In the world of high tech gadgetry, consumers are spoiled by the practical implications of Moore’s Law, namely that processing power doubles in 18 months at the same cost. Today’s $500 iPhone packs the same computing punch as did all of NASA’s computers combined back in 1969. The relatively low price tag for powerful computing has expanded the market for personal electronics such as smart phones and iPads to the global middle class, endangering pedestrians and annoying commuters around the world.

With all of the electronics embedded in medical devices, one might expect Moore’s Law to reign over med tech, too, but this is not exactly the case. In some mature device product categories, such as pacemakers, prices are indeed being forced down (but only incrementally). This is primarily a function of increasingly frugal purchasers and intense competition than the availability of ever cheaper components.

In a presentation in Davos at the recent World Economic Forum, Medtronic CEO Omar Ishrak threatened to disrupt his own pacemaker business by developing a 10X cheaper version with the same basic functionality (Moore’s Law in action). It is too early to say whether Ishrak, seeing cheap competition looming, is taking a “if you can’t beat ‘em, join ‘em” approach, or whether he’s sending subliminal “we will crush you so don’t bother” signals to potential low-priced market entrants. Or maybe Ishrak believes Medtronic can contain these low-cost devices to their burgeoning emerging markets business and not cannibalize their existing sales to resume top line growth. Time will tell.

Medtronic may be able to play the price disruption game, but we ask ourselves whether the small emerging med-tech company can achieve success (and funding) with a “tons cheaper” value proposition. In theory, any company starting fresh with design and manufacturing should be able to take advantage of Moore’s law in a way that the big guys with vast installed bases and capital investments can’t. The opportunity for success is there, but not every company or technology is cut out to win at price-cutting.

For med-tech entrepreneurs out there considering the price disruption route, we have developed a little self-scoring quiz to help you determine your chances of success. Simply answer Yes or No to the following questions:

1. Is your device dramatically cheaper than alternatives? Not 10% cheaper, we are talking 5-10x cheaper. A little cheaper gets lost in the noise, and entrenched players can easily play your price game and win. You might as well price 10% higher and make your life easier.

2. Does your technology open up a substantial new market? Remember if you are 10x cheaper you just shrunk the existing market by 10x (e.g. a once attractive $300M market is now a non-fundable $30M market), not to mention the difficulties of dislodging an entrenched competitor. A new market might be geographic, for example developing countries; read about Daktari Diagnostics doing just that in a previous S2N blog. The home market is also a pie-expanding opportunity, for example NxStage Medical’s home hemodialysis technology.

3. Can you get to market on a lean capital diet? If your target market is the US and the regulatory path is PMA, which on average costs $75-$100M to obtain, then better to stick with the high-unit-price approach to building the billion dollar market opportunity you will need to have in your roadshow presentation to raise money.

4. Do you relish the idea of running a commercial entity? If you are a price-disrupter chasing new markets with your low-cost gadget, chances are good you will have to demonstrate not just technical and clinical effectiveness but also market effectiveness. Imaging is an area ripe for Moore’s Law inspired disruption, and companies like MobiSante are out there trying to prove customer demand for dramatically smaller and cheaper equipment. Check out their cool smart-phone based ultrasound device.

Now for the self-scoring: “Yes” answers are worth 100 points, and “No” answers are worth zero. If you don’t understand the question, you get zero points. Add up all your points. The grading curve is very hard; a perfect score of 400 can still fail, but at least you have a shot.

S2N co-founder and techno-geek Tim Kofol contributed to this article.

[Photo from Flickr user cdsessums]

UPDATED AND CORRECTED

On Wednesday, I forwarded the argument of an analyst that Medtronic’s (NYSE:MDT) controversial bone graft product Infuse will likely live on in a diminished form, even if an independent review confirms its safety.

So the obvious question is, who will fill the void left by Infuse?

While no company or product single-handedly can be an alternative to Infuse, Caroline Corner, the analyst from MLV & Co., believes that some companies have products that will now naturally be the surgeon’s next best option.

They are Osteocel Plus sold by California firm NuVasive, a Medtronic rival with which the company is engaged in a lawsuit; Trinity Evolution, sold by Orthofix Biologics in Texas; and Vitoss sold by Pennsylvania firm Orthovita, now part of Stryker.

But there is one company that Corner feels particularly excited about. That company is Montana-based Bacterin International.

The company, which is public, published results of a small clinical trial on 28 patients where its OsteoSponge product went head-to-head with Infuse. Data showed that it had as good spinal fusion rates as Infuse and none of the risks. Bacterin management estimates that Infuse has roughly 35 percent to 40 percent of the orthopedics biologics market, and Corner added that if Bacterin can show positive OsteoSponge clinical data on a larger sample, it would have a winning argument.

The pricing — Corner estimates OsteoSponge costs one-third of  Infuse — can only help given the cost-conscious era we live in right now.

Let the race begin …

This version removes an incorrect quote about OsteoSponge. 

