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At the JP Morgan Healthcare Conference in San Francisco on Monday, Medtronic CEO Omar Ishrak once again laid out his three-pronged effort to rejuvenate medical device maker Medtronic (NYSE:MDT): improving execution, optimizing medical device innovation and quickly expanding its global footprint.
Of the three, the biggest challenge will be in optimizing innovation because Ishrak wants to tie it to economic value, and in doing so, will be seeking a major culture change at the company.
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Innovation just for the sake of innovation won’t cut it anymore. New ideas for products will need to prove their economic worth quickly.
That begs the question of what kind of acquisitions we will see under the Ishrak regime.
In an earlier interview with MedCityNews where he was responding to a question about the struggling Kyphon business, Ishrak said that billion-dollar acquisitions aren’t off the table.
But my guess is that they are highly unlikely.
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Kyphon was bought under previous CEO Bill Hawkins for the hefty price tag of $4.2 billion. Several years later, it has turned out to be a white elephant. In the Nov. 22 conference call, Ishrak said that Medtronic still has to show “that the clinical promise of BKP (balloon kyphoplasty) technology can translate into market and business growth.”
I wonder if the same thing will be true for the CoreValve acquisition, which Medtronic bought almost three years ago for $700 million. CoreValve is a transcatheter aortic valve implantation system and is used to treat acute cardiac stenosis in people who cannot undergo open-heart surgery. Medtronic is currently testing CoreValve, which is performing well. But the company is behind Edward LifeSciences, which won U.S. approval for its competing product — Sapien — in late November.
By all accounts, transcatheter aortic valve implantation technology shows great promise.
But a recent Mayo Clinic study based on the use of Sapien raises questions about market adoption. The Mayo study found that doctors require many procedures before becoming proficient in using transcatheter aortic valve replacement therapy. The journal editor of the journal where the Mayo study was published also raised questions about how to maintain such proficiency over the long-term and concluded that “TAVI may well be a center-stage diva, but it is also a jealous, high-maintenance mistress.”
So, could CoreValve be another Kyphon for Medtronic?
Only time will tell.
But before another expensive acquisition is made, the boss will need some convincing about economic value.
“I will be more disciplined about acquisitions,” Ishrak declared in the interview with MedCityNews.
Something tells me that the M&A folks will be on a short leash.
UPDATE: Bloomberg is reporting that at the JP Morgan Healthcare Conference Ishrak repeated that he will be more disciplined about acquisitions. He also said that the medical device maker has $2 billion to spend and that the acquisitions will largely take place overseas. Read the story to reinforce the idea in the original post that Ishrak will not tolerate acquisitions that will bear fruit much later.
