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VOL. 124 | NO. 167 | Wednesday, August 26, 2009

Medtronic Extols Product Pipeline

By Tom Wilemon

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The top executive for Medtronic Inc. Tuesday touted new products in the pipeline after the company released disappointing first quarter results.

Medtronic’s profit plunged 38 percent from the same period a year ago, primarily because of a legal settlement with Abbott Laboratories over a patent dispute. The company earned $445 million during the quarter compared to $723 million a year ago.

Chief Executive Officer Bill Hawkins focused on the company’s future during an hourlong conference call with investor analysts. He said “in the coming quarters we expect to roll out an arsenal of new products,” which he characterized as “first-to-market, new products.” Some of those products will come from the medical device company’s Spinal and Biologics unit, which employs about 1,500 people in Memphis. Medtronic is based in Minneapolis.

Blemishes and all

The company’s most recent quarter, which ended July 31, was marred by a $360 million charge related to the legal dispute with Abbot and a spate of bad press stemming from a congressional investigation into Medtronic’s payments to physician consultants.

The earnings report made no mention of another costly legal settlement. Medtronic agreed in June to pay $179 million to end another patent dispute with rival DePuy Spine Inc.

However, the company won another recent court battle. Earlier this month, a jury in San Francisco had awarded Medtronic $57 million in damages in a patent dispute with AGA Medical Corp. The jury also ordered that AGA pay Medtronic a royalty of 11 percent on future sales of the infringing products.

For the quarter, the company’s Memphis-based division accounted for $915 million of the company’s $3.9 billion in revenue. Revenue for spinal products totaled $696 million compared to $638 million a year ago. Sales of its biologics products were flat. Revenue from biologics totaled $219 million compared to $221 million a year ago.

Its spinal products, which include the Kyphon for osteoporosis, grew 11 percent. International sales of spinal products grew by 24 percent, when calculated on a constant current basis.

‘Bench to bedside’

International sales were also up significantly for the medical device company’s other divisions. Hawkins said he expected international sales to “pace our growth going forward.”

Sales from outside the United States accounted for 39 percent of Medtronic’s worldwide revenue. Globally, the company added 400 sales representatives during the quarter.

An analyst asked Hawkins about whether he expected sales of Kyphon to continue at the same pace. A recent report in the New England Journal of Medicine casts doubts about the effectiveness of a similar procedure, a vertebroplasty which uses a product from a competitor. Hawkins stressed that this study was not based on data from the Kyphon.

“We continue to be very bullish on the role kyphoplasty will play,” Hawkins said.

The biologics division is planning new uses for Medtronic’s bone growth hormone product for possible applications with trauma injuries and for oral procedures, Hawkins said.

He also said the company is committed to transparency and said Medtronic would begin disclosing all physician payments in 2010. He said collaborations with surgeons are necessary to move the company’s products form “bench to bedside.”

The company announced in June that it had received approval for another product from its Memphis division, the BRYAN cervical disc system.

This month, Medtronic filed four applications with the U.S. Patent & Trademark Office for products with Memphis-based inventors. However, it could take as long as three to six years for these products to gain approval.

Power points

Company-wide, Medtronic spent $370 million on research and development during the quarter.

Medtronic’s cardiac rhythm disease management unit had revenue of $1.3 billion. Its cardiovascular unit had revenue of $689 million. Its neuromodulation products had revenue of $373 million. Its diabetes unit had revenue of $295 million. And its surgical technologies unit had sales of $227 million.

The company’s earnings on a per-share basis were 40 cents for the quarter compared to 64 cents for the same period a year ago.

“I am pleased with our solid first quarter performance and the progress it represents toward fulfilling our full-year commitments,” Hawkins said. “I am confident that our efforts to fuel innovation and develop a strong product pipeline positions us well for sustained growth during the remainder of the fiscal year and beyond.”

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