to block such efforts.

“These transactions are about tax avoidance, plain and simple,” Sen. Carl Levin (D-Mich.) said in a prepared statement. “Our legislation would clamp down on this loophole to prevent corporations from shifting their tax burden onto their competitors and average Americans.”

In September, the U.S. Treasury Department announced tax restrictions that would make it harder and more expensive for U.S. companies to reincorporate abroad.

The measures included the prohibition of financial maneuvers called “cash boxes” and inversions, and they would prevent “hopscotch” loans that allow American firms to access foreign cash without paying U.S. taxes.

“This action will significantly diminish the ability of inverted companies to escape U.S. taxation,” U.S. Treasury Secretary Jacob J. Lew said after the department’s announcement. “For some companies considering deals, today’s action will mean that inversions no longer make economic sense.”

Venture capitalists also expressed concern over the blockbuster deal. Large mergers such as this only consolidate the medtech market more, leaving less space for small companies, and less opportunity for small startups to find buyers.

“The impact of this [deal] will be felt for many years,” Mir Imran, chairman of medical technology accelerator InCube Labs, told The Wall Street Journal. Imran has launched 19 companies since the 1980s, and has done business with both Medtronic and Covidien.

Last year, Nfocus Neuromedical Inc., a hemorrhagic-stroke treatment company launched by InCube, was acquired by Covidien, he said.

“Prior to this merger, Covidien was very acquisitive of startup companies, and Medtronic was also quite active,” he said. “But post-merger, the new Medtronic will be focused on integrating the two businesses … so, for the next two or three years, [it] will be less focused on investing in and acquiring young companies. For the world of medtech startups, this is not good news.”

Casper de Clerq, a partner at Norwest Venture Partners who has been investing in medical technologies for more than two decades—and whose firm last year invested alongside Medtronic in a $20 million Series D round for sinus-implant company Intersect ENT Inc.—said that certain areas of emerging medical technology could be hit especially hard by a merger that, at least temporarily, takes two major buyers off the grid.

In October, the company reiterated, despite government action, that the deal was still a strategic one, including the belief that the combination would “support and accelerate” Medtronic’s three strategies of:

• • Therapy innovation: With its expanded portfolio of products and services and ability to accelerate strategic investments and investments in technology, the “new” Medtronic would be a preeminent leader in developing, investing in and delivering therapy and procedural innovations to address the major disease states impacting patients and healthcare costs in the United States and around the world;

• • Globalization: With a presence in more than 150 countries, the combined entity would be better able to serve global market needs. Medtronic and Covidien have combined pro forma revenues of approximately $27 billion including approximately $13 billion from outside the U.S., of which $3.7 billion comes from emerging markets. Covidien’s capabilities in emerging market research and development (R&D) and manufacturing, joined with Medtronic’s clinical expertise across a much broader product offering, significantly increases the number of attractive solutions the new company would be able to offer globally; and

• • Economic value: Medtronic has adopted an intense focus on aligning with its customers to create more value in healthcare systems around the world by combining products, services and insights into solutions aimed at expanding access and reducing healthcare costs. With Covidien, Medtronic would be able to provide a broader array of complementary therapies and solutions that can be packaged to drive more value and efficiency in healthcare systems.

Officials noted the combination would also result in the diversification of Medtronic’s revenue base due to a stronger foundation in emerging-market R&D and manufacturing and the addition of industry-leading capabilities and expertise in general and advanced surgery and patient monitoring.

Medtronic also revealed the proposed management structure of the new company. The new Medtronic is composed of four major business segments, headed by Medtronic’s three existing group presidents plus Covidien group president Bryan Hanson. The four segments are Medtronic’s Cardiac and Vascular Group, valued at $8.8 billion; its Restorative Therapies Group (which includes the company’s spine business) worth $6.5 billion; its Diabetes Group, worth $1.7 billion; and the fourth, the Covidien Group (which was quickly renamed the Minimally Invasive Therapies Group not long after the merger closed), currently valued at $10.4 billion.

Covidien’s neurovascular business will function as an independent business under the umbrella of Medtronic’s restorative therapies group. The company also announced four geographic regions around which the combined company will operate: Asia Pacific, the Americas, EMEA (Europe, the Middle East and Africa) and Greater China—down from Medtronic’s present seven regions.

“While we will move to four regions in the future—versus the seven regions represented in the Medtronic structure today—this is in no way intended to reflect a diminished importance or focus on those markets that previously served as regions, nor will I remain any less focused on seeing that these markets reach their potential and objectives,” Ishrak said. “Rather, this approach will ensure we have the appropriate leadership involvement in these markets on a daily basis as we grow our overall scale and complexity.”

Spinal Adjustment

Medtronic’s spine business may have taken a bit of a sales hit in 2014, but the company continues to stand firmly behind its portfolio of back-saving products. In the last few years, CEO Ishrak repeatedly has denied that the company is exploring ways to divest its spine business, though the business continues to be under pressure—particularly with smaller companies nipping at its heels—and core technology. For example, startup firms such as Santa Clara, Calif.-based Benvenue Medical, are challenging their larger competitors. Recent clinical trial results showed that Benvenue’s Kiva VCF System—which has U.S. Food and Drug Administration (FDA) clearance—to treat vertebral compression fractures performs as well as or is better than Medtronic’s KyphX kyphoplasty system.

Medtronic’s lineup of spine technology includes artificial cervical discs, balloon kyphoplasty devices, biologic fusion systems, minimal-access spine technologies, and reconstructive spinal systems.

An artificial disc is a prosthetic device inserted between the vertebrae to replace a natural spinal disc. It is designed to preserve mobility throughout the treated vertebral segment.

