Medtronic, Inc.

views updated

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 world’s leading therapeutic medical device company, with about 47 percent of the $1.3 billion global pacemaker market. The company’s 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 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 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 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, 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 Medtronic’s first decade Bakken built almost 100 custom-made—often single-use—devices 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 today’s standards—parts 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 Medtronic’s history became inextricably connected to the history of open heart surgery. Bakken’s 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 patient’s 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 student’s lack of progress. In desperation, he asked Bakken, the lab’s 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 world’s 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. 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.

Medtronic earned a reputation as a front-running producer of biomedical engineering devices in the late 1950s. Bakken’s 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 surgery—and Medtronic—throughout 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 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 Bakken’s 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 device’s 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 patient’s 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 Medtronic’s dramatic sales increases—from $180,000 to over $500,000 from 1960 to 1962—the 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 patient’s heart rate up to 500 feet, enabling physicians to diagnose a patient’s maximum exertion. The company’s “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 Medtronic’s 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 company’s 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 company’s 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 Medtronic’s 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. Medtronic’s 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 Technology—later renamed Promeon—a 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.

Medtronic’s 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 magazine’s 1,000 largest U.S. corporations. Medtronic’s workforce multiplied as well, from less than 500 to over 3,400. By 1977, the company’s international sales had increased dramatically—up 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 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. 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. Biotech’s pacemakers adjusted the heart rate according to the rate of respiration, and Vitatron’s devices responded to variations in the heart’s electrical timing to achieve the same basic results as Medtronic’s 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 company’s 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. Medtronic’s 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 Medtronic’s 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 sales—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.

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 Medtronic’s 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 company’s 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.