Top 30: the medical device.
Every great challenge begets an equally grand opportunity. The Great Recession was quite prolific in that regard, providing the world's largest corporations with the rare chance to restructure and become more efficient. The companies on this year's Top 30 list took full advantage of that opportunity, parlaying reduced labor costs and low interest rates to boost productivity and strengthen their balance sheets. But to regain their mojo, the companies--and industry as a whole--were forced to revamp their business models to reflect a radically different environment. The market needle that once was so closely tied to groundbreaking new products now only budges for devices that provide real solutions to physicians, hospitals, insurers and patients. "Novel products are no longer reimbursed without also proving that they are contributing to better health care at a reasonable cost, "Rudy Dekeyser, managing partner at LSP Health Economics Fund, told EY in its 2013 "Pulse of the Industry" report. To prosper in the current healthcare landscape, device firms must position themselves as more than mere providers of a single good or service. The value proposition comes from being a problem-solver--a partner that can demonstrably improve health outcomes in cost-efficient ways. These top 30 companies are doing just that, either through acquisitions, spinoffs, divestitures or forays into new treatment areas. As a famous naturalist once noted, it's not the strongest of the species that will survive, nor the most intelligent, but rather the ones most adaptable to change.1. Johnson & Johnson
$28.49 Billion ($71.3 B total)
KEY EXECUTIVES:
Alex Gorsky, CEO & Chairman
Dominic J. Caruso, VP, Finance & CFO
Michel Orsinger, Worldwide Chairman, DePuy Synthes Companies
Karen A. Licitra, Chairman, Global Medical Solutions Group
Gary J. Pruden, Chairman, Global Surgery Group
Kathryn Wengel, VP, Johnson & Johnson Supply Chain
NO. OF EMPLOYEES: 128,100 (total)
GLOBAL HEADQUARTERS: New Brunswick, N.J.
"If everyone is moving forward together, then success takes care of itself."
--Henry Ford
Automotive pioneer, industrialist and mass production innovator Henry Ford knew a few things about steering a sizeable organization. With an company as large and diverse as Johnson & Johnson (JNJ), getting all of its varied moving parts, products and people to move forward together certainly is no easy task.
Along the same lines, Ford also said: "Before everything else, getting ready is the secret of success."
Alex Gorsky, chairman and CEO of JNJ must have listened to the advice. Within the first few weeks of fiscal 2013 he hit the ground running, preparing for the year ahead by outlining the course ahead for his company's Medical Device & Diagnostics business unit--JNJ's largest revenue generator, beating out pharmaceuticals by a couple of hundred million dollars in FY13 (though pharma's growth percentages were a little stronger). Gorsky discussed market-leading products, plans for global expansion, and meaningful innovations in MD&D that position the company well for long-term growth. Johnson & Johnson last highlighted its device business in 2010.
"Our Medical Device & Diagnostics business is the largest medical technology business in the world with sales of $27.4 billion (in fiscal 2012), which grew 8.7 percent operationally with the inclusion of Synthes," Gorsky said at the start of the year. "We're building on our market leadership positions, having sustained or grown share in the majority of our key platforms, and hold number one or number two positions in over 80 percent of them today. We're also expanding in emerging markets, and with Synthes, generated strong double-digit growth there last year."
According to Gorsky, in 2011 and 2012, JNJ invested nearly $3.5 billion in research and development for its medical device segment, advancing its pipelines and developing new technologies and solutions across its businesses. His plan for 2013 was the same.
"As we look to the future we're advancing innovative new products in our pipeline, continuing to take a disciplined approach to managing our portfolio and adapting our business to the changing marketplace," Gorsky added.
Company leadership outlined a plan for "creating value through innovation."
"The Global Medical Solutions portfolio plays in separate and distinct markets but what we have in common is the opportunity to bring more value to the healthcare system by leveraging our leading product positions and connecting them inside and outside of Johnson & Johnson to offer solutions that focus on the most critical clinical and economic needs of our customers," said Karen Licitra, worldwide chairman, Global Medical Solutions Group.
Gorsky also outlined the importance of emerging markets. For the DePuy Synthes companies, for example, accelerating growth in Asia-Pacific and emerging markets will be fueled by customizing its product portfolio, developing simpler and affordable systems, sourcing manufacturing and R&D locally, and enhanced training and professional education for practitioners, officials noted.
New Products
What would a review of FY13 be without a look at new product introductions? As usual, JNJ had quite a few. Here are some notable additions to the company's deep stable of technologies:
* The U.S. Food and Drug Administration (FDA) granted Ethicon Endo-Surgery Inc. 510(k) clearance for its Harmonic Focus+ shears with adaptive tissue technology, a next-generation ultrasonic surgical device that responds "intelligently" to varying tissue conditions by regulating energy delivery. The new Harmonic Focus+ leverages the company's adaptive tissue technology first introduced in Harmonic Ace+, also introduced in 2013. The technology enables the system to actively sense and adapt to changing tissue conditions and intelligently deliver energy resulting in improved performance with superior precision. A slimmer profile is designed to increase speed and visibility, as well as improved dissection.
* The FDA granted 510(k) clearance to JNJ's Ethicon Endo-Surgery division for the Enseal G2 Articulating Tissue Sealer, which the company claims is the first articulating advanced energy device designed to allow surgeons to take a perpendicular approach to seal vessels up to 7 millimeters in diameter and lymphatics through a 5-millimeter port. Vessels sealed perpendicularly are stronger than those sealed at oblique angles, surgeons say. Stronger sealing helps reduce the likelihood of internal bleeding and post-surgery complications. One of the big challenges surgeons face when performing colorectal, gynecological and general surgeries is operating in challenging anatomy. The new tool will help surgeons maneuver around corners and behind structures in the body, and provide better access to tissue in deep or tight spaces for greater control of the angle of approach to vessels.
* Without a doubt, one of the most noteworthy products to come from JNJ in FY13 was in the orthopedic sector from DePuy Synthes--the Attune total knee replacement system. Tim Czartoski, director of marketing at DePuy Orthopaedics, told MPO following the launch that the effort to create Attune" mobilized the best talent in the organization and partnered with outstanding outside research organizations" to solve problems highlighted by research teams, patients and doctors. As part of the Attune research and development, DePuy Synthes Joint Reconstruction also developed the Intuition line of instruments. "Given that studies show 10 to 20 percent of knee replacement patients aren't completely satisfied with their knee replacement, we dedicated a significant amount of resources to designing a knee that would help to address these concerns. The Attune knee is the result of our largest research and development project ever," said Hannah McEwen, worldwide director for Knee Product Development, DePuy Synthes Joint Reconstruction. Additional updates have been launched since the product originally was introduced in March last year.
Making Good Progress
By the close of FY13 (ended Dec. 29, 013), JNJ's device and diagnostics businesses reached revenue of $28.5 billion, representing an increase of 3.9 percent compared to 2012, with operational growth of 6.1 percent and a negative currency impact of 2.2 percent. U.S. sales were $12.8 billion, an increase of 3.5 percent. International sales were $15.7 billion, an increase of 4.2 percent, with operational growth of 8.3 percent and a negative currency impact of 4.1 percent.
Primary contributors to operational growth were sales from the acquisition of Synthes and DePuy Synthes joint reconstruction products in the orthopedics business, Biosense Webster's electrophysiology products in the Cardiovascular Care division, JNJ's Vision Care business, as well as biosurgicals and international sales of energy products in the Specialty Surgery business, officials said.
"Integrating Synthes has been our priority, and we've made good progress," NJ officials noted. Based on FY13's performance, they're not exaggerating.
Products from JNJ's orthopedics businesses generated sales of $9.5 billion in 2013, a 21.9 percent increase over the prior year. Growth was primarily due to a full year of sales recorded from the acquisition of Synthes and sales of joint reconstruction products. Sales were impacted by the divestiture of certain rights and assets related to the DePuy trauma business. The positive impact on the orthopedics franchise total sales growth and operational growth due to the newly acquired products from Synthes net of the related trauma business divestiture was 21.2 and 34.7 percent in 2013 and 2012, respectively.
Sales for the Surgical Care business were $6.3 billion in 2013, a decrease of 3.3 percent from 2012. The decline primarily was due to lower sales of mechanical surgery, breast care and pelvic floor products. Outside the United States, increased sales of sutures and endoscopy products were offset by the negative impact from currency.
The Vision Care franchise achieved sales of $2.9 billion in 2013, a decrease of 2 percent from the prior year. The decline primarily was due to sales in Japan, which were impacted by the devaluation of the yen. The decline was partially offset by growth of Acuvue TruEye contact lenses and 1-Day Acuvue Moist for astigmatism.
The Specialty Surgery franchise achieved sales of $2.6 billion in 2013, a 2.6 percent increase compared to 2012. Contributors to the growth were strong sales from biosurgical products, sales of energy products outside the United States and Acclarent ear, nose and throat products in the United States.
The Diabetes Care franchise sales were $2.3 billion, a decrease of 11.7 percent compared to 2012. Sales slumped due to the impact of lower prices primarily related to competitive bidding in the United States as well as pricing pressures in international markets.
Revenues for JNJ's Cardiovascular Care franchise sales were $2.1 billion, a 4.6 percent increase from the prior year. The bump was driven by strong growth in Biosense Webster's electrophysiology business primarily due to the success of a number of catheter launches.
Diagnostics franchise sales were $1.9 billion, a decline of 8.9 percent compared to the prior year. The decline was primarily due to the divestiture of the Therakos business and a sales decline in clinical laboratories. In January 2013, the company announced it was exploring strategic alternatives for the Ortho-Clinical Diagnostics business, including a possible sale. In January 2014 JNJ found a buyer--an offer from the Carlyle Group to acquire the Ortho-Clinical Diagnostics business for $4.15 billion
Pre-tax profit for the JNJ's medical devices business as a percent to sales was 18.5 percent ($5.3 billion) compared to 26.2 percent in 2012. Pre-tax profit took a hit from higher costs of $1.4 billion for litigation expense and $100 million related to the DePuy ASR hip program as well as the medical device excise tax. In addition, 2012 included higher gains of $400 million on divestitures, partially offset by higher write-downs of intangible assets and in-process research and development of $100 million and higher costs of $100 million related to the Synthes acquisition.
The FY13 impact of the 2.3 medical device excise tax that was enacted at the beginning of 2012 as part of the Affordable Care Act was approximately $200 million.
For JNJ overall, sales were $71.3 billion, up 6.1 percent. Net earnings and diluted earnings per share for the full-year 2013 were $13.8 billion and $4.81, respectively.
R & Deep Pockets
In the medical device sector, a lot of new products are the result of acquisition. But for a company like Johnson & Johnson, deep pockets for extensive R&D funding are the primary driver for new technology introductions year after year. For FY13, R&D spending for JNJ's device businesses rose to $1.78 billion from $1.68 billion in 2012.
Also driving research and development activities is a network of regional innovation hotspots to advance healthcare by starting collaborations in science and technology between regional innovators and the JNJ family of companies across a diverse spectrum of startup opportunities. The first of four innovation centers opened its doors in London, in the United Kingdom, in March 2013. The second was a center in Menlo Park, Calif., that opened in early June. Later in June, the third center opened in Boston, Mass. A fourth is planned to open in Shanghai, China, by the end of 2014 (Shanghai also is home to a JNJ R&D center that opened in 2009). Each city was selected for its robust life-sciences community, which according to JNJ, provides a rich environment for identifying investment, in-licensing and collaboration opportunities. The center in Boston, for example, is home to a team of business, science and transaction experts who are focused on identifying and building novel collaborations with emerging companies, entrepreneurs and academic centers across eastern North America. Among its first projects, the office has established a research alliance with The Icahn School of Medicine at Mount Sinai to research next-generation therapies for inflammatory bowel disease; invested in Rodin Therapeutics, a biotechnology company focused on applying insights of epigenetics to advance novel therapeutics for neurological disorders such as Alzheimer's disease; invested in Vedanta Biosciences in order to advance a new class of therapies that modulate pathways of interaction between the human microbiome and the host immune system; and expanded Janssen Labs to Cambridge, Mass., which marks the first East Coast expansion for the JNJ pharmaceutical lab headquartered in San Diego, Calif.
But there's always innovation through acquisition.
JNJ's Cordis division purchased Flexible Stenting Solutions Inc., a developer of flexible peripheral arterial, venous and biliary stents. Terms of the deal were not disclosed.
Currently, Cordis markets the S.M.A.R.T. vascular stent worldwide. The addition of Flexible Stenting Solutions' FlexStent self-expanding stent provides Cordis with the opportunity to evolve the S.M.A.R.T. platform to address unmet needs in the treatment of peripheral artery disease (PAD), officials said. It also extends the company's potential to expand therapeutic applications into below-the-knee and venous interventions. An estimated 27 million people in Europe and North America alone suffer from PAD.
Cordis received superficial femoral artery (SFA) and proximal popliteal artery (PPA) indications for the S.M.A.R.T. stent, the only stent approved in the United States for iliac, SFA and PPA vascular indications. SFA and PPA are in the upper leg.
The FlexStent system received European CE mark for the treatment of vascular disease (iliac, SFA and popliteal) in January 2009. In the U.S., the device received FDA 510(k) clearance for the palliative treatment of biliary strictures associated with malignant tumors in September 2009. FlexStent also is being evaluated in an investigational device exemption study to evaluate its safety and efficacy in the treatment of patients with atherosclerosis (hardening and narrowing of the arteries) in the SFA. Data from the trial is expected to support a premarket approval application requesting an expanded indication to treat SFA disease in the United States.
Legal Matters
In November 2013, JNJ announced it would pay $2.5 billion to settle the thousands of lawsuits brought by hip replacement patients who accuse the company of selling faulty implants that led to injuries and additional surgeries.
The agreement presented in U.S. District Court in Toledo, Ohio, is one of the largest for the medical device industry. It resolves an estimated 8,000 cases of patients who had to have the company's metal ball-and-socket hip implant removed or replaced.
"We are committed to the well-being of ASR patients, as demonstrated by the voluntary recall and the program providing support for recall-related care," said Andrew Ekdahl, worldwide president, DePuy Synthes joint reconstruction. "The U.S. settlement program provides compensation for eligible patients without the delay and uncertainty of protracted litigation. DePuy remains committed to our purpose of advancing innovative treatment options to serve those who need joint replacement surgery."
Prior to confirmation of the settlement, rumors were swirling about the amount the company would have to pay.
Early reports said the company was willing to pay more than $4 billion to settle thousands of lawsuits over its faulty ASR hip implants, according to Bloomberg news, citing three sources familiar with the deal.
The company spent months preparing for the first federal trial involving its recalled ASR implants but the case was postponed three times due to difficulties scheduling expert witnesses and depositions. The judge assigned to the case consolidated the 7,860 lawsuits pending against DePuy into one bellwether trial to advance the litigation in a timely manner.
Thousands of ASR lawsuits are still pending in state courts. Some already have been settled--a California jury awarded $8.3 million to a retired Montana prison guard (DePuy, naturally, is appealing the verdict) and an Illinois jury sided with the company, rejecting claims that DePuy's ASR XL hip implant was defectively designed and causes debilitating injuries.
Joint replacement registries in both Australia and the United Kingdom have recorded higher than expected complications with DePuy's ASR hip resurfacing system and ASR XL acetabular system total hip replacement, including a loosening of the implant within the body, bone fractures near the implant, dislocation and a condition called metallosis, which occurs from the rubbing of metal parts.
The growing number of patients needing a second hip replacement prompted Johnson & Johnson to recall 93,000 of its ASR XL acetabular system, a hip socket used in traditional replacement surgery, and the ASR resurfacing system, a partial hip replacement that involves placing a metal cap on the ball of the femur in order to preserve more bone. The company announced the recall on Aug. 26, 2010, admitting that 12 percent of the implants failed within five years. Internal JNJ documents show 37 percent of ASR hips failed after 4.6 years; in Australia, the failure rate climbed to 44 percent within seven years.
Besides compensating affected patients, JNJ also will reimburse Medicare and other insurers for claims paid on behalf of hip implant patients, a condition that could add hundreds of millions of dollars to the reported settlement value.
Hips weren't the only legal headache for the company.
In February last year, Johnson & Johnson also faced a verdict on a lawsuit brought against it over a vaginal mesh implant. The company was ordered to pay a South Dakota woman $3.35 million for inadequate warning on its brochures. The implant is made by JNJ's subsidiary, Ethicon Endo-Surgery Inc., which makes suture and wound closure devices. The company is based in Somerville, N.J.
This verdict is the first in approximately 1,800 vaginal mesh cases pending in New Jersey against JNJ and Ethicon.
The lawsuit, in state Superior Court in Atlantic City, N.J., was brought by Linda Gross, 47, of Watertown, S.D., in November 2008. It alleged the Gyncare Prolift vaginal mesh was not safe and that JNJ and Ethicon were liable, among other things, for "their defective design, manufacture, warnings and instructions."
The device was designed to treat pelvic organ collapse, which can occur when the tissue that holds the pelvic organs together is weakened or stretched and bulges into the vagina. This can happen after menopause, childbirth or a hysterectomy. Surgeons also used the device to treat stress incontinence, a severe form of urinary incontinence.
The FDA told JNJ, C.R. Bard Inc. and 31 other manufacturers in January 2012 to study rates of organ damage and complications linked to vaginal mesh implants. Physicians implanted more than 70,000 such devices in U.S. women in 2010.
This April, Johnson & Johnson was ordered by a Texas jury to pay $1.2 million to a woman who alleged one of the company's lines of vaginal-mesh implants was defectively designed.
People News
Mark B. McClellan, M.D., Ph.D., senior fellow in economic studies, and director of the Initiative on Value and Innovation in Health Care, Brookings Institution, joined JNJ's board of directors last October He will serve on the Regulatory, Compliance & Government Affairs Committee and the Science, Technology & Sustainability Committee of the Board. McClellan served as FDA commissioner from 2002 to 2004, and as administrator of the Centers for Medicare & Medicaid Services for the U.S. Department of Health and Human Services from 2004 to 2006. From 2001 to 2002, he served as a member of the President's Council of Economic Advisers and senior director for healthcare policy at the White House. During President William J. Clinton's administration, McClellan held the position of deputy assistant secretary of the Treasury for economic policy.
"Dr. McClellan has a distinguished record in the public sector as well as a deep understanding and vision for the future of health care," said Gorsky. "Mark shares our aspiration to help people live longer, healthier and happier lives and personally is committed to improving healthcare across the globe. He will be a valued leader on our board."
McClellan previously served as an associate professor of economics and medicine with tenure at Stanford University, where he also directed the Program on Health Outcomes Research.
A 1985 graduate of the University of Texas at Austin, McClellan earned his M.D. degree at the Harvard University--Massachusetts Institute of Technology (MIT) Division of Health Science and Technology, and his master's of public administration degree at the Kennedy School of Government at Harvard. He earned his Ph.D. in economics at MIT and completed his residency in internal medicine at Brigham and Women's Hospital in Boston.
