October 28, 2011 / 8:21 PM / in 6 years

Medtronic CEO sees no edge in spin-off

CHICAGO (Reuters) - Medtronic Inc’s (MDT.N) chief executive sees no advantage in spinning off the company’s spine business, a division that has weighed on growth for the world’s largest medical device maker.

Calls to split up Medtronic -- separating the slower growth businesses from the faster ones -- to improve shareholder value came months before Omar Ishrak took the helm in June. Medtronic’s growth has slowed significantly due to a decline in medical procedures, product recalls and government investigations into the use of some devices.

A split made sense for Abbott Laboratories Inc (ABT.N), which said earlier this month it would separate its drug business, including multibillion-dollar arthritis treatment Humira, from the rest of its operations, Ishrak said in an interview on Friday. But he sees Medtronic’s spine business as still benefiting from other parts of the company.

“Abbott made the assessment that overall, there’s less value (as a whole) than in the different parts. It makes sense from their perspective,” he said, “We as well have to look at our portfolio in that way at all time.”

He said management has looked at whether different Medtronic businesses can perform better on their own.

Medtronic’s spine business benefits from other units of Medtronic, such as its business that makes surgical tools and navigation systems.

“It’s something we always examine and now we’ve done that assessment for Medtronic ... that’s something we should do on a periodic basis and our assessment is that the different pieces of Medtronic (together) actually add value,” he said.

One exception is the Physio-Control unit, a maker of external heart defibrillators used by hospital emergency rooms and paramedics, Ishrak said.

Medtronic, which had total sales of $16 billion in its fiscal year ended April 2010, has planned on spinning that business off for years. Ishrak said management is currently assessing the equity markets and timing of such a move.

Ishrak, previously CEO of GE Healthcare Systems, said the Medtronic board of directors fully supports the company’s strategy, which is centered on increasing penetration of its devices -- ranging from implantable heart defibrillators to insulin pumps -- in U.S. markets, as well as increasing its presence in emerging markets.

”If you just look at our existing products ... if they were the standard of care around the world, we’d have a $150 billion opportunity,“ he said. ”We’ve got about 10 percent of that. There are clear opportunities to increase penetration.

Ishrak said one of his main goals as CEO is to bring healthcare to developing countries. “There are 7 billion people in the world and 4 billion don’t have adequate healthcare. It’s a business opportunity and social responsibility.”


He expects the spine business to eventually recover from troubles such as a Senate investigation into whether doctors who were paid by Medtronic failed to report significant side effects of its surgical product called Infuse. The growth should return as an aging population demands treatment for common back ailments.

“There’s clearly growth in that market and we happen to be the leader by far,” he said.

Ishrak said he will do whatever it takes to maintain integrity and patient safety, and that hiding adverse side effects would not be tolerated.

    Ishrak expects U.S. demand for medical devices to remain sluggish as long as the economy is weak and unemployment high.

    “I don’t expect high growth by any means. Flat at best is what we can expect,” he said, adding that he still sees 1 to 3 percent sales growth in fiscal 2012.

    Sales in its largest business, Cardiac Rhythm Disease Management, which makes implantable defibrillators known as ICDs, has been sluggish and may remain so for some time to come.

    “I‘m not sure if we’re at a bottom yet. We think it will return to some level of growth,” Ishrak said.

    He was bullish about the prospects for the company’s recent acquisition of Ardian, a developer of catheter-based technology to treat hypertension when drugs don’t work. That could be a multibillion opportunity, he said.

    Ishrak said the company is still looking for acquisitions, especially in the cardiology space where it has a huge presence already. Medtronic has looked at ventricular assist devices, which help a weakened heart pump blood, but he said it still is not clear how these devices will be used over the long run.

    Ishrak said he is not looking to cut Medtronic’s research budget, but he wants R&D to be more productive.

    “(R&D spending) is appropriate, but the return we’re getting is inadequate,” he said “We launched 60 products last year and we grew by 2 percent.”

    Shares of Medtronic gained 46 cents to close at $35.48 on the New York Stock Exchange.

    Reporting by Debra Sherman; Editing by Tim Dobbyn, Bernard Orr

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