Balloon kyphoplasty is minimally invasive procedure for repairing vertebral compression fractures in the spine caused by osteoporosis or cancer. The procedure uses balloons designed to restore the vertebral body height. Bone cement is inserted into the vertebral body to stabilize the fracture.

Biologic fusion systems consist of two elements. The first is a bone graft (such as InFuse), a bone morphogenetic protein (BMP) that stimulates the body to regrow bone that will fuse, or join, two vertebrae together to stabilize the lumbar spine. It eliminates the need to harvest bone from another area of the patient’s body, such as the hip, thus eliminating an additional, often painful, surgery. The second element is a small, hollow metal cylinder, called a cage, that holds the biologic material and restores the degenerated disc space to its original height. It helps to relieve the pressure on nerves, which is commonly associated with back and/or leg pain.

Minimally invasive spine surgery is performed through smaller incisions than traditional open surgery and may lead to decreased muscle trauma, less intraoperative blood loss, and shorter hospital stays. Minimally invasive surgery can be percutaneous (through the skin) or mini-open (operating through a small incision), and can be used to treat all areas of the spine.

Reconstructive spinal systems include screws, rods, and connectors that are implanted along the affected area of the spine to provide support for a spinal fusion. A spinal fusion is simply the uniting of two bony segments, whether a fracture or a vertebral joint. The instrumentation acts as an “internal cast” to stabilize the vertebra until the fusion, or bony re-growth, can occur.

Spine sales for fiscal year 2014 were $3.04 billion, a decrease of 3 percent compared to the prior fiscal year. The decrease in sales for FY14 primarily was driven by declines in bone morphogenetic protein (BMP/InFuse) products and balloon kyphoplasty products (BKP) of 11 percent and 9 percent, respectively, and unfavorable foreign currency translation. Net sales in BKP for fiscal year 2014 declined 9 percent compared to the prior fiscal year due to increased competition, pricing pressures, and reimbursement challenges with select payers.

InFuse had been a major source of revenue growth for Medtronic until 2011, when an article in the Spine Journal, published by NASS, suggested that Medtronic had covered up risks of BMP, including higher-than-expected incidence of cancer, and encouraged off-label use. The Spine Journal publication led to a 2,300-page report from the U.S. Senate Finance Committee documenting efforts by Medtronic to influence early studies of InFuse to downplay cancer risks. Following this, InFuse sales took a dive. Before the Journal article, InFuse had revenue close to $1 billion a year. For FY14, Medtronic had only $471 million in InFuse sales.

There might be a little light at the end of the InFuse tunnel, however. According to data released during the North American Spine Society (NASS) annual meeting last November in San Francisco, Calif., InFuse is safe for most patients though it increases risks of cancer when used in high doses with high-risk patients. Doctors can mitigate those risks, based on the analysis, an expert said during a presentation. Data was presented at NASS by Wellington Hsu, M.D., director of orthopedic surgery research at Northwestern University in Chicago, Ill. Hsu presented the results of his examination of several large-scale studies. Hsu’s research was based on a survey of half a dozen studies covering many thousands of patients and supports Medtronic’s assertions that InFuse doesn’t increase cancer risks when spinal surgeons use it appropriately.

“My conclusion is that InFuse, when used judiciously and responsibly, does not increase your risk of cancer. But that there are [cancer] mechanisms that we need to be aware of,” Hsu said. “I would still not recommend using BMP in somebody who has a history of cancer. But I believe that it is safe to use in proper doses in the general population.”

Hsu said the risk of cancer in InFuse patients seems to have dropped off as physicians became aware that BMP should not be used in patients with a history of cancer.

“The complications that we used to see regarding BMP were probably a result of not understanding the potency of the product,” he said. “Now that we have a better understanding, we are not seeing as many of these complications anymore.”

Past studies found that many doctors used the device for procedures at higher doses than sanctioned by the FDA.

Medtronic has set aside hundreds of millions of dollars to potentially resolve nearly 5,000 patient claims alleging injuries due to InFuse implants. Medtronic recorded expenses of $37 million and $140 million in fiscal years 2015 and 2014, respectively, related to InFuse. In addition, investors have filed lawsuits claiming that the company harmed its value with the handling of InFuse. On top of that, last summer, health insurance company Humana filed a racketeering lawsuit alleging Medtronic had promoted InFuse for uses not approved by the FDA. The lawsuit cites the Racketeer Influenced & Corrupt Organizations statute, commonly called RICO, and was filed in Tennessee Western District Court. “Defendants paid for and sponsored publication of academic and peer-reviewed literature that falsely represented InFuse and [recombinant bone morphogenetic protein-2] as safe and effective for uses not approved by the Food & Drug Administration. Defendants knew or should have known that Humana would rely on the fraudulent literature to pay for Infuse and/or BMP,” according to text from the suit.

For the third quarter of 2015 (ended Jan. 23), BMP revenue was $122 million, up 9 percent. For the final quarter of the company’s fiscal 2015 (ended April 24), BMP revenue was up mid-single digits, though overall spine sales for the year continued their slide (see overall company results for the most recent fiscal year below).

Recent Noteworthy Product Rollouts

• • The Prestige LP Cervical Disc System for the treatment of single-level cervical disc disease (radiculopathy and/or myelopathy) is the third clinically proven artificial cervical disc in the Medtronic portfolio and builds upon the same design principles as the original Prestige Cervical Disc introduced in 2007. While incorporating the same ball-and-trough articulation, which is designed to allow the two components to move with respect to one another in a range of motions, including bending, rotation and translation, the LP Disc represents a departure from the original stainless steel device in terms of materials and fixation mechanism. Instead of using bone screws to attach to the vertebral bodies as in the original design, the LP design incorporates two rails positioned off midline that press-fit into two pre-drilled holes created during the surgical procedure. In addition, the LP Disc is composed of a proprietary titanium-ceramic composite that has been shown to have a lower wear rate and produce less scatter on postoperative magnetic resonance imaging than stainless steel.