2. Siemens Healthcare
$18.42 Billion ($102.6 B total)
KEY EXECUTIVES:
Joe Kaeser, President & CEO, Siemens AG
Eric A. Spiegel, President & CEO, Siemens USA
Hermann Requardt, CEO, Siemens Healthcare
Michael Reitermann, CEO, Siemens Healthcare, Diagnostics
Bernd Montag CEO, Siemens Healthcare, Imaging & Therapy Systems
Gregory Sorensen, M.D., CEO of Siemens Healthcare North America
Jeffrey Bundy, Ph.D., CEO, Siemens Ultrasound
NO. OF EMPLOYEES: 52,000 (362,000 total)
GLOBAL HEADQUARTERS: Munich, Germany
Healthcare systems--not just in the United States, but globally--are facing unprecedented change. While healthcare is primarily organized within national geographies, the issues impacting the industry are global, according to healthcare markets analysts at professional services firm KPMG. Demographics, fiscal restraint, new technologies and consumer expectations, experts continue to note, are creating challenges and opportunities.
Safety and efficacy are, of course, paramount. Close behind, if not on par these days with the first two axioms, is value.
And though mature systems such as those found in the United States and Western Europe are grappling with the value equation as well, emerging economies have the advantage of getting a head start in streamlining costs against outcomes, by "baking in" the concepts of value-based healthcare as a central organizing feature from day one, according to analysts with the healthcare division of the London, United Kingdom-based Economist Intelligence Unit.
"Value-based health is here to stay," said Vivek Muthu, M.D., managing director of EIU Healthcare/'Those who ignore or fail to implement a value-based strategy do so at their peril. It requires a refocus, a mind-set shift that begins with an acknowledgement that any action in healthcare must improve outcomes for the individual patient and also for the health system as a whole."
Companies such Siemens Healthcare aggressively are positioning themselves for this new value shift. The multibillion-dollar, multinational division of Germany-based Siemens AG, includes diagnostic imaging and image-guided therapies, as well as a clinical products division that includes ultrasound and X-ray equipment, providing a mix of high-end solutions and cost-efficient, less complex equipment for emerging economies. The company also includes an in-vitro diagnostics division and a unit providing healthcare information technology (HIT) systems.
To illustrate its "global" healthcare viewpoint, in its annual report for fiscal year 2013 (ended Sept. 30), Siemens highlighted the work of Medanta, a multi-specialty hospital in Gurgaon, India.
In the United States, a coronary artery bypass operation costs about $40,000. In Europe, the figure is around $25,000. At Medanta, the same operation costs less than $4,000.
"We can provide the operation at that price because labor costs in India are lower and because we work much more productively than our colleagues in the West. In India, heart surgeons perform an average of more than 600 operations a year--in some cases, up to six times the number performed by their counterparts in other countries," said Namrata Gaur, M.D., a cardiothoracic and vascular surgeon. "Our advanced medical technology solutions from Siemens and our optimized IT infrastructure are further key factors."
Gaur is enthusiastic about her work, but is concerned about the growing number of cardiovascular patients under her care.
"The incidence of coronary artery disease is increasing sharply, and our patients are getting younger all the time," she explained. "Not long ago, for example, we operated on a girl of only 14. One contributing factor is a genetic predisposition in the Indian population, and another is the changing lifestyle. In the cities, in particular, there's more stress, people are smoking more, eating less-healthy foods and paying less attention to their health in general."
As a result, India will have to expand its capacity for treating cardiovascular disease in the years ahead. Despite growing prosperity, relatively few people can afford health insurance. The challenge is to provide access to high-quality healthcare--regardless of their income and status.
To respond to similar conditions in healthcare markets around the world, Siemens Healthcare's research and development (R&D) activities most recently have focused on two trends: The world's population continues to grow steadily and to get older. These trends increase the pressure on healthcare providers to treat more people at increasingly lower costs in order to stabilize rising healthcare spending. To meet these needs, R&D efforts have targeted the development of systems that help physicians diagnose large numbers of patients but also are robust, easy to use, and inexpensive to purchase and maintain. (Incidentally, Siemens Healthcare spent roughly $1.58 billion in R&D in 2013.)
One example is technology that the company claims is the world's first wireless ultrasound device, Acuson Freestyle The system is designed to make it easier to use advanced ultrasound technology in areas that need to be aseptic, or sterile. Examples include interventional radiology, anesthesiology, intensive care, catheter labs, and emergency care. Ultrasound with wireless transducers also is ideally suited for minimally invasive procedures such as nerve blockades, access to blood vessels, and positioning for therapeutic interventions and biopsies.
Acuson is made at Siemens'a new manufacturing site in Plymouth Meeting, Pa., just outside Philadelphia. It is a 12,000-square-foot facility opened in 2013 following Siemens' acquisition of ultrasound company Penrith Corp. in 2012--a move made to expand the company's ultrasound offering.
"With this new facility, we will be able to offer Siemens customers worldwide a cutting-edge ultrasound system that eliminates the impediment of cables during ultrasound-guided procedures," said Jeffrey Bundy, Ph.D., CEO, Siemens Ultrasound. "The Acuson Freestyle system's wireless transducer technology offers greater flexibility and ease in obtaining accurate transducer placement, and simplifies sterilization in interventional settings. The system will enable ultrasound technology to be used more readily in a variety of point-of-care applications, including interventional radiology, critical care, anesthesiology, and emergency care."
The Philadelphia-area facility will be Siemens' second ultrasound manufacturing facility in the United States. The other is in Buffalo, Grove, Ill.
Corporate Shuffle
Siemens had an important corporate changing of the guard at the top during FY13.
After parent company Siemens AG issued its second profit warning of the year, CEO Peter Loescher was voted out by the company's supervisory board on July 31. He was replaced by Joe Kaeser, who had served as the company's chief financial officer (CFO). There had been rumors in the past of Kaeser eyeing the chief executive role, but the two insist there is no bad blood between them. Late last year, when questioned about the rumors, the CFO said the two complemented each other "like light and dark." Loescher was named CEO in 2007 and was the first person appointed from outside the company to take on the job. He joined the company from U.S. pharmaceutical company Merck & Co. He was, at the time, hailed as a hero who would lead Siemens out of prominent bribery and price-fixing scandals that had blackened both its image and finances.
Loescher did drag the company out of that mire, but lost credibility after repeated misjudgments around demand in Siemens' main markets. A company with assets totaling $143 billion, Siemens often is viewed as a bellwether of Germany's economy, and it has been suffering since German exports fell in late 2009. The company also has been affected by a series of one-time charges related to project delays and other issues.
"Peter Loescher restored Siemens' high reputation and helped it achieve a series of impressive successes," said Gerhard Cromme, board chairman/'Under his leadership, Siemens experienced two of the most successful years in its history."
"Our company is certainly not in crisis, nor is it in need of major restructuring," Kaeser said. He did allow, however, that Siemens has lost some profit momentum compared with competitors and said he wanted to put the company back on an" even keel."
Financial Ups & Downs
For fiscal year 2013, Siemens Healthcare recorded flat sales of 13.6 billion euros ($18.4 billion). Profit for the year was up 13 percent in euros, from 1.82 billion to just shy of 2.05 billion ($2.8 billion). Sales in the Americas were 5.63 billion euros ($7.61 billion), down 1 percent compared to 2012. The United States made up 35 percent of Siemens Healthcare's overall sales for FY13. Sales also fell 1 percent in Europe/Africa/Middle East to 4.54 billion euros ($6.14 billion). Sales grew in Asia/Australia by 3 percent to 3.42 billion euros ($4.62 billion).
"Growth was driven by emerging markets, as these countries continue to expand access to healthcare for a broader population and build up their healthcare infrastructure," Siemens officials noted. "In contrast, markets in industrialized countries grew only modestly compared to the prior fiscal year as demand was held back by healthcare reforms and budgetary constraints, particularly in Europe. Healthcare IT markets grew faster than the healthcare market as a whole, on particular strength in the United States. On a geographic basis, markets in Asia, Australia grew in the high single digits, including double-digit growth rates in China. Markets in the Americas, including the U.S., grew moderately."
Profit for the company's diagnostics business (for which the company breaks out specific figures, but not for other healthcare sectors) came in at 350 million euros ($473 million) compared to 314 million euros in 2012 ($404 million at 2012 rates). Revenue declined 1 percent, from 3.97 billion euros ($5.11 million at 2012's Sept. 29 conversion rate) to 3.94 billion euros ($5.33 billion).
For Siemens as a whole, sales were down 2 percent to 75.9 billion euros ($102.6 billion). Net income was up 3 percent to 4.41 billion euros ($5.96 billion). Earning per share grew 7 percent to 5.08 euros ($6.87).
Going Forward, More Change
In May this year, during fiscal 2014, Siemens is planning a restructuring that will unleash its healthcare unit as a separate business.
At a recent press conference in Berlin, Germany, Kaeser outlined the plan, which will see the company's four business sectors--industry, energy, healthcare and infrastructure--eliminated in favor of bundling businesses into nine divisions.
Additionally, Siemens' hearing aid business also will be spun off and publicly listed. There also are rumors that the company is planning to divest its healthcare IT operations.
"Looking at the longer run, the market technologies of healthcare [are] going to see fundamental changes," said Kaeser. "For example, cost reimbursement systems--these are increasingly value-based and require new business models."
Company officials pointed to a number of paradigm shifts in medicine that helped drive the decision to restructure healthcare, including disruptive technological changes such as big data analytics, increasing use of molecular diagnostics and the growth of mobile healthcare.
"To be able to adequately respond to these profound changes and to keep a hand at the helm to be able to react properly, healthcare will be set up as a separate unit within Siemens in the future, "said Kaeser.
With healthcare managed separately, regional organization structure can be tailored to the requirements of the healthcare market and don't have to conform to Siemens' organizational matrix, according to the company.
Siemens anticipates that the bundling of divisions and elimination of the sector level will cut costs by reducing bureaucracy. Increases in productivity are expected to be around 1 billion euros annually, fully effective by the end of fiscal 2016.
Morgan Stanley analyst Ben Uglow said the restructuring shows "healthcare will no longer have the same go-to-market strategy as the rest of Siemens," while Nicholas Heymann of William Blair noted the move "suggests [the unit will] be either IPO'd, spun out, sold or swapped."
Last year, a report suggested that Kaeser received proposals from investment banks about an initial public offering or spinoff of the healthcare division.
Siemens said the public listing of its audiology unit will" give the business an opportunity to better leverage its potential," noting the division's" technology and ... consumer-oriented market access limit synergy potentials with other ... businesses/'Siemens executives said that anticipated technological developments at the unit"differ greatly from those of ... its healthcare activities ... this applies particularly to growth fields like implants and the link to consumer electronics."
Siemens also announced that second-quarter profit in its healthcare unit jumped 19 percent year-over-year to 531 million euros ($739 million). Meanwhile, revenue fell 1 percent to 3.3 billion euros ($4.6 billion), with orders dropping 4 percent to 3.2 billion euros ($4.5 billion). Siemens said sales and orders came in below prior-year levels due to declines in the Americas region, while orders fell in both Asia and Australia. The company added that sales in its diagnostics unit fell 3 percent to 937 million euros ($1.3 billion), due to lower revenue in the Americas region.
Kaeser said the second quarter showed that the company has "a lot to do" to improve its operating performance. "Nevertheless, we are on course to reach our targets for the fiscal year," he said.
RELATED ARTICLE: Streamlining Medical Device Manufacturing.
One of primary sectors Siemens serves is industry automation, which makes industrial controls, industry software and designs ways to streamline customers' product development and production processes from product design to production to service. Though not part of the company's healthcare operations, the division's talents certainly are used by medical technology companies--orthopedic implant makers, for example.
According to the Centers for Disease Control and Prevention, there are approximately 720,000 total knee replacements performed every year in the United States and 332,000 hip replacements. And those numbers continue to rise. But, like with most processes in healthcare these days, medical device firms continually search for ways to improve the manufacturing process and keep the new product pipeline flowing while at the same time reducing cost and improving quality.
"The key here is to have a comprehensive overview of all the steps in both product development and the manufacturing process--from the initial implant design to production planning and machine tool configuration (production engineering) to actual manufacturing and services," Sabine Fietz, a Siemens engineer explained in the company's annual report. "By using software solutions to link all these steps in an end-to-end process chain, we can enable implant manufacturers cut the cost of designing implants. We're also leveraging this approach to make production processes more efficient in other industries."
At Siemen's Technology and Application Center in Erlangen, Germany, intelligent software solutions are designed to enable manufacturers to produce implants faster and more economically.
People are living longer, and that means more healthcare products. As the age pyramid for the industrialized countries clearly shows, more and more individuals. With orthopedic implants and the push toward customized patient-specific solutions, the challenge is to manufacture increasingly individualized products that are also affordable.
Siemens creates software to allow different manufacturing steps--from product development to manufacturing--to be simulated, tested and integrated in a virtual environment. This way, implant manufacturers can test and optimize processes before a single machine tool or production facility goes into operation. Only when everything is working perfectly in the on-screen simulation does the real production process begin.
Specialized software can help ensure specifications in the form of digital prototypes, quickly develop computer numerically controlled programs, set up or retool machines for different batch sizes or accelerate machine-tool performance.
Efficiency such as this leads to improved time to market.
"By linking virtual and real processes, we enable the efficient use of manufacturing facilities even for small-batch production," Fietz explained. "By implementing this approach, we're reducing the cost, effort and time needed to manufacture implants and laying the foundation for more affordable and thus more widely available implantation processes."--MPO
3. GE Healthcare
$18.20 Billion ($146 B total)
KEY EXECUTIVES:
Jeffrey R. Immelt, Chairman & CEO, General Electric
John Dineen, President & CEO, GE Healthcare
Frank Schulkes,VP & Chief Financial Officer, GE Healthcare
Marcelo Mosci, President & CEO, U.S. and Canada Region
Tom Gentile, President & CEO, GE Healthcare Systems
Rachel Duan, President & CEO, GE Healthcare China
Akihiko Kumagai, President & CEO, GE Healthcare Asia Pacific
Brian Masterson, VP, Global Supply Chain
Markus Ewert, Exec. VP, Business Development
Jean-Michel Malbrancq, President & CEO, GE Healthcare Europe
Joe Shrawder, President & CEO, GE Healthcare Latin America
Terri Brensenham, President & CEO, GE Healthcare India
Kieran Murphy, President & CEO, Life Sciences
Jan De Witte, President & CEO, Healthcare IT
Rafael Diaz-Granados, GE Healthcare Simplification Leader
Mike Swinford, President & CEO, Global Healthcare Services
NO. OF EMPLOYEES: 54,000
GLOBAL HEADQUARTERS: Fairfield, Conn.
"If there is no struggle, there is no progress."
--Frederick Douglas.
The road to progress is seldom smooth. More often than not, it's littered with bumps, breaks and barriers that can discourage and test even the most seasoned of travelers. The typical journey is excruciatingly slow, with the destination looming far off in the distance, perpetually hanging on the horizon like a desert mirage in the midday sun.
While frustrating, achieving progress through such means is necessary for business success. Many Fortune 500 companies--Apple Inc., Exxon Mobile Corporation, General Electric, Walmart among others--consistently have changed, grown and profited by" failing forward," or learning from their mistakes.
Apple, for one, received quite an extensive education from its misfires: without the Apple Lisa, the Performa, the QuickTake, the PowerCD, the Bandai Pippin, the Newton, and the Interactive Television Box, there likely wouldn't be the iMac, iPod and iPhone.
Walmart, too, learned some valuable lessons from the short-lived (higher-priced) Metro7 clothing line, the failed expansion into Germany and South Korea, and the 2012 Mexican bribery scandal (a New York Times report accused the company's Mexican subsidiary of accepting more than $24 million worth of bribes to help the firm beat its competition's expansion plans in the country).
Mistakes, then some progress. GE is not immune to the gaffe-and-grow formula, having long ago sold its computer division (developer of the cutting-edge GE 200, GE 400, GE 600, Datanet 30, Datanet 355 and others) to focus on the more promising fields of aviation, power/water, oil/gas, energy management and healthcare.
"GE has stayed competitive for more than a century--not because we are perfect--but because we make progress, "Board Chairman/CEO Jeffrey R. Immelt told shareholders in an eight-page letter at the start of the company's 2013 annual report. "Progress is about getting better, being better, doing better... As investors, you can expect us to listen, learn, adapt and change. You should expect us to get better every day, to make progress."
Progress as well as mistakes.
GE certainly made progress last year, growing its segment profit 7 percent to $24.5 billion, expanding its operating earnings per share 9 percent, and returning $18 billion to investors through dividends and share repurchases through Dec. 31. The company ended 2013 with a record $244 billion in backlog and increased its earnings 12 percent mostly through strong performances in real estate and international lending/leasing.
In addition, total shareholder return ballooned 38 percent, and GE's dividend jumped 16 percent, according to the 2013 annual report. The firm also added $64 billion of market cap, bringing its total worth to $282 billion and turning it into the world's sixth most valuable company.
Much of that progress, however, was shadowed by mistakes. The multinational's total revenues ($146 billion), for instance, remained flat for the second consecutive year, and only five of its seven business segments generated profits (a dramatic change from 2012, when all seven segments posted gains for the first time since 2006). The profit-makers included Energy Management, which grew sales 2.1 percent to $7.5 billion; Appliances & Lighting which expanded revenue 4.6 percent to $8.3 billion; Transportation, which increased sales 4.9 percent to $5.8 billion; Aviation, which boosted revenues 9.5 percent to $21.9 billion; and Oil & Gas, which generated an additional 11.3 percent in sales ($16.9 billion).
The Healthcare and Power & Water segments failed to bear fruit last year, slipping 0.5 percent and 12.6 percent respectively, but both managed to maintain their top-earning spots within the company (Power & Water at No. 1 and Healthcare at No. 3).
Healthcare profits basically flatlined last year, grossing $18.2 billion in total, or just $90 million less than its 2012 haul. In the company's annual report, executives attributed the ebb to lower prices, the effects of a stronger U.S. dollar and lower other income.
Healthcare's profits were considerably more sound, rising 4 percent to $3 billion on higher volume and increased productivity.
"The difficult part about progress is that great results take time. But the payback can be huge," Immelt said in his shareholder letter. "At our kickoff meeting this year, the leader of our Ultrasound business--Anders Wold--gave a presentation about the power of ultrasound to solve global and rural health issues. In the 1990s, we were No. 7 in ultrasound. Today we are No. 1. In the past, we broke even; today we grow profits 15 percent annually at high margins. Ultrasound is a fast-paced, global business ... if we trapped ourselves in dogma and slogans--don't try new things; big companies can't be fast; stick to what you know--we would have given up on ultrasound long ago. Instead, we are winning."
Immelt expects his company to travel the same slow path to progress in magnetic resonance imaging (MRI) technology and traumatic brain injury treatment. In March 2013, GE and the National Football League (NFL) announced a four-year, $60 million collaboration to speed and improve traumatic brain injury diagnosis and treatment. Dubbed the "Head Health Initiative," the plan features two Challenge topics: The first focused on developing imaging technologies and algorithms that could better detect and analyze subtle changes in the brain. Specifically, the two organizations wanted to help doctors better understand the molecular and physiological changes that occur shortly after a traumatic event.
