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Medtronic, Inc.

Medtronic, Inc.

710 Medtronic Parkway
Minneapolis, Minnesota 55432-5604
U.S.A.

Telephone: (763) 514-4000
Fax: (763) 514-4879
Web site: http://www.medtronic.com

Public Company
Incorporated:
1957
Employees: 31,000
Sales: $9.09 billion (2004)
Stock Exchanges: New York
Ticker Symbol: MDT
NAIC: 334510 Electromedical and Electrotherapeutic Apparatus Manufacturing; 339113 Surgical Appliance and Supplies Manufacturing; 339112 Surgical and Medical Instrument Manufacturing

Medtronic, Inc. is the world's leading medical technology company, controlling more than half of the $8 billion global heart-pacing market, which includes pacemakers and defibrillators. The company's products and services also include implantable neurological pain, tremor, spasticity, and incontinence management systems; heart valves; catheters and stents for angioplasty; implantable drug administration systems; hydrocephalic shunts; autotransfusion equipment; disposable devices for handling and monitoring blood during surgery; and instruments and devices used in surgical procedures of the head and spine and by ear, nose, and throat physicians. Headquartered in Minneapolis, Minnesota, the company conducts business in more than 120 countries; some two-thirds of revenues are generated domestically, with 20 percent originating in Europe and 10 percent in the Asia-Pacific region.


Early History

Medtronic was founded as an outgrowth of Earl Bakken's part-time work at Minneapolis's Northwestern Hospital. Although much of his time was consumed with graduate studies in electrical engineering, Bakken found time to repair the centrifuges, electrocardiograph machines, and other intricate electronic equipment at the hospital. Bakken and his brother-in-law, Palmer Hermundslie, surmised that they could make a living at repairing medical equipment. In 1949 Bakken quit school, and Hermundslie left his job at a local lumber company so that they could form the medical equipment repair service they dubbed "Medtronic."

Bakken and Hermundslie initially worked out of a small garage in Minneapolis. During Medtronic's difficult first year, there was one month the business grossed a meager eight dollars. In 1950, however, the partners contracted as sales representatives for the Sanborn Company, the Gilford Instrument Company, and Advanced Instruments, Inc. In the early part of the decade more than half of their sales in the five-state region around Minneapolis came from selling the merchandise of the other companies.

As Bakken gained experience with medical professionals and their instruments, he was called upon to advise them in their experiments. Over the course of Medtronic's first decade Bakken built nearly 100 custom-madeoften single-usedevices for medical research. Soon Medtronic was manufacturing several medical research products, including two types of defibrillators, as well as forceps, an animal respirator, a cardiac rate monitor, and a physiologic stimulator.


Advent of the Pacemaker

Medtronic's history became inextricably connected to the history of open-heart surgery. Electrically stimulated pacemaking had taken off in the 1950s when several physicians developed external machines that extended the lives of patients who otherwise would have died. These early pacemakers, however, had several disadvantages. The high-voltage electrodes they used often burned patients' skin, the devices were large and unmanageable, and they had to be plugged into the wall, thus restricting patients' mobility and making power failures life-threatening events.

During the late 1950s Dr. C. Walton Lillehei, a pioneer of open-heart surgery at the University of Minnesota Medical School, was researching a battery-powered device that would conduct a mild electric shock to the surface of a patient's heart in order to combat the heart block that caused fatalities in about 10 percent of open-heart surgeries. In 1957 Lillehei asked Bakken, who worked part-time repairing medical electronics at the school, to design an appropriate device. Within six weeks Bakken returned to Lillehei with the world's first transistorized, battery-operated, wearable pacemaker. By the end of the decade use of the devices had extended beyond the United States to Canada, Australia, Cuba, Europe, Africa, and South America. Bakken's invention was honored by the National Society of Professional Engineers as one of ten outstanding engineering products for the period from 1954 to 1984, and Medtronic earned a reputation as a front-running producer of biomedical engineering devices.


The partnership between electronics and cardiac research continued to advance open-heart surgeryand Medtronicthroughout the 1950s. Dr. Samuel Hunter of St. Joseph's Hospital research laboratory in St. Paul, Minnesota, worked with Norman Roth, an electrical engineer at Medtronic, to create the so-called Hunter-Roth electrode, which required about 70 percent less current than Bakken's pacemaker system. In 1958 Dr. William Chardack and electrical engineer Wilson Greatbatch built the first implantable pacemaker in the United States. The device, which incorporated the Hunter-Roth bipolar wire lead, was first successfully implanted in a human in 1960. By October of that year Medtronic had purchased the exclusive rights to produce and market what was called the "Chardack-Greatbatch implantable pulse generator."


Rapid Growth in the 1960s

The growing company organized its distribution outside the United States and Canada through the employment of the Picker International Corporation of White Plains, New York. Picker specialized in electrical medical equipment sales and had an international network of 72 foreign sales offices. Fourteen Medtronic sales representatives covered the United States and Canada beginning in 1960. The company introduced several products that year, including the Telecor heart monitor; the Cardiac Sentinel, an alarm that automatically summoned aid when a patient's heart rate became critical and stimulated the heart; and the Coagulation Generator, which stanched bleeding during surgery.

The growing product line and increasing demand required that the company move to a new, larger facility in 1961. Despite Medtronic's dramatic sales increasesfrom $180,000 to more than $500,000 from 1960 to 1962the company incurred losses during the same period. Expenses, such as the appointment of Picker International, the cost of building a new headquarters, new product research, and attendance at major medical and engineering conventions, increased faster than sales. Early in 1962 the company eased its financial tensions through a bond offering of $200,000 and a $100,000 bank loan. The credit helped Medtronic turn a profit of $17,000 for the first three months of fiscal 1962.


Research continued throughout the 1960s on Medtronic's most important product, the implantable pacemaker. Enhancing the company's pacemaker sales was the introduction of Medicare in 1965, which provided U.S. government funding of healthcare for citizens over the age of 65 and thus increased the use of pacemakers. Among Medtronic's new pacemaker products was an endocardial catheter, a wire lead inserted through the jugular vein to the heart. When pacemakers with this "transvenous" lead were introduced to the market in 1965, they seized a substantial portion of pacemaker sales. In the mid-1960s Medtronic also introduced external and implantable pacemakers that compensated for irregular heartbeats.


New product introductions and pacemaker improvements helped sales surge to more than $12 million by the end of the 196768 fiscal year. Profits increased dramatically as well, exceeding $1 million that year. Medtronic established a European Service Center in 1967 to provide technical support for the continent, which generated 80 percent of overseas sales. In late 1969 Medtronic formed its own international division to accommodate direct European sales. In 1970 the company was able to drop its contract with Picker International and control international sales, which accounted for 30 percent of total sales by that time. Direct sales offices were established in 19 countries, and technical centers and manufacturing plants were erected in primary markets.

Medtronic also gained control of its primary North American distributors during the late 1960s and early 1970s. In 1968 the company purchased John Hay & Company, Ltd., a medical sales organization headquartered in Vancouver, British Columbia. The A.F. Morrison Company was acquired the following year, and by 1973 Medtronic accomplished complete jurisdiction over its North American sales with the purchase of the Medical Specialty Company and Corvek Medical Equipment.

Company Perspectives:

Mission: To contribute to human welfare by application of biomedical engineering in the research, design, manufacture, and sale of instruments or appliances that alleviate pain, restore health, and extend life; to direct our growth in the areas of biomedical engineering where we display maximum strength and ability; to gather people and facilities that tend to augment these areas; to continuously build on these areas through education and knowledge assimilation; to avoid participation in areas where we cannot make unique and worthy contributions; to strive without reserve for the greatest possible reliability and quality in our products; to be the unsurpassed standard of comparison and to be recognized as a company of dedication, honesty, integrity, and service; to make a fair profit on current operations to meet our obligations, sustain our growth, and reach our goals; to recognize the personal worth of employees by providing an employment framework that allows personal satisfaction in work accomplished, security, advancement opportunity, and means to share in the company's success; to maintain good citizenship as a company.