• • In September 2014, the company launched the Kyphon Express II Balloon Kyphoplasty Platform, which includes the next-generation Kyphon Cement Delivery System. The new platform is the latest advancement from Medtronic in the BKP technology for the treatment of vertebral compression fractures. The new system features a maximum pressure rating of 700 psi, providing the treating physician a more powerful option for reducing fractures, according to the company. The new system also gives physicians the option of using the cement resistant technique, which allows one balloon to remain inflated during contralateral cement fill, helping to maintain the goal of fracture reduction. In addition, this system includes an expanded tools portfolio that is more versatile, allowing for the treatment of a variety of different levels of the spine. The Cement Delivery System (CDS) includes new features designed to increase the efficiency and precision of delivering bone cement into a vertebral body. The re-designed cement cartridges can be filled simultaneously with a provided T-adapter, increasing procedure efficiency. In addition, Kyphon CDS has a longer shelf life for enhanced usability. The CDS continues to allow the physician to deliver highly viscous bone cement to the patient from up to 4 feet away from the radiation source while maintaining tactile feel. It also still includes a Quick Release Button that provides the ability to halt the flow of bone cement on demand, giving the physician precise control over the amount of cement flow.

• • In October, Medtronic introduced its Pure Titanium Coating (PTC) platform of interbody fusion devices for the spine. The PTC platform includes four products: the Capstone PTC Spinal System, Clydesdale PTC Spinal System, Anatomic PEEK PTC Cervical Fusion System and Cornerstone-SR Ti-Coated Anatomical Cervical Cage. These devices are used to treat patients experiencing pain caused by compression of the spinal cord or nerve roots by helping to restore normal disc height. Disc height restoration may reduce the pressure on the nerve roots and the spinal cord and help alleviate much of the patient’s pain. Medtronic’s PTC devices are constructed of a combination of the two materials most commonly used in interbody fusion procedures: titanium and polyether ether ketone (PEEK). Both materials have a long clinical history of being used in orthopedic and other medical implants. Surgeons historically have preferred interbody spacers made of titanium because of their strength and long clinical history. However, over the last 10 years PEEK has largely replaced titanium as the material of choice because it has a modulus of elasticity that is similar to human cortical bone and it does not show up on X-rays. This radiolucency enables the surgeon to more easily assess the surgical site over time after surgery. With the application of a thin layer of textured pure titanium about 1/10th of a millimeter thick to the top and bottom of each PEEK implant, the PTC devices possess attributes of both PEEK and titanium. Specifically, as demonstrated in mechanical testing compared to PEEK alone, the pure titanium coating has a greater coefficient of friction. Additionally, this textured coating increases the surface area of the implant, which means there is more area for bone to come into contact with the surface of the implant. Yet, the titanium layer is thin enough that it does not change the radiolucency or mechanical properties of the underlying PEEK implant. Capstone PTC and the Clydesdale PTC received FDA 510(k) clearance in March 2014 and launched in the United States in August last year. CE mark was received for both systems in July last year. Capstone is expected to launch in Japan in November and Clydsdale is expected to launch in Japan in January 2016. Anatomic PEEK PTC received FDA 510(k) clearance and launched in the United States in September. Cornerstone-SR Ti-Coated Anatomical Cervical Cage received a CE mark and launched in Western Europe in July last year.

• • Medtronic received FDA 510(k) clearance and launched the Shilla Growth Guidance System. The system is designed for treatment of skeletally immature pediatric patients less than 10 years of age diagnosed with severe, progressive, life-threatening, early-onset spinal deformities. The system is a new growth-sparing technology that allows correction of the deformity while maintaining the corrections over time, minimizing the need for periodic lengthening procedures. This is different than current operative treatments, which are distraction-based systems that require lengthening every six to nine months. “Early onset scoliosis is extremely difficult to treat. The current gold standard technique to manage scoliosis long-term is to fuse the spine, but in children who are still growing this can have serious complications,” said Richard McCarthy, M.D., an orthopedic surgeon and faculty member at the University of Arkansas for Medical Sciences/Arkansas Children’s Hospital, and inventor of the device. “Until now we were only able to offer operations which use implants to stabilize the curve in the spine, but these frequently mean twice-yearly surgeries as a child grows. The clearance of the Shilla Growth Guidance System marks the first time we can offer effective management of the curvature of the spine while still harnessing the child’s natural growth.” The system uses a unique non-locking set screw at the proximal and distal portions of the construct’s rods. This specific feature allows the rod to slide through the screw heads as the child’s spine grows, while still providing correction of the spinal deformity. The device received CE mark in 2012.

New Division Chief

In June this year, Medtronic named Geoff Martha as executive vice president and president, Medtronic Restorative Therapies Group. Martha replaced Christopher J. O’Connell, who was selected to become CEO of a public company. Martha joined Medtronic in 2011, most recently serving as senior vice president of corporate strategy and business development, global communications and Medtronic philanthropy. Prior to joining Medtronic, Martha served as managing director of business development at GE Healthcare, where he was responsible for global business development efforts, including acquisitions, divestitures, joint ventures and equity investments. In his 19-year career with GE, Martha held several leadership roles in business leadership, corporate development, strategic marketing, and sales management.