"Traumatic brain injury is one of the greatest unmet medical needs of our time, "noted Geoff Manley, M.D., professor and vice-chairman of the Department of Neurological Surgery at the University of Califomia-San Francisco and chief of Neurotrauma at San Francisco General Hospital. Manley also is one of the 10 professionals named to the Head Health Initiative's research advisory board.
"Every 20 seconds someone in the United States sustains a brain injury," he continued. "A better understanding of the molecular, physiological and behavioral/biomechanical changes that occur shortly after a traumatic event is needed to reliably diagnose the types of changes that are difficult to identify using current technologies."
In January 2014, GE and the NFL awarded $300,000 to each of the 16 most innovative Challenge I ideas. The winners, chosen from more than 400 entries in 27 countries, included Banyan Biomarkers Inc. of Alachua, Fla., which is developing a point-of-care blood test to rapidly detect the presence of mild and moderate brain trauma; VTT Technical Research Centre of Finland, in Espoo, which is studying the reaction of small molecules such as cholesterol, glucose and amino acids in the body after mild traumatic brain injury; the University of Pittsburgh (Fh.), where researchers--in conjunction with the University of Pittsburgh Medical Center--are using high-definition fiber-tracking to link impairments from concussions with changes in the brain; and Indiana University School of Medicine in Indianapolis, where analysts at the Center for Neuroimaging and St. Vincent Sports Performance are using MRI to investigate the ways brain flow is altered after concussions in high school athletes.
GE and the NFL are providing mentorship, access to GE researchers and industry thought leaders to develop the 16 ideas into viable diagnostic tools. Six of the awardees also could win an additional $500,000 award in 2015.
The Initiative's Challenge II focus is on new materials and technologies that can protect the brain from traumatic injury and new tools for tracking head impacts in real time. Up to 10 ideas will be rewarded with as much as $500,000 in funding this fall.
"In December, I sat with four of the most pre-eminent brain scientists in the U.S. We discussed the advanced technology around treating diseases of the brain, from Alzheimer's to traumatic brain injury," Immelt said." [Brain disease] is one of the most interesting, promising and challenging horizons in healthcare."
So is medical imaging, and GE significantly broadened its horizons last year with several key product launches, including: the MAVRIC SL, a magnetic resonance (MR) device that can more accurately capture soft tissue and bone images in patients with MR conditional-labeled implants such as joint replacements; the Vivid E9 Cardiovascular Ultrasound system featuring XDclear technology, which enhances image quality in two-dimensional, four-dimensional, color and Doppler photos. The system is designed to help shorten ultrasound exam times and enhance diagnostic confidence in adult and pediatric echo cardiogram labs, during interventions, or in the operating room; and the Invenia Automated Breast Ultrasound System (ABUS), designed to detect cancer in women with very dense breasts. GE claims its ABUS can improve breast cancer detection by up to 35.7 percent over mammography alone.
In December, GE unveiled its Revolution CT at the Radiological Society of North America's 99th Annual Meeting in Chicago, 111. The product converges wide coverage, high spatial resolution (clear image) and high temporal resolution (speed) into a single computed tomography (CT) system that can capture a motion-free image of the human heart in just one beat.
Approved by the U.S. Food and Drug Administration in April 2014, the Revolution CT can be used for practically all clinical applications, and features capabilities such as whole heart scans even in patients with a high heart rate, low-dose whole organ (16 centimeter) scans using dynamic acquisition modes, and whole brain perfusion and dynamic CT angiography at low dose for stroke assessment.
"This is really an all-in-one scanner," said Ricardo C. Cury, M.D., chairman of Radiology and director of Cardiac Imaging at Baptist Health South Florida in Miami."Diagnostic quality images are now possible in challenging patients like those with high heart rates, which is a significant advancement. The ability of Revolution to combine coverage, spatial and temporal resolution in a single scanner will translate to many clinical applications and potentially new applications in the future."
GE also cleared a path for future progress through the acquisition of Unisyn Medical Technologies'Transactional Business, and $1.06 billion purchase of Thermo Fisher Scientific Inc.'s HyClone cell culture (sera and media), gene modulation and magnetic beads businesses. The trio will be rolled into GE Healthcare's life science sector, expanding its bioprocessing manufacturing presence in Asia, Europe, and the Americas.
Thermo Fisher, the world's biggest supplier of lab testing equipment by market value, agreed to sell the businesses in November last year to secure European regulatory approval for its $13.6 billion deal to buy Life Technologies Corp., which makes genetic testing and mapping equipment.
HyClone is used to manufacture vaccines and drugs that treat diseases including cancer and arthritis. GE Healthcare has a cell biology business performing similar work.
"Life Sciences is one of our strongest and fastest-growing business areas, driven by the world's demand for improved diagnostics and new, safer medicines," John Dineen, CEO of GE Healthcare, said when the deal was announced. "It is a business that we have been expanding over the last several years."
GE's biomanufacturing business accounts for $1 billion of the company's $18 billion in healthcare revenue. The three newly acquired Thermo Fisher businesses generated a combined estimated revenue of roughly $250 million in 2013.
GE has been building out its life sciences operations since its 2003 acquisition of Amersham pic. In 2011, the company acquired cellular imaging supplier Applied Precision Inc., and last year it bought biomolecular manufacturing technology supplier Xcellerex Inc.
RELATED ARTICLE: Meet GE's most prolific inventor since Edison.
There was no party. No champagne toasts were made, four-star dinners consumed or cakes baked to mark the occasion. Truth be told, there barely was an acknowledgement of the milestone.
Yet--strangely enough--it was the most fitting way to honor E. Trifon Laskaris, Ph.D.
"I'm just a modest guy," the chief engineer at GE Global Research told the Times Union of Albany, N.Y., last spring.'Y don't go for celebrations."
He's doesn't intentionally seek the spotlight, either. Which explains why Laskaris was in his laboratory (as usual), immersed in the world of superconducting magnets on Friday, May 3, 2013, when he learned he had matched General Electric Co. co-founder Thomas Edison's patent quota with his 200th copyright.
Upon hearing the news, Laskaris simply continued working. He didn't exchange high-fives, or go out to lunch or even leave early.
Nope. Laskaris kept working.
"I didn't realize it until I was told," Laskaris said of the Edison milestone. "It was one of those things that just happened. Getting 200 patents was not part of my plan. It was a byproduct. You do what you do and the rest happens."
That random byproduct was actually 46 years in the making. Laskaris joined the Fairfield, Conn.-based GE in 1967 after earning his doctorate degree in mechanical engineering from Rensselaer Polytechnic Institute in Troy, N.Y. He has worked for GE Global Research since 1973, conducting groundbreaking research into the superconducting magnets that form the core of GE's internationally-recognized magnetic resonance imaging (MRI) systems. Laskaris' ingenuity exists in more than 10,000 MRI magnets installed worldwide worth more than $15 billion, according to the company.
One of Laskaris' most lasting legacies is perhaps the higher field magnets he developed for open MRI systems. These magnets not only addressed the thorny issue of claustrophobia but also gave surgeons access to patients during scanning, thus introducing the medical world to image-guided interventional procedures. His research led to the production of the Signa Open Speed MRI, the highest-field open MRI system currently on the market.
"Trifon's work speaks for itself," said Mark Little, a senior vice president and chief technology officer at GE. "Without his decades of dedicated research into superconducting magnets, MRI technology would not be where it is today--a mainstay of hospitals around the world."
In addition to his work in MRI technology, Laskaris also pioneered the development of superconducting rotating machines for power generation. They include a 20-MVA utility-type generator, the first to produce full power, and a 20-megawatt high-power-density generator for the U.S. Air Force. His ongoing research is likely to produce power generation systems that are more compact and efficient to operate, GE executives said.
With another 30 or so patents pending Laskaris, 70, will most assuredly shatter Edison's copyright record. He currently is focusing on developing next-generation MRI magnets that would considerably expand access to the technology by reducing cost, thereby enabling poor and developing nations to purchase the diagnostic machines.
"What drives me is a desire to make a difference. It's not about glory or anything else," he told the Times Union. "It's not about glory or anything else. My dream is to get high-end MRI scaners into underserved areas of the world such as Africa and Asia. That would make a big difference in public health and the lives of poor people. That's what drives me."
That and superconducting magnets, of course.--MPO
4. Medtronic
$16.59 Billion
KEY EXECUTIVES:
Omar Ishrak, Chairman and CEO
Michael J. Coyle, Exec. VP & Group President, Cardiac and Vascular Group
Christopher J. O'Connell, Exec. VP & Group President, Restorative Therapies Group
Richard Kuntz, M.D., Sr. VP & Chief Scientific, Clinical and Regulatory Officer
Gary L. Ellis, Sr. VP & Chief Financial Officer
Geoffrey S. Martha, Sr. VP, Strategy and Business Development
Stephen N. Oesterle, M.D., Sr. VP, Medicine and Technology
Catherine M. Szyman, Sr. VP, Diabetes
Luann M. Pendy, Ph.D., VP, Global Quality
NO. OF EMPLOYEES: 46,000
GLOBAL HEADQUARTERS: Minneapolis, Minn.
Three seconds. It's become the go-to metric lately for decisionmaking website loading first impressions, and love declarations. Scientific research also has shown the timespan can effectively distract the human mind and spoil productivity.
Medtronic Inc. has long used the clock to measure its own success, gauging its annual progress not only in dollars but in moments of time as well. In FY13 (ended April 26, 2013), the company improved upon its mission to alleviate pain, restore health and extend lives by gaining an additional second, impacting millions of patients worldwide.
"As I reflect on our results, I am pleased to announce that we have achieved an important milestone in our Mission: Every three seconds, someone somewhere in the world benefits from a Medtronic product," Chairman/CEO Omar Ishrak told shareholders at the end of his fiscal 2013 annual report. "Over the past 12 years, we have lowered this metric by seven seconds, which impacts millions of additional lives, an enormous accomplishment."
Enormous, indeed: Medtronic's three-second product benefit metric translates into 18.19 patients per minute, 26,197 per day and 9.562 million for FY13--or the entire population of New York City" and then some."
The company's fiscal-year accomplishments weren't too shabby either--sales jumped 2.5 percent (5 percent on a constant currency basis) to $16.6 million and non-GAAP diluted earnings per share grew 8 percent to $3.75, or 300 basis points faster than revenue. In addition, Medtronic generated $4.4 billion of free cash flow, roughly half of which was used to distribute more than $1 billion in dividends and repurchase more than $1.2 billion of common stock.
International sales were particularly solid, rising 7 percent on a constant currency basis (2 percent as reported), with revenue in emerging markets (Brazil, Russia, India, China) surging 17 percent, according to the company's annual report. In the fourth quarter of FY13, emerging markets generated 12 percent of revenue--a testament, no doubt, to Ishrak's laser-like focus on BRIC economies.
That focus intensified in fiscal 2013 with the $816 million acquisition of orthopedic implant maker China Kanghui Holdings Inc. and $66.2 million investment (for a 26.4 percent stake) in LifeTech Scientific Corporation, a Shenzhen, China-based manufacturer of minimally invasive cardiovascular and peripheral vascular disease treatment devices. The latter deal gave Medtronic the right to distribute LifeTech products and buy additional shares of the company upon the achievement of specific financial and/or developmental milestones.
"China is key to our global strategy as we continue to expand our geographic footprint and strive to meet the needs of local cardiovascular patients, and this agreement reaffirms our commitment to this important market," Mike Coyle, executive vice president and president of Medtronic's Cardiac and Vascular business group, said when the LifeTech deal was announced.
Another affidavit of Medtronic's commitment to the Chinese market coincided with the August 2012 opening of its Shanghai Innovation Center--the firm's first research and development facility outside the United States and Europe. The move fulfills Ishrak's vow to create local product R&D in China and increases its local engineering staff to more than 250 total.
Medtronic has pledged to hire and train an additional 1,000 skilled workers in China over the next five years, several hundreds of whom will develop new medical technologies within the Innovation Center. The facility also will function as an incubator for Chinese doctors to commercialize novel ideas into clinical solutions.
"We are far from finished in growing our international capabilities and footprint," Ishrak said in the firm's FY13 annual report. "Our primary near-term focus is to capitalize on the enormous opportunity in the global premium segment, which we have identified as a $5 billion annual opportunity. We will continue to pursue this opportunity by driving penetration of our existing and new therapies, raising patient and physician awareness of our offerings, and supporting the development of infrastructure and training of physicians where necessary."
Ishrak certainly delivered on his near-term promise, further infiltrating foreign and domestic markets with the FY13 launches of the Resolute Integrity drug-eluting stent (for coronary artery disease treatment) in Japan, the Advisa MRI pacemaker (for abnormally slow heart rhythm) in the United States and Japan, the RestoreSensor SureScan MRI spinal cord stimulation system (for chronic pain) in Europe and the CD Horizon Solera spinal implants/surgical instruments in the United States and other global markets.
Resolute's Japanese debut as well as its U.S. market penetration--it was launched in the fourth quarter of FY12--propelled Medtronic's coronary device sales 11 percent to $1.7 billion in fiscal 2013. The Coronary and Endovascular business posted the highest profits in the company's Cardiac and Vascular Group, which itself grew 3 percent to $8.6 billion due to strong sales of coronary, endovascular and atrial fibrillation products. Endovascular unit sales jumped 11 percent to $867 million, while atrial fibrillation device revenue soared 17 percent to $243 million and Structural Heart business proceeds rose 4 percent to $1.1 billion.
Those gains were somewhat offset by pricing pressures, declining growth rates in Western Europe beginning in the third fiscal quarter of 2013 and lower sales of defibrillation systems, pacing systems and cardiac rhythm disease management (CRDM) products.
Despite showing signs of stabilization in FY13, and slightly higher U.S. procedure volumes, CRDM unit sales fell 2 percent to $4.9 billion. Executives attribute the decline to unfavorable foreign currency exchange rates and weak defibrillation system sales due to increased competition and pricing pressures in the United States and Western Europe. Still, the company managed to cap its defibrillation system revenue loss at 2 percent (slipping to $2.7 billion) through solid sales of its shock reduction and lead integrity alert technologies, the Viva/Brava portfolio of cardiac resynchronization therapy with defibrillation (CRT-D) devices, increasing lead-to-port ratios and share gains. The Viva/Brava CRT-D product family features a new algorithm called AdaptivCRT, which improves patients' response rates to CRT-D therapy by preserving their normal heart rhythms and continuously adapting to individual patient needs, according to Medtronic.
Foreign exchange rates, pricing pressures and declining U.S. implant volumes proved too strong an obstacle to offset with international share gains realized through the Japanese launch of the Advisa DR MRI SureScan pacemaker in the second quarter. As a result, pacing system sales fell 4 percent to $1.9 billion.
Executives attributed the growth in atrial fibrillation revenue to the continued global acceptance of the Arctic Front Cardiac CryoAblation Catheter system, while Structural Heart's net gain was linked to strong sales of transcatheter aortic heart valves and growth in the company's cardiopulmonary product lines.
Endovascular unit sales were driven by new product launches, including the Endurant Abdominal Aortic Aneurysm Stent Graft System (in Japan), and the Valiant Captivia Thoracic Stent Graft System, which debuted in the United States in the fourth quarter of FY12 and in Japan and China in Q1 of fiscal 2013. Strong worldwide sales of peripheral stent products and drug-eluting balloons also contributed to the growth.
Results in Medtronic's Restorative Therapies Group practically mirrored its sister unit, with gains in three divisions counteracting losses in one. The black sheep in this group was the Spine division, where sales slid 4 percent to $3.1 billion due to revenue declines in bone morphogenic protein (BMP) and core spine products.
Also like its sister, Restorative Therapies Group sales were negatively impacted by unfavorable foreign exchange rates, pricing pressures and increased competition. But the Restorative Group still managed to grow revenues 3 percent to $7.8 billion due to strong sales in its Surgical Technologies, Neuromodulation, and Diabetes units.
Surgical Technologies unit profits ballooned 14 percent to $1.4 billion thanks to robust sales of capital equipment, including Oarm imaging and StealthStation S7 surgical navigation systems, Midas Rex powered surgical equipment, and Advanced Energy products, namely the Aquamantys bipolar sealers and PEAK PlasmaBlade electrosurgical devices. Net sales in the unit also were positively affected by balanced growth of disposables and service revenue in Medtronic's neurosurgery and ENT (ear, nose, throat) businesses.
Neuromodulation sales increased 7 percent to $1.8 billion, driven primarily by the continued U.S. adoption of RestoreSensor spinal cord stimulator, new implant growth of Activa DBS system for movement disorder, and solid demand for InterStim Therapy devices to treat bladder, urinary and bowel conditions. Sales were particularly strong in Western Europe, where the SureScan spinal cord stimulation system is approved for full-body magnetic resonance imaging scans.
Strong international sales of the Paradigm Veo insulin pump and the Enlite CGM sensor drove a 3 percent gain in diabetes net sales ($1.5 billion), the growth was partially offset by a decline in U.S. insulin pump sales as the company awaits approval of its MiniMed 530G device.
The culprits in Spine's FY13 slide fell victim to the usual setbacks--pricing/competitive pressures, a challenging reimbursement environment in certain markets and unfavorable foreign exchange rates. Bigwigs attributed the 2 percent decline in core spine sales ($2.6 billion) to weak demand for balloon kyphoplasty procedures (BKP), minimally invasive surgery to repair spinal fractures. The loss in core spine profits was partially offset (but not enough to prevent an overall decrease, obviously) by the introductions of AMT implants, the Capstone Control, and Bryan ACD Instrument Set as well as the continued adoption of Solera, Atlantis Vision Elite, and other biologies products. A further sales slide was prevented with Medtronic's focus on enabling technologies, including O-Arm imaging, StealthStation surgical navigation, and Powerease powered surgical instruments.
Medtronic's BMP products suffered from weak demand as well; sales plummeted 15 percent to $528 million as fallout continued over the Infuse bone graft controversy. The company has yet to shake the 3-year-old scandal that erupted with a scathing series of Spine Journal articles that accused the multinational firm of bribing doctors to under-report risks associated with the product. Around the same time, a U.S. Senate report claimed various studies promoting the bioengineered synthetic bone graft substance likely were biased because they were written by Medtronic employees.
5. Baxter International
$15.26 Billion
KEY EXECUTIVES:
Robert L. Parkinson Jr., Chairman & CEO
Philip L. Batchelor, Corporate VP, Quality
Jean-Luc Butel, Corporate VP and President, International
BrikV. Eyre, Corporate VP and President, Hospital Products
Ludwig N. Hantson, President, Bioscience
Robert J. Hombach, Corporate VP & Chief Financial Officer
GLOBAL HEADQUARTERS: Deerfield, 111.
NO. OF EMPLOYEES: 61,000
Baxter International Inc. makes a wide range of products to treat hemophilia, immune disorders, infectious diseases, kidney disease, trauma and other chronic and acute medical conditions. The company's product portfolio is combination of medical devices, pharmaceuticals and biotechnology--very often overlapping with combined drugs and delivery systems, or creative and specially designed packaging that become part of the complete treatment solution.
The company (throughout fiscal 2013 and into 2014) operates two primary divisions: Medical Products and BioScience. The company (see details below) recently announced plans to split into separate entities.