Continued Growth Through the 1970s

Medtronic reached several milestones during the 1970s. The company surpassed $100 million in annual sales in 1975, and in 1977 Medtronic stock was listed on the New York Stock Exchange. Globally Medtronic commanded a market share of 35 percent in the pacemaker category. By the end of the decade, Medtronic's annual sales exceeded $200 million. The company also began to diversify into other medical fields and regions. In 1976 Medtronic established its Neurological Division, which developed products to help relieve chronic and acute pain. A year later Medtronic founded its Heart Valves Division and launched the Hall mechanical heart valve. The company also established a headquarters in Latin America, as well as one in Europe. Manufacturing facilities in Puerto Rico, Canada, and France followed. By the end of the decade Medtronic had made its first major acquisition, Medical Data Systems, an Ann Arbor, Michigan, nuclear imaging company.


Medtronic remained primarily a pacemaker company, however, and cardiovascular products developed for the diagnosis and treatment of heart disease included a nuclear-powered pacemaker. Medtronic's pacemakers were also made smaller, more resilient, and more reliable during the decade. The company consolidated pacemaker production vertically through the creation of Micro-Rel, Inc., a manufacturer of hybrid circuits, and the acquisition of Energy Technologylater renamed Promeona producer of lithium batteries. Other cardiovascular equipment developed in the 1970s helped physicians diagnose patients instantaneously and monitor them by telephone. Cardiovascular products contributed the bulk of Medtronic's sales.

Despite the company's success, the 1970s was not a trouble-free decade for Medtronic. Like many U.S. companies, Medtronic was affected by high inflation during the late 1970s. Tougher regulatory policies instituted by the U.S. Nuclear Regulatory Commission and the Food and Drug Administration also increased research costs through requirements for tougher clinical and follow-up testing. In 1976 Medtronic was forced to issue its first major product recall after the company discovered a technical flaw with the Xytron pacemaker. Medtronic's U.S. market share subsequently fell from 60 percent to 40 percent.


Medtronic experienced several leadership changes during the 1970s. In 1974 Bakken gave up the day-to-day responsibilities of the presidency to become chairman of the board. Thomas E. Holloran replaced him for two years, followed by Dale R. Olseth, who was elected president and chief executive officer.


Diversification in the 1980s

In the 1980s Medtronic sought to expand its product line further while keeping its strong emphasis on pacemakers. Routine reinvestment of more than 8 percent of annual revenues during the decade fueled research and development of new and improved medical devices, and by 1981 annual sales reached another milestonethe $300 million mark. William R. Wallin was named president and CEO in 1985, and diversification became a corporate goal.

Computer technology helped Medtronic develop pacemakers that catered to a patient's particular requirements. The Spectrax SXT, a programmable pacemaker that could be reprogrammed after the initial implantation without performing surgery, led the market soon after its release in 1981. In 1985 the Activitrax pacemaker was the first such device to automatically adjust the rate of heart stimulation in accordance with the rate of activity. After its introduction to the market in 1986, the Activitrax quickly claimed 20 percent of the pacemaker category. That same year Medtronic solidified its position in this market for "rate-responsive pacing" with the purchase of Biotech of Bologna, Italy, and Vitatron of Dieren in the Netherlands. Breakthrough products in the late 1980s included CapSure steroid leads, which were designed to ease tissue inflammation, and Synergyst pacemakers, which united dual chamber and rate-responsive pacing.

Key Dates:

1949:

Earl Bakken and Palmer Hermundslie form a partnership called Medtronic to service and repair medical equipment.

1957:

Bakken develops the world's first small, wearable, battery-operated external pacemaker; company is incorporated as Medtronic, Inc.

1960:

Medtronic purchases the exclusive rights to produce and market an implantable pacemaker known as the "Chardack-Greatbatch implantable pulse generator."

1969:

An international division is formed to accommodate direct European sales.

1976:

Neurological Division is established.

1977:

Medtronic stock is listed on the New York Stock Exchange; company establishes its Heart Valves Division and introduces the Medtronic Hall mechanical heart valve.

1981:

The Spectrax SXT programmable pacemaker is introduced.

1985:

The Activitrax "rate-responsive" pacemaker makes its debut.

1993:

Medtronic introduces the PCD defibrillator.

1998:

Physio-Control International Corporation, maker of external defibrillators, is acquired.

1999:

Medtronic acquires Sofamor Danek Group, Arterial Vascular Engineering, and Xomed Surgical Products.

2001:

MiniMed Inc., producer of devices for patients with diabetes, is acquired; company introduces InSync, the first electrical device for treating congestive heart failure.

Medtronic expanded into the fields of cardiac surgery and vascular therapies in the late 1980s through new products and acquisitions. Among the product lines new to Medtronic were tissue heart values, coronary angioplasty catheters, and tissue heart valves. Among the companies Medtronic acquired were Johnson & Johnson Cardiovascular, which produced the industry leading Maxima membrane oxygenator, a device used during open-heart surgery to reoxygenate blood, and Versaflex Delivery Systems, Inc., a company that made coronary angioplasty catheters. The company also began to develop neurological and drug delivery services, including the SynchroMed Drug Delivery System, the first implantable and programmable drug delivery system. Neurological devices introduced in the late 1980s included the Selectra and ComfortWave electrical nerve stimulators, used to treat sprains and back pain. La Jolla Technology, Inc., another producer of electrical nerve stimulators, was acquired in 1987 to strengthen Medtronic's position in this industry.

Medtronic's rapid growth and expansion, however, was not without setbacks. In 1983 Medtronic voluntarily recalled a new pacemaker lead when it recorded relatively high failure rates in clinical tests. These disadvantages resulted in slowed pacemaker sales, and in 1985 Medtronic reported its first year without an increase in sales and earnings. Medtronic was also involved in expensive patent litigation with such large medical manufacturers as Eli Lilly & Co. and Siemens AG during the decade.

Despite a few bumps in the road, Medtronic was able to increase its annual sales from $300 million in 1981 to $755 million in 1988 through numerous acquisitions and the development of new technologies. By the end of the decade, Medtronic had moved beyond its position as a pacemaker manufacturer and had become a major medical technology corporation.


Continuing Expansion in the Early 1990s

In 1991 William W. George became president and CEO, succeeding Wallin, who became chairman of the board, and Medtronic's total sales exceeded $1 billion. Medtronic had developed six primary areas of expertise by the early 1990s: bradycardia pacing, tachyarrhythmia management, heart valves, and cardiopulmonary, interventional vascular, and neurological devices. In 1992 the company's international sales contributed 40 percent of total revenues, justifying new facilities and expanded operations in Japan, China, and Eastern Europe, as well as increased focus on such developing nations as India and China and on countries in Latin America and Africa.

Continuing with its diversification strategy, Medtronic acquired a number of companies during the first half of the decade, including TUR, a German pacemaker manufacturer; Bio-Medicus, Inc., the world's largest maker of centrifugal blood pumps; PS Medical, Inc., a maker of shunts, devices designed to prevent fluid buildup in the brain; and DLP, Inc., which developed cardiac cannulae used in surgery. These acquisitions helped solidify Medtronic's lead in the area of medical technology and advanced the company's presence in new fields. In 1995, according to the Minneapolis Star Tribune, Medtronic had a 49 percent share of the conventional pacemaker market, 32 percent of the implantable defibrillator market, and 75 percent in nerve-related devices.

Medtronic stepped up its product development cycles and continued to feed its research and development budgetthe company spent about 11 percent of total revenues on research and development in 1995, up from 9.4 percent in 1990to survive in the increasingly competitive medical technology marketplace. The Thera line of pacemakers took about 27 months from final design to market introduction, about half the pacemaker design cycle of the mid-1980s. Medtronic's focus on product development resulted in a number of pioneering devices during the first part of the decade, including the PCD defibrillator (1993), the Jewel implantable cardioverter-defibrillator, implantable Transvene tac-charrhythmia leads, the Model 9790 pacemaker programmer, and additional models of the SynchroMed Drug Delivery System, including one for the treatment of chronic spasticity.