Overall Numbers

For Medtronic across the board, the company reported fiscal year 2014 revenue of $17 billion, an increase of 4 percent on a constant currency basis after adjusting for a $175 million negative foreign currency impact, or 3 percent as reported. As reported, fiscal year 2014 net earnings were approximately $3.1 billion or $3.02 per diluted share, a decrease of 12 percent and 10 percent, respectively. The Cardiac and Vascular Group (cardiac rhythm disease management, coronary, structural heart and endovascular) posted sales of $8.9 billion (up 2 percent). The Restorative Therapies Group (spine, neuromodulation and surgical technologies) recorded $6.5 billion in revenue (also up 2 percent). The Diabetes Group had $1.7 billion in sales (flat compared to FY13). Overall company sales for FY15 were $20.3 billion. Spine sales dipped 2 percent to $2.97 billion.

$3.1 Billion
NO. OF EMPLOYEES: 6,900

Three seconds.

It’s become the go-to metric lately for decision-making, website loading, first impressions, and love declarations. Scientific research also has shown the timespan can effectively distract the human mind and spoil productivity.

Medtronic Inc. has long used the clock to measure its own success, gauging its annual progress not only in dollars but in moments of time as well. In FY13 (ended April 26, 2013), the company improved upon its mission to alleviate pain, restore health and extend lives by gaining an additional second, impacting millions of patients worldwide.

“As I reflect on our results, I am pleased to announce that we have achieved an important milestone in our Mission: Every three seconds, someone somewhere in the world benefits from a Medtronic product,” Chairman/CEO Omar Ishrak told shareholders at the end of his fiscal 2013 annual report. “Over the past 12 years, we have lowered this metric by seven seconds, which impacts millions of additional lives, an enormous accomplishment.”

Enormous, indeed: Medtronic’s three-second product benefit metric translates into 18.19 patients per minute, 26,197 per day and 9.562 million for FY13—or the entire population of New York City “and then some.”

The company’s fiscal-year accomplishments weren’t too shabby either—sales jumped 2.5 percent (5 percent on a constant currency basis) to $16.6 million and non-GAAP diluted earnings per share grew 8 percent to $3.75, or 300 basis points faster than revenue. In addition, Medtronic generated $4.4 billion of free cash flow, roughly half of which was used to distribute more than $1 billion in dividends and repurchase more than $1.2 billion of common stock.

International sales were particularly solid, rising 7 percent on a constant currency basis (2 percent as reported), with revenue in emerging markets (Brazil, Russia, India, China) surging 17 percent, according to the company’s annual report. In the fourth quarter of FY13, emerging markets generated 12 percent of revenue—a testament, no doubt, to Ishrak’s laser-like focus on BRIC economies.

That focus intensified in fiscal 2013 with the $816 million acquisition of orthopedic device provider China Kanghui Holdings Inc. The purchase was basically a no-brainer for Medtronic: Kanghui’s product pipeline in trauma, spine and joint reconstruction broadens its reach in general orthopedic surgery and complements its own offerings in spine, neurosurgery and neuromodulation. In addition, Kanghui gives Medtronic an impressive cache of future customers—a government think tank report predicts China will become the world’s most aged society by 2030—as well as a vast distribution network in which to sell its products.

Kanghui also bolsters Medtronic’s growing presence in the Middle Kingdom, helping the firm fulfill Ishrak’s long-term emerging markets vision. The company inched closer to realizing that goal in FY13 by opening its Shanghai Innovation Center—the firm’s first research and development facility outside the United States and Europe. The move creates local product R&D in China and increases Medtronic’s on-site engineering staff to more than 250 total.

Medtronic has pledged to hire and train an additional 1,000 skilled workers in China over the next five years, several hundreds of whom will develop new medical technologies within the Innovation Center. The facility also will function as an incubator for Chinese doctors to commercialize novel ideas into clinical solutions.

“We are far from finished in growing our international capabilities and footprint,” Ishrak said in Medtronic’s FY13 annual report. “Our primary near-term focus is to capitalize on the enormous opportunity in the global premium segment, which we have identified as a $5 billion annual opportunity. We will continue to pursue this opportunity by driving penetration of our existing and new therapies, raising patient and physician awareness of our offerings, and supporting the development of infrastructure and training of physicians where necessary.”

Ishrak certainly delivered on his near-term promise, further infiltrating foreign and domestic markets with the FY13 launches of the RestoreSensor SureScan MRI spinal cord stimulation system (for chronic pain) in Europe and the CD Horizon Solera spinal implants/surgical instruments in the United States and other global markets.

Both products were fairly well-received, but neither made much of an impact on sales. Revenue slid 4 percent to $3.1 billion due to revenue declines in bone morphogenic protein (BMP) and core spine devices. The two product classes fell 15 percent and 2 percent respectively, as continued pricing/competitive pressures, shrinking reimbursements and volatile exchange rates neutralized a finally stablized U.S. spine market.

Bigwigs attributed the 2 percent decline in core spine sales ($2.6 billion) to weak demand for balloon kyphoplasty (BKP), a minimally invasive procedure to repair spinal fractures. While Medtronic executives are confident the BKP market will stabilize, the company has relinquished a significant share of kyphoplasty market revenue to CareFusion and Stryker Corp. Nevertheless, the firm continues to build a bigger platform of interventional spine products off its core Kyphon balloon business.

“We’ve obviously been suffering through some declines in Infuse and BKP over the past couple years,” Chris O’Connell, head of the company’s Restorative Therapies business, recently told analysts. “…we’ve been working very hard to try to stabilize, and actually as we look forward, we think there is a very nice story developing.”

Ideally that story would be the rebound of its troubled BMP division, KO’d by a scathing series of Spine Journal articles that accused Medtronic of bribing doctors to under-report risks associated with Infuse, its controversial bone morphogenetic protein-2 (BMP-2) product used in certain kinds of spinal fusion surgeries.