One of the many ways Baxter--and indeed the majority of companies on MPO's annual list of top medical technology companies--goes about its business of improving value for patients and healthcare providers is through a robust research and development (R&D) pipeline.
In FY13, Baxter increased R&D spending by 8 percent, in vesting more than $1.2 billion for both internal programs and new collaborations, a record level for the company.
Baxter utilized that money by funding a number of new product releases throughout the 2013 fiscal year.
In the medical device area, the company received CE mark in Europe for the Vivia hemodialysis (HD) system, designed to deliver more frequent, extended duration, short daily or nocturnal home HD therapy, known as high-dose HD therapy. Vivia is designed with the potential to deliver enhanced clinical outcomes and greater patient convenience, and provides a number of unique safety features, wireless connectivity, an integrated water system and extendeduse consumables, according to the company. Baxter began introducing the technology in a limited number of European dialysis clinics this year and plans to expand the launch to other European countries in 2015.
Also in Europe, Baxter launched the Hemopatch sealing hemostat (a tool used in surgical procedures to control bleeding). The collagen-based resorbable hemostatic device is used for surgical procedures when control of bleeding by pressure, suture or conventional procedures is ineffective or impractical. The development of Hemopatch combined Baxter's expertise in collagen, internal coagulation processes, and polyethylene glycol technology platforms.
"Hemopatch is a valuable addition to the tools in the surgical suite, as it provides fast hemostasis and strong tissue adherence. Surgeons will appreciate that the product works quickly and effectively, does not require preparation time, and can be used in a range of surgical settings," said Frank Ulrich, M.D., head of surgical oncology at Goethe University in Frankfurt, Germany.
Hemopatch is a soft, thin and flexible collagen pad that is designed to allow surgeons control during application to gain hemostasis and firm adherence of the hemostatic pad to the bleeding tissue surface. In preclinical tests, Hemopatch achieved fast and effective hemostasis, reaching 97.5 percent success by fully controlling bleeding at two minutes, according to the company.
The pad consists of a specifically formulated porous collagen matrix, coated on one side with a thin protein bonding layer that gives the pad a dual-method mechanism of action, in which two components interact to achieve hemostasis by sealing off the bleeding surface and initiating the body's own clotting mechanisms. The product was part of Baxter's BioSurgery franchise, which began with the acquisition of Immuno International AG in the 1990s and the first launch of a hemostatic device in the United States in 1998. Today, Baxter's BioSurgery portfolio consists of a range of biological and synthetic products and delivery devices used for hemostasis, tissue sealing, adhesion reduction, hard tissue regeneration, as well as soft-tissue repair and microsurgery products.
But growth doesn't only come from R&D. Medical device firms are famous for expansion through acquisition. For FY13, Baxter's management wrapped up a deal to expand its hemodialysis business.
In September, the company closed on its acquisition of Gambro AB, a privately held maker of hemodialysis equipment based in Lund, Sweden. The $4 billion deal was announced in December of 2012, but had to jump regulatory hurdles in Europe. In July 2013, the companies finally satisfied European antitrust regulators, who were concerned that an effort to buy Gambro would leave Baxter too powerful in the European market. As a result, Baxter agreed to divest its global continuous renal replacement therapy business unit, which accounts for approximately 2 percent of its overall revenue.
"The combination of these two respected renal leaders--Baxter and Gambro--will enable Baxter to better serve healthcare providers and patients through a collective offering of innovative renal products and therapies," said Robert L. Parkinson, Jr., chairman and CEO of Baxter. "Together, we will advance the state of dialysis care for patients with kidney disease worldwide."
The acquisition provides a number of long-term growth opportunities for Baxter around the world. With a broad and complementary dialysis product portfolio and global footprint, Baxter can accelerate product sales in established markets such as Europe, where Gambro has an extensive presence. Baxter also will be able to expand Gambro's reach in high-growth regions of Latin America and Asia-Pacific, where Baxter has steadily grown its peritoneal dialysis (PD) business. In addition, Baxter will be able to build its pipeline of investigational home hemodialysis and automated PD systems by adding Gambro's dialyzers, devices and dialysis solutions, monitors, and acute therapies to treat patients with serious kidney, liver and lung conditions.
Following the completed acquisition, Brik Eyre was named president of the combined renal business and elected a corporate officer. Eyre joined Baxter in 2008 and previously served as the general manager of U.S. Medication Delivery. Prior to his new role, Eyre served as general manager for Baxter's BioPharma Solutions business.
Bottom-Line Bump
Baxter's net income totaled $2 billion, or $3.66 per diluted share in 2013. Excluding special items, the company's adjusted net income increased 2 percent to $2.6 billion, and earnings per diluted share of $4.67 advanced 3 percent. Baxter's worldwide sales in 2013 totaled $15.3 billion and rose 8 percent. Excluding revenues of $513 million associated with the Gambro acquisition, Baxter's revenues increased 4 percent to $14.7 billion. BioScience sales of $6.6 billion advanced 5 percent (or 6 percent excluding the impact of foreign currency), while Medical Products sales of $8.7 billion grew 9 percent from the prior-year period. Excluding revenues associated with the Gambro acquisition, Medical Products sales increased 3 percent (or 4 percent excluding the impact of foreign currency) on a full-year basis.
During 2013, the company generated cash flows from operations of approximately $3.2 billion and returned significant value to shareholders. Baxter returned more than $1.9 billion to shareholders during the year, through share repurchases of $913 million (or approximately 13 million shares) and dividends totaling more than $1 billion, reflecting a 27 percent increase in dividend payments versus the prior year.
"We continue to meet our financial objectives while navigating a challenging and complex macro-environment," Parkinson said." We remain focused on the company's strategic priorities of advancing the new product pipeline, investing in future growth opportunities, and strengthening our operational execution, which will result in enhanced value for patients, healthcare providers and shareholders."
Splitsville
In April this year, Baxter officials unveiled plans to create two separate, independent life-science firms--one focused on biopharmaceuticals and the other on medical products.
"Baxter has an established history of executing successful spin-offs, and we have continued to evaluate the separation of these two businesses in response to diverging business dynamics and the rapidly changing macro-environment," said Parkinson. "This decision underscores Baxter's commitment to ensuring its long-term strategic priorities remain aligned with shareholders' best interests, while improving our competitive position and performance, enhancing operational, commercial and scientific effectiveness and creating value for patients, healthcare providers, and other key stakeholders."
According to company officials, the spin-off will create two, "well-capitalized independent companies with strong balance sheets, investment grade profiles, and disciplined approaches to capital allocation." Baxter's brass also believes the separation will result in other tangible benefits, including:
* Greater management focus on the distinct businesses of biopharmaceuticals and medical products;
* Ability to more effectively commercialize new and existing product offerings;
* Ability to drive innovation across the franchises and allocate necessary resources to the areas presenting the highest growth potential; and
* Flexibility to pursue respective growth and investment strategies, resulting in revenue acceleration, improved profitability and enhanced returns.
Baxtehs biopharmaceuticals business consists of a diverse portfolio of recombinant and plasma-based proteins to treat hemophilia and other bleeding disorders, and plasma-based therapies to treat immune deficiencies, alpha-1 antitrypsin deficiency, bums and shock, and other chronic and acute blood-related conditions.
"The news represents a significant milestone that will result in material benefits for key stakeholders," said Ludwig N. Hantson, Ph.D., president of Baxter's existing BioScience division. "We are confident that this decision not only strengthens our outlook, it positions us well to execute on our future growth prospects, new product pipeline and other opportunities as we enter a new era in the journey to achieve our aspiration as a premier biopharmaceuticals company."
The medical products business has a portfolio of intravenous (TV) solutions and nutritional therapies, drug delivery systems and administration sets, premixed and other injectable drugs, as well as inhalation anesthetics and hospital-based biosurgery products.
The corporate headquarters of both companies will remain in the affluent Chicago suburb of Deerfield.
Parkinson will serve as chairman and CEO of the medical products company, which will retain the Baxter International name.
Hantson will be named CEO of the new biopharmaceuticals company, which will be named at a later date. Hantson joined Baxter in 2010 from Novartis Pharmaceuticals Corporation where he served in a number of roles of increasing responsibility, the most recent of which was CEO, Pharma North America. Prior to Novartis, Hantson spent 13 years at Johnson & Johnson. Wayne T. Hockmeyer, Ph.D., who joined Baxter's board in 2007, has agreed to serve as non-executive chairman of the board of the new biopharmaceuticals company. Hockmeyer founded Medlmmune Inc.,
and served as its chairman and chief executive officer.
The split will come via a tax-free distribution to Baxter shareholders of a new publicly traded stock in the new biopharmaceuticals company. The transaction is expected to be completed by mid-year 2015, subject to market, regulatory and certain other conditions, including final approval by Baxter's board of directors.
This isn't the first time Baxter has spun off parts of itself. Other companies that Baxter has spun off in the past three decades include Edwards Lifesciences Corp., Caremark Corp., and Allegiance Healthcare Corp.
It's also part of a larger industry trend of refocusing on core businesses. Baxter's Illinois neighbor, Abbott Laboratories, spun off its pharmaceutical arm to create a new firm--Abb Vie Inc.--at the beginning of 2013. Covidien pic also completed the spin-off of its pharmaceutical business in 2013 to concentrate on medical devices (it's now merging with Medtronic Inc.).
6. Philips Healthcare
$13.18 Billion ($32.1 B total)
KEY EXECUTIVES:
Frans van Houten, President & CEO
Ron Wirahadiraksa, Exec. VP & Chief Financial Officer
Jim Andrew, Exec. VP & Chief Strategy and Innovation Officer
Deborah DiSanzo, Exec. VP & CEO, Philips Healthcare
Ronald de Jong, Exec. VP & Chief Market Leader
Patrick Kung, Exec. VP & CEO, Philips Greater China
Eric Coutinho, Exec. VP, General Secretary & Chief Legal Officer
NO. OF EMPLOYEES: 37,008 (116,681 total)
GLOBAL HEADQUARTERS: Amsterdam, the Netherlands
Relevance is one of Frans van Houten's favorite words. Not surprisingly, the term has played a central role in the chief executive's transformation plans for Royal Philips, the Dutch electronics multinational that invented the audio cassette, VCR and CD medium. It also was a leader in DVD and Blue-Ray technology, and at one time, was a formidable player in televisions.
But by the middle of the last decade, Philips' television business was losing its battle with cheaper competition from Asian firms like Samsung Electronics and LG Electronics. In 2007, the company's TV division began operating at a loss that quickly ballooned to 436 million euros ($601.2 million) the following year.
Shortly after becoming CEO in April 2011, van Houten visited France and found a team demoralized by the limited shelf space being reserved for the company's struggling consumer electronics business. "We did a store visit and the store managers said, 'Well of course Philips gets less and less shelf space. Why can't you do something that we want?' he recalled in an interview with Reuters late last fall. "The word relevance was triggered by those discussions."
Perhaps a more important word triggered by that discussion was "Accelerate!"--van Houten's blueprint to increase his company's relevancy in the marketplace. The multi-year program is designed to create a more "agile and entrepreneurial" organization with a greater presence in fast-growth emerging economies, a larger slice of the business-to-business market (only in relevant areas, of course), a leaner inventory and a fatter innovation pipeline.
Since launching Accelerate! in late 2011, van Houten has made his company more relevant by licensing off its mainstay lifestyle entertainment business (audio, video and media accessories) to focus on healthcare, energy-efficient lighting and consumer lifestyle products. He's also earmarked more money for research and development to encourage innovation, and he's cut layers of management to increase efficiency and reduce organizational complexity.
Accelerate! is more than a fat-trimming tool, however. It has become a way to expedite operational excellence and quickly deliver innovation to the market through a combination of local efforts and global platforms. In Africa for instance, where childbirth mortality hovers at 6 percent, Philips has created ultrasound screening centers in rural areas that are electronically linked to cities for diagnostic interpretation of images and doctors' telephoned advice. Such integration of healthcare products with IT and telecommunications services is known as the "end-to-end" way of working where global innovation and local entrepreneurial market teams work together to crack the healthcare code.
Accelerate! promoted a similar approach to innovation within the company, whereby regional offices have the flexibility to act like startups but also leverage the vast capabilities of a global player.
In accordance with its Accelerate! program, Philips executives built in a series of mid-term performance goals for 2013 that included a 4-6 percent comparable sales growth Compound Annual Growth Rate, assuming real gross domestic product growth of 3-4 percent annually; a 12-14 percent return on invested capital; and reported EBITA (earnings before interest, taxes and amortization) margins of 10-12 percent company-wide, 15-17 percent in Healthcare, and 8-10 percent in both Lighting and Consumer Lifestyle (excluding unrelated licenses).
Although economic headwinds still swirled strongly in the United States and Europe, the company achieved those goals last year, posting a 4.5 percent comparable sales growth rate, a 15.3 percent return on invested capital, and reported EBITA margins of 10.5 percent company-wide, and 15.8 percent in Healthcare. "Our Accelerate! initiatives helped us to achieve our mid-term 2013 targets, "van Houten told shareholders in the company's 2013 annual report. "I am delighted with this result, as it underlines yet again that Philips is, above all, a case of self-help. The significant changes we have made to our portfolio in recent years have created a better growth platform with higher profit potential. And with the transformation of our business model architecture, we are increasingly becoming a technology solutions partner, with recurring revenue streams accounting for over 25 percent of sales."
Many of those recurring revenue streams originated in the Healthcare division, where 2013 revenues remained flat at $13.18 billion (9.57 euros), but rose 1 percent on a comparable basis, according to data from the annual report. EBITA surged 28.3 percent, going from $1.6 billion (1.22 billion euros), or 12.3 percent of sales in 2012, to $2 billion (1.52 billion euros), or 15.8 percent of sales last year. The gain transcended the Healthcare division's four business units and resulted from both higher sales and reduced expenses. (Editor's note: Percentages reflect changes based on the local currency in which the financials were reported--in this case, the euro--and do not take into account annual foreign currency exchange fluctuations. Dollar amounts were converted using the exchange rate on the final day of the reporting period.).
Healthcare remained the top-grossing division in Philips last year, comprising more than one-third of the 123-year-old company's $32.1 billion (23.3 billion euros) sales total. But profits stagnated, as the company grappled with a litany of setbacks, including a 2 percent decline in healthcare construction; currency volatility in Turkey, Argentina, Indonesia and other emerging markets; weak demand for healthcare equipment; and political unrest in the Middle East and Russia.
Lingering austerity measures in Europe and North America didn't help matters either. Executives, in fact, claim both regions helped depreciate comparable sales by 1 percent. Revenues in other mature geographies, by contrast, experienced a high single-digit increase, while double-digit growth in China and Latin America counteracted sales declines in Russia and Central Asia, the annual report indicates.
Philips' healthcare funk clearly was evident in the division's four business units, too: The higher comparable sales (a miniscule increase at best) were driven by mid-single-digit growth in Customer Services, which encompasses consultancy, site planning and project management, clinical services, Ambient Experience, and equipment maintenance and repair. The low single-digit growth in Home Healthcare Solutions and Patient Care & Clinical Informatics, by contrast, partly offset a mid-single-digit dropoff in Imaging Systems (X-rays, computed tomography, magnetic resonance, nuclear medicine and ultrasound equipment, and women's health).
As in past years, Imaging Systems generated the most revenue in 2013 (year ended Dec. 31), constituting 38 percent of the Healthcare division's total proceeds. Customer Services sales were responsible for 26 percent of total revenue, while Patient Care & Clinical Informatics (perinatal care, therapeutic care, hospital respiratory systems, and ventilation) and Home Healthcare Solutions (sleep management and respiratory care, medical alert services, remote cardiac services, and remote patient management) brought up the rear with 22 percent and 14 percent of total sales, respectively.
Customer Services drivers likely included the breakthrough agreement Philips signed in late June 2013 with Georgia Regents Medical Center, a non-profit academic health center affiliated with the Georgia Regents Health System and Georgia Regents University.
Philips touted the collaboration last year as a "first-of-its-kind delivery model" in the United States. Under terms of the $300 million deal, Philips will provide consulting services, planning and maintenance services with pre-determined monthly operational costs over a 15-year term. It also will provide products ranging from advanced X-ray and computed tomography (CT) scanners to overhead lights and televisions in patient rooms at the Medical Center and its numerous clinics.
The deal is expected to save the Regents Health System at least $10 million annually over the agreement's entire lifetime.
"By collaborating with Philips, we're bringing all the stakeholders together at the same table to better assess and plan healthcare for tomorrow. It's no longer a simple supply-and-demand business model," David S. Hefner, the Georgia Regents Medical Center CEO, said when the agreement was announced. "Our goal is to foster an atmosphere of meaningful innovation that will have a significant and positive impact on the health of our patients."
Home Healthcare Solutions positively impacted patients with the 2013 commercial release of a minimal contact nasal mask for sleep apnea patients. Philips executives described the Wisp device as a departure from traditional masks; the product is designed to fit more than 98 percent of sleep apnea patients. It has minimal headgear (no forehead pad and minimal parts) and features quick release tabs, headgear clips, reversible fabric (soft suedette and silky screen or clear silicone), a patented auto seal groove and three interchangeable cushion sizes within the same frame.
The Home Healthcare unit also unveiled several cardiovascular health monitoring products last year, including the Corindus CorPath 200 System (a robotic-assisted way of moving cardiac guidewires and balloon/stent catheters), the Philips IntelliSpace ECG and Philips ST80i Stress Testing System.
The IntelliSpace ECG is an advanced data management system that automates the processing, storage and distribution of electrocardiography, Holter and stress data acquired from various sources within hospitals. IntelliSpace provides the software tools to analyze, view, edit and compare ECG records as well as generate, manage and distribute reports in various formats to meet specific needs. The Philips ST80i Stress Testing System features a wireless patient experience, bi-directional connectivity and advanced decision support tools that enhance data review, patient care and workflow efficiency, according to the company.
Imaging Systems fortified its offerings with a slew of new products as well, the most notable of which was the EPIQ ultrasound system that substantially improves image quality by increasing penetration 76 percent and raising temporal resolution (the ability to maintain high resolution at high frame rates) 213 percent. The platform was among the dozen or so of the Healthcare division's Green Product portfolio debuts last year--executives claim the EPIQ reduces both energy consumption and product weight by nearly 30 percent over older models.
Other product launches within the Imaging Systems unit in 2013 included theVereos digital PET/CT system, which features a two-fold increase in resolution, thereby leading to higher image quality and better diagnostics, treatment planning and workflows; the IQon system, the first spectral detector CT that uses color to enable a more definitive diagnosis in a single scan; and the EchoNavigator, a live image-guidance tool that provides interventional cardiologists and cardiac surgeons an integrated view of live X-ray and 3-D ultrasound images.
"We have learned that ideally two live imaging technologies are needed to guide catheter-based repairs to the heart and a multidisciplinary team is needed to perform it," said Professor Roberto Corti, M.D., an interventional cardiologist at University Hospital Zurich in Switzerland. "This adds to the complexity of such procedures. The development of a more sophisticated imaging technology such as EchoNavigator will definitely provide us with a better understanding of the complex structures of the heart and their repair."