Accelerated Development in the Late 1990s

In the second half of the decade, Medtronic adopted an increasingly aggressive expansion strategy to survive in the medical product field, which had been consolidated into a handful of large medical technology companies. The pacemaker category, Medtronic's core business, was expected to slow in growth, and the company intended to stave off declining profits through diversification. Medtronic's revenues exceeded $2 billion in 1996, and the company continued its acquisition and new product introduction efforts. In 1995 Medtronic added Micro Interventional Systems, Inc., a developer of catheters designed to treat stroke victims, to its neurological division. A year later the company acquired Synectics Medical AB of Sweden, which made systems for gastroenterology, urology, and sleep apnea; InStent, a stent manufacturer; and AneuRx, a maker of endovascular stented grafts. Between 1996 and 1998 Medtronic introduced a number of new products, including the Micro Jewel II, an implantable cardioverter-defibrillator; the Wiktor Prime coronary stent, designed to support the walls of a coronary artery; and the Activa Tremor Control System, which helped treat tremors associated with Parkinson's disease.

Amid the flurry of sales growthduring the second quarter of fiscal 1997, Medtronic's pacemaker sales grew 9 percent, implantable defibrillator sales increased 27 percent, and its neurological product sales grew more than 60 percentthe company's vascular operations, which included catheters and stents, were not doing as well as the company had hoped. Although the coronary stent market was growing rapidly, Medtronic was unable to successfully market stents, and as a result the company was forced in early 1998 to take its first business-related charge since 1985. The company also announced plans to close eight manufacturing plants and downsize its staff by 600 employees.


Medtronic was also losing market share in the defibrillator category to strong competition, particularly from Guidant Corporation, which offered a technologically advanced dual-chamber defibrillator that grabbed about 25 percent of the U.S. defibrillator market soon after its introduction in 1998. Medtronic was the leader in the $1.8 billion global defibrillator industry, which was growing at the breakneck rate of about 30 percent a year, but according to Sanford Bernstein & Co.'s Kenneth Abramowitz, as reported in the Wall Street Journal, in the United States Medtronic held some 40 to 45 percent of the market, while Guidant had a share of 45 to 50 percent. Medtronic fought back in September 1998, however, by acquiring Physio-Control International Corporation, a maker of external defibrillators, in its largest acquisition to that date.

Medtronic's problems were relatively minor in comparison to its outstanding growth in 1998. Medtronic acquired Avecor Cardiovascular, Inc. to expand its cardiac surgery operation, and Midas Rex LP, a maker of pneumatic instruments for neurological surgery. Through its acquisitions Medtronic grew by 45 percent in 1998. Medtronic also opened a new pacemaker manufacturing facility in Europe in that year and was honored as one of the 100 best companies to work for by Fortune magazine.

As Medtronic entered its 50th anniversary year in 1999, the company showed no signs of slowing down. Among the new products introduced by the company were the Medtronic.Kappa 700, a series of pacemakers designed to adapt automatically to patient needs; the InSync stimulator, a device used to treat heart failure; and the Gem implantable defibrillator series. By the close of fiscal 1999, which ended in April, Medtronic had acquired two more companies in two huge stock-swap transactions. Sofamor Danek Group, Inc., the leader in spinal disorder treatment and cranial surgery (acquired for about $3.6 billion), significantly boosted Medtronic's neurology division, and according to Health Industry Today, the $4.3 billion purchase of Arterial Vascular Engineering, Inc., increased Medtronic's market share to a commanding 40 percent of the $3.5 billion global market in coronary stents.


Medtronic reported that fiscal 1999 represented the company's 14th consecutive year of increased revenues, with nearly one-third of its revenue attributed to operations in Europe, Africa, and the Middle East. Not only was Medtronic enjoying increased sales but the company was also leading the pack in terms of product development. According to the U.S. Patent and Trademark Office, Medtronic was issued the most medical device patents in the world from 1969 to September 1998; to remain competitive in the aggressive medical device industry, Medtronic planned to invest nearly $500 million in research and development in fiscal 2000.


As Medtronic approached the new millennium, the company continued to strengthen its four primary product platforms: cardiac rhythm management, neurological and spinal surgery, vascular devices, and cardiac surgery. In November 1999 Medtronic acquired Xomed Surgical Products, Inc., the leading manufacturer of surgical products used to treat ear, nose, and throat problems, for approximately $800 million. This acquisition, according to Medtronic, was aimed at positioning the company as the global market leader in the ear, nose, and throat category. Revenues for fiscal 2000 surpassed the $5 billion mark for the first time.


Reaching New Heights in the Early 2000s

In April 2001 George retired as CEO. In his ten years at the helm, Medtronic's revenues grew from around $1 billion to $5.55 billion, earnings jumped from $133 million to $1.3 billion, and the firm's market value leaped from $3.3 billion to $54 billion; he had also transformed the firm from primarily a manufacturer of pacemakers to a diversified medical technology company. Succeeding George was Arthur D. Collins, Jr., who had served as president since 1996 and had played a significant role in assimilating the many businesses acquired during the late 1990s. George remained on the company board as chairman for one more year, until April 2002, whereupon Collins was elected to that position as well.

Collins's first year at the helm was noteworthy for Medtronic's entrance into two new sectors: devices to treat diabetes and congestive heart failure, both of which were chronic diseases affecting millions of patients around the world. In August 2001 the company spent $3.8 billion in cash for MiniMed Inc. and a related company called Medical Research Group, Inc. (later combined as Medtronic MiniMed). Northridge, California-based MiniMed was the leading U.S. producer of insulin infusion pumps for patients with diabetes, and also produced glucose monitors. Medical Research Group was working to develop both an implantable insulin pump and a fully implanted glucose sensor, hoping that these two devices, working together, could work as a sort of artificial pancreas. Also during 2001 Medtronic introduced InSync, the first electrical device ever approved for treating patients with congestive heart failure. InSync was designed to resynchronize the beating of an otherwise weakened and uncoordinated heart muscle.

Acquisitions and new product introductions continued in 2002. In April Medtronic paid $328.6 million for VidaMed, Inc., maker of a transurethral needle ablation system for treating enlarged prostate glands nonsurgically. Medtronic also acquired Spinal Dynamic Corporation (SDC) in a $254.3 million transaction completed in October 2002. SDC was developing an artificial disc as a replacement for a degenerated cervical disc, with the purported advantages including a shorter recovery time after spinal surgery and increased neck mobility. Among the new products debuting that year were the InSync ICD, which not only resynchronized the beating of a diseased heart but also provided a defibrillator backup; and InFuse, a genetically engineered bone-growth product used in spinal fusion surgery. Also introduced was Medtronic CareLink, an Internet-based network that enabled patients to send data from their implanted defibrillators to their doctors, thereby reducing the number of necessary office visits.


Earnings were negatively affected in 2002 when Medtronic agreed to pay Boston Scientific Corporation $175 million to settle several patent-infringement lawsuits involving coronary stents. In another case involving stent patents owned by Cordis Corporation, a subsidiary of Johnson & Johnson, Medtronic was in the process of appealing a $271 million jury verdicta case that appeared headed to the U.S. Supreme Court. Further uncertainty arose in September 2003 when the U.S. Department of Justice notified Medtronic that its Medtronic Sofamor Danek spinal surgery unit was the subject of an investigation into allegations of illegal kickbacks to physicians.

Medtronic enjoyed its best year ever in fiscal 2004. Net income fell just short of $2 billion, reaching $1.96 billion, while revenues of $9.09 billion represented an 18 percent increase over the previous year's total. The year ended with both good and bad news. On the one hand, Medtronic received U.S. Food and Drug Administration approval of its EnPulse system, the first fully automatic pacemaker for hearts that beat too slowly. On the other, the company announced that it was recalling 1,800 implanted heart defibrillators after some of them malfunctioned and may have caused the deaths of four patients. Medtronic was also attempting to regain lost ground in its vascular business, which had seen competitors surge ahead by introducing drug-coated stents designed to prevent reblockage of coronary arteries. Medtronic entered into a joint venture with Abbott Laboratories to develop a Medtronic stent coated with an Abbott drug. The company hoped to introduce the product to the U.S. market by the end of 2005.


Principal Subsidiaries

Medtronic Asia, Ltd.; Medtronic AVE, Inc.; Medtronic Europe Sàrl (Switzerland); Medtronic International, Ltd.; Medtronic Limited (U.K.); Medtronic MiniMed, Inc.; Medtronic of Canada, Ltd.; Medtronic Physio-Control International, Inc.; Medtronic Sofamor Danek, Inc.; Medtronic Xomed, Inc.; Vitatron N.V. (Netherlands).