Company-sponsored clinical trials for Infuse found no side effects directly linked to the drug, a recombinant form of BMP-2. But the 2011 Spine Journal query found the incidence of adverse events ranged from 10 to 50 percent, depending on the use.

Exacerbating the cause célèbre was a U.S. Senate report that claimed various studies promoting the bioengineered synthetic bone graft substance likely were biased because they were written by Medtronic employees.

The one-two punch all but coldcocked Infuse sales, sending revenue plummeting from a high of nearly $1 billion several years ago to $528 million in fiscal 2013.

“In every technology, in every field there is a pendulum that swings back and forth,” Daniel Resnick, M.D., Congress of Neurological Surgeons president and professor/vice chairman of Neurological Surgery at the University of Wisconsin School of Medicine and Public Health in Madison, told a spine trade journal earlier this year. “There was tremendous enthusiasm for BMP and it was viewed by some as a wonder implant. We are on the backswing right now where people are figuring out when it’s clinically- and cost-effective and necessary to use.”

Eventually, the technological pendulum will come to a rest. In the meantime, though, Medtronic will have to compensate for the BMP sales shortfall with other spinal products. A mix of old favorites and new introductions helped partially offset the loss in BMP revenue in FY13, including the launches of AMT implants, the Capstone Control, and Bryan ACD instrument set as well as the continued adoption of Solera, Atlantis Vision Elite, and other biologics products.

The Solera 5.5/6.0 system released globally in July 2012 extends the capability of the 4.75 system, offering surgeons the ability to customize the spinal construct to match patient needs. The ACD instrument set, which debuted three months later, was designed specifically for use with the Bryan cervical disc, approved by the U.S. Food and Drug Administration in 2009 to treat single-level cervical disc disease (radiculopathy and/or myelopathy). The instruments reportedly eliminate the need for unwieldy mainframes or derricks as well as the complicated measurements needed to affix the mainframe to operating tables.

“The new instrumentation is very user friendly, very easy, very intuitive,” gushed Rick Sasso, M.D., founding member/president of the Indiana Spine Group who was involved with the ACD’s design and testing.

The Capstone Control system—released two weeks after the ACD instruments at the North American Spine Society’s (NASS) 27th annual meeting—is an interbody device that can be inserted and rotated longitudinally, significantly reducing the amount of neural retraction that typically occurs with the impacted spinal fusion technique, according to the company. Risks of the device include possible neurological impairment.

The Capstone system was one of several products unveiled at the NASS event in October 2012. Its fellow rookies included the Wave platform of devices (with expandable implants for posterior lumbar interbody fusion surgeries) and the Anchor FS facet fixation system, a minimally invasive posterior screw system for the lower back. The latter product is comprised of a streamlined, single-use instrument set and various cannulated screws for a diverse range of anatomies.

Medtronic prevented a further sales slide in its spinal franchise with a laser-like focus on enabling technologies, including O-Arm imaging, StealthStation surgical navigation, and Powerease powered surgical instruments.

The O-Arm imaging system and StealthStation navigation platform are complimentary technologies, optimized for use in spine, orthopedic and trauma-related surgeries. The O-Arm system provides real-time, intra-operative imaging of the human anatomy with high-quality images and a large field-of-view in both two and three dimensions. By integrating it with StealthStation navigation, surgeons can perform less invasive procedures and confirm the precision of advanced procedures before the patient leaves the operating room.

In addition to its new product releases, Medtronic beefed up its spinal lineup with the debut of two advanced surgical procedures. The Cervical FacetliftsM ID/S technique indirectly decompresses the neural foramen and stablizes the cervical spine by placing structured allograft spacers, Cornerstone Facet MicroGrafts, into the posterior cervical (neck) facet joints. Medtronic executives claim the FacetliftsM ID/S procedure increases the volumetric area of the exiting nerve root that may be compressed but consequently could limit the bending direction of the cervical spine.

The Olif25 procedure, on the other hand, allows for psoas preserving access to the L2-L5 levels and incorporates the company’s surgical platform of access, interbody, neuromonitoring, navigation, fixation and biologic options. This technique leverages traditional anterior lumbar interbody fusion principles with the in-situ convenience of the less invasive lateral approach. Using an oblique lateral trajectory away from the posterior nerves within the posas muscle, the Olif25 procedure is an alternative to approaches dependent upon neuromonitoring to traverse the posas muscle. In addition, the Olif25 procedure allows for easier access around the iliac crest at L4-Lf, and it is a step toward more reproducible lateral access to the L5-S1 disc space, according to the company.

$3.3 Billion
NO. OF EMPLOYEES: 1,350

“The familiar is by far the most beautiful.” — Marty Rubin

Major change—the life-altering, gut-wrenching, anxiety-producing kind invariably linked to our everyday existence—can have quite an effect on the human psyche: The timid are threatened by it, idealists are encouraged by it and the fearless are inspired by it.

By and large, business leaders are part of the latter group, deeming change an opportunity for improvement. But some are more skeptical and seek solace in familiarity to cope with the uncertainty of new possibilities.

Omar Ishrak is a crossbreed. The 56-year-old exuded confidence when he was chosen two years ago to lead Medtronic Inc., yet he relied on his past experience to formulate a strategy to jumpstart growth at the underachieving medical device giant.

Ishrak’s approach to improving the company’s sub-par performance consists of three basic principles he used during his tenure at GE Healthcare: improving execution, accelerating globalization, and optimizing innovation. The last two ideologies are linked through the concept of “reverse innovation,” a term popularized by Dartmouth University professors Vijay Govindarajan and Chris Trimble, as well as Ishrak’s former boss, GE Chairman and CEO Jeffrey R. Immelt. The trio coined the phrase to define innovation that is released or used first in developing markets before spreading to industrialized nations.