Additional supplements to the Imaging Systems portfolio were the AlluraClarity live image guidance system, the Pinnacle3 Proton treatment planning system, the MicroDose SI system, and the Spectral Breast Density Measurement Application for its MicroDose SI full-field digital mammography system.
The latter product is the first spectral breast density measurement tool that can differentiate between fat and glandular tissue to accurately measure volumetric breast density. The Spectral Breast Density Measurement Application works by independently measuring the glandularity and thickness in each pixel of an image to objectively calculate the total volume and volumetric percentage of glandular breast tissue. Once the calculations are completed, the examination is automatically assigned a MicroDose density score that correlates to the Breast Imaging-Reporting and Data System, a manual method for determining breast density. The measurement is displayed on the review workstation together in the DICOM tag of the acquired image and exported for display in a DICOM structured report.
The application of non-contrast spectral imaging uses photon counting technology, which sorts photons into low- or high-energy categories, eliminating the need for two exposures. This enables the use of spectral imaging within the routine mammogram.
"Philips believes that spectral imaging technology will be important in helping clinicians to assess breast density and provide personalized care to women," said Lakshmi Gudapakkam, senior vice president and general manager of Diagnostic X-ray and Mammography Solutions at Philips Healthcare. "With the MicroDose SI, Philips contributes to breast cancer screening by delivering the same low dose, high image quality and ergonomics it already offers, while supplying clinicians with spectral-ready technology."
7. Covidien
$10.24 Billion
KEY EXECUTIVES:
Jose E. Almeida, Board Chairman, President & CEO
Charles J. Dockendorff, Exec. VP and Chief Financial Officer
James C. Clemmer, President, Medical Supplies
Bryan C. Hanson, Group President, Surgical Solutions
Amy A. Wendell, Sr. VP, Strategy and Business Development
Michael Sgrignari, Sr. VP, Quality & Operations
Michael Tarnoff, M.D., F.A.C.S., Corporate Chief Medical Officer
Peter L. Wehrly, Group President, Developed Markets
Chris Barry, President, Advanced Surgical Technologies
NO. OF EMPLOYEES: 38,000
GLOBAL HEADQUARTERS: Dublin, Ireland
It has been seven years since Tyco spun off its healthcare business. The newly independent and publicly traded company--an amalgam of many smaller firms acquired over the years--was renamed Covidien, and management swiftly went about the work of rebranding and building market recognition for the new moniker. Industry insiders and baseball fans may remember that the company quickly bought a prime advertising spot on the 37foot, 2-inch high, bright green left field wall (affectionately called the Green Monster) of Fenway Park in Boston, Mass., home of the Boston Red Sox.
How quickly situations in the medical device world can change--sort of. File this under "what's old is new again." Not a standalone entity for very long, Covidien pic (based in Ireland for tax reasons but primarily run out of an extensive complex on the South Shore of Massachusetts in the town of Mansfield) soon will become part of a larger organization once more. Medronic Inc., No. 4 on MPO's list of leading medical device firms this year, has plans to acquire Covidien in a blockbuster deal announced in June this year worth nearly $43 billion. There's not much overlap between the two medtech giants, which should make the marriage a smooth one, analysts have said. Medtronic's interest in Covidien is the company's overseas address. It's called a corporate inversion--companies that purchase international targets and reincorporate abroad where there are lower tax rates. The deal still has to jump through regulatory hurdles before it is blessed by all concerned (for more information on the deal, see Top of the News on page 12).
Before this year's medtech deal heard 'round the world, fiscal 2013 (ended Sept. 30, 2013) was, for the most part, business as usual for Covidien--conservative growth, solid financial performance (even in the face of a challenging marketplace), and prolific new product releases.
Covidien separates its business segments into two categories.
Medical Devices--the largest of the two segments--includes endomechanical instruments (laparoscopic instruments, surgical staplers, interventional lung devices); energy devices (vessel sealing, electrosurgical devices, ablation products); soft-tissue repair products (sutures, mesh, biosurgery products and hernia mechanical devices); vascular products (compression, dialysis, venous insufficiency, thrombectomy, neurovascular and peripheral vascular products); oximetry and monitoring products (sensors, monitors, temperature management products); airway and ventilation products (breathing systems and inhalation therapy devices); and other medical products.
Medical Supplies includes nursing care products (incontinence, wound care, enteral feeding, urology and suction products); medical surgical products (operating room supply products and accessories); SharpSafety products (needles, syringes and sharps disposal products); and original equipment manufacturer (OEM) products (medical supplies manufactured for other medical products companies).
Roll 'Em Out
Covidien's numerous and varied technology categories and sectors churn out a steady stream of new technology. For FY13, Covidien spent more than $500 million on research and development activities--while not the only method for new product launches (think acquisition), it's certainly a good start.
During the fiscal year, Covidien received U.S. Food and Drug Administration (FDA) 510(k) clearance for its Nellcor pulse oximetry portfolio. The line of devices is designed to measure arterial oxygen saturation. According to Covidien, it is the first company to receive clearance for a motion-tolerant bedside pulse oximeter portfolio that also is compliant with ISO 80601-2-61 (the ISO standard for pulse oximetry). Pulse oximeters provide early warning of dangerous respiratory complications, enabling clinicians to detect and address life-threatening events sooner. The portfolio of devices consists of the Nellcor bedside Sp02 (arterial hemoglobin) patient monitoring system, the Nellcor bedside respiratory patient monitoring system and the Nellcor N-600x pulse oximetry monitoring system. Nellcor devices rely on cardiac-based signals to provide a more accurate reading that closely is bed to the patient's physiology. This, Covidien officials claim, drives consistent performance during various challenging conditions, such as patient motion, noise and low perfusion, which can impede the assessment of patient respiratory status. Motion-tolerant pulse oximetry is important for ensuring patient safety because patient movement can thwart accurate readings and delay diagnosis of serious respiratory compromise. The devices in the newly cleared Nellcor portfolio are indicated for prescription-use only for the continuous non-invasive monitoring of functional oxygen saturation of Sp02 and pulse rate. They are intended for neonatal, pediatric, and adult patients, and for well or poorly perfused patients in hospitals, hospital-type facilities, intra-hospital transport and home environments.
Covidien expanded its portfolio of radiofrequency ablation (RFA) catheters with the launch of the Barrx Channel RFA endoscopic catheter for treating Barrett's esophagus and certain gastrointestinal bleeding disorders. Left untreated, Barrett's esophagus, a precancerous condition of the esophageal lining can lead to life-threatening cancer of the esophagus. The Barrx line of RFA catheters is based on the company7s proprietary technology that controls the amount of RF energy delivered to remove diseased tissue, thereby allowing the growth of healthy tissue. Endoscopic surgeons and gastroenterologists can shorten procedure time with the new Channel RFA device, as this patient-centric design allows for fewer endoscope introductions and removals (compared to other Barrx catheters). The technology in the Channel catheter enables a 7.5-millimeter wide electrode to easily pass through a 2.8-millimeter diameter endoscope channel. Other features and benefits of the new device include a transparent ablation electrode for enhanced visualization and a unique rotatable shaft design that provides additional control and maneuverability. The Barrx Channel RFA endoscopic catheter is available in the United States and Europe.
Covidien entered the fast-growing wound protector market with the launch of two new surgical access devices. Used in open and minimally invasive surgery, the access device protects the wound site from contamination and also provides excellent exposure and visualization. The SurgiSleeve wound protector is easy to place, and since the material is three times stronger on average than what is used in the leading competitive product, the likelihood of tearing during a procedure is reduced, according to the company. The company also released the Versaport bladeless optical 12 millimeter trocar, offering surgeons visualization during trocar placement to help clinicians minimize the risk of trocar injuries. It shares the same proprietary cannula design as the rest of Covidien's optical and bladeless trocar family.
Three new hernia care products that address clinical needs in laparoscopic inguinal, ventral and umbilical hernia repair were introduced in FY13. These addressed needs include reduced recurrence, pain and risk of infection as well as shorter procedure time and lower cost.
ProGrip laparoscopic self-fixating mesh combines mesh and fixation into one device to increase the security of laparoscopic inguinal hernia repair, while eliminating the pain and reducing the costs associated with tack fixation. The ProGrip laparoscopic mesh provides tack-free fixation over the entire anatomy, including below the inguinal ligament where traditional tacks cannot be placed. The Parietex composite ventral patch is designed for optimal abdominal wall conformability in umbilical and small ventral hernia repair. With a unique design allowing for easy deployment and peripheral fixation, the Parietex composite ventral patch features a macroporous textile supporting consistent tissue integration and a clinically proven collagen film technology to minimize visceral attachment. AbsorbaTack 30X absorbable fixation device builds on the AbsorbaTack fixation line launched in 2008. The new AbsorbaTack 30X fixation device features an enhanced drive mechanism and new shaft for optimal tack deployment in challenging situations. All three products received FDA 510(k) clearance. In the United States, approximately 600,000 inguinal and 700,000 ventral hernia procedures are performed every year, according to industry sources. A hernia develops when the outer layers of the abdominal wall weaken, bulge or tear, with most hernias resulting from strain on the abdominal muscles. Hernias can grow larger over time and cause serious complications if not surgically repaired.
Growth Continues
For fiscal 2013, net sales of $10.24 billion were 4 percent above the $9.85 billion for FY12, with foreign exchange rate movement lowering the sales growth rate by two percentage points. The company reported operating income of $2.13 billion in fiscal 2013, versus $2.09 billion for the prior year. Net income was $1.7 billion, down from $1.9 billion in 2012. Fiscal 2013 diluted GAAP earnings per share from continuing operations were $3.40, versus $3.37 in 2012.
For fiscal 2013, sales for the company's Medical Devices unit climbed 5 percent to $8.49 billion from $8.11 billion a year ago. Foreign exchange rate movement reduced the sales growth rate by two percentage points. Sales outside the United States outpaced domestic sales. Non-U.S. sales for the Medical Devices group were $4.8 billion, up 9 percent, compared to U.S.-based sales of $3.66 billion, which slipped 1 percent. Most of the key product groups in the Medical Devices sector reported gains. Sales of endomechanical instruments grew 6 percent to $2.48 billion. Soft-tissue repair product sales grew by only 1 percent to $890 million. Energy device sales increased 7 percent to $1.39 billion. Oximetry and monitoring product sales rose 12 percent to $969 million. Airway and ventilation device sales were up 3 percent for the year to $763 million. Sales of vascular products increased 3 percent to $1.65 billion.
For fiscal 2013, Medical Supplies category sales were $1.75 billion--essentially unchanged from 2012's $1.74 billion. Higher sales of nursing care products, led by enteral feeding were offset by decreased sales of OEM, medical surgical and SharpSafety products. For Medical Supplies, the United States was responsible for the lion's share of sales--$1.54 billion--flat compared to 2012. Sales outside the United States grew slightly (1 percent) to $199 million.
For the company as a whole, U.S. and international sales were nearly even. U.S. sales were $5.21 billion (flat compared to 2012), while international revenue was $5.02 billion (up 9 percent).
A Legal Win
In May 2013, after nearly nine years of litigation, Covidien won a patent infringement lawsuit against Ethicon Endo-Surgery Inc., a Johnson & Johnson company. In 2004, Covidien sued over Ethicon's Harmonic line of ultrasonic surgical products.
The patents-in-suit are titled "Ultrasonic dissection and coagulation system" and "Ultrasonic curved blade." While Covidien argued that Ethicon's devices infringed upon its patents, Ethicon attempted to use an "obviousness" defense. Determining legal obviousness requires considering whether two or more pieces of prior art could be combined, or a single piece of prior art could be modified, to produce the claimed invention. Ethicon argued that its devices combined existing non-ultrasonic, laparoscopic technologies in such a way that would have been obvious and therefore Covidien's patents were, effectively, unfair.
"Though the simplicity of this argument seems tempting, this is insufficient to make a clear and convincing case that the patents-in-suit' only unite old elements with no change in their respective functions/" U.S. District Judge Janet Bond Arterton wrote in the ruling. Arterton also said Ethicon failed to reasonably show that an engineer of ordinary skill would have seen a benefit to using curved blades, dual cam mechanisms, a rotating blade and clamp, a device that fits down a 5-millimeter trocar and the use of a tube-in-tube design, as the patents describe. Proving this was an essential component to the obviousness defense.
The judge held that Covidien, known as Tyco Healthcare Group LP when the suit was initiated, proved infringement of all asserted claims of the patents-in-suit. The federal court awarded Covidien a $176.5 million verdict upon ruling that several claims of Covidien's patents were valid, enforceable, and infringed by Ethicon. The amount of the verdict was based on an 8 percent royalty rate on infringing sales through March 2012, plus prejudgment interest. Eight percent of infringing sales from April 1, 2004, to March 31, 2012, yields royalty damages of $140 million, according to the court's opinion. The prejudgment interest amounts to $36.5 million. The amount remains under appeal.
Acquisition, Expansion & Sales
In January 2013, Covidien announced plans to buy CV Ingenuity, a drug-coated balloon manufacturer based in Fremont, Calif. Financial terms of the transaction were not disclosed. The CV Ingenuity business became part of Covidien's Vascular product line in its Medical Devices segment. CV Ingenuity's core technology--though still in the investigational phase--is a drug-coated balloon (DCB) the company calls a "novel, proprietary, tunable, rapid-release system." Covidien planned to increase research and development spending for the next several years to fund the clinical development of CV Ingenuity technologies. Covidien does not expect FDA approval for a DCB product based on CV Ingenuity technology until fiscal 2017.
The fiscal year also included expansion in growth markets.
Covidien opened a R&D facility in South Korea. Called, appropriately, the Covidien Center of Innovation Korea (CCI Korea), the facility is the first such location for the company in Korea. With a total investment of $21 million planned over a three-year period, CCI Korea is a high-tech medical training center focused on raising awareness of various disease states and providing opportunities for advancing healthcare professionals'capabilities by creating access to a full-range of Covidien's medical devices
CCI Korea spans an area of more than 65,000 square feet and includes a surgical lab with 11 operating stations; an intensive care unit (ICU) lab with two ICU stations and a human patient simulator; as well as an auditorium with seating capacity for 112 people, which has 3-D/high-definition display technology and a state-of-the-art, optimized sound system to provide an immersive and experiential training environment.
Covidien signed two memorandums of understanding with the Korean Surgical Society and the Korean Society for Thoracic & Cardiovascular Surgery. All healthcare professionals affiliated with the two societies will experience CCI Korea as part of their mandatory certification programs. Covidien planned to continue to collaborate with Korean medical societies for training programs and new product development at CCI Korea, with a focus on promoting national health and advancing medical technology in the country.
In July 2013, Covidien completed the separation of its pharmaceuticals business, which is now held by Mallinckrodt pic, a new independent company. The company announced in December 2011 that it planned to spin-off the Pharmaceuticals business. The businesses had distinctly different business models, sales channels, customers and capital requirements. In addition, their respective innovation pipelines differed substantially in length, regulatory approval requirements, possible risks and potential returns. The spin-off enabled both businesses to pursue their own strategic and operational plans, including setting optimal levels of investment in research and development and creating business-appropriate capital structures.
RELATED ARTICLE: Covidien purchase gives Medtronic a tax break.
Omar Ishrak chose his words carefully. The newly christened chief executive was fully aware of the scrutiny that awaited him as he shared his plans to reverse Medtronic Inc.'s sagging fortunes three summers ago. He fully expected his comments to be digested, analyzed and possibly criticized by medtech trade journalists, bloggers and business consultants alike.
As President/CEO of GE Healthcare Systems, Ishrak was accustomed to such public scrutiny. Thus, he revealed only the basic recipe for long-term growth: globalization, innovation and smart acquisitions.
" [Acquisitions] need to have a very clear value proposition which are financial in nature and very granular in their content ..." he said shortly after joining the Minneapolis, Minn.-based company, "and we need plans in place that we can deliver on those value propositions."
Realizing those words could someday come back to haunt him, Ishrak has been cautious with Medtronic's pocketbook. He's been true to his word, only orchestrating deals with explicit value propositions. Case in point: the $816 million purchase of orthopedic implant maker China Kanghui Holdings Inc. in 2012. The acquisition helps Medtronic achieve its globalization goal and capture a sizeable chunk of the Asian medical device market, an industry estimated to grow 39 percent to $228 billion next year.
While there is no mistaking the significance of the China Kanghui acquisition to Medtronic's bottom line, the deal pales in comparison to the multinational's most recent conquest, the $42.9 billion purchase of rival Covidien pic.
The merger clearly is strategic in nature: If approved, it will turn the two companies into one of the largest medical device providers in the industry, with 87,000 employees in more than 150 countries. The deal also would free up $14 billion in overseas profits--so-called "trapped cash"--Medtronic is hoarding from its non-U.S. subsidiaries. That cash, in turn, could then be used to benefit investors through share repurchases and dividends.
Perhaps more importantly, though, the marriage allows Medtronic to sidestep Uncle Sam's 35 percent corporate tax rate (one of the world's highest) by relocating its "executive" headquarters to Covidien's home base in Ireland, where companies pay an average 12.5 percent levy. The firm would still maintain its Twin Cities command post, its home since its 1949 founding in a Minneapolis-area garage.
The acquisition, being structured as an "inversion" deal, would give Covidien shareholders 30 percent ownership in the new company. It is, by far, the largest of such deals, far surpassing Kraft's $19.5 billion takeover of the British confectioner Cadbury, according to Standard & Poor's Capital IQ.
Healthcare companies have become particularly fond of inversion deals in recent years as they attempt to duck the one-two combo of America's high corporate tax rate and the 2.3 percent medical device levy imposed under the Affordable Care Act.
"Although this is an inversion deal, it's not about lowering taxes," Ishrak insisted in a telephone interview with the New York Times after the Covidien deal was announced. "The difference is that through this combination, Medtronic can get access to the free cash flow that Covidien generates and deploy it in the U.S. There are larger technology acquisitions, innovations and R&D [research and development] that we have not been able to do."
To qualify as an inversion, shareholders of the acquired company must receive stock amounting to at least 20 percent of the resulting entity.
Covidien's effective tax rate was 14.7 percent in 2012, and rose to 21.1 percent last year due to the settlement of outstanding tax matters by its former parent company Tyco, the company said in regulatory filings.
Medtronic reported an effective tax rate of 18.4 percent in its 2013 fiscal year, ended April 26, 2013. The difference between Medtronic's effective tax rate and the U.S. statutory rate of 35 percent was due primarily to keeping earnings from its foreign operations outside of the United States, though the company also benefited from domestic tax breaks such as the research and development tax credit.