Principal Operating Units

Cardiac Rhythm Management (CRM); Spinal, Ear, Nose and Throat (ENT) and Surgical Navigation Technologies (SNT); Neurological and Diabetes; Vascular; Cardiac Surgery.


Principal Competitors

Guidant Corporation; St. Jude Medical, Inc.; Johnson & Johnson; Zimmer Holdings, Inc.; Boston Scientific Corporation; Stryker Corporation; Edwards Lifesciences Corporation.


Further Reading

Alexander, Steve, "New Product Machine," Minneapolis Star Tribune, June 5, 1995, p. D1.

Arndt, Michael, "High Techand Handcrafted: Despite a Recent Recall, Medtronic Sets the Quality Standard for Heart Care," Business Week, July 5, 2004, p. 86.

Barshay, Jill J., "Medical Devices," Minneapolis Star Tribune, September 22, 1998, p. D1.

Black, Sam, "Collins Ready to Take Helm," Minneapolis-St. Paul CityBusiness, April 27, 2001, pp. 1, 40.

Burton, Thomas M., "Medtronic's Stock Price Falls 10% on Warning of Earnings Shortfall," Wall Street Journal, August 7, 1998, p. B5.

, "Medtronic to Buy MiniMed and Medical Research," Wall Street Journal, May 31, 2001, p. A3.

, "Medtronic to Name Collins to Succeed George As CEO," Wall Street Journal, August 24, 2000, p. B4.

Dubashi, Jagannath, "Change of Pace," Financial World, March 17, 1992, pp. 2627.

Fiedler, Terry, "Medtronic Bucks the Trend," Minneapolis Star Tribune, December 16, 2002, p. 1D.

Lau, Gloria, "Companies in the NewsDevice Maker Medtronic Inc. Steps Up Defibrillator Efforts," Investor's Business Daily, July 21, 1998, p. A33.

Mathews, Anna Wilde, and Thomas M. Burton, "Invasive Procedure: After Medtronic Lobbying Push, the FDA Had Change of Heart," Wall Street Journal, July 9, 2004, pp. A1+.

Medtronic Beginnings, Minneapolis: Medtronic, Inc., 1993.

McLean, Bethany, "How Smart Is Medtronic Really?," Fortune, October 25, 1999, pp. 17374+.

Moore, Michael P., "The Genesis of Minnesota's Medical Alley," University of Minnesota Medical Bulletin, Winter 1992, pp. 7-13.

Nelson, Glen D., "A Brief History of Cardiac Pacing," Texas Heart Institute Journal, vol. 20, 1993, pp. 1218.

Royer, Mary-Paige, "Picking Up the Pace," Corporate Report-Minnesota, December 1989, pp. 46+.

Sherer, Paul M., "Medtronic Has Fans, but Doubters, Too," Wall Street Journal, December 31, 1998, p. C1.

Stevens, Tim, "Heart and Soul," Industry Week, May 4, 1998, pp. 44+.

The Story of Medtronic, Minneapolis: Medtronic, Inc., 1997.

Toward Man's Full Life, Minneapolis: Medtronic, Inc., 1990.

Veverka, Mark, "Plugged In: Acquisition Indigestion Could Cause Pacemaker King Medtronic to Skip a Beat," Barron's, September 20, 1999, pp. 5758.

Whitford, David, "A Human Place to Work," Fortune, January 8, 2001, pp. 108112+.


April Dougal Gasbarre
updates: Mariko Fujinaka, David E. Salamie

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Medtronic, Inc.

Medtronic, Inc.

7000 Central Avenue, N.E.
Minneapolis, Minnesota 55432-3576
U.S.A.
(612) 514-4000
Fax: (612) 514-4879
Web site: http://www.medtronic.com

Public Company
Incorporated: 1957
Employees: 19,334
Sales: $4.13 billion (1999)
Stock Exchanges: New York
Ticker Symbol: MDT
NAIC: 334510 Electromedical & Electrotherapeutic Apparatus Manufacturing; 339113 Surgical Appliance & Supplies Manufacturing; 339112 Surgical & Medical Instrument Manufacturing

Medtronic, Inc. is the worlds leading medical technology company, controlling about 50 percent of the $4 billion global heart-pacing market, which includes pacemakers and defibrillators. The companys products and services also include implantable neurological pain, tremor, spasticity, and incontinence management systems; heart valves; catheters and stents for angioplasty; implantable drug administration systems; surgical instruments; hydrocephalic shunts; autotransfusion equipment; and disposable devices for handling and monitoring blood during surgery. Headquartered in Minneapolis, Minnesota, the company conducts business in more than 120 countries and groups its operations into three regionsthe Americas, Europe/Middle East/Africa, and Asia/Pacific.

Early History

Medtronic was founded as an outgrowth of Earl Bakkens part-time work at Minneapoliss Northwestern Hospital. Although much of his time was consumed with graduate studies in electrical engineering, Bakken found time to repair the centrifuges, electrocardiograph machines, and other intricate electronic equipment at the hospital. Bakken and his brother-in-law, Palmer Hermundslie, surmised that they could make a living at repairing medical equipment. In 1949 Bakken quit school, and Hermundslie left his job at a local lumber company so that they could form the medical equipment repair service they dubbed Medtronic.

Bakken and Hermundslie initially worked out of a small garage in Minneapolis. During Medtronics difficult first year, there was one month the business grossed a meager eight dollars. In 1950, however, the partners contracted as sales representatives for the Sanborn Company, the Gilford Instrument Company, and Advanced Instruments, Inc. In the early part of the decade more than half of their sales in the five-state region around Minneapolis came from selling the merchandise of the other companies.

As Bakken gained experience with medical professionals and their instruments, he was called upon to advise them in their experiments. Over the course of Medtronics first decade Bakken built nearly 100 custom-madeoften single-usedevices for medical research. Soon Medtronic was manufacturing several medical research products, including two types of defibrillators, as well as forceps, an animal respirator, a cardiac rate monitor, and a physiologic stimulator.

Advent of the Pacemaker

Medtronics history became inextricably connected to the history of open-heart surgery. Electrically stimulated pacemaking had taken off in the 1950s when several physicians developed external machines that extended the lives of patients who otherwise would have died. These early pacemakers, however, had several disadvantages. The high-voltage electrodes they used often burned patients skin, the devices were large and unmanageable, and they had to be plugged into the wall, thus restricting patients mobility and making power failures life-threatening events.

During the late 1950s Dr. C. Walton Lillehei, a pioneer of open-heart surgery at the University of Minnesota Medical School, was researching a battery-powered device that would conduct a mild electric shock to the surface of a patients heart in order to combat the heart block that caused fatalities in about ten percent of open-heart surgeries. Lillehei asked Bakken, who worked part-time repairing medical electronics at the school, to design an appropriate device. Within six weeks Bakken returned to Lillehei with the worlds first transistorized, battery-operated, wearable pacemaker. By the end of the decade use of the devices had extended beyond the United States to Canada, Australia, Cuba, Europe, Africa, and South America. Bakkens invention was honored by the National Society of Professional Engineers as one of ten outstanding engineering products for the period from 1954 to 1984, and Medtronic earned a reputation as a front-running producer of biomedical engineering devices.

The partnership between electronics and cardiac research continued to advance open-heart surgeryand Medtronicthroughout the 1950s. Dr. Samuel Hunter of St. Josephs Hospital research laboratory in St. Paul, Minnesota, worked with Norman Roth, an electrical engineer at Medtronic, to create the so-called Hunter-Roth electrode, which required about 70 percent less current than Bakkens pacemaker system. In 1958 Dr. William Chardack and electrical engineer Wilson Greatbatch built the first implantable pacemaker in the United States. The device, which incorporated the Hunter-Roth bipolar wire lead, was first successfully implanted in a human in 1960. By October of that year Medtronic had purchased the exclusive rights to produce and market what was called the Chardack-Greatbatch implantable pulse generator.

Rapid Growth in the 1960s

The growing company organized its distribution outside the United States and Canada through the employment of the Picker International Corporation of White Plains, New York. Picker specialized in electrical medical equipment sales and had an international network of 72 foreign sales offices. Fourteen Medtronic sales representatives covered the United States and Canada beginning in 1960. The company introduced several products that year, including the Telecor heart monitor; the Cardiac Sentinel, an alarm that automatically summoned aid when a patients heart rate became critical and stimulated the heart; and the Coagulation Generator, which stanched bleeding during surgery.