“There is better growth opportunity in emerging markets when we address the value segment,” Ishrak noted in his FY12 annual letter to shareholders. “We are approaching this underserved segment by creating innovative new business models and lowering the cost of our products. The value segment is a big and exciting opportunity, and continued cost reduction programs will enable us to address [improved performance] while maintaining our margins.”

Though Ishrak’s strategy has yet to be fully implemented, it already is producing results. In FY12, ended April 27, 2012, net revenue grew 4 percent, capital climbed 45 percent, and shareholders received $2.5 billion in dividends/buybacks. International sales were strong, rising 11 percent overall and 21 percent in emerging markets (China, India, Brazil, Russia).

Driving part of the BRIC brethren growth were country-specific programs designed to better embed Medtronic’s products and presence in the burgeoning economies. In China, for example, the multinational collaborated with Hong Kong medical device manufacturer Shandong Weigao Group Ltd. to develop new orthopedic devices and treatments, while in Russia, company reps provided Medtronic product training to 5,000 clinicians.

Neither of the initiatives involve new technology; rather, Medtronic is using business model innovation to enter markets formerly out of its reach. The efforts mimic those of Vodafone (M-Pesa mobile payment service in Africa), Dow Corning (Xiameter online channel) and Hilti (tool fleet management services), all of which used new strategies to power growth.

To implement those new business models, Ishrak revamped his executive team and their responsibilities. Bigwigs of Medtronic’s global operating regions and major countries, who previously reported to the company’s top international leader, now report directly to the CEO. Ishrak also added foreigners to Medtronic’s Executive Committee.

“The increased importance and visibility of our regional teams has led to a significant shift in investments to high-growth emerging markets,” the CEO told investors.

Medtronic’s emerging market sales currently account for just 10 percent of the company’s overall revenue, but that ratio could rise significantly in the next few years as Ishrak’s globalization plans take root. His vision, in fact, already has begun to manifest itself in the shifting proportion of domestic and international sales—over the last three fiscal years, U.S. revenue gradually has shrunk while overseas earnings have virtually exploded.

Domestic revenue fell 3.4 percent between FY10 and FY12 to $8.8 billion, while international sales jumped 17.5 percent to $7.3 billion during that same period, according to Medtronic’s latest annual report. Asia/Pacific revenue powered much of the growth, surging 28 percent since FY10 to $2.4 billion in FY12. Sales in Europe and Canada, comparatively, swelled 10 percent.

Foreign lands were particularly lucrative for the company’s cardiovascular, diabetes, surgical technologies and spinal product segments. Non-U.S. spinal sales nearly matched the company’s overall international gains, growing a total of 12 percent for the year thanks partly to a final quarter swell of 11 percent (to $710 million). Emerging market spinal revenue surged 22 percent in FY12, lifting Restorative Therapies Group total proceeds by 4 percent to $7.7 billion. Such exemplary growth, however, did little to stem the continued hemorrhaging of spinal segment cash: Sales fell for the second consecutive year, slipping 4.3 percent to $3.26 billion.

Medtronic executives attributed the company’s lackluster Spinal returns to the postponement of elective orthopedic procedures as well as increased competition and shrinking reimbursement rates (a May 2011 decision by Medicare contractor Noridian Administrative Services to continue coverage in 11 states for spine stabilization procedures failed to positively impact sales). More specifically, they linked the 2 percent slide in core spinal sales ($2.46 billion) to the poor performance of its core metal constructs, Kyphon Balloon Kyphoplasty (BKP) products and Infuse, a genetically engineered material used in spinal, oral and dental graft procedures.

Infuse sales have steadily declined since a 2011 series of articles in The Spine Journal claimed that researchers with financial ties to Medtronic overstated the product’s benefits and downplayed its risks. One story accused researchers of slanting company-funded Infuse studies to favor its performance over a bone graft, the substance traditionally used in spinal fusions, and estimated the true incidence of adverse events to range from 10 to 50 percent, depending on the way in which the material is used. Side effects, according to the Spine Journal exposé, include male sterility, infection, bone loss and unwanted bone growth.

Questions surrounding the safety and efficacy of Medtronic’s Infuse bone graft eroded spinal market share and sales in fiscal 2012. Specifically, Infuse sales plummeted 18 percent as company officials and researchers debated the integrity of numerous studies that touted the product’s benefits. Image courtesy of Medtronic Inc.

Medtronic bigwigs have admitted to reviewing studies of the company’s products before publication but they insisted that outside researchers determined both the significance and use of Infuse study data. Ishrak also noted the Spine Journal series did not question the quality of data submitted to the U.S. Food and Drug Administration (FDA) during the approval process, or the information available in each product package. “While the Spine Journal articles raise questions about researchers’ conclusions in their published peer-reviewed literature, the articles do not raise questions about the data Medtronic submitted to the FDA in the approval process or the information available to physicians through the instructions for use brochure attached to each product sold,” Ishrak said in response to the trade journal’s accusations. “Based on that data, we strongly believe that the safety profile reported to the FDA and summarized in the product label support the safe use of rhBMP-2 for the identified indications. We remain committed to ongoing study of the safety and efficacy of rhBMP-2, especially for applications not covered by FDA labeling.”

In an effort to quell all the criticism (and perhaps show conviction in its product), Medtronic enlisted Yale University researchers to conduct independent reviews of Infuse safety and efficacy. In June 2013, nearly two years after receiving $2.5 million in funding for the studies, researchers concluded that Infuse is no more effective than a graft and carries an increased risk of cancer.