Infuse

Medtronic’s controversial bone growth product Infuse has been hammered by quarter after quarter of declining sales.

Currently, Yale reviewers are conducting an independent review of the data related to Infuse. The review’s conclusions are eagerly awaited by Medtronic CEO Omar Ishrak who hopes that Infuse will be vindicated once and for all thereby silencing those who have raised questions about the safety of this blockbuster spinal fusion product.

But one research analyst who does not cover Medtronic believes that Infuse’s fortunes won’t rise even if Yale reviewers grant it a clean bill of health.

“Given that we’ve already had the proverbial eyebrow raised about Infuse, will (doctors) go back to it, I don’t think so,” said  Caroline Corner, an analyst with investment bank MLV & Co.

Corner, who holds a Ph.D. in biological and environmental engineering from Cornell University, said that conversations with top spine surgeons across the country lead her to believe that Infuse will have a secondary role.

She said that the doctors who are still using Infuse, albeit at a much lower rate, are using Infuse in procedures for older patients whose risk of developing cancer is not as high as younger patients; those that are hard to treat, or those who have already had a failed back surgery.

“Someone who is a very poor healer, someone who is in a revisional surgery, someone who is older and not in child-bearing age … some doctors still see an (Infuse) application in treating these hard -to-treat people,” Corner said. “But doctors in general are definitely shying away from using Infuse (most of the time).”

The drop in the utilization rate of Infuse now leaves the door open for other companies trying to develop an alternative to Medtronic’s Infuse, Corner said.

The new DF4 connector system boasts fewer connection points between the device and the defibrillation leads. It has a single set-screw to connect the device with the lead whereas previous generations of high-voltage systems required three connectors. The new system is compatible with Medtronic’s Protects, Consulata and Secura family of implantable defibrillators.

“With the availability of the DF4 system, implanting physicians now have access to the newest industry standard designed specifically around implant simplicity and system reliability,” said Dr. Brian Ramza, Evangeline and Frank Thompson chair in electrophysiology at the St. Luke’s Mid America Heart Institute in Kansas City, Missouri, in a news release. “This innovation addresses our need for easy-to-use, reliable technology that helps shorten the overall procedure time without compromising safety.”

Miami Instruments designs surgical instruments for minimally invasive cardiac procedures, and Medtronic said that it is launching two of Miami Instruments’ products in the U.S. Terms of the distribution agreement were not disclosed.

The two products are: the Joseph Lamelas Knot Pusher, which aims to “simplify the delivery and tying of suture knots in the heart during minimally invasive cardiac procedures” and the Joseph Lamelas Atrial Lift System, which can be used to “retract the atrial wall during limited-access cardiac surgical procedures,” according to Medtronic.

“Medtronic is pleased to join with Miami Instruments to bring cardiac surgeons the specialized surgical instruments they need to perform MICS procedures on behalf of their patients,” said John Liddicoat, senior vice president, Medtronic and president of the Structural Heart business, in a news release. “This agreement will allow us to continue providing physicians with the most innovative minimally invasive heart valve replacement and repair technologies.”

The products are named after Dr. Joseph Lamelas, founder of Miami Instruments and cardiac surgeon, and chief of cardiac surgery at Mount Sinai Medical Center in Miami Beach, Florida. They will be used in heart valve repair

Miami Instruments’ products will be part of Medtronic’s Structural Heart business that saw revenue increase 8 percent to $266 million in the quarter ended Oct. 28.

Johnson & Johnson

Despite the ruling, a Johnson & Johnson spokeswoman said in an email that the company would appeal the decision.

Johnson & Johnson ended its drug-coated stent business last year and exited a lucrative $4 billion market amidst setbacks in its business that included manufacturing problems, unfavorable patent decisions and greater competition.

In 2010, Boston Scientific agreed to pay J&J $1.73 billion to end other patent lawsuits between the companies over stent technology.

The Endurant II AAA stent graft system is designed to provide greater options to physicians in repairing abdominal aortic aneurysms (AAA).

An abdominal aortic aneurysm   occurs when the large blood vessel that supplies blood to the abdomen, pelvis and legs becomes abnormally large or bulges forward. The AAA stent market is a  rapidly growing market  in so small part helped along by an aging population. A 2009 report projected that the  Endovascular Abdominal Aortic Aneurysm Repair Device Market will grow to $1.6 billion by 2015.

Medtronic’s original Endurant II AAA system was developed collaboratively with 250 physicians around the world and allowed the repair of the abdominal aorta using a minimally invasive technique called endovascular aortic repair (EVAR). The new iteration is expected to be approved in the U.S. sometime this year.

It is an improvement upon the first iteration of the graft system, and now allows additional configuration options to physicians.

“Building on the exceptional clinical outcomes of the original system, which has significantly increased the applicability of EVAR, Endurant II offers an even better user experience which will benefit even more patients whose AAAs are detected before rupturing,” said   Prof. Hence Verhagen, chief of vascular surgery at the Erasmus Medical Center in Rotterdam, the Netherlands, in a Medtronic news release.