Taxes, however, are not the only motivating factor behind the merger. Experts note the deal also helps Medtronic transform itself into a one-stop supply shop for hospitals. Acquiring Covidien will "further enhance [Medtronic's] footprint, scale, and product offerings with its hospital customers," Derrick Sung, an analyst with Sanford C. Bernstein & Co. LLC, said in a research note to clients.--MPO
8. Cardinal Health
$10.06 Billion ($101.1 B total)
KEY EXECUTIVES:
George S. Barrett, Chairman & CEO
Jeffrey W. Henderson, Chief Financial Officer
Donald M. Casey Jr., CEO, Medical Segment
Lisa, Ashby, President, Medical Devices & Diagnostics
Mike Duffy, President, Medical Consumables
John Rademacher, President, Ambulatory Care
Michael Petras, President, AssuraMed, Medical Segment
Mark R. Blake, Exec. VP, Strategy & Corporate Development
Craig S. Morford, Chief Legal & Compliance Officer
Mark E. Rosenbaum, Chief Customer Officer
NO. OF EMPLOYEES: 33,000
GLOBAL HEADQUARTERS: Dublin, Ohio
When you think of Cardinal Health, it's a safe bet that food isn't the first thing that pops into your mind. But food is exactly how the multibillion-dollar healthcare company got its start. In 1971, company founder Robert D. Walter opened a small distribution center in Columbus, Ohio. In less than a decade, the then-named Cardinal Foods became a prominent regional food distributor until branching into pharmaceutical distribution in 1979. The rest, as the trite old saying goes, is history.
Food distribution may no longer be the company's bread and butter, but the firm still has a lot on its plate.
Dublin, Ohio-based Cardinal Health separates its business into two categories: Pharmaceutical and Medical.
The Pharmaceutical segment consolidates pharmaceuticals from hundreds of manufacturers into site-specific deliveries to retail pharmacies, hospitals, mail-order facilities, physician offices, surgery centers and long-term and other alternate care facilities. The company also operates the world's largest network of nuclear pharmacies and is expanding its positron emission tomography agent manufacturing capabilities to support new drug development and personalized medicine. In addition, about 200 U.S. hospitals outsource the management of their inpatient pharmacies to Cardinal Health.
The company's Medical unit makes and distributes medical, surgical and laboratory products to hospitals, ambulatory surgery centers, clinical laboratories, physician offices and other healthcare providers in the United States, Canada and China and to U.S. patients in the homecare setting.
This area of the business also sources and develops its own line of private-brand medical and surgical products. Manufactured products include single-use surgical drapes, gowns and apparel; exam and surgical gloves; and fluid suction and collection systems. The division also assembles sterile and non-sterile procedure kits. The division also provides supply chain services, including spend management, distribution management and inventory management services, to healthcare providers.
To succeed in today's healthcare market place, companies must position themselves as more than just providers or a single good or service. The value proposition comes from being a problem-solver for physicians and hospitals--not just providing safe and effective devices or drugs, but also finding ways to save the healthcare system money and/or time in the longer term.
That's a niche Cardinal Health strives to occupy. That said, healthcare markets in the United States are evolving and volatile--particularly in commodity-driven product and service categories.
For fiscal year 2013 (ended June 30, 2013) overall company revenue decreased 6 percent to $101.1 billion, mostly due, according Cardinal management, to the expiration of a pharmaceutical distribution contract and the impact of some pharmaceuticals transitioning from brand names to generic. Earnings from continuing operations decreased 69 percent to $335 million due to an $829 million non-cash goodwill impairment charge related to the company's Nuclear Pharmacy Services division. Pharmaceutical revenue was $91.1 billion, down 7 percent for the year.
Medical segment revenue increased 4 percent to $10.1 billion, and segment profit increased 12 percent to $372 million. According to the company, the principal drivers for the increase in fiscal 2013 over fiscal 2012 were the positive impact of acquisitions and decreased cost of commodities used in self-manufactured products, partially offset by pricing changes driven in part by customers and product mix. Officials also pointed to the 2.3 percent medical excise tax on certain manufactured or imported medical devices that became effective at the beginning of the year as having a "slightly unfavorable impact" on the medical segment's profit.
Sharing the Lave
The biggest news for Cardinal's Medical division in 2013, was a purchase announced on Valentine's Day. The company unveiled plans for $2.07 billion sweetheart deal to acquire privately held AssuraMed of Twinsburg, Ohio.
Cardinal funded the purchase with a combination of cash and $1.3 billion in debt loaned by Bank of America. The deal closed in April.
Cardinal Health Chairman and CEO George Barrett said the purchase marks a "natural extension" of his company's business and will enable the firm to offer its products to the growing number of home healthcare customers. The global market for home healthcare products and services is expected to reach $372 billion by 2015.
Founded in 1928 in Garfield Heights, Ohio, (a Cleveland suburb), AssuraMed provides medical supplies to home-based patients suffering from diabetes, incontinence, respiratory conditions, urological disorders, wounds and other chronic ailments. The company generated $1 billion in sales and currently serves more than 1 million patients nationally with more than 30,000 products. In January of 2013, it finalized the $150 million acquisition of Elyria, Ohio-based home and long-term care medical product provider Invacare Corp.
"AssuraMed is a natural extension of the Cardinal Health businesses and of our mission to be essential to care. The acquisition allows us to serve the growing number of Americans treated in home settings--particularly those patients recovering from acute episodes and those suffering with chronic diseases," Barrett said. "This is a platform opportunity for Cardinal Health products and services which will be increasingly important as the delivery of care migrates to more cost-effective settings. It has been a central component of our strategy to help enable the healthcare system by serving patients throughout the continuum of care. This acquisition further aligns us with key trends including demographic shifts and increased consumerism."
AssuraMed operates through two separate businesses, Independence Medical and Edgepark Medical Supplies. In addition to broadening Cardinal Heath's reach into the home, AssuraMed's expertise in products for specific disease categories and small parcel logistics is expected to help Cardinal Health serve customers across the broad ambulatory care channel, including care sites such as physician offices and in support of home health agencies.
"We are excited about becoming part of Cardinal Health. Cardinal Health has a long tradition in providing healthcare solutions to its customers and we know this expertise will enable AssuraMed to move even farther and faster in building out our home care business," said Michael Petras, former CEO AssuraMed who became part of Cardinal's management team.
9. Abbott Laboratories
$10.01 Billion (21.8 B total)
KEY EXECUTIVES:
Miles D. White, Chairman & CEO
Thomas C. Freyman, Exec. VP, Finance & Chief Financial Officer
Brian J. Blaser, Exec. VP, Diagnostics Products
John M. Capek, Ph.D., Exec VP, Medical Devices
Charles D. Foltz, Sr. VP, Abbott Vascular
Heather L. Mason, Sr. VP, Diabetes Care
MurthyV. Simhambhatla, Sr. VP, Abbott Medical Optics
Sharon J. Bracken, VP, Point of Care Diagnostics
Michael J. Buck, VP, Vascular, Global Market Development
John D. Coulter, VP, Molecular Diagnostics
Robert B. Ford, VP, Diabetes Care, Commercial Operations
Catherine Mazzacco, VP, Abbott Medical Optics, Commercial
NO. OF EMPLOYEES: 32,500
GLOBAL HEADQUARTERS: Abbott Park, Ill.
"Failure isn't fatal, but failing to change might be."
--John Wooden, former UCLA basketball coach
Reinvention has long been a powerful business strategy. In 1889, young entrepreneur Fusajiro Yamauchi opened a small shop called Nintendo Koppai to sell traditional Japanese playing cards (hanafuda) crafted from mulberry tree bark. It was a bold gamble at the time: Card-playing had recently been legalized after a 256-year ban, and Yamauchi's compatriots had not yet warmed up to the game.
Nevertheless, Yamauchi's hand-made cards soon caught on, prompting him to open a second shop in Osaka and create additional games. He retired at age 70 in 1929, leaving his business in the hands of his descendants.
At which point, it was reborn.
During the 1950s, Yamauchi's grandson Hiroshi visited the United States and secured the rights to print Disney characters on the company's playing cards. A decade later, he delved into other areas, creating a taxi company, a hotel chain, an instant rice company and a television network. None of those ideas panned out.
But Hiroshi was not easily discouraged. And eventually he hit paydirt.
In the 1970s, Hiroshi began dabbling in electronic family entertainment and hired a young student named Shigeru Miyamoto to help him develop new gaming products. Miyamoto's ideas--Super Mario Bros., Donkey Kong, and the Legend of Zelda--made Hiroshi a multi-millionaire and his company (Nintendo) one of the most successful in Japan.
"From handmade nineteenth-century playing cards to the twenty-first century Wii may seem like a leap of light years, and it is, in terms of the outer form of the products," technology forecaster/business strategist Daniel Burrus (founder/CEO of Burrus Research) and author/ entrepreneur John David Mann wrote in a paper titled "The Reinvention Imperative." "But the genius of Nintendo's success is that Yamauchi and Shigeru found a way to completely reinvent the company yet remain unerringly true to its core: Nintendo = games based on memorable characters."
Countless numbers of companies have followed in Nintendo's footsteps and reinvented themselves to stay relevant in the market: Chrysler, led by iconic entrepreneur Lee Iacocca, gained popularity with drivers by reinventing the family station wagon in 1983; likewise, Walmart founder Sam Walton gave the old-fashioned General Store concept a much-needed makeover; Xerox escaped the photocopy typecast by inventing the Ethernet and branching out into mass-transit ticketing systems and e-discovery solutions; and Apple owes its longevity to its reinvention of the cell phone and portable music player.
Abbott Laboratories has stayed relevant through reinvention as well. Ten years ago, the multinational firm reincarnated itself as a formidable pharmaceutical and medical device developer through the spinoff of its slow-growing hospital business (happy birthday, Hospira). Last year, the company remade itself again, this time splitting itself into two publicly traded entities--one in diversified medical products and the other in research-based pharmaceuticals.
The new firm, Abb Vie Inc., oversees all big-name drugs, including Tricor, Niaspan and Humira, the blockbuster anti-inflammatory drug whose patent expires in the United States in late 2016 and in Europe the following year. It is being led by longtime Abbott executive Richard Gonzalez and employs about 21,000 people.
The legacy Abbott company, meanwhile, retains the name, its chairman/CEO (Miles D. White) and a diverse offering of healthcare products, ranging from coronary stents and sophisticated laboratory testing equipment to infant formula,
"In a shifting environment, consistent business performance is not enough to perpetuate itself. To keep their organizations relevant, CEOs and other leaders must heed the reinvention imperative," White wrote in a November 2013 article for the Harvard Business Review. "That has happened at such long-term leaders as IBM, Xerox and Samsung. Just 10 years ago Samsung was known only for consumer electronics; today it spans advanced technology, construction, petrochemicals, fashion, medicine, finance, and hotels. This kind of reinvention has been our goal at Abbott. Fifteen years ago we recognized a need to change; since then adaptation has been at the heart of our strategy. As a result, our revenue has more than tripled, and we have delivered industry-leading earnings growth and shareholder returns." Such growth continued last year as net earnings from continuing operations more than quadrupled, going from $2.38 billion or $1.50 per share, from $579 million or 36 cents per share in 2012. The company also grew operating earnings 38.8 percent to $2.6 billion, and increased its operating margin by 320 basis points compared with 2012, according to data from Abbott's 2013 annual report.
Ongoing earnings also were up, expanding 15 percent in 2013 to $3.2 billion or $2.01 per share (excluding specified items), compared with $2.77 billion or $1.74 per share in 2012. The earnings met analysts' expectations for the year ended Dec. 31, 2013.
Emerging market sales jumped 11 percent, mainly driven by solid growth in Abbott's Diagnostics, Medical Devices and Nutritionals businesses. The company garnered particularly impressive returns in China, Switzerland (an obvious anomaly) and Russia last year--sales ballooned 26 percent, 14.2 percent and 8.2 percent, respectively--but those gains predictably were offset by staggering losses in developed markets. Proceeds in Japan, for example, fell 16.3 percent to $1.4 billion, while The Netherlands' revenue was down 13.2 percent at $960 million. Earnings also slipped 2.5 percent in Canada and 3.6 percent in the United Kingdom.
Compounding those losses was a whopping 56.8 percent drop in reported net earnings ($2.6 billion or $1.62 per share, down from $5.96 billion, or $3.72 per share in 2012) as well as foreign exchange rate volatility. Abbott also was blindsided by a third-quarter supplier recall that negatively impacted international nutrition sales by two percentage points.
In early August, Abbott Nutrition Vietnam recalled batches of Similac Gain Plus Eye-Q for infants aged 1-3 over suspicions the formula contained a germ that causes muscle paralysis. The company recalled 10,135 out of 12,927 boxes of the canned Similac on the Vietnamese market.
Despite the setbacks, Abbott managed to boost its total revenues 1.6 percent to $21.8 billion and its Medical Device sales 2.1 percent to $10 billion. White linked the sales gains to the company's operating margin expansion and" selective cost management."
"For the full-year 2013, we delivered solid growth ..." White said in his annual letter to investors. "We returned nearly $2.5 billion to shareholders in the form of dividends and share repurchases, and announced a 57 percent increase in our dividend beginning this year [2014]. Strong performances across many of our businesses, combined with gross and operating margin expansion, enabled us to deliver on our 2013 expectations despite some challenges."
Operating margins were best in the company's Diagnostics and Nutritional businesses, its top-performing units in 2013. Diagnostics bolstered its operating margin by 300 basis points and increased revenues 5.9 percent (8.3 percent excluding foreign exchange rates) to $4.5 billion. Executives attributed the growth to the multinational launch of automated in-vitro diagnostic assays for Flu A/B/RSV, C. difficle, and VanR as well as the U.S. Food and Drug Administration (FDA) approval of the Abbott RealTime FICV Genotype II, a test that identifies the genotype of hepatitis C virus (HCV) that a patient carries. The RealTime HCV test can differentiate genotypes 1, la, lb, 2, 3, 4, and 5, using a sample of an infected patient's blood plasma or serum, according to the company. FDA officials okayed the RealTime HCV Genotype II only for people who are chronically infected with HCV.
Abbott's Nutritional business also expanded its operating margin by nearly 300 basis points, but could not match the Diagnostics unit performance. Nutritional product sales swelled 4.3 percent (5.4 percent excluding foreign currency exchange rates) to $6.7 billion as the company's offerings gained favor with aging populations, patients with chronic diseases and newfound middle-class consumers in emerging markets. Manufacturing/distribution process changes also contributed to the rise in Nutritional operating margins from 13.2 percent in 2011 to 18.7 percent in 2013.
Abbott made two important acquisitions to augment its offerings in the Vascular and Medical Optics segments and improve their overall performance. In the Vascular segment it acquired Webster, Texas-based stent manufacturing firm IDEV Technologies Inc. for $310 million net of cash and debt. IDEV's flagship stent, Supera Veritas, already sells in Europe for treating blockages in blood vessels due to peripheral artery disease, a sickness that ails 27 million people in Europe and North America. It also is under FDA review for superficial femoral artery treatment in the United States.
The purchase, though, failed to jump-start Vascular unit sales. Revenues fell 1.9 percent to $3 billion despite continued share gains of the Xience Xpedition drug-eluting stent (achieved mostly through the Japanese debut of the Xience Prime small vessel stent) and Absorb (Abbott's drug-eluting coronary bioresorbable vascular scaffold); higher sales of the MitraClip, a device to treat mitral regurgitation; and a 5.1 percent surge in endovascular sales.
In the Medical Optics business, Abbott acquired OptiMedica Corporation for about $250 million net of cash. OptiMedica's flagship product, Catalys, allows surgeons to replace manual steps in cataract surgery with computer-guided laser technology, and gives Abbott an entry point in the expansive and fast-growing laser cataract surgery market.
The investment paid off, too: Medical Optics sales climbed 4.1 percent last year to $1.1 billion, data from the annual report show. The segment's other revenue drivers included the U.S., Chinese and Japanese approval of the Tecnis Toric monofocal intraocular (IOC) lens and the regulatory blessing of a preloaded version of the Tecnis 1-Piece multifocal IOC in Canada, India and the United States. A pre-loaded version of the Tecnis 1-Piece IOC was approved in Canada, Europe and Japan, and the iDesign advanced vision diagnostic and LASIK treatment planning system--okayed in Europe in 2012--was inducted in Canada and various Latin American and Asian markets in 2013.
The Tecnis Toric IOC combines the optical qualities of the Tecnis design with astigmatism correction. The Tenis Toric lens remains stable once inserted into the eye and minimizes imprecise light focusing (spherical aberration) to provide sharper distance vision for patients.
Diabetes care revenue slipped 1.5 percent to $1.3 billion in spite of several new product releases. In the third quarter, Abbott received CE Mark approval in Europe for the FreeStyle Precision Neo monitoring system, a new icon-driven system with visual glucose trend indicators and insulin logging. The system is designed to be used with FreeStyle Optium blood glucose and ketone test strips, which currently are available in Europe. In the second half of 2013, the company received both CE Mark and FDA approval for Precision Pro, a hospital glucose monitoring system that improves accuracy and dual-band wireless access to immediate test results.
"The FreeStyle Precision Pro system represents a significant step forward as we work to provide tools to improve the way hospitals manage patients' glucose levels," said Heather L. Mason, senior vice president of Diabetes Care at Abbott. "It makes the data available in real time, thanks to the meter's hew wireless capabilities. With its individually foil-wrapped test strips, the system is also designed to help reduce test strip cross-contamination in hospital environments."
10. Stryker
$9.02 Billion
KEY EXECUTIVES:
Kevin A. Lobo, President & CEO
Lonny J. Carpenter, Group President, Global Quality and Operations
Ramesh Subrahmanian, Group President, International
David K. Floyd, Group President, Orthopaedics
Timothy J. Scannell, Group President, MedSurg & Neurotechnology
J. Andrew Pierce, President, Endoscopy
James N. Heath, President, Instruments
William J. Huffnagle, President, Reconstructive
Vivian Masson, President, Trauma & Extremities
Mark H. Paul, President, Neurovascular
Bradford L. Saar, President, Medical
Spencer S. Shies, President, Spine
Wayne D. Dahlberg, President, Performance Solutions
NO. OF EMPLOYEES: 25,000
GLOBAL F1EADQUARTERS: Kalamazoo, Mich.
Michael J. Mauboussin never really considered himself a lucky person. Like millions of other rational thinkers, he deemed luck to largely be a self-created fate rather than random and esoteric.
But a chance brush with Dame Fortune forever changed his outlook.
During his final interview with a top director at the long-defunct Wall Street investment banking firm Drexel Burnham Lambert Inc., Mauboussin spotted a trash can emblazoned with the Washington Redskins logo underneath the executive's desk.
A die-hard football fan, Mauboussin spent his entire interview discussing the pair's shared passion for the all-American sport, never once broaching the subject of banking.
Within days, he had scored a job offer. Months later, Mauboussin learned the Redskins fan vetoed reviews from other interviewers to hire him.
"My career," Mauboussin wrote in his 2012 book, "The Success Equation," "was launched by a trash can."
Drawing from his more than 25 years of financial experience at investment firms like Legg Mason Capital Management and Credit Suisse--where he currently is managing director and head of global financial strategies--Mauboussin's book explores the ways in which luck and skill collide in business, investing and sports (naturally). Business decisions like CEO pay or mutual fund investments often disregard the element of luck, assuming that prior successes solely are linked to skill.
But good fortune plays a more critical role in professional success nowadays, Mauboussin contends. The reason? Globalization and improved skill sets among the planet's populace are causing luck to increasingly become the deciding element separating outcomes, he theorizes.