The Yale review analyzed findings from two research groups—one at Oregon Health & Sciences University in Portland and the other at the University of York in the United Kingdom. The two groups were given detailed data from 17 spinal studies using Infuse on more than 2,000 patients, as well as safety reports given to U.S. regulators and other publications about the product. The Oregon review found that Infuse was similar to bone grafts in overall success, fusion rates and risks when used in lumbar spine fusion, though some published studies incorrectly touted its performance. “The review found ‘substantial evidence of reporting bias’ in the previous studies on the product,” officials at Oregon Health & Science said in a statement. “The review found that Medtronic-sponsored publications analyzed or reported results in biased ways to indicate that it was more effective.”

Medtronic, not surprisingly, claimed victory, contending the Yale analyses prove the product’s safety and effectiveness, and reinforce the risks that must be considered by patients and physicians. “The complex analyses laid out in the systematic reviews add to a better understanding of the benefits and risks outlined in our labeling for Infuse Bone Graft, which guides the safe and effective use of the product for patients in FDA-approved indications,” Rick Kuntz, M.D., senior vice president and chief scientific, clinical and regulatory officer, said in prepared remarks. “We will continue to conduct research on rhBMP-2 to further add to an increased understanding of the benefits and risks of this treatment option.”

The FDA approved Infuse in 2002 for use in the lower back, and the substance has been used to treat degenerative disc disease in more than 1 million patients. Infuse sales skyrocketed soon after its introduction, reaching nearly $1 billion annually before falling to $528 million amid the controversy. Industry analysts estimate the uproar shaved several percentage points off Medtronic’s spinal market share (which now hovers around 30 percent, down 10 points from 2008) and they expect the company to surrender more of its global stake to the Infuse rumpus and rival innovation.

Medtronic, however, is defending its domain with some innovation of its own. In FY12, the company amassed an arsenal of cutting-edge technology to regain spinal market share and trounce its competition. The firm’s armada of weaponry included the CD Horizon Fenestrated Screw Spinal System, CD Horizon BalanC Spinal System, Artisan Space Maintenance System, Aquamantys Mini EVS 3.4 Epidural Vein Sealer and T2 Altitude Expandable Corpectomy Device.

The latter two products debuted at the North American Spine Society’s 26th Annual Meeting in Chicago, Ill. The Aquamantys Vein Sealer is designed to optimize visibility and control epidural bleeding by enabling prophylactic compression and treatment of epidural veins before they begin to bleed. An insulated shaft enables simultaneous retraction and electrode use near sensitive tissue such as dura and nerve roots, and its 3.4 mm tip makes it ideal for use in procedures with small epidural access points, according to the company.

The T2 Altitude Expandable device features a self-locking mechanism that eliminates the need for placing a screw set during surgery. The device can be filled with bone graft after insertion and also after expansion, creating bone contact with the end plate and the opportunity for fusion to occur inside the device. In addition, the product gives surgeons the ability to insert the cage from a posterior, anterior or lateral approach, and it is compatible with Medtronic’s minimally invasive technologies as well as its neuromonitoring system (NIM-Eclipse).

Medtronic also is protecting its province with two new Kyphon products and several FDA- and CE Mark-approved inventions. The Kyphon Xpede Bone Cement is a quick-to-dough polymethylmethacrylate substance designed for spinal fracture treatment with minimally invasive Kyphon Balloon Kyphoplasty; according to the company, the material reaches a “doughy state” more than twice as fast compared with Kyphon HV-R Bone Cement and Kyphon ActivOs 10 Bone Cement. “I find that Xpede Bone Cement streamlines the balloon kyphoplasty procedure,” said Wade Wong, M.D., neurointerventional spine chief and clinical radiology/anesthesiology professor at the University of California, San Diego. “It is quick to dough and has a long working time, which provides me with increased control and ease of handling.”

The Kyphon Xpander II Inflatable Bone Tamp and Kyphon Inflation Syringe are designed to treat vertebral compression fractures, the most common osteoporotic fracture (an estimated 900,000 occur annually in the United States). New balloon material used in Kyphon Xpander II offers control during inflation and greater lifting force than its predecessor, the Kypon Xpander.

The FDA added to Medtronic’s innovation bank with 510(k) clearance of the Aquamantys SBS 5.0 Sheathed Bipolar Sealer (a device that seals both incised soft tissue and epidural veins through a mix of radiofrequency energy and saline) and the TSRH Spinal System pedicle screws for adolescent idiopathic scoliosis. European regulators followed suit with approval of a 16-electrode subcutaneous implant technique to treat chronic back pain. The system reduces back pain by delivering electrical impulses directly to the peripheral nerves causing the discomfort; in two clinical studies, patients treated with peripheral nerve stimulation experienced statistically significant back pain relief.

Also contributing to Medtronic’s cause were the August 2011 acquisitions of Salient Surgical Technologies Inc. and PEAK Surgical Inc. (together, the purchases totaled $585 million). Salient’s product lines help to seal soft tissue and bone during surgical procedures, while PEAK’s disposable cutting tools combine a scalpel with the bleeding control of traditional electrosurgery.

Executives said the twin deal represents Medtronic’s “commitment to innovation across the entire surgical continuum, from incision to closing” and marks its entry into such new markets as plastic/reconstruction, electrophysiology, oncology and large bone orthopedics.

$3.4 Billion
NO. OF EMPLOYEES: 1,350

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.

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).

Medtronic Spinal’s CD Horizon Eclipse system. Photo courtesy of Medtronic Inc.

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.

$3.5 Billion
NO. OF EMPLOYEES: 1,350

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.

$3.4 Billion
NO. OF EMPLOYEES: 38,000

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.

$3 Billion
NO. OF EMPLOYEES: 1,800

Expanding Our Role.

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.