SCROLL BELOW FOR UPDATE: 

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.

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.

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. 

In late November, Medtronic CEO Omar Ishrak had this tantalizing tweet about that topic:

Returned from exciting trip to #Israel. Amazing entrepreneurial spirit and energy. Could be next innovation incubator for #Medtronic.

Wait, is Medtronic building an incubator in that tiny Middle Eastern nation?

Turns out, Medtronic is not. But Steve Cragle, the medical device company’s spokesman clarified that what Ishrak was tipping his hat to is that Israel is “is one of the most innovative device clusters in the world.” And that innovation is most apparent in the areas of “imaging, software, guidance and electronics,” Cragle said.

How important is Israel to Medtronic’s future? Very.

In 2010, the Minnesota maker of new innovative medical devices pumped $70 million into BioControl Medical, an Israeli medical devices startup that treats heart failure by stimulating the vagus nerve. It also obtained an option to acquire it outright for $550 million.

In 2009, Medtronic acquired Ventor Technologies, a maker of transcatheter valves for $325 million

In 2006, Medtronic bought Odin Medical Technologies, which develops MRI systems for brain surgery for $9 million.

Further, Medtronic has invested in some Israeli funds, including TriVentures, part incubator, part VC firm.  TriVentures II raised $25 million, with Medtronic as the main investor (Cragle declined to say how much), according to VC Cafe. Medtronic also appears to have an investment in Rainbow Medical, a private investment firm.

Currently, there are a total of 200 employees stationed in Israel who work at Ventor, at a sales and marketing office near Tel Aviv and at a R&D and manufacturing office in Yokneam.

So, will Medtronic’s presence in the country grow in years to come? Absolutely.

Ishrak has already highlighted how Medtronic will cast a global eye when it comes to R&D work. And Cragle confirmed Israel’s place in that overall strategy.

“We have not committed to building an incubator there, but we see Israel as a logical place for us to think about developing larger R&D activities,” he said.

Photo Credit: Vectorblog.org

The Symplicity Catheter System

A New Jersey serial entrepreneur is throwing his hat into the hypertension treatment ring with a catheter to reduce high blood pressure that would rival Medtronic’s (NYSE:MDT) Symplicity Catheter System acquired by the Minnesota medical device giant last year.

The company, led by David Fischell and his brother, Tim, called Ablative Solutions Inc., has raised a little more than one-third of a target $2.5 million in a series A financing round for the medical device, according to a Form D filing with the U.S. Securities and Exchange Commission.

Fischell is also the CEO of Angel Medical Systems, among other companies. He is the son of Robert Fischell, a scientist and engineer with more than 200 patents, many of them for medical devices.

A patent was filed for the catheter system last year and preclinical animal studies are scheduled to begin this summer, Fischell told MedCity News.

Fischell said Ablative’s catheter design would make the procedure, referred to as renal denervation, cheaper and more efficient. The procedure involves damaging or killing the sympathetic nerves in the kidneys to reduce blood pressure.

Medtronic acquired the Symplicity catheter through its $800 million acquisition of Ardian in a deal that closed in January 2011. In July, it got approval from the U.S. Food and Drug Administration to carry out a study design for the catheter.

Before Medtronic acquired it, a randomized clinical trial of 106 patients showed that the patients treated with Ardian’s device experienced an average drop in blood pressure of 32/12 mmHg after six months compared with an increase in blood pressure of 1/0mmHg in the control group of patients treated solely with medical therapy.

The market value for a catheter to reduce high blood pressure is estimated in the billions of dollars, since roughly 65 million Americans suffer from hypertension.

Describing mySentry as a first-of-its-kind monitor, Medtronic said that it would allow parents and other caregivers to know in real time glucose levels from a type 1 diabetes patient using the compnay’s Minimed Paradigm Real Time Revel System. The Minimed Paradigm Real Time System is the first U.S. Food and Drug Administration-approved integrated insulin pump and continuous glucose monitoring system.

The product shows real-time insulin pump status and glucose trends. It can also give alerts and alarms to parents and other caregivers in their bedroom while the patient — whether an adult or child — sleeps in another room.

One big fear of caring for diabetics is that their insulin levels may drop in the middle of the night. This makes caregivers and parents of diabetics wake up several times in the night to make sure that the glucose levels are where they should be. Medtronic’s mySentry eliminates that problem of regular night-time waking by alerting caregivers that a patient’s insulin level is dropping. They can then take action to prevent an episode of hypoglycemia.

“We’re excited to bring this new innovation to market that could give caregivers greater peace of mind. The mySentry Remote Glucose Monitor is the first step toward our vision to develop an entire category of Connected Care products that help people more proactively manage their diabetes by making it easier and more convenient to access the wealth of information captured by our integrated insulin pump and continuous glucose monitoring (CGM) system,” said Greg Meehan, Medtronic’s vice president and general manager of the Continuous Glucose Monitoring business at Medtronic, in a news release.

