ST. PAUL, Martin Moylan, Minnesota Public Radio— Two years ago, when Omar Ishrak took over as CEO of Medtronic, the medical device manufacturer was struggling. The company had been plagued by ethics investigations, a weak stock price, sagging sales for pacemakers and other key products, and a lack of hot new devices to boost sales.At a recent industry forum at the Science Museum of Minnesota, Ishrak was asked to give himself a grade for his tenure so far.
“I think that’s for others to judge,” he said. “I can tell you from the satisfaction perspective, it’s very high. I’ve enjoyed every minute. I feel we can make a difference.”
Wall Street thinks Ishrak has made a difference, after coming to Medtronic from GE, where he had been CEO of the company’s health care business.Since Ishrak took command, Medtronic’s stock is up about 45 percent and sales are up. Profits rose 16 percent during Ishrak’s first year leading the company. They slipped about 4 percent in the second year but remain well above the profit levels the company was posting a few years ago.Ishrak has also won praise for fostering more openness about
the effectiveness and reliability of Medtronic’s products. Shortly after he took over as CEO, Ishrak agreed to submit the company’s much-criticized Infuse spine fusion product to an independent study overseen by Yale University. He even handed over the company’s own internal data for the review.
Infuse Questions
Infuse has been used on more than 1 million patients, according to Medtronic. Yale contracted with researchers in Oregon and the United Kingdom to review extensive medical data, including patients’ records.Ishrak said he really had no choice. “There were serious allegations,” he said.
One study co-author concluded that for most patients there was no reason to use Infuse, saying it doesn’t provide clear benefits over other options. Medtronic saw the results differently, contending that they validated the use of Infuse in some patients.Ishrak said the study replaced conjecture with facts. “At least this gives physicians a place to look at and form their own opinions as to how to take care of their patients,” he said.Industry analysts are giving Ishrak good marks for his handling of the problems Medtronic has faced.
Taxes, Health Care Reform Uncertainty
Beyond the Infuse saga, Ishrak has navigated the company through a troubled economy, uncertainty about heath care reform, slowing demand for key products, and consumer jitters about rising insurance premiums and out-of-pocket costs, said Joanne Wuensch, who follows the med-tech industry for BMO Capital Markets.
“He’s done very well during a very difficult medical technology market,” she said. “He’s put the right pieces in place. Last quarter, they took market share in markets that they hadn’t been taking market share in.”Wuensch especially likes Ishrak’s spending on innovation to develop new technologies. Nearly 40 percent of Medtronic’s revenue in the last budget year came from products introduced in the three previous years.
“I’m optimistic about the future of Medtronic,” she said. “I think they’re doing the right things at this stage.”Not everything is going Medtronic’s way right now. It is subject to a medical device tax that amounts to about 2 percent of its sales. Like other device firms the company has announced numerous recalls of products with problems that can harm patients. Medtronic has also announced multiple rounds of layoffs that cut thousands of jobs companywide and hundreds in Minnesota. And analysts say the company also faces pricing pressures from rivals seeking more sales, and hospitals and other customers intent on cutting costs.
“We think there will definitely be some pricing pressures and pressure on profits margins,” said Edward Jones analyst Jeff Windau.
Eye on China
“Especially as they get into new technologies and grow into those emerging markets like China,” he said.Ishrak sees growth opportunities ahead for the company in China and India, as their middle classes grow and more people learn about — and can afford — Medtronic’s devices.
“It’s massive: billions of people around the world who need care,” he said.
Medtronic says China alone accounts for about 40 percent of its emerging markets’ revenue. That amounts to about $800 million in annual sales, and revenue is growing 15 to 20 percent a year in China.More than a fifth of Medtronic’s sales are now outside the U.S., Canada and Europe. Its sales and profits dwarf those of its rivals. The company earned about $3.5 billion in its latest fiscal year on sales of more than $16 billion.Within the U.S. Ishrak expects less robust growth but still sees opportunities to sell more products.He said there will always be a market for new devices that improve health. “If someone finds a way to extend someone’s life, people will want that,” he said. “If someone finds a way to reduce pain, people will want that.”Ishrak will meet shareholders at his third Medtronic annual meeting next month in Mounds View.