In his book, Mauboussin fittingly supports his hypothesis (dubbed the "Paradox of Skill") with a baseball analogy involving Hall of Fame slugger Ted Williams, the last player to eclipse a .400 batting average for an entire season. While the game's current players are just as talented as Williams, none have been able to achieve his feat because the profession as a whole has improved, thus narrowing the standard deviation of skill, Mauboussin explains.
"If you think about batting average for your season and your player, some level of skill plus some level of luck gives you your outcome. What's happened generally is that the standard deviation of skill has gone down," he noted in a March 2013 interview with Wharton School management professor Adam M. Grant. "Why? Because you're recruiting players from the world now, versus from just parts of the United States. You're training better. You're coaching better ... The point is this paradox of skill. We've seen the differential skill narrowing. We see it really all over the place. We see it in the world of investing. We see it in the world of business. I think it is very interesting. As skill improves, especially in competitive markets, luck becomes more important [in] determining outcomes."
Indeed, luck may have had a bigger role in determining outcomes at Stryker Corp. last year, though President/CEO Kevin A. Lobo likely would argue otherwise. Yet the stark reversal of fiscal fortunes in 2013 is a bit puzzling, particularly since Lobo was still getting his feet wet leading the company (he assumed the top job on Oct. 1, 2012) and the various market challenges remained unchanged.
Two years ago, Stryker seemed trapped in a downward spiral: Its hip sales were flat, international sales were down 1.3 percent, Medical division revenue fell 4.3 percent, and exorbitant Rejuvenate and ABG II modular neck-hip stems recall charges stymied third-quarter Reconstructive sales and cut fourth-quarter net income by 37 percent. In addition, the company paid the federal government $33 million to close an investigation into its sales and marketing practices for the OtisKnee implant.
Last year, that downward slide came to an abrupt halt as revenues increased throughout Stryker's three business segments and various product divisions. Whether the turnaround is attributable to self-made luck or Fors Fortis has yet to be determined, but Lobo takes partial credit in a letter he penned to shareholders, outlining the steps the firm took to shore up profits.
"In 2013, we met our primary objectives--achieved strong top-line growth, delivered solid operational earnings, expanded globally, and invested through R&D and acquisitions to strengthen our product and service offerings," he reminded investors at the start of Stryker's 2013 annual report. "After completing my first full year as CEO, I am excited about our company's achievements and the progress we have made in strengthening our leadership in the medical technology industry."
That progress was attained through a mix of acquisitions, product releases, and perhaps, a little luck.
Stryker bookended the year with two major purchases, acquiring Trauson Holdings Company Limited in March for $764 million and Mako Surgical Corp. in late December for $1.65 billion. The company also announced its intent in December to purchase Patient Safety Technologies Inc. for $120 million, adding to its portfolio a device that reduces the risk of surgical sponges being left in patients after surgery.
The Trauson deal gave Stryker an immediate leading foothold in China's growing orthopedics market, a sector that will nearly double in size to $2.7 billion next year, according to Frost & Sullivan experts. Trauson, which posted $60 million in sales in 2011, is China's largest manufacturer of trauma devices, specializing in reconstructive devices like pelvic plates and artificial joints. Boasting a network of more than 663 distributors covering 3,840 Chinese hospitals, Trauson leads the Middle Kingdom's orthopedic market with a 5 percent sales share, ahead of China Kanghui Holdings Inc. (purchased by Medtronic Inc.) with 4 percent and a unit of Shandong Weigao Group Medical Polymer Co. at 3 percent.
Similarly, the Mako purchase provided Stryker with instant access to the robotic surgery market. And while the premium was hefty ($30/share), analysts claim the deal can give the company a competitive advantage over rival orthopedic implant manufacturers. The product is complementary to Stryker's existing line of replacement hip and knee joints and could appeal to hospitals looking to improve procedural efficiency.
Founded in 2004, Mako develops orthopedic surgical systems as well as knee and hip implants for treating early to mid-stage osteoarthritis. Its Rio surgical system includes a robotic arm that improves the exact placement of artificial joints.
"Robot-assisted procedures have the potential to aid hospitals, third-party payers and patients as they may reduce costs by shortening hospital stays and recovery periods and may reduce the amount of rehabilitation and medication," Stryker spokeswoman Yin Becker told the Wall Street Journal in an email. "We believe orthopedic surgical robotics provides an opportunity to expand and grow significantly from its position today and has the potential to become a game-changing technology longer term."
Having closed the Mako deal in mid-December and disclosed its purchase of Patient Safety Technologies on New Year's Eve, Stryker's acquisitions added little to the company's bottom line last year, boosting overall sales only 0.8 percent. The Trauson purchase, however, likely contributed to double-digit gains in emerging market sales, which constituted more than 7 percent of the company's 2013 total revenues.
Surprisingly, respective geographic market growth was best in the United States, where proceeds jumped 5.7 percent to $5.9 billion, annual report data show. Europe, Middle East and Africa sales increased 3.9 percent to $1.3 billion, while "other" foreign markets (Canada and much of Latin America) offset the 1.2 percent slide in Asia Pacific revenue with a matching sales haul.
Overall, international revenue rose 1.3 percent in the year ended Dec. 31, 2013, helping Stryker boost net sales 4.2 percent to $9 billion and increase its net profit 2.9 percent to $6 billion. The company's cash flow was up 14 percent compared with 2012, and its adjusted gross margin expanded by 30 basis points, excluding the impact of the Affordable Care Act's 2.3 percent medical device tax.
"We delivered consistent results throughout 2013,"Lobo said in the annual report. "Our organic growth (excluding acquisitions and foreign exchange) of 5 percent was at the high end of medical technology. As I travel the world and see our progress, it is clear to me that we are well-positioned for the future."
The main architects of Lobo's rosy outlook are Stryker's three business units, all of which posted solid gains last year. Neurotechnology and Spine spearheaded the growth, surging 5.6 percent as reported to $1.6 billion due to improved product diversification and increased demand for Stryker's neurotechnology devices. Such global desire propelled Neurotechnology division sales 8.7 percent to $915 million--the second-highest increase in the company. Spine, which has faced its fair share of challenges in recent years, climbed an impressive 2.1 percent to $743 million.
Likewise, hip and knee sales shed past woes to help buoy Reconstructive unit revenues 4.8 percent to $4 billion, annual report statistics indicate. Sales drivers included the Tritanium Cementless Baseplate for the company's Triathlon knee system, which combines biologic fixation with Triathlon's kinematics to provide surgeons with an additional option for cementless knee arthroplasty; and the Secur-Fit Advanced Femoral Hip Stem, designed to accurately restore biomechanics by leveraging the company's Orthopaedics Modeling and Analytics systems. Consequently, knee proceeds rose 1.1 percent to $1.3 billion and hip sales jumped 3.2 percent to $1.2 billion.
Stryker's Trauma and Extremities division posted the best year-on-year growth, surging 12.8 percent to $1.1 billion. Executives attributed the gain to the March launch of the Universal SmartLock Hybrid MMF (maxillomandibular fixation) system, an innovation that combines the strength and rigidity of arch bars with the safety and efficiency of MMF screws. The self-drilling, locking technology of the SmartLock system's screws allows for purchase into both the bone and the plate for additional stability and also eliminates the need for interdental wiring that is required with arch bars.
The MedSurg unit trailed behind its sister segments in sales, garnering an additional 2.9 percent in revenue ($3.3 billion) compared with 2012 figures. Overall unit growth was down slightly from the 3.3 percent recorded in 2012, as a little misfortune (or misstep) led to flat revenue in the Instruments division. The bad luck took the form of a second U.S. Food and Drug Administration (FDA) warning letter over quality issues at a Portage, Mich., facility that manufactures its Neptune waste management system. The warning letter referenced quality system observations made during a November 2012 inspection and cited Stryker for failing to notify the FDA about a product recall and for marketing the Neptune waste management system without 510(k) clearance.
Fortuitously, the company received such clearance in December for its Neptune 2 system, a device that eliminates harmful exposure to fluids and smoke in the operating room. The closed system collects and disposes of surgical waste without operator assistance to prevent contact with infectious fluids and surgical plumes.
Fortunately for Stryker, Lady Luck stepped in to offset flat Instrument revenues with a 2.8 percent increase in Medical sales ($710 million) and a 5 percent expansion in Endoscopy proceeds ($1.1 billion).
11. Danaher
$8.96 Billion ($19.1 B total)
KEY EXECUTIVES:
Steven M. Rales, Chairman
H. Lawrence Culp Jr., President & CEO
Daniel L. Comas, Exec. VP & CFO
Daniel A. Raskas, Sr. VP of Corporate Development
Matthias Weber, President, Leica Biosystems
Amd Kaldowski, President, Diagnostics, Beckman Coulter
Rainer Blair, President, AB-SCIEX
Tom Stratton, President, Implant Direct
NO. OF EMPLOYEES: 66,000 (total)
GLOBAL HEADQUARTERS: Washington, D.C.
High-tech entrepreneur and billionaire Elon Musk once equated the practice of forming a successful company to the science of baking.
"If you're trying to create a company, it's like baking a cake," said the co-founder of FhyFhl, SpaceX and Tesla Motors, among others. "You have to have all the ingredients in the right proportion."
To take the analogy one step further, to get the best results out, the best ingredients need to go in.
That's a philosophy that seems to be driving Washington, D.C.-based Danaher Inc. The multi-billion-dollar, multinational firm is an amalgam of different companies, brand names and technologies serving varied industries--in just the right amounts it seems, following a secret corporate recipe for successful bottom-line growth.
The company breaks its focus areas into five primary sectors: Test & Measurement, Dental, Industrial Technologies, Life Sciences & Diagnostics, and Environmental. For the purposes of MPO's list of top companies, we include the performance of the Life Science & Diagnostics and Dental sectors.
The company's diagnostic businesses offer a range of analytical instruments, reagents, consumables, software and services that hospitals, physician offices, reference laboratories and other critical-care settings use to diagnose disease and make treatment decisions. Life-sciences businesses provide research and clinical tools that scientists use to study cells and cell components to understand the causes of disease, identify new therapies and test new drugs and vaccines. Danaher's dental businesses focus on consumables, equipment and services that are used to diagnose, treat and prevent disease and ailments of the teeth, gums and supporting bone, and to improve smile aesthetics.
For the year, Danaher's overall sales were $19.1 billion, up from $18.3 billion last year. The company's Life Sciences & Diagnostics division reported sales of $6.86 billion, up from $6.49 billion in 2012, and the Dental unit grew marginally--$2.09 billion from $2.02 billion in fiscal 2012. Operating profit for Life Sciences & Diagnostics was $1.01 billion, up from $861 million. For dental, operating profit was $305 million, an increase from $293 million. Danaher's overall operating profit was $3.3 billion, up from $3.2 billion.
The company's life-sciences and diagnostics businesses accounted for 36 percent of revenue, while dental extracted dollars worth 11 percent of sales. Together, they represent nearly half of the company's topline results for the year.
Growth Drivers
In the Dental business, single-digit sales growth for fiscal 2013 primarily was the result of increased sales of professional dental consumables and implant products. On a year-over-year basis, sales of dental consumables were strong in North America, China and other high-growth markets, and contracted slightly in Western Europe. In addition, sales from existing businesses in the segment's dental technologies businesses grew at a low-single digit rate on a year-over-year basis primarily as a result of increased demand for imaging products and treatment units. Geographically, increased sales in North America, China and certain other high-growth markets more than offset lower demand in Europe, Danaher officials reported. North America accounted for 51 percent of sales, while Europe was 32 percent, Asia/Australia 10 percent, and all other regions 7 percent. Operating profit margins increased 10 basis points during 2013 as compared to 2012. Market penetration for the firm's dental products is strong. For example, Danaher's KaVo-Kerr Group, which includes 17 brands and makes a wide range of instruments and dental consumables, serves 99 percent of dental practices in the United States.
On the diagnostics side, sales from existing businesses grew at a mid-single digit rate during 2013 thanks to increased demand in the clinical, acute care and pathology diagnostic sectors. The clinical diagnostics business experienced strong sales of consumables and automation hardware in such high-growth markets as China, which more than offset slightly negative year-over-year sales performance in North America and Europe. Sales growth in the acute-care diagnostic business primarily was the result of "continued robust global consumables sales" related to the business' growing installed base of instrumentation, which is expected to continue to grow in 2014, as well as strong demand for compact blood gas analyzers and cardiac care instruments, officials predicted. The year-over-year sales growth in the pathology diagnostics business was driven by strong demand for advanced staining systems and consumables in North America, China and Japan and increased demand for core histology instruments and consumables in North America and China.
Sales from existing life-sciences businesses grew at a mid-single-digit rate during 2013 primarily to strong demand for new product introductions across the life-sciences businesses. Sales of the business' broad range of mass spectrometers grew on a year-over-year basis as strong sales growth in the applied and clinical research markets and the pharmaceutical market were partially offset by sales declines in the academic research market. Geographically, year-over-year sales growth in the mass spectrometry business was strong in high-growth markets and in the second half of 2013 the business also experienced strong demand in Europe and Japan. The business' confocal microscopy, flow cytometry and sample preparation product lines also contributed to year-over-year growth, officials reported, principally from demand in high-growth markets.
Overall, for the Life Sciences & Diagnostics business, North America accounted for 38 percent of sales in 2013, Europe was 29 percent, Asia/Australia brought in 27 percent, and all other regions were 6 percent.
Division News Worth Noting
In December 2013, Leica Biosystems, one of Danaher's diagnostic divisions, increased its ownership of Jung Feintechnik from 50 to 100 percent. Jung Feintechnik--based in Eisfeld, Germany--is a developer and manufacturer of sectioning products for the histology process. Terms of the deal were not disclosed.
In October of fiscal 2013, Danaher's Brea, Calif.-based Beckman Coulter Life Sciences business received 510(k) clearance from the U.S. Food and Drug Administration and an Import Medical Device Registration Certificate from the China Food and Drug Administration for the in-vitro diagnostic use of the Navios flow cytometry system. In the United States, the Navios flow cytometer is intended for immunophenotyping (a technique used to study the protein expressed by cells) in conjunction with proprietary Navios tetra software and Cyto-StatTetraChrome reagents.
The company's AB-Sciex division, headquartered in Framingham, Mass., which makes analytical technologies, introduced the AB-Sciex API 3200MD and 3200MD QTrap LC/MS/MS systems, two devices that can be used to analyze trace levels of multiple compounds in human samples for diagnostic purposes.
"Clinical diagnostics is the new frontier for mass spectrometry," said Rainer Blair, president of AB-Sciex. "The introduction of the 3200MD series is a major milestone for AB-Sciex itself in response to the demand in clinical settings for mass spectrometers as medical devices that meet regulatory requirements."
It is the first in-vitro device for AB-Sciex and the first of a family of in-vitro diagnostic devices the company plans to roll out.
In 2013, a unit of Danaher's Dental division--Implant Direct--recorded 18.8 percent overall sales growth compared to 2012. Growth for the company in North America was 25.8 percent. Danaher owns 75 percent of the Implant Direct, which competes with dental implant industry heavyweights such as Switzerland's Straumann Group and Zimmer Dental Inc., a division of Warsaw, Ind.-based orthopedic company Zimmer Holdings Inc. Headquartered in Calabasas Hills, Implant Direct reported in November 2013 that the company's founder and president, Gerald Niznick, DMD, planned to retire and would be succeeded by Tom Stratton, who joined the company in January 2013 as executive vice president of global sales and business development. Niznick's career has spanned more than 32 years. He sold his first dental implant company for $100 million in 2000 to Sulzer Medica AG (which later was acquired by Zimmer).
12. Becton Dickinson
and Company
$8.05 Billion
KEY EXECUTIVES:
Vincent A. Forlenza, Chairman, President & CEO
Gary M. Cohen, Exec. VP
Christopher R. Reidy, CFO & Exec. VP of Administration
Richard J. Naples, Sr. VP Regulatory Affairs
William A. Kozy, Exec. VP & Chief Operating Officer
John E. Gallagher. VP & Treasurer
Patti E. Russell, VP & Chief Ethics and Compliance Officer
Jeffrey S. Sherman, Sr. VP & General Counsel
Stephen Sichak Jr., Sr. VP, Integrated Supply Chain
Alexandre Conroy, President, Europe, EMA and the Americas
James Lim, President, Greater Asia
Linda Tharby, Group President
NO. OF EMPLOYEES: 29,979
GLOBAL HEADQUARTERS: Franklin Lakes, N.J.
Charles Darwin would have made for a phenomenal entrepreneur. The English naturalist/geologist not only had the drive, determination and intelligence to succeed, he also conceived a winning business formula, though it originally was intended to explain the process of evolution by natural selection.
Darwin believed that life arose by common descent through a branching pattern of evolution, where species lineages--derived from common ancestral clans--changed over time through natural selection and other mechanisms. Survival, he famously theorized, depends not on strength or intelligence, but rather on adaptability to environmental factors.
Since its 1859 publication, business executives have used Darwin's evolutionary thesis as the basis of their own survival strategies. "Over the past century, BD's success depended on our ability to adjust to changes in the healthcare environment and continue to deliver value to our customers," Becton Dickinson and Company Chairman/President/CEO Vincent A. Forlenza noted in his fiscal 2013 shareholders letter "In order to remain a relevant healthcare leader and to help our customers address their biggest challenges, we are committed to evolving again,"
BD is ensuring its survival by partnering with customers, governments and other healthcare stakeholders to help solve the industry's most pressing challenges. The company formed several new alliances in fiscal 2013, including a union with the prestigious Harvard Business School and non-profit consulting firm FSG to establish an executive training curriculum that helps enterprises create new opportunities for growth by focusing specifically on addressing unmet societal needs.
BD also aligned itself with Direct Relief and the National Association of Community Health Centers to expand healthcare services to America's underserved and vulnerable populations. The company is funding care models for diabetes management and cervical cancer prevention at community clinics throughout the country, and supplying health centers with its insulin syringes to help treat uninsured and under-insured diabetics.
Additionally, BD teamed up with the College of American Pathologists to improve laboratory quality in China and India. Specifically, the joint effort aims to improve access to external quality assurance/proficiency testing (PT), raise awareness of global practice standards, and help more labs achieve their quality improvement goals. BD has promised to manage PT distribution, including sales, shipping and first-line client service.
Perhaps the most notable collaboration, however, occurred in late September (near the end of BD's fiscal year) with the World Health Organization agreement to develop and launch the Odon device, a new obstetrical instrument designed to gently maneuver fetuses through the birth canal during complicated second-stage labor. C-sections extensively are performed to address prolonged labor in high-income markets like the United States and Western Europe, but the procedure is far less accessible in developing countries, where most maternal and newborn deaths occur.
"Healthcare is often described as a stable industry, but I do not agree with that assessment," Forlenza said. "What became abundantly clear to me in the last few years is that no matter where you are in the world, healthcare is under significant pressure and scrutiny. I strongly believe that by partnering with our customers and other industry stakeholders we are more effective in facing the pressure head-on, innovating and evolving to deal with such challenges. I'm confident that despite the challenges and shifts in healthcare, we have positioned ourselves for ongoing success. Throughout BD's entire history, we have always adapted to meet the needs of our customers and demands of the industry."