The growing product line and increasing demand required that the company move to a new, larger facility in 1961. Despite Medtronics dramatic sales increasesfrom $180,000 to more than $500,000 from 1960 to 1962the company incurred losses during the same period. Expenses, like the appointment of Picker International, the cost of building a new headquarters, new product research, and attendance at major medical and engineering conventions, increased faster than sales. Early in 1962 the company eased its financial tensions through a bond offering of $200,000 and a $100,000 bank loan. The credit helped Medtronic turn a profit of $17,000 for the first three months of fiscal 1962.

Research continued throughout the 1960s on Medtronics most important product, the implantable pacemaker. Enhancing the companys pacemaker sales was the introduction of Medicare in 1965, which provided U.S. government funding of healthcare for citizens over the age of 65 and thus increased the use of pacemakers. Among Medtronics new pacemaker products was an endocardial catheter, a wire lead inserted through the jugular vein to the heart. When pacemakers with this transvenous lead were introduced to the market in 1965, they seized a substantial portion of pacemaker sales. In the mid-1960s Medtronic also introduced external and implantable pacemakers that compensated for irregular heartbeats.

New product introductions and pacemaker improvements helped sales surge to more than $12 million by the end of the 196768 fiscal year. Profits increased dramatically as well, exceeding $1 million that year. Medtronic established a European Service Center in 1967 to provide technical support for the continent, which generated 80 percent of overseas sales. In late 1969 Medtronic formed its own international division to accommodate direct European sales. In 1970 the company was able to drop its contract with Picker International and control international sales, which accounted for 30 percent of total sales by that time. Direct sales offices were established in 19 countries, and technical centers and manufacturing plants were erected in primary markets.

Medtronic also gained control of its primary North American distributors during the late 1960s and early 1970s. In 1968 the company purchased John Hay & Company, Ltd., a medical sales organization headquartered in Vancouver, British Columbia. The A.F. Morrison Company was acquired the following year, and by 1973 Medtronic accomplished complete jurisdiction over its North American sales with the purchase of the Medical Specialty Company and Corvek Medical Equipment.

Company Perspectives:

To contribute to human welfare by application ofbiomedical engineering in the research, design, manufacture, and sale of instruments or appliances that alleviate pain, restore health, and extend life.

Continued Growth through the 1970s

Medtronic reached several milestones during the 1970s. The company surpassed $100 million in annual sales in 1975, and in 1977 Medtronic stock was listed on the New York Stock Exchange. Globally Medtronic commanded a market share of 35 percent in the pacemaker category. By the end of the decade, Medtronics annual sales exceeded $200 million. The company also began to diversify into other medical fields and regions. In 1976 Medtronic established its Neurological Division, which developed products to help relieve chronic and acute pain. A year later Medtronic founded its Heart Valves Division and launched the Hall mechanical heart valve. The company also established a headquarters in Latin America, as well as one in Europe. Manufacturing facilities in Puerto Rico, Canada, and France followed. By the end of the decade Medtronic had made its first major acquisition, Medical Data Systems, an Ann Arbor, Michigan, nuclear imaging company.

Medtronic remained primarily a pacemaker company, however, and cardiovascular products developed for the diagnosis and treatment of heart disease included a nuclear-powered pacemaker. Medtronics pacemakers were also made smaller, more resilient, and more reliable during the decade. The company consolidated pacemaker production vertically through the creation of Micro-Rel, Inc., a manufacturer of hybrid circuits, and the acquisition of Energy Technologylater renamed Promeona producer of lithium batteries. Other cardiovascular equipment developed in the 1970s helped physicians diagnose patients instantaneously and monitor them by telephone. Cardiovascular products contributed the bulk of Medtronics sales.

Despite the companys success, the 1970s was not a trouble-free decade for Medtronic. Like many U.S. companies, Medtronic was affected by high inflation during the late 1970s. Tougher regulatory policies instituted by the U.S. Nuclear Regulatory Commission and the Food and Drug Administration also increased research costs through requirements for tougher clinical and follow-up testing. In 1976 Medtronic was forced to issue its first major product recall after the company discovered a technical flaw with the Xytron pacemaker. Medtronics U.S. market share subsequently fell from 60 percent to 40 percent.

Medtronic experienced several leadership changes during the 1970s. In 1974 Bakken gave up the day-to-day responsibilities of the presidency to become chairman of the board. Thomas E. Holloran replaced him for two years, followed by Dale R. Olseth, who was elected president and chief executive officer.

Diversification in the 1980s

In the 1980s Medtronic sought to expand its product line further while keeping its strong emphasis on pacemakers. Routine reinvestment of more than eight percent of annual revenues during the decade fueled research and development of new and improved medical devices, and by 1981 annual sales reached another milestonethe $300 million mark. William R. Wallin was named president and CEO in 1985, and diversification became a corporate goal.

Computer technology helped Medtronic develop pacemakers that catered to a patients particular requirements. The Spectrax SXT, a programmable pacemaker that could be reprogrammed after the initial implantation without performing surgery, led the market soon after its release in 1981. In 1985 the Activitrax pacemaker was the first such device to automatically adjust the rate of heart stimulation in accordance with the rate of activity. After its introduction to the market in 1986, the Activitrax quickly claimed 20 percent of the pacemaker category. That same year Medtronic solidified its position in this market for rate-responsive pacing with the purchase of Biotech of Bologna, Italy, and Vitatron of Dieren in the Netherlands. Breakthrough products in the late 1980s included CapSure steroid leads, which were designed to ease tissue inflammation, and Synergyst pacemakers, which united dual chamber and rate-responsive pacing.

Medtronic expanded into the fields of cardiac surgery and vascular therapies in the late 1980s through new products and acquisitions. Among the product lines new to Medtronic were tissue heart values, coronary angioplasty catheters, and tissue heart valves. Among the companies Medtronic acquired were Johnson & Johnson Cardiovascular, which produced the industry leading Maxima membrane oxygenator, a device used during open-heart surgery to reoxygenate blood, and Versaflex Delivery Systems, Inc., a company that made coronary angioplasty catheters. The company also began to develop neurological and drug delivery services, including the SynchroMed Drug Delivery System, the first implantable and programmable drug delivery system. Neurological devices introduced in the late 1980s included the Selectra and ComfortWave electrical nerve stimulators, used to treat sprains and back pain. La Jolla Technology, Inc., another producer of electrical nerve stimulators, was acquired in 1987 to strengthen Medtronics position in this industry.

Medtronics rapid growth and expansion, however, was not without setbacks. In 1983 Medtronic voluntarily recalled a new pacemaker lead when it recorded relatively high failure rates in clinical tests. These disadvantages resulted in slowed pacemaker sales, and in 1985 Medtronic reported its first year without an increase in sales and earnings. Medtronic was also involved in expensive patent litigation with such large medical manufacturers as Eli Lilly & Co. and Siemens AG during the decade.

Despite a few bumps in the road, Medtronic was able to increase its annual sales from $300 million in 1981 to $755 million in 1988 through numerous acquisitions and the development of new technologies. By the end of the decade, Medtronic had moved beyond its position as a pacemaker manufacturer and had become a major medical technology corporation.

Continuing Expansion in the Early 1990s

In 1991 William W. George became president and CEO, succeeding Wallin, who became chairman of the board, and Medtronics total sales exceeded $1 billion. Medtronic had developed six primary areas of expertise by the early 1990s: bradycardia pacing, tachyarrhythmia management, heart valves, and cardiopulmonary, interventional vascular, and neurological devices. In 1992 the companys international sales contributed 40 percent of total revenues, justifying new facilities and expanded operations in Japan, China, and Eastern Europe, as well as increased focus on such developing nations as India and China and on countries in Latin America and Africa.