But now the Mayo Clinic has found that the procedure requires a lot of practice. And that raises the question of how widely the nascent technology will be adopted in the U.S. and whether doctors would need credentials to perform the procedure.

Heart.org reported that the Mayo study found that doctors may require as many as 30 procedures before they reach proficiency in using TAVI. The study was part of Edwards Lifesciences’ Partner Trial and was based on observing 44 patients who underwent transcatheter aortic valve replacement at the Mayo Clinic in Rochester, Minnesota between November 2008 and May 2011. Edwards Lifesciences is the first company in the U.S. to receive regulatory approval to market its transcatheter aortic valve replacement system called Sapien.

In an editorial published along with the study in the December issue of the Journal of the American College of Cardiology: Cardiovascular Interventions, editor Peter Block highlighted the complex learning curve and speculated about TAVI’s rollout.

“How all this will play out over the next year should concern every center and operator contemplating the addition of TAVI to their list of available therapies,” he wrote. “[I]t may take more than a full year for an operator to become procedure ‘proficient,’ [and] the question of maintenance of proficiency is totally unanswered at present.”

This conclusion, if widely held, may ultimately affect companies who have developed TAVI systems

While Edwards Lifesciences with its Sapien is the only company with an approved product in the U.S., Medtronic was the first to win regulatory approval for a TAVI system in Europe and other nations. Called CoreValve, the system has reported positive clinical outcomes in a study following patients in Europe and Canada. A clinical trial is currently under way in the U.S. to test the device.

On Tuesday, a Medtronic spokeswoman acknowledged that “we are aware of the learning curve and accommodate it through rigorous physician education. …”

That training includes “hands-on training featuring state of the art simulation … (and) proctored case support that is led by skilled physician proctors who have both depth and breadth of experience with the CoreValve System in countries where the CoreValve System is commercially available,” said Kathleen Janasz, a Medtronic spokeswoman.

Janasz’s comments were echoed by an Edwards spokeswoman.

“Edwards has designed a robust training program that is tailored to the needs of the Heart Teams performing TAVR [transcatheter aortic valve replacement], enabling teams to develop a high level of comfort with this new procedure,” said Sarah Huoh. “We believe the results from The Partner Trial, which include this experience from the Mayo Clinic, will drive adoption of TAVR  and [we] have confidence in the plans we have in place for the U.S. introduction of this new therapy.”

CoreValve and Sapien will vie for a target population of 100,000 Americans who suffer from severe aortic stenosis.

The Milwaukee Journal Sentinel today published a story on Thomas Zdeblick, the chairman of the Department of Orthopedics & Rehabilitation at the University of Wisconsin-Madison, who has received more than $25 million in royalties from Medtronic since 2003.

The article calls to question Zdeblick’s position as chairman of the department. Four Medtronic products that he had a role in inventing have been implanted in 179 patients at UW over the past three years, and he has co-authored several published research papers touting Medtronic’s Infuse spinal fusion products that have generated widespread criticism across the field for allegedly leaving out risks associated with the product.

In May, a Stanford professor published a study showing that Infuse posed a risk of male sterility. The New York Times reported in June that a group of spine specialists accused researchers paid by Medtronic of not reported serious risks associated with Infuse and exaggerating its benefits. In July, Zdeblick sent a retaliation letter to the editor of the Spine Journal, Dr. Eugene Carragee, a major critic of Infuse research. In the letter were specific complains related to methodology of the study which concluded that Infuse increases the risk of male sterility.

The Senate Finance Committee is also investigating Infuse. Medtronic announced in August that it was offering a $2.5 million grant to Yale researchers to review the product’s safety.

Jordan Cohen, a former president of the American Association of Medical Colleges; Arthur Caplan, a professor of medical ethics at the University of Pennsylvania; and David Rothman, president of Columbia University’s Institute on Medicine as a Profession, are quoted in the article questioning whether Zdeblick’s relationship with Medtronic is too significant for him to serve objectively as head of the department.

But the school is defending its chairman. “Dr. Zdeblick is one of the most talented and innovative orthopedic surgeons in the nation,” Robert Golden, dean of the UW School of Medicine and Public Health said in an emailed statement to the Journal Sentinel. “We are most fortunate to have him as department chair.”

He is among the highest-paid doctors at UW, earning more than $1 million in 2010, and also manages other faculty who consult for Medtronic or other medical device companies.

A University of Minnesota doctor who consults for Medtronic is also taking heat today. Dr. David Polly received a cautionary letter from the university for failing to disclose consulting work that resulted in more than $1 million in compensation.

Conflict of interest has been a hot topic in research this year, as the lines between inventor and customer become blurrier. According to a 2007 study in the Journal of the American Medical Association, 60 percent of chairmen at medical schools have a paying industry relationship.

