Devices & Diagnostics

Unfinished business at Medtronic

Things seem to be solid at Medtronic Inc. The medical device giant said third quarter profits jumped nearly 20 percent, prompting it to raise its 2010 profit guidance. Sales of its core pacemakers and implantable cardioverter defibrillators grew 6 percent. Neuromodulation, diabetes and surgical technologies also posted healthy gains. Yet… Two problems continue to nag […]

Things seem to be solid at Medtronic Inc. The medical device giant said third quarter profits jumped nearly 20 percent, prompting it to raise its 2010 profit guidance. Sales of its core pacemakers and implantable cardioverter defibrillators grew 6 percent. Neuromodulation, diabetes and surgical technologies also posted healthy gains.

Yet…

Two problems continue to nag Medtronic, the most serious being its spine division. Core spine products fell 2 percent to $630 million, hobbled by its troubled $4.2 billion acquisition of Kyphon Inc. Since Medtronic purchased Kyphon in 2007, it has struggled to integrate the two companies’ sales teams. CEO Bill Hawkins has vowed to fix the problems but clearly has more work to do.

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“I’m not happy about some of our spine performance, but it’s not a big surprise,” Hawkins told analysts during a conference call earlier this week. “We knew were going to be in this kind of rebuilding mode and probably the biggest disappointment for me has been Kyphon.”

“We are investing in our pipeline and we’ll be bringing out next year, we think, a whole range of new products in Kyphon that will further strengthen our overall position in that marketplace,” he continued. “But Kyphon continues to be an issue for us. So we have a number of things internally that we’re doing … which we think will enable us to maybe organizationally put some more focus on the right areas to be able to re-accelerate growth there. But Kyphon was the biggest impact on the performance this quarter.”

The company was also not helped by two clinical studies published in the New England Journal of Medicine last year that suggested vertebroplasty, a treatment for back pain, performed no better than the control group.

Vertebroplasty involves shooting a cement-like substance into a vertebra fracture. Kyphoplasty, Medtronic’s therapy, uses a balloon to create a void in the bone, restoring height and correcting angular deformities. Doctors then inject the cement in a more controlled manner. The Journal articles have prompted doctors to shy away from both treatments, Hawkins said.

He also noted competitors are not waiting for Medtronic to fix its problems–the spin market in the United States is still growing at a healthy rate.

After a longer-than-expected, three-year ordeal, the Food and Drug Administration has finally allowed the company’s Physio-Control automated external defibrillator unit to resume unrestricted global shipments. Medtronic had hoped to spin out the slower-growing business, but quality control problems forced it to halt distribution in 2007.

During the conference call, Hawkins was noncommittal about when Medtronic would resume divesting the business. The company needs time to restore relations with its customers, he said.

“Our focus right now is in gearing manufacturing back up and [work with] customers that have waited so patiently and we have, we think, the opportunity to drive this opportunity in the near term, but once we get through that, we’ll take a step back and reevaluate our strategic alternatives and go from there,” Hawkins said.