Continuing with its diversification strategy, Medtronic acquired a number of companies during the first half of the decade, including TUR, a German pacemaker manufacturer; Bio-Medicus, Inc., the worlds largest maker of centrifugal blood pumps; PS Medical, Inc., a maker of shunts, devices designed to prevent fluid buildup in the brain; and DLP, Inc., which developed cardiac cannulae used in surgery. These acquisitions helped solidify Medtronics lead in the area of medical technology and advanced the companys presence in new fields. In 1995, according to the Star-Tribune, Medtronic had a 49 percent share of the conventional pacemaker market, 32 percent of the implantable defibrillator market, and 75 percent in nerve-related devices.

Medtronic stepped up its product development cycles and continued to feed its research and development budgetthe company spent about 11 percent of total revenues on research and development in 1995, up from 9.4 percent in 1990to survive in the increasingly competitive medical technology marketplace. The Thera line of pacemakers took about 27 months from final design to market introduction, about half the pacemaker design cycle of the mid-1980s. Medtronics focus on product development resulted in a number of pioneering devices during the first part of the decade, including the PCD defibrillator, the Jewel implantable cardioverter-defibrillator, implantable Transvene taccharrhythmia leads, the Model 9790 pacemaker programmer, and additional models of the SynchroMed Drug Delivery System, including one for the treatment of chronic spasticity.

Accelerated Development in the Late 1990s

In the second half of the decade, Medtronic adopted an increasingly aggressive expansion strategy to survive in the medical product field, which had been consolidated into a handful of large medical technology companies. The pacemaker category, Medtronics core business, was expected to slow in growth, and the company intended to stave off declining profits through diversification. Medtronics revenues exceeded $2 billion in 1996, and the company continued its acquisition and new product introduction efforts. In 1995 Medtronic added Micro Interventional Systems, Inc., a developer of catheters designed to treat stroke victims, to its neurological division. A year later the company acquired Synectics Medical AB of Sweden, which made systems for gastroenterology, urology, and sleep apnea; InStent, a stent manufacturer; and AneuRx, a maker of endovascular stented grafts. Between 1996 and 1998 Medtronic introduced a number of new products, including the Micro Jewel II, an implantable cardioverter-defibrillator; the Wiktor Prime coronary stent, designed to support the walls of a coronary artery; and the Activa Tremor Control System, which helped treat tremors associated with Parkinsons disease.

Amid the flurry of sales growthduring the second quarter of fiscal 1997, Medtronics pacemaker sales grew nine percent, implantable defibrillator sales increased 27 percent, and its neurological product sales grew more than 60 percentthe companys vascular operations, which included catheters and stents, were not doing as well as the company had hoped. Although the coronary stent market was growing rapidly, Medtronic was unable to successfully market stents, and as a result the company was forced in early 1998 to take its first business-related charge since 1985. The company also announced plans to close eight manufacturing plants and downsize its staff by 600 employees.

Medtronic was also losing market share in the defibrillator category to strong competition, particularly from Guidant Corp., which offered a technologically advanced dual-chamber defibrillator that grabbed about 25 percent of the U.S. defibrillator market soon after its introduction in 1998. Medtronic was the leader in the $1.8 billion global defibrillator industry, which was growing at the breakneck rate of about 30 percent a year, but according to Sanford Bernstein & Co.s Kenneth Abramowitz, as reported in the Wall Street Journal, in the United States Medtronic held some 4045 percent of the market, while Guidant had a share of 4550 percent. Medtronic fought back in mid-1998, however, by acquiring Physio-Control International Inc., a maker of external defibrillators, in its largest acquisition to date.

Medtronics problems were relatively minor in comparison to its outstanding growth in 1998. Medtronic acquired Avecor Cardiovascular, Inc., to expand its cardiac surgery operation, and Midas Rex LP, a maker of pneumatic instruments for neurological surgery. Through its acquisitions Medtronic grew by 45 percent in 1998. Medtronic also opened a new pacemaker manufacturing facility in Europe in that year and was honored as one of the 100 best companies to work for by Fortune magazine.

As Medtronic entered its 50th anniversary year in 1999, the company showed no signs of slowing down. Among the new products introduced by the company were the Medtronic. Kappa 700, a series of pacemakers designed to adapt automatically to patient needs; the InSync stimulator, a device used to treat heart failure; and the Gem implantable defibrillator series. By the close of fiscal 1999, which ended in April, Medtronic had acquired two more companies. Sofamor Danek Group, Inc., the leader in spinal disorder treatment and cranial surgery, significantly boosted Medtronics neurology division, and according to Health Industry Today, the purchase of Arterial Vascular Engineering, Inc., increased Medtronics market share to a commanding 40 percent of the $3.5 billion global market in coronary stents.

Medtronic reported that fiscal 1999 represented the companys 14th consecutive year of increased revenues, with nearly one-third of its revenue attributed to operations in Europe, Africa, and the Middle East. Not only was Medtronic enjoying increased sales but the company was also leading the pack in terms of product development. According to the U.S. Patent and Trademark Office, Medtronic was issued the most medical device patents in the world from 1969 to September 1998; to remain competitive in the aggressive medical device industry, Medtronic planned to invest nearly $500 million in research and development in fiscal 2000.

As Medtronic approached the new millennium, the company continued to strengthen its four primary product platforms: cardiac rhythm management, neurological and spinal surgery, vascular devices, and cardiac surgery. In August 1999 Medtronic acquired Xomed Surgical Products, Inc., the leading manufacturer of surgical products used to treat ear, nose, and throat problems. Its acquisition, according to Medtronic, would position the company as the global market leader in the ear, nose, and throat category. Medtronic planned to release numerous new products and technologies in fiscal 2000 to continue its leadership position in the medical technology field.

Principal Subsidiaries

Medtronic Europe S.A. (Switzerland); Medtronic International, Ltd. (Hong Kong); Medtronic of Canada, Ltd.

Further Reading

Alexander, Steve, New Product Machine, Star-Tribune (Minneapolis-St. Paul), June 5, 1995, p. D1.

Barshay, Jill J., Medical Devices, Star-Tribune (Minneapolis- St. Paul), September 22, 1998, p. D1.

Burton, Thomas M., Medtronics Stock Price Falls 10% on Warning of Earnings Shortfall, Wall Street Journal, August 7, 1998, p. B5.

Dubashi, Jagannath, Change of Pace, Financial World, March 17, 1992, pp. 2627.

Lau, Gloria, Companies in the NewsDevice Maker Medtronic Inc. Steps Up Defibrillator Efforts, Investors Business Daily, July 21, 1998, p. A33.

Medtronic Beginnings, Minneapolis: Medtronic, Inc., 1993.

Moore, Michael P., The Genesis of Minnesotas Medical Alley, University of Minnesota Medical Bulletin, winter 1992, pp. 713.

Nelson, Glen D., M.D., A Brief History of Cardiac Pacing, Texas Heart Institute Journal, vol. 20, 1993, pp. 1218.

Sherer, Paul M., Medtronic Has Fans, but Doubters, Too, Wall Street Journal, December 31, 1998, p. C1.

The Story of Medtronic, Minneapolis: Medtronic, Inc., 1997.

Toward Mans Full Life, Minneapolis: Medtronic, Inc., 1990.

April Dougal Gasbarre

updated by Mariko Fujinaka

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Medtronic, Inc.

Medtronic, Inc.

7000 Central Avenue, N.E.
Minneapolis, Minnesota 55432-3576
U.S.A.
(612) 574-4000
Fax: (612) 574-4879

Public Company
Incorporated: 1957
Employees: 9,200
Sales: $1.33 billion
Stock Exchanges: New York
SICs: 3845 Electromedical Equipment; 3841 Surgical and Medical Instruments; 8099 Health and Allied Services, nec.

Medtronic, Inc. is the worlds leading therapeutic medical device company, with about 47 percent of the $1.3 billion global pacemaker market. The companys product lines include cardiac pacemaker systems, implantable neurological pain management systems, tachyarrhythmia management systems, prosthetic and bioprosthetic heart valves, angioplasty catheters, implantable drug administration systems, and disposable devices for handling and monitoring blood during surgery. Established in 1949, Medtronic has since grown to become a Fortune 500 business.