Stop and think about that for a minute. The FDA or perhaps the Center for Medicare and Medicaid Services asks a company to conduct trials or register patients in a database so their outcomes can be looked at later to measure efficacy. The company allegedly (Medtronic didn’t admit guilt) pays the physicians to use their particular brand of device before enrolling them in the trial, which undoubtedly costs Medicare and other payers significantly more than previous iterations or other brands of the device, since it is the latest one on the market. Hasn’t that payment introduced a huge element of bias into the patient selection for those trials and registries? Hasn’t that  undermined the validity of the studies?

Medtronic may not have admitted guilt in paying bribes. But its tacit admission that it made payments (it agreed to a $23.5 million settlement) was a crime against science. The latter, it seems to me, is far worse for a company that purports to be science-based.

The author, Merrill Goozner, is an award-winning journalist and author of “The $800 Million Pill: The Truth Behind the Cost of New Drugs” who writes regularly at Gooznews.com.

Medtronic was accused of soliciting physicians to participate in post-market studies and device registries, offering them between $1,000 and $2,000 per patient for using Medtronic’s device, according to the U.S. Department of Justice. The government also said Medtronic caused false claims to be submitted to Medicare and Medicaid.

Despite the settlement, Medtronic said in a statement that it did not admit wrongdoing.

“Medtronic is happy to have this investigation behind us, so we can continue designing and executing clinical trials that generate evidence to improve patient care, outcomes and cost-effectiveness,” said Dr. Marshall Stanton, vice president for clinical research and reimbursement in the cardiac and vascular group at Medtronic.

Two years ago, Boston Scientific Corp. settled a similar kickback suit with $22 million, and in January, St. Jude Medical paid $16 million to do the same.

In the company’s most recent earnings call, Medtronic executives attributed an 8 percent decline in revenue from its Cardiac Rhythm Disease Management unit to declining procedure volumes resulting from legal investigators around stents and defibrillators.

The Findlay-based device maker is still undergoing a separate DOJ investigation after accusations that doctors who received kickbacks from the company failed to report side effects associated with Medtronic’s Infuse bone growth product.

A review of life science current events reported by MedCity News this week:

Medtronic wants to trim a quarter of costs on top of $1B already cut. In an earnings call last week, Medtronic (NYSE:MDT) CEO Omar Ishrak announced he was challenging the medical device maker to cut 25 percent of its costs — up to $1.3 billion — from everything from logistics to sales over the next five years.

New report: The nation’s top 10 life science clusters. In what’s sure to spark debate and friendly competition among the nation’s life science hubs, real estate and financial services firm Jones Lang LaSalle (NYSE:JLL) unveiled a report ranking the top life sciences clusters. Following Boston were New York/New Jersey, the San Francisco Bay Area, Los Angeles and Washington, D.C./suburban Maryland.

5 companies using big data to solve healthcare problems. Thanks in part to billions in federal subsidies for electronic medical records (EMRs), it won’t be long before the U.S. is awash in vast, almost incomprehensible amounts of health data. It follows that developing the analytics to draw meaningful conclusions out of those mountains of data will become an increasingly important — and lucrative — area for companies in the health IT industry.

Hospital bad debt continues to climb. Cleveland Clinic reported that spending on bad debt rose a whopping 49 percent to $86 million, The Plain Dealer reported. The area’s second-largest health system, University Hospitals, said bad debt rose 13 percent to $17 million. Even smaller, suburban hospitals are feeling the pain. Parma General Community General Hospital said its spending on bad debt skyrocketed 77 percent to about $4 million.

Rivals threaten to take wind from Watson’s generic Lipitor sales. The launch of the generic Lipitor follows the end of Pfizer’s exclusive patent on the drug, but how much market share it will be able to secure for the drug, which had sales of more than $10 billion last year, remains to be seen, such is the level of potential competition.

This comes as the company wraps up the final year of a cost-reduction plan that CFO Gary Ellis claims shaved $1 billion in expenses over the last five years.

But that’s just the starting point, Ishrak said. The company is working on programs to cut costs long-term so it can maintain profit margins as it penetrates emerging markets that require lower-priced products.

The company generates 60 percent of its overseas revenue from such markets, including Brazil, Russia, China and India, which Ishrak targeted in a September interview with MedCity News as the company’s prime target for international growth.

Major cost cuts could help boost Medtronic, which has struggled with setbacks from its spine products and bone graft products. Overall, profits were flat at $3.1 billion in 2011, but showed signs of improvement in the second quarter of fiscal year 2012. Stocks are down 9.6 percent since the beginning of 2011.

The professional CGM allows physicians to see a more complete picture of glucose highs and lows resulting from a patient’s diet, medication and daily activities, allowing for better glucose control, according to a news release from Medtronic. It was released in Europe in June 2010.

A new “Smart” Dock eliminates the need for a computer in the new model iPro2, which patients wear for three days and then return to their physicians, who then upload the glucose data and have access to user-friendly reports.

Medtronic’s rapidly expanding diabetes unit brought in $367 million in second-quarter earnings reported today, up 10 percent from the previous year. Growing revenue was driven by sales of insulin pumps and CGM products like the iPro2.

Globally, the CGM device market is growing and is forecast to reach $370 million by 2016, according to Research and Markets.