The company was true to its word in fiscal 2008. It invested more than $1.2 billion, or about 10 percent of its total revenue, in research and development. Medtronic also formed a new group called Strategy and Innovation, which combined the company’s Corporate Strategy, Business Development, Ventures, and Science and Technology functions. The new group is responsible for identifying R&D opportunities that extend beyond what individual business units would develop on their own.

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.

$2.5 Billion
NO. OF EMPLOYEES: 1,800

As 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.

$2.2 Billion
No. of Employees: 1,800

Minneapolis, MN-based Medtronic may be widely known for its strong presence in the cardiovascular market, but its Sofamor Danek orthopedic division is an industry powerhouse in its own right. The division, headquartered in Memphis, TN, posted significant gains for fiscal year 2006—the second largest revenue driver for the company after cardiac rhythm management.

The spinal and navigation businesses reported annual revenue of $2.2 billion, which is a 19% jump compared to 2005. Spinal net sales for fiscal year 2006 increased 20% from the prior fiscal year to $2.1 billion. Biologics net sales were $570.2 million, a 38% increase compared to 2005.

The company’s line of spinal and navigation products include thoracolumbar, cervical and interbody spinal devices, bone growth substitutes and surgical navigation tools. Medtronic attributed the impressive gain to “continued strong acceptance” of its Infuse line of bone graft products and the introduction of the Capstone vertebral body spacer. The company’s Horizon Legacy series of spinal implant devices also grew by double digits at roughly 24%.

Overall, for fiscal year 2006, Medtronic reported $11.3 billion (12% growth) in company-wide net sales, while net earnings showed a significant 42% bump to $2.6 billion compared to 2005.

For fiscal year 2007, which the company reported in May, Medtronic reported revenue of $12.3 billion, an increase of 9% compared to 2006. Income grew less aggressively, up 10% to $2.8 billion. The company reported annual revenue of $2.4 billion for its spinal division, an increase of 13%. Once again, growth in spinal sector revenue was attributed to sales of the Infuse product line and the CD Horizon Legacy Peek Rod System, in addition to the Verte-Stack Crescent Vertebral Body Spacer.

On the product approval front, in November, the company received FDA approval for the third indication for its Infuse bone graft product—this time for certain oral and maxillofacial bone grafting procedures.

To add to its bone graft product offerings, the company entered into a development agreement in March with California-based pharmaceutical company OsteoGenix. According to Medtronic, the agreement will enable OsteoGenix to complete preclinical work on its proprietary bone anabolic agent and advance this program through clinical trials, while providing Medtronic an additional source of bone growth therapies for surgeons whose patients require bone-grafting options.

Pete Wehrly, Medtronic senior vice president and president of Sofamor Danek, said the partnership would offer a “new option to patients and one that will nicely complement our existing industry-leading bone growth therapies.”

Also in March, the US Court of Appeals for the Federal Circuit ruled in favor of Medtronic in its ongoing patent litigation against Cross Medical Products, Inc., a subsidiary of Biomet. In its decision, the appeals court ruled that Medtronic’s current multi-axial pedicle screw products did not infringe any claim of Cross Medical’s US Patent No. 5,474,555. The Medtronic products included the CD Horizon Legacy, Vertex and CD Horizon Sextant multi-axial screw products.

The original case, which has been going on for many years, involved several patents surrounding spinal surgery. The lower court found in Medtronic’s favor in all instances, with the exception of one claim made on the aforementioned patent. This appellate court decision relates to this claim. Medtronic, in turn, asserts that Biomet products infringe certain Medtronic patents, and the company plans to continue to pursue those claims in court.

In July this year, Medtronic received approval to market the Prestige Cervical Disc. Made of stainless steel, it is the first artificial disc commercially available in the United States for replacing diseased vertebrae in the neck, the company said. The product already had been approved for use in Europe. Prestige is designed to provide certain patients suffering from degenerative disc disease (DDD)—which can cause intolerable neck and/or arm pain—the potential for motion, as well as another option for pain relief and function. Traditional treatment for this condition is spinal fusion, which often can severely limit motion.

As part of the approval conditions requested by the FDA’s review panel in September, Medtronic has agreed to conduct a seven-year post-approval study to evaluate long-term safety and effectiveness. Medtronic also is going to perform a five-year enhanced surveillance study. More than 200,000 cervical procedures are performed each year to relieve compression on the spinal cord or nerve roots and to implant an interbody graft and metal plate to rigidly fuse the vertebrae together, according to Medtronic.

Following on the heels of the FDA approval of Prestige, an FDA review panel kept the good news flowing for Medtronic in July with the recommended approval of the company’s Bryan Cervical Disc as another treatment option for patients suffering from DDD in the upper part of the spine. Composed of a polyurethane nucleus surrounded by titanium endplates, the device is designed to replicate normal, physiologic motion in the upper spine. Despite the vote in favor of the device, advisory panel members expressed concern that the clinical trials did not prove Medtronic’s claims of superiority to traditional spinal fusion procedures.

Jason Wittes, analyst for Leerink Swann, said in a CNN interview that the Bryan and Prestige discs could represent “potentially a billion-dollar market” for Medtronic, but that it would take years to achieve that level. He said the $7,000 to $10,000 disc replacement procedure would be slow to catch on with insurers and that initial sales growth could be sluggish as a result. “They’re not going to have reimbursement right out of the gate,” Wittes told CNN/Money. “It’s going to take some time to get the insurers on board.”

Medtronic currently is waiting for an FDA decision of its Maverick disc for the lower spine. Maverick already is approved in Europe.

In management news, Medtronic will change at the top when Chief Executive Art Collins retires in August this year. He will be replaced by President and Chief Operating Officer William Hawkins. Collins, who has been with the company since 1992, will remain as chairman until August 2008. He was named CEO in 2001 and became chairman in 2002.