Medtronic, Inc. was founded as an outgrowth of Earl Bakkens part-time work at Minneapoliss Northwestern Hospital. Although much of his time was consumed with graduate studies in electrical engineering, Bakken found time to repair the centrifuges, electrocardiograph machines, and other intricate electronic equipment at the hospital where his wife served as a medical technologist. Bakken and his brother-in-law, Palmer Hermundslie, surmised that they could make a living at repairing medical equipment. In 1949 Bakken quit school, and Hermundslie left his job at a local lumber company so the pair could form the medical equipment repair service they dubbed Medtronic.

Bakken and Hermundslie worked out of a small garage in Northeast Minneapolis in the early years of the company. During Medtronics difficult first year, there was one month the business grossed a meager eight dollars. In 1950, however, the partners contracted as sales representatives for the Sanborn Company, the Gilford Instrument Company, and Advanced Instruments, Inc. In the early part of the decade, over half of their sales in the five-state region around Minneapolis came from selling the merchandise of the other companies.

As Bakken gained experience with medical professionals and their instruments, he was also called upon to advise them in their experiments. Over the course of Medtronics first decade Bakken built almost 100 custom-madeoften single-usedevices for medical research. Soon Medtronic was manufacturing several medical research products, including two types of defibrillators, forceps, an animal respirator, a cardiac rate monitor (or squawk box), and a physiologic stimulator. Manufacturing of these early instruments was primitive by todays standardsparts were handmade or surplus, quality control was accomplished by visual examination, and products were packed in newspaper and shipped in recycled boxes.

During the late 1950s Medtronics history became inextricably connected to the history of open heart surgery. Bakkens reputation for service had earned him a part-time job repairing medical electronics at the University of Minnesota Medical School. At that time, Dr. C. Walton Lillehei was researching a battery-powered device that would conduct a mild electric shock to the surface of a patients heart in order to combat the heart block that caused fatalities in about 10 percent of open-heart surgeries.

Electrically stimulated pacemaking had taken off in the 1950s when several physicians developed external machines that extended the lives of patients who otherwise would have died. These early external pacemakers had several disadvantages, however. The high-voltage electrodes used often burned patients skin, the devices were large and unmanageable, and they had to be plugged into the wall, thus restricting patients mobility and making power failures life-threatening events.

Dr. Lillehei, a pioneer of open-heart surgery at the University of Minnesota Medical School, had asked a doctoral student in the electrical division of the physics department to develop a portable, battery-powered device that could stimulate the heart directly with a low voltage current at an adjustable rate of 50 to 110 pulses per minute. After six months, Dr. Lillehei became frustrated with the students lack of progress. In desperation, he asked Bakken, the labs part-time repairman, to design an appropriate device. Bakken observed an open-heart experiment on a dog, and within six weeks returned to Dr. Lillehei with the worlds first transistorized, battery-powered, wearable pacemaker. The instrument was a little larger than a bar of soap, and incorporated wire leads that were attached directly to the heart, eliminating the severe irritation caused by electrodes attached to the skin. Bakkens invention was honored by the National Society of Professional Engineers as one of ten outstanding engineering products for the period from 1954 to 1984.

Medtronic earned a reputation as a front-running producer of biomedical engineering devices in the late 1950s. Bakkens external pacemakers were used at the Mayo Clinic in Rochester; the University of Minnesota; the National Institutes of Health in Bethesda, Maryland; Walter Reed Medical Center in Boston; and Mount Zion Hospital in San Francisco. By the end of the decade the devices had also been used outside the United States, in Canada, Australia, Cuba, Europe, Africa, and South America.

The partnership between electronics and cardiac research continued to advance open-heart surgeryand Medtronicthroughout the 1950s. Dr. Samuel Hunter of St. Josephs Hospital research laboratory in St. Paul, Minnesota, worked with Norman Roth, an electrical engineer at Medtronic, to create a silicone rubber patch with two stainless steel electrodes imbedded in it. This bipolar electrode could be sutured to the heart and required about 70 percent less current than Bakkens pacemaker system. After animal experiments, an external pacemaker using the patented Hunter-Roth electrode was implanted in a human patient in 1958.

Even these advances, however, left room for improvement. Although small, the external pacemaker was still cumbersome. The devices wires could also be accidentally extricated from the heart, and the wounds caused by wires passing through the skin from the pacemaker to the heart required vigilance against infection. In 1958 Dr. William Chardack and electrical engineer Wilson Greatbatch overcame these difficulties when they built the first implantable pacemaker in America. The device, which incorporated the Hunter-Roth bipolar wire lead, was first successfully implanted in a human in 1960. By October of that year, Medtronic had purchased the exclusive rights to produce and market the Chardack-Greatbatch implantable pulse generator. The company received 50 orders for the device within the last two months of 1960.

The growing company organized its distribution outside the United States and Canada through the employment of the Picker International Corporation of White Plains, New York. Picker specialized in electrical medical equipment sales, and had an international network of 72 foreign sales offices. Fourteen Medtronic sales representatives covered the United States and Canada, beginning in 1960. The company introduced several ingeniously named products that year, including the Telecor heart monitor; the Cardiac Sentinel, an alarm that automatically summoned aid when a patients heart rate became critical and stimulated the heart with an electronically regulated pulse; and a Coagulation Generator that stanched bleeding during surgery without damage to nearby tissue.

The growing product line and increasing demand both enabled and required the company to move to a new, larger facility in 1961. The building was financed with $215,000 of convertible debentures and accommodated accounting, sales, engineering, production, medical services, a prototype lab, cafeteria, library, and an auditorium designed for sales training and technical seminars. Despite Medtronics dramatic sales increasesfrom $180,000 to over $500,000 from 1960 to 1962the company incurred losses during the same time period. Expenses, like the appointment of Picker International, the cost of building a new headquarters, new product research, and attendance at major medical and engineering conventions, increased faster than sales. Early in 1962 the company eased its financial tensions through a bond-offering of $200,000 and a $100,000 bank loan. The credit helped Medtronic turn a profit of $17,000 for the first three months of fiscal 1962.

Medtronic introduced several new products during the 1960s. Its electrocardiogram (EKG) transmitter sent a representation of a patients heart rate up to 500 feet, enabling physicians to diagnose a patients maximum exertion. The companys vein eraser used a high-frequency electric current to eliminate varicose veins. Gastrointestinal and pediatric pacemakers were also released during this time.

Research continued throughout the 1960s on Medtronics most important product, the implantable pacemaker. The company developed an endocardial catheter, a wire lead inserted through the jugular vein to the heart. When pacemakers with this trans-venous lead were introduced to the market in 1965, they seized a substantial portion of pacemaker sales. Medtronic also introduced a pacemaker that compensated for irregular heart beats. In the past, pacemakers induced a heartbeat through electric shock whether the heart beat naturally or not. Medtronic released external and implantable pacemakers with this feature in 1966 and 1967, respectively.

New product introductions and pacemaker improvements helped sales surge to over $12 million by the end of the 1967-1968 fiscal year. Profits increased dramatically as well, exceeding $1 million that year. A two-for-one stock split distributed some of the profits to shareholders. Medtronic also invested in its future with three additions to the companys original facility. A clean room facility for the assembly of implantable products was equipped with both a filtration system that purified the air and an environmental control system to regulate temperature and humidity. By this time, Medtronic products were inspected through x-ray technology, rather than visually. The improvements raised the companys quality control standards significantly, preparing Medtronic for impending U.S. Food and Drug Administration regulations.

Medtronic established a European Service Center in 1967 to provide technical support for that continent, which generated 80 percent of overseas sales. A major manufacturing facility in Kerkrade, Holland, was completed in 1969 to supply the region. The local production site helped keep Medtronics prices competitive and was a first step toward the reclamation of overseas sales from Picker International. Later that year, Medtronic formed its own international division to accommodate direct European sales. In 1970, the company was able to drop its contract with Picker International and control international sales, which accounted for 30 percent of total sales by that time.

The international operations were divided geographically into four regions: Europe/Africa/Middle East, Canada, Latin America, and Asia/Pacific. Direct sales offices were established in 19 countries, and technical centers and manufacturing plants were erected in primary markets. Technical Development Centers in Paris, Toronto, Minneapolis, and Miami encouraged cooperative research projects with local medical researchers. Service Centers in Tokyo and Lebanon helped distributors in the Asia/ Pacific and Middle East regions provide customers with technical information.