But Medtronic Diabetes has some other innovative products in the works, too, including the Enlite CGM sensor, which is performing well in Europe and recently began an IDE study for approval in the U.S., and the low-glucose suspense monitoring system, which also recently began trials in the U.S. Medtronic is also working with Ford to develop an in-car diabetes management system.

With its extensive portfolio of pumps, glucose monitors and diabetes management devices, Medtronic is said to have an edge on competitors like Abbott and Dexcom in the race for the artificial pancreas.

Buyers responded to the earnings, which CEO Omar Ishrak said “reflect a quarter of stability in a challenging market,” and shares were up more than 3 percent this morning.

Worldwide revenue for Medtronic increased 3 percent to $4.13 billion from the second quarter of 2011. Sales of heart valves, stents and diabetes products offset weaker performances by implantable cardiac defibrillators and the soon-to-be-divested Physio-Control.

Analysts had called for a profit of 82 cents a share on $4.07 billion revenue. They have been primarily concerned about Medtronic’s Cardiac Rhythm Disease Management (CRDM) unit and spinal products due to separate controversies regarding use and safety of products.

Under the company’s cardiac and vascular umbrella, CDRM saw declining revenue of 8 percent on a constant currency basis, which Ishrak and CFO Gary Ellis attributed to declining procedure volumes as the U.S. Department of Justice investigates whether doctors have been implanting too many cardiac defibrillators. But Ellis said the company was “cautiously optimistic” that ICD sales had bottomed out and were beginning to flatten.

Cardiovascular sales overall grew 8 percent and are expected to continue growing as the company anticipates a late fiscal year 2012 approval of its Resolute drug-eluding stent in the U.S.

In the restorative therapies group, Spinal revenue was down 3 percent as a result of market challenges around the controversy with Infuse, which saw sales drop 16 percent. Ishrak said he expects continued overall growth in restorative therapies driven by strong international sales of diabetes devices, surgical technologies and neuromodulation devices, and the expected launch of the AdaptiveStim technology in the U.S. and Japan in the third quarter.

Analysts expected that Medtronic might have scaled back its full-year revenue guidance, but the company still expects earnings of between $3.43 and $3.50 per share. For the second half of the year, it expects revenue growth to remain in the range of 1 percent to 3 percent on a constant currency basis. For fiscal year 2012, the company continues to expect diluted earnings per share in the range of $3.43 to $3.50, a growth of 6 percent to 9 percent.

Analysts seem anywhere from indifferent to negative about the company’s results for next quarter, estimating a fiscal year 2012 growth of 3.44 per share, down from 3.46 estimated 90 days ago.

At the earnings call, Ishrak once again emphasized his goal of growing the business globally, noting for example that sales in China grew 24 percent this quarter.

He also said this was the company’s final year of a $1 billion cost-reduction plan, and that he would be challenging the company to take out another 25 percent of costs over the next five years.

Medtronic's RestoreSensor

A new Medtronic (NYSE:MDT) neurostimulation system that uses motion-sensor technology to automatically adjust stimulation levels in patients with chronic leg and back pain has won U.S. Food and Drug Administration approval.

The AdaptiveStim RestoreSensor system comprises an implanted device that interrupts pain signals from reaching the brain, causing the user to feel a tingling sensation instead of pain.

Using motion-detecting technology similar to that used in smartphones and computer gaming systems, the device automatically adjusts the intensity of stimulation based on the patient’s body position. With a standard neurostimulation device, patients would use a remote-control device to adjust their settings when they change positions.

A study of 79 patients with chronic pain found that 80 percent of participants reported functional improvements from the device, including improved comfort during position changes.

This is the newest addition to Medtronic’s neurostimulation portfolio, which includes three rechargeable neurostimulators and a nonrechargable one. It’s been a growing segment of Medtronic’s business, accounting for about 10 percent of the company’s 2011 revenue and growing 7 percent last quarter.

In its first-quarter earnings statement, Medtronic said its AdaptiveStim technology was already performing well in Europe, where it was approved last year. In 2010, the company estimated the market size for the device at $1 billion.

Medtronic’s stock dipped 1.2 percent at close today.

Physio-Control's Lifepak 20e defibrillator

Five years after it first announced the desire to sell its emergency medical response business, Physio-Control, Medtronic (NYSE:MDT) has found a buyer in Bain Capital Ventures.

The private equity firm will pay $487 million in cash to buy back ownership of the Redman, Washington-based business it sold to Medtronic in 1998 for $538 million.

Physio-Control makes emergency medical response technology including defibrillators, chest compression system and cloud-based data management tools. Medtronic first expressed interest in divesting Physio-Control in 2006, but the slow-growing business needed time to recover after quality-control concerns caused it to voluntarily halt selling its external defibrillators in 2007. The U.S. Food and Drug Administration cleared the company to resume selling them in February 2010, but it was hit with a series of Class I recalls by the FDA later that year.