Such adaptability helped BD grow sales 4.5 percent to $8 billion in fiscal 2013 (ended Sept. 30), boost net income 10.5 percent to $1.2 billion and increase its dividend to shareholders for the 41st consecutive year. In addition, gross margin climbed 5.5 percent to $4.1 billion and BD's cash flow of $1.7 billion absorbed the impact of the 2.3 percent medical device excise tax mandated by the Affordable Care Act.
Emerging markets played a key role in BD's overall fiscal 2013 growth, as revenues swelled 12 percent on strong performances from India, Latin America, the Middle East and certain Asian markets. China led the pack with a 20 percent year-on-year growth, bolstering Asia Pacific revenues 14 percent to $1 billion compared with FY12. Europe bolstered sales 5.6 percent to $2.5 billion while U.S. proceeds succumbed to weaker demand for women's health and cancer products. Nevertheless, U.S. sales edged up 2 percent to $3.3 billion.
BD's three business segments also fortified the firm's FY13 sales gains, turning in solid performances compared with the previous year. The Medical segment made the largest contribution, growing its bottom line 5.3 percent to $4.3 billion due mostly to emerging market sales and a 3.5 percent revenue hike in safety-engineered products. Across-the-board increases within the segment's three divisions didn't hurt either: Medical Surgical Systems sales rose 4.3 percent to $2.1 billion, while Diabetes Care and Pharmaceutical Systems revenue both jumped 6.3 percent to $969 million and $1.1 billion, respectively.
Bigwigs attributed Diabetes Care growth to strong pen needle sales, particularly the BD UltraFine Nano and BD PentaPoint products as well as the AB AutoShield Duo Pen Needle. Pharmaceutical Systems, on the other hand, benefited mostly from the buyout of Safety Syringes Inc., a Carlsbad, Calif., company that develops and markets needle guard products for prefillable syringes (the tube is fitted with a safety that automatically locks into place). Analysts claim the buyout will help the company expand its prefilled syringes business.
In a nod to BD's Business Darwinism corporate philosophy, the Medical segment secured its evolutionary survival through a handful of U.S. Food and Drug Administration (FDA) clearances and product launches, including the approvals of the BD UltraSafe Plus Fhssive Needle Guard, an anti-needlestick safety device; and the BD PhaSeal Closed System Transfer Device, a product designed to reduce healthcare workers' exposure to hazardous, parenteral medications. The segment's launches were spread throughout the year's second half, with the UltraSafe Plus Passive Needle Guard hitting the market in April 2013, the Neopak Glass Prefillable Syringe System (specifically engineered to administer biopharmaceuticals) and BD UltraFine Nano 4mm Pen Needle with EasyFlow Technology debuting in June, and the BD Sterifill Advance first appearing in mid-August.
The Diagnostics segment followed a similar growth stratagem, boosting sales through strong performances in both of its divisions as well as higher safety-engineered product proceeds. Popular sales drivers included the BD Vacutainer Push Button Blood Collection Set, the BD Affirm system, the BD Bactec blood culture and TB (tuberculosis) systems, and the BD Phoenex ID/AST platform. The company also profited from a stronger flu season in 2013 and the FDA approvals of its BD Max Cdiff Assay in the United States, the BD ProbeTec Trichomonas Vaginalis Qx Amplified DNA Assay, and the nasopharyngeal wash, aspirate and swab in transport media specimens on the BD Veritor System for the rapid detection of respiratory syncytial virus.
The new device approvals and increased demand for safety-engineered products helped push Diagnostics segment sales to $2.6 billion, a 4.3 percent increase compared with FY12. Preanalytical Systems proceeds rose 3.9 percent to $1.3 billion, and Diagnostic Systems profit jumped 4.6 percent to $1.2 billion.
Biosciences segment sales climbed 2 percent to $1.1 billion, but profit was stymied by unfavorable foreign exchange rates and tepid demand in Western Europe.
"We announced a plan at the start of fiscal 2013 to continue delivering earnings growth through increased revenues and improved operating effectiveness," Forlenza said in the annual report. "I am happy to report that we achieved our goals."
Those achievements did not come without sacrifice, however. Ongoing legal drama sent FY13 diluted earnings per share (EPS) tumbling 11.8 percent to $4.67. The culprits included a $22 million pre-tax charge to settle four class-action lawsuits that accused the company of violating federal anti-trust laws in an effort to monopolize the market for hypodermic needles. The suits charged Becton Dickinson with crowding out competitors by offering discounts on a bundle of products in return for exclusivity in its hypodermic needle sales. Plaintiffs also argued that BD improperly gave warrants for company stock to group purchasing organizations, which negotiate prices for hospitals.
The other impediment to EPS growth came from a courtroom defeat in the company's prolonged patent litigation battle with Little Elm, Texas-based Retractable Technologies Inc. A federal jury awarded Retractable Technologies damages after finding that BD attempted to monopolize the market for safety syringes and falsely advertised about the sharpness of its needles and the amount of waste space for its products. BD recorded a $341 million pre-tax charge in relation to the verdict, but Senior Vice President and General Counsel Jeffrey S. Sherman has vowed to appeal the decision.
13. Boston Scientific Corp.
$7.14 Billion
KEY EXECUTIVES:
Michael F. Mahoney, President & CEO
Daniel J. Brennan, Exec. VP & Chief Financial Officer
Joseph M. Fitzgerald, Sr. VP & President, Rhythm Management
Maulik Nanavaty, Sr. VP & President, Neuromodulation
David A. Pierce, Sr. VP & President, Endoscopy
Michael P. Phalen, Exec. VP & President, MedSurg
Jeff Mirviss, Sr. VP & President, Peripheral Interventions
Kevin J. Ballinger, Sr. VP & President, Interventional Cardiology
Karen Prange, Sr. VP & President, Urology & Women's Health
Jean Fitterer Lance, Sr. VP & Chief Compliance Officer
Kenneth J. Pucel, Exec. VP, Global Operations, Quality and Technology
GLOBAL HEADQUARTERS: Marlborough, Mass.
NO. OF EMPLOYEES: 23,000
After several years of sluggish sales and legal wrangling (patent cases, U.S. government litigation and patient lawsuits), Boston Scientific has been working to reverse its fortunes. Toward the end of its 2013 fiscal year (ended Dec. 31), the company went through a self-described period of restructuring--its third in two years. Results from the company's third quarter seemed to suggest that the efforts worked. The end of the year seemed to bring with it improved performance and, dare Boston Scientific officials say it, a possible turnaround, exceeding Wall Street's expectations.
"I am pleased with our results for the quarter and our return to operational revenue growth for the full year 2013," said Mike Mahoney, president and CEO. "This marks our third consecutive quarter of accelerated operational revenue growth and we look forward to continued improvement of our annual sales and earnings performance in 2014."
In 2013, the company reorganized its business units into three reporting segments: MedSurg, which consists of endoscopy, neuromodulation, and urology and women's health businesses; Rhythm Management, which consists of cardiac rhythm management and electrophysiology (EP) businesses; and Cardiovascular, which includes the firm's interventional cardiology and peripheral interventions businesses.
Across all three segments in FY13, the company achieved full-year sales of $7.14 billion, representing 2 percent operational revenue growth and 1 percent revenue decline on a reported basis. The company recorded full-year adjusted earnings per share of 73 cents, compared to 66 cents in 2012, and reported a GAAP loss of 9 cents per share, compared to a GAAP loss of $2.89 per share in the prior year period.
Morgan Stanley analyst David Lewis told investors at the beginning of 2014 that things were looking up for Boston Scientific based on the strength of the company's product pipeline and its "numerous opportunities" to expand margins.
"Over the past several years, the company has targeted investments across several markets to accelerate growth and drive leverage," Lewis said. "We believe better recognition of this strategy will drive future outperformance even after a robust 2013 as accelerating sales and earnings growth drive improving financial performance over the next several years."
According to Lewis, the company's strengths are its revenue growth, "solid" stock price performance and "compelling growth" in net income.
"However, as a counter to these strengths, we find that the company's cash flow from its operations has been weak overall," he noted.
News of the improved numbers at the end of FY13 also came with the announcement of 1,100 to 1,500 job cuts worldwide--part of the restructuring plan noted above--along with the company's ongoing plant network optimization strategy, continued focus on driving operational efficiencies and ongoing business and commercial model changes.
The company previously cut 1,000 jobs in 2011 and another 900 to 1,000 positions in early 2013. The third round of layoffs was thought to be a cost-cutting tactic to speed up the company's improving performance, saving $150 to $200 million in operating costs. In October of FY13, Boston Scientific's chief financial officer, Jeffrey Capello, announced his resignation. The position was filled by Daniel Brennan, senior vice president and controller, who is credited with helping steer Boston Scientific over the bumps of the last five years.
Also toward the end of the 2013 fiscal year, the company began its transition from its former headquarters in Natick, Mass., to a new facility 14 miles west to the town of Marlborough.
Sectors by the Numbers
Sales for the firm's Cardiovascular sector fell 6 percent to $2.79 billion. Within that corporate silo, interventional cardiology product sales dropped 8 percent to just shy of $2 billion, while peripheral intervention products sales were up 2 percent to $789 million. The haul for Rhythm Management business was sales of $2.04 billion, down 1 percent. Within the business segment, sales of cardiac rhythm management devices yielded $1.89 billion, a drop of about 1 percent, and sales of electrophysiology products were up 5 percent to $155 million. Boston Scientific's MedSurg business grew sales by 7 percent to reach $2.26 billion. Under the MedSurg umbrella, endoscopy product sales rose 4 percent to $1.3 billion; neuromodulation devices were the company's big winner with a 23 percent sales increase to $453 million; and urology and women's health products eked out minor gains of 1 percent growth to reach $505 million.
For the company overall, on a consolidated GAAP basis, net loss for the full year 2013 was $121 million, or 9 cents per share, which included goodwill and other intangible asset impairment charges, acquisition and divestiture-, restructuring-and litigation-related charges, discrete tax items and amortization and debt extinguishment expenses, of $1.1 billion (after-tax) or 82 cents per share. Adjusted net income for the full year 2013, excluding these net charges, was $991 million, or 73 cents per share. By comparison, on a consolidated GAAP basis, net loss for the full year 2012 was $4.1 billion, or $2.89 per share. Adjusted net income for the full year 2012, was $933 million, or 66 cents per share.
In a move to increase market share, Boston Scientific acquired the electro-physiology business of Murray Hill, N.J.-based C. R. Bard for $275 million in cash. Bard's EP business, based in Lowell, Mass., had nearly $111 million in sales in 2012. Boston Scientific merged the unit with own rhythm management business, which is best known for making pacemakers and implantable defibrillators. According to company officials, there is a $2.5 billion worldwide market for electrophysiology that is growing 10 percent annually. Analysts seemed to agree. In a note to investors, Kevin Strange, an analyst for Wells Fargo, wrote that the acquisition would give Boston Scientific 11 percent market share and move up in the global electrophysiology market from fourth to third position.
"We expect [Bard's] strong portfolio of diagnostic catheters to be complementary to [Boston Scientific's] portfolio of therapeutic catheters, and geographically, [Bard] has a strong presence outside the U.S., whereas [Boston Scientific] has a stronger presence in the U.S, which we expect to also be complementary," Strange wrote. "Overall, we think the acquisition is strategically sound and consistent with [Boston Scientific's] stated desire to reinvigorate their EP business."
New Product OKs
Given Boston Scientific's varied product categories, new product rollouts, study results and technology milestones are frequent throughout the year, and FY2013 was no exception. Here are a few notable new tech highlights:
* In the first quarter of 2013, the company received CE mark approval in Europe for the Promus Premier everolimus-eluting platinum chromium coronary stent system. U.S. Food and Drug Administration (FDA) approval followed in the fourth quarter. The device is designed to improve drug-eluting stent performance in treating patients with coronary artery disease, featuring a unique customized platinum chromium alloy stent architecture and an enhanced stent delivery system.
* The company also received CE mark for its X4 line of quadripolar cardiac resynchronization therapy defibrillator (CRT-D) systems, including the Autogen X4, Dynagen X4, and Inogen X4 CRT-Ds, a suite of Acuity X4 quadripolar left ventricle leads and the Acuity PRO lead delivery system. The small, implantable devices are used to treat heart failure and sudden cardiac arrest.
* The FDA's Circulatory System Devices Panel of the Medical Devices Advisory Committee voted 13-1 to recommend the company's Watchman left atrial appendage closure device for approval. The device is used to treat atrial fibrillation. Agency approval is expected this year. The device received CE mark in Europe in 2005.
* Further bolstering its portfolio of peripheral embolization technologies, Boston Scientific received FDA clearance and CE mark approval for its Direxion Torque able Microcatheter. Peripheral embolization is a technique used primarily by interventional radiologists to treat liver cancer, uterine fibroids and other challenging conditions. It involves deliberately blocking a blood vessel to prevent blood flow to an area of the body, which can effectively shrink a tumor or block an aneurysm.
* In November, CE mark was granted for the Vercise deepbrain stimulation (DBS) system for the treatment of intractable primary and secondary dystonia, a neurological movement disorder characterized by involuntary muscle contractions. Earlier in the year, CE mark also was issued for the Guide DBS system, which the company claims is world's first DBS visualization system--providing clinicians with 3-D visualization information that simulates stimulation output, which may reduce programming time and enable more precise targeting of therapy. Using Guide DBS, physicians are able to visualize the relative position of lead location and utilize stimulation field models within the brain. Guide and Vercise can be used in combination.
* October brought another CE mark, this time for the Lotus valve system, the company's entry into the highly competitive transcatheter aortic valve replacement (commonly referred to as TAVR) market. This device is designed for patients with severe aortic stenosis at high risk for traditional open-heart surgical valve replacement. The company also is pursuing FDA approval.
* Also in October, the company kicked off a key clinical trial expected to serve as the foundation for global regulatory approvals of the Innova drug-eluting stent system. The trial, dubbed Majestic, is designed to evaluate the safety and performance of the first Boston Scientific peripheral drug-eluting stent system. The Innova system is designed to restore blood flow in arteries above the knee, specifically the superficial femoral artery and proximal popliteal artery. The stent features a unique drug-polymer combination, intended to facilitate optimal release of the drug and prevent restenosis (narrowing) of the vessel. "The complex anatomy of the superficial femoral artery above the knee and the dynamic forces created by flexion of the knee create a challenging environment for implants like stents, leading to the potential risk of stent fracture and higher rates of restenosis," said Professor Stefan Muller-Hulsbeck, M.D., Ph.D., deputy chairman Vascular Center Diako Flensburg and head of the Department of Diagnostic and Interventional Radiology/Neuroradiology, Academic Hospitals Flensburg, Germany. Innova DES consists of a paclitaxel-coated, nitinol, self-expanding stent loaded on an advanced, low-profile delivery system. The innovative stent architecture features a closed-cell design at each end of the stent for more consistent deployment, and an open-cell design along the stent body for improved flexibility and fracture resistance. Deployment accuracy is facilitated by a tri-axial catheter shaft designed to provide added support and placement accuracy.
* In August, the FDA approved the company's IntellaTip MiFi XP catheter and cleared the Zurpaz 8.5F steerable sheath. The products joined the company's growing portfolio of electrophysiology tools designed to redefine ablation technology. Catheter ablation, a procedure in which localized electrical energy is delivered into the heart tissue and is aimed at restoring the continuous normal rhythm, has become a first-line treatment approach for patients with certain kinds of irregular heartbeats.
* The FDA granted 510(k) clearance of the Rhythmia mapping system, a next-generation 3-D mapping and navigation solution for use in cardiac catheter ablations and other electrophysiology procedures to diagnose or treat a variety of conditions in which the heart beats abnormally. Cardiac mapping has become a standard tool for the diagnosis and treatment of arrhythmias. Current mapping systems require a manual, labor intensive process to create maps, making tradeoffs between accuracy and speed. Current systems also offer limited indication of therapy success. Rhythmia is designed to intelligently automate map creation, increasing the speed and improving the density of mapping compared to existing systems. CE mark was granted earlier in the year.
* The company received FDA 510(k) clearance and CE mark for the Guidezilla guide extension catheter, which is designed to make complex percutaneous coronary intervention procedures easier by more efficiently delivering interventional devices, including balloons and stents, in situations where extra backup support is needed.
* Boston Scientific launched a new family of pacemakers in Europe that monitor respiration, adjust pacing accordingly, and support insight into the patient's overall heart failure status. The new line comprises the Inliven cardiac resynchronization therapy pacemaker (CRT-P) that synchronizes the heart chambers, and the Vitalio and Formio pacing systems. Pacing systems are designed to treat bradycardia, a condition in which the heart beats too slowly, depriving the body of sufficient oxygen, whereas CRTP systems are designed to treat heart failure patients. Inliven, Vitalio and Formio received the CE Mark. Vitalio and Formio also are approved in the United States.
* In April, Boston Scientific acquired the fiXate Tissue Band and launched the product in the United States. The fiXate Tissue Band is a suturing device designed for quick and simple placement of a suture to help secure a spinal cord stimulator lead or pain pump catheter. The product was purchased from Anulex Technologies, Inc. Designed to manage chronic pain, spinal cord stimulators deliver electrical pulses from an implantable pulse generator to leads with stimulating contacts in order to mask pain signals traveling to the brain. More than 100 million Americans suffer from chronic pain, according to the Institute of Medicine.
Emerging Markets
Tapping into the sleeping giant that is China's medical device market, Boston Scientific opened a China branch of its Institute for Advancing Science (IAS) as well as a new Innovation Center in Shanghai. The company expects to foster local talent while sustainably developing innovative technologies uniquely suited to the China market.
"China is key to our ongoing global expansion, and we believe that initiatives such as the IAS and Innovation Center will help us to continue adapting to the unique demands of the China market," Mahoney said.
The IAS offers Chinese medical practitioners training in clinical practice and multidisciplinary programs in interventional cardiology, cardiac rhythm management and electrophysiology, endoscopy, peripheral interventions, and urology and women's health.
Boston Scientific established its China headquarters in Shanghai in 1997 and now has branches and R&D centers in Beijing, Shanghai and Guangzhou. Other IAS locations include France, Germany, Japan and the United States.
A total of 47 percent of the company's sales in 2013 were generated overseas (10 percent in Japan and 37 percent in other markets).
In 2013, Boston Scientific's sales in Brazil, Russia, India and China grew on a constant currency basis by nearly 30 percent and in our total emerging markets by 20 percent.
At the end of fiscal year, the company had six international manufacturing facilities, including three in Ireland, two in Costa Rica and one in Puerto Rico. Approximately 57 percent of products sold worldwide during 2013 were manufactured at these facilities.
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| Title Annotation: | p. 36-90 |
|---|---|
| Author: | Delporte, Christopher; Barbella, Michael |
| Publication: | Medical Product Outsourcing |
| Article Type: | Cover story |
| Geographic Code: | 100NA |
| Date: | Jul 1, 2014 |
| Words: | 27905 |
| Previous Article: | The promise of molecular diagnostics innovation. |
| Next Article: | Top 30: the medical device. |
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