Medtronic also gained control of its primary North American distributors during the late 1960s and early 1970s. In 1968 the company purchased John Hay & Company, Ltd., a medical sales organization headquartered in Vancouver, British Columbia. The A.F. Morrison Company was acquired the following year, and by 1973 Medtronic accomplished complete jurisdiction over its North American sales with the purchase of the Medical Specialty Company and Corvek Medical Equipment.

The 1970s also saw the development of new products in two primary areas: cardiovascular and neuro-rehabilitation. Cardiovascular products developed for the diagnosis and treatment of heart disease included a nuclear-powered pacemaker. Medtronics pacemakers were also made smaller, more resilient, and more reliable during the decade. The use of hybrid circuitry enabled the company to offer smaller, less obtrusive pacemakers, and the development of lithium iodide batteries provided a more reliable, longer-lasting power source. These improvements enabled patients to wear the devices up to ten years without fear of failure. Medtronic worked with Dr. Samuel Hunter in the early 1970s to develop a sutureless myocardial lead that was screwed directly into the surface of the heart. The improvement permitted attachment under local anesthesia through a small incision, and thereby reduced the trauma involved with the normally invasive procedure. The company consolidated pacemaker production vertically through the creation of Micro-Rel, Inc., a manufacturer of hybrid circuits, and the acquisition of Energy Technologylater renamed Promeona producer of lithium batteries. Other cardiovascular equipment developed in the 1970s helped physicians diagnose patients instantaneously and monitor them by telephone. Cardiovascular products contributed the bulk of Medtronics sales.

Medtronics neuro-rehabilitation area, which also experienced heightened development in the 1970s, manufactured products that helped relieve chronic and acute pain. The Neuromod Transcutaneous Electrical Nerve Stimulator (TENS) alleviated pain through electrical stimulation applied externally. A similar device, called the PISCES system, was surgically implanted on the spinal cord to treat otherwise unmanageable pain of the trunk, arms and legs. These pain-relieving electrical systems could be used instead of destructive surgery and heavy drugs.

Like many other American companies, Medtronic was affected by high inflation during the late 1970s. The company reacted with tighter inventory controls and close monitoring of general and administrative expenses. Tougher regulatory policies instituted by the Nuclear Regulatory Commission and the Food and Drug Administration also increased research costs through requirements for tougher clinical and follow-up testing. Despite economic barriers, however, Medtronic surpassed $100 million in annual sales in fiscal 1976. That year, the company was ranked as one of Fortune magazines 1,000 largest U.S. corporations. Medtronics workforce multiplied as well, from less than 500 to over 3,400. By 1977, the companys international sales had increased dramaticallyup to $60 million, from just $1 million ten years earlier. The company used the income to initiate a heart valve subsidiary in 1977. Kastec Corporation was named for its director, Robert L. Kaster, who held five U.S. heart valve patents.

Medtronic experienced several leadership changes during the 1970s. In 1974, Earl Bakken gave up the day-to-day responsibilities of the presidency to become chairman of the board. Thomas E. Holloran replaced him for just two years, followed by Dale R. Olseth, who was elected president and chief executive officer. By the end of the decade, Medtronic had made its first major acquisition, Medical Data Systems, an Ann Arbor, Michigan, nuclear imaging company. Annual sales topped $200 million by 1980.

In the 1980s, Medtronic sought to further diversify its product line, while keeping its strong emphasis on pacemakers. Routine reinvestment of more than eight percent of annual revenues during the decade fueled research and development of new and improved medical devices, and by 1981 annual sales had reached another milestone, the $300 million mark. William R. Wallin was named president and CEO in 1985.

Computer technology helped Medtronic develop pacemakers that catered to a patients particular requirements. The Spectrax SXT, a programmable pacemaker that could be reprogrammed after the initial implantation without performing surgery, led the market soon after its release in 1981. In 1985 the Activitrax pacemaker was the first such device to automatically adjust the rate of heart stimulation in accordance with the rate of activity. The pacemaker passed U.S. Food & Drug Administration trials in 1986. That same year Medtronic solidified its position in this rate-responsive pacing with the purchase of Biotech of Bologna, Italy, and Vitatron of Dieren, the Netherlands. Biotechs pacemakers adjusted the heart rate according to the rate of respiration, and Vitatrons devices responded to variations in the hearts electrical timing to achieve the same basic results as Medtronics Activitrax. Medtronic made other technological adjustments in pacemakers in the 1980s. Improved leads reduced the number of times that they dislodged from 20 percent to less than 2 percent, and the use of platinum and steroids improved the leads conductivity, reducing inflammation of heart tissue.

The companys developments in the late 1980s and early 1990s included cardiovascular and cardiopulmonary products, and neurological and drug delivery devices. Angioplasty utilized a balloon catheter that could be inflated to clear clogged veins and arteries. Medtronic entered the field overseas in 1987, and in the United States the following year, with the introduction of its Prime angioplasty catheter. The company complemented its activities in the field with the acquisition of Versaflex Delivery Systems, Inc., of San Diego, another manufacturer of angioplasty catheters.

Medtronic became involved in cardiovascular surgery in 1987 with the acquisition of Johnson & Johnson Cardiovascular. The company produced the industry-leading Maxima membrane oxygenator, a device used during open heart surgery to reoxygenate blood. Neurological devices introduced in the late 1980s included the Selectra and ComfortWave electrical nerve stimulators, used to treat sprains and back pain. Medtronics nerve stimulators were also indicated for the treatment of scoliosis and angina. La Jolla Technology, Inc., another producer of electrical nerve stimulators, was acquired in 1987 to strengthen Medtronics position in this industry. The company also expanded its product line to include programmable, electronic drug delivery systems that could be either implanted or charged by electric current, and projected drugs through the skin.

With many acquisitions and new product introductions in the late 1980s and early 1990s, Medtronic was able to increase its annual sales from $300 million in 1981 to more than $1 billion in 1991. That year, William W. George was made president and CEO, succeeding Winston R. Wallin, who became chairman of the board.

However, with all the successes in the 1980s came some setbacks. A government review of pacemaker implants culminated in hearings by the U.S. Senate Special Committee on Aging that revealed a study showing overuse of pacemakers in Maryland. In 1983 Medtronic voluntarily recalled a new pacemaker lead when it recorded relatively high failure rates in clinical tests. These disadvantages resulted in slowed pacemaker salesin 1985, Medtronic reported its first year without an increase in sales and earnings. Medtronic was also involved in expensive patent litigation with such large medical manufacturers as Eli Lilly & Co. and Siemens AG during the decade.

The outlook improved in the late 1980s, when Medtronic developed a pacemaker-cardioverter-defibrillator (PCD) that was designed to combat tachyarrhythmia, a life-threatening condition involving a heart that beats too fast. Although the condition could be diagnosed before problems arose, the quick onset of tachyarrhythmia often claimed lives before medical help could arrive. The PCD was created to slow the heart rate and condition the organ to beat at a normal rate. In cases where the heart would not slow, the PCD was programmed to apply higher-voltage shocks, and in case of emergency, even defibrillate the heart. The PCD passed FDA tests in 1993, and promised to further raise Medtronics position in the medical device business, as well as save lives.

By the early 1990s, Medtronic had developed six primary areas of expertise: bradycardia pacing, tachyarrhythmia management, cardiopulmonary, heart valves, intreventional vascular, and neurological. In 1992, the companys international sales contributed 40 percent of total revenues, justifying new facilities and expanded operations in Japan, China, and Eastern Europe. Sales and earnings continued to grow in the 1990s, to $1.18 billion and $161 million, respectively, in 1992.

Principal Subsidiaries

Medtronic Europe (Belgium); Medtronic of Canada Ltd.; Medtronic Asia-Pacific (Japan).

Further Reading

Dubashi, Jagannath Change of Pace, Financial World, March 17, 1992, pp. 2627.

Medtronic Beginnings, Minneapolis: Medtronic, Inc., 1993.

Moore, Michael P., The Genesis of Minnesotas Medical Alley, University of Minnesota Medical Bulletin, Winter 1992, pp. 713.

Nelson, Glen D., M.D., A Brief History of Cardiac Pacing, Texas Heart Institute Journal, v. 20, 1993, pp. 1218.

Toward Mans Full Life, Minneapolis: Medtronic, Inc., 1990.

April S. Dougal

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