“Physio-Control has strategically not benefited Medtronic as we would have liked to see,” Medtronic CFO Gary Ellis said in an earnings call earlier this year. It had below-average profit margins and couldn’t compete with the investments Medtronic had to make in other divisions, he said.

The business brought in $425 million in revenue last year, flat from 2010 revenue but up from $343 million in fiscal year 2009.

In a press release, Medtronic said it would use a portion of the proceeds from the sale to offset its impact on earnings in 2012.

Brian Webster, currently president of Physio-Control, will become CEO of the new privately held company and its management will stay intact. Once the deal closes in early 2012, it will likely add to its 1,000-employee workforce.

As Medtronic prepares to begin the first U.S. trial of a low-glucose suspense system, and as diabetes device companies, researchers and advocates look to the U.S. Food and Drug Administration for guidance, one thing is obvious: The United States is way behind in giving patients access to the Holy Grail of type 1 diabetes treatment, the artificial pancreas.

Ideally, the artificial pancreas would be a small, portable, easily accessible and easily disguisable closed-loop system comprising a continuous glucose monitor, an insulin pump capable of delivering precise amounts of insulin and a computer algorithm to tell that pump just how much insulin to deliver based on blood sugar levels.

The good news is, we already have most of the pieces. Dexcom, Medtronic, Abbott and others already make continuous monitors that alert users when blood sugar levels are becoming too high or low. Medtronic just announced Wednesday that it was enrolling patients in a U.S. trial for its Enlite sensor, a smaller product with supposedly painless sensor insertion and better accuracy. (Sidenote: It received the CE Mark in April.) Animas, Roche, Insulet and Medtronic are just some of the marketers of sophisticated insulin pumps.

But, according to JDRF, continuous glucose monitors are U.S. Food and Drug Administration-approved for use alongside finger sticks, rather than in place of them. And, although some implantable insulin pumps exist, they are expensive and high maintenance, according to pediatric endocrinologist Dr. Stephen Ponder in a column for the Corpus Christi Caller.

“In the near term, the pieces absolutely exist,” said Dr. Aaron Kowalski, vice president for treatment therapies at JDRF. “At least the way I see it, the technology exists today to partially close the loop. We need to add some degree of automation, so there are some technological advances that need to happen.”

The devices

Medtronic has the closest thing to an artificial pancreas in the U.S. with its MiniMed Paradigm REAL-Time REVEL System, which comes with an insulin pump, a built-in continuous glucose monitor and personal therapy management software.

In Europe, Medtronic markets the MiniMed Paradigm Veo — an even more intricate device that uses low-glucose suspense, which stops the pump from delivering insulin for two hours when a patient’s blood sugar level gets too low. But the Veo isn’t yet available in the U.S. — in fact, the FDA just approved Medtronic for a new device study for the product less than two weeks ago.

“The obvious next step is to add the algorithm,” Kowalski said. “Data absolutely shows that the computer can control blood sugar better than a human can.”

And researchers are working on just that. Mayo Clinic was scheduled to begin running trials this month on a closed-loop system that uses an abdominal patch to measure blood sugar continuously, a pager-sized pump to deliver insulin beneath the skin and a sophisticated software algorithm using unique patient information. Mayo’s system also takes into account physical activity and metabolic response, which is a critical variable in insulin action.

Similarly, Massachusetts General Hospital researchers are running phase 2 clinical trials on an artificial pancreas system using a continuous glucose monitor, two pumps hooked up to a laptop. The researchers hope to replace the laptop with a computer chip as part of the pump, so that the whole system is the size of a cellphone. This system is unique because it also incorporates a pump for glucagon, a hormone that protects the body from hypoglycemia by raising blood sugar levels when too much insulin is produced or delivered.

Technology-wise, the issue of hypoglycemia is likely the biggest challenge for artificial pancreas devices. Hyperglycemia — or high blood sugar — can lead to complications in the organs if sustained over time. If the low-glucose suspense system, like the one being tried by Medtronic, were to malfunction and shut off the insulin pump too often, hyperglycemia would be the result.

“Why wouldn’t you have a low-glucose suspense?” Kowalski questioned. “If (the pump) was turning off too frequently, glucose levels could get worse, but there’s absolutely no acute risk.”

But allowing a computer to dose insulin means risking over-delivery resulting in too little blood sugar, which manifests more quickly and can cause seizures or brain damage.

“The risk with dosing is significantly more than the risk of turning off a pump,” Kowalski said. “Dosing too much insulin can be life threatening; hypoglycemia can kill them. The concern from the FDA and clinicians is what happens in the closed-loop sensor if the computer is wrong and it sends too much insulin?”

Kowalski added that the first real-world trial of a closed-loop system that involves dosing insulin is taking place in Europe.

The market

The success of the artificial pancreas relies heavily on collaboration between academia and medical device companies. “In the work that we’ve been funding in academia, they’ve been using every different brand of insulin pump and glucose monitor, from Insulet, Roche and even some small companies,” Kowalski said.

GlobalData estimated the type 1 diabetes treatment market at $2.7 billion in 2009, with an expected annual growth rate of 6.1 percent. An estimated 3 million Americans have type 1 diabetes, putting them at risk for long-term complications if they don’t seek treatment.

But that treatment comes at an awfully high cost, which could be another barrier to the ultimate integration of the artificial pancreas for type 1 diabetes treatment. An insulin pump runs anywhere from $5,000 to $7,000 on average, plus about $2,500 in disposable components, according to Ponder. Glucose sensors for continuous monitors cost about $35 to $55 and need to be replaced every several days.

The regulatory barriers

Kowalski said the biggest thing holding back progress now is the U.S. regulatory environment. The JDRF has been working with lawmakers, advocates and healthcare professionals to push the FDA to implement policy changes and guidance that would speed the time frame for devices to go to market and to allow for research into new products.

Meanwhile, the FDA is preparing draft guidance for companies to get the artificial pancreas approved, which Kowalski expects to see released in the next month.

“The pathway to the market is going to be driven by what the FDA asks for on Dec. 1,” he said.

Kowalski expects the low-glucose suspense technology to be available in the U.S. within two years. Globally, he said, a functional artificial pancreas could be just a few years away.

“It’s not helpful for the U.S. to be behind — not just from a humanitarian perspective, which of course is the most important — but also from a business perspective,” he said. “This is very challenging because this is a major market for many of these companies. To invest in research, we have to have access. The FDA has to see that there is a pathway, that these devices can be helpful, and give companies the opportunity to drive innovation.”

Transcatheter aortic valve implantation (TAVI) is a less-invasive alternative to open-heart surgery for aortic valve replacement, but some patients are unsuited for the procedure because they have small vessels. The newly CE Marked direct aortic approach provides a minimally invasive option for those patients.

In the procedure, physicians replace the diseased valve through a small incision without stopping the heart or penetrating its ventricular wall.

CoreValve is part of Medtronic’s CardioVascular business, which accounted for 18 percent of the company’s overall revenue in fiscal year 2010. Another new product in the CoreValve line — the world’s largest transcatheter aortic valve — received the CE Mark in August.

About 300,000 people globally have been diagnosed with severe aortic stenosis, and 100,000 of them are too high risk for open-heart surgery, Medtronic said in a statement.

The CoreValve system is still limited to investigational use in the U.S.; Medtronic began a U.S. pivotal study of CoreValve in its third fiscal quarter of 2011. But Edwards Lifescience beat Medtronic in the U.S. — its Sapien Transcatheter Heart Valve was cleared by the U.S. Food and Drug Administration last week. Medtronic, meanwhile, is eyeing a U.S. launch for CoreValve in 2014.

The MIDLF™ system is the latest in a series of procedural solutions in the medical device maker’s MAST portfolio for minimally invasive treatment of spinal conditions. Using retractors and bone screws, along with Medtronic’s surgical navigation and imaging systems, the procedure allows for more accurate device placement, smaller incisions, and minimal injury to muscles, tendons and other tissues not involved in the back injury, the company said in a statement.

“A midline approach offers surgeons a number of benefits in addressing the challenges associated with decompression as well as sacral fixation in the lumbar or lower spine,” said Florida spine surgeon Dr. Richard Hynes in a prepared statement.

Despite declining sales and controversy around the Infuse bone growth product, Medtronic Spine won’t be for sale any time soon, CEO Omark Ishrak said recently. Things may be looking up, as the spinal division recently launched a new spinal surgery product in Europe, won FDA approval for its TSRH Spinal System, which treats pediatric and adolescent scoliosis, and rolled out a new product for oral surgeries in September.

The MAST MIDLF was presented at the 26^th annual meeting of the North American Spine Society in Chicago.

It’s unlikely that Medtronic will be going the way of Abbott Labs, which recently separated its drug business from the rest of its operations, any time soon.

Despite suggestions that Medtronic spin off its troubled spine business, CEO Omar Ishrak told Reuters on Friday that Medtronic sees no benefit in doing so because the business is still benefiting from other parts of Medtronic.

As the aging population seeks treatment for back ailments, Ishrak said, the spine business will recover from the controversy earlier this year surrounding its Infuse bone growth product, for which revenue declined 8 percent in the quarter ending July 29, and its lackluster purchase of Kyphon in 2007.

So, Medtronic will stay intact, Ishrak says, except for one business it’s been trying to sell for years: Physio-Control, its emergency response system business unit.

The medical device giant first said in 2006 it wanted to divest the business and reiterated that wish earlier this year.  But since 2006, Physio-Control has suffered from some Class I U.S. Food and Drug Administration recalls — first in July 2009 and again in April 2010 and July 2010 — that have made it a questionable buy.

Medtronic’s growth has slowed recently, with fairly flat profits in its $15.9 billion sales year ending in April. In a September interview with MedCity News, Ishrak said his overall plan for growth included leveraging technology and health IT, establishing Medtronic internationally and keeping Kyphon.