Medtronic's new CEO moves into the spotlight

  • Article by: JANET MOORE , Star Tribune
  • Updated: August 25, 2011 - 1:47 PM

Another test awaits Omar Ishrak at Thursday's annual shareholder meeting in Fridley.

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New Medtronic CEO Omar Ishrak spoke at his first Medtronic annual shareholders meeting Thursday August 25, 2011 at the company's Fridley headquarters.

Photo: Glen Stubbe, Star Tribune

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From the moment Omar Ishrak was named chief executive of Medtronic Inc. in May, curiosity began building about the relatively unknown executive from General Electric -- the first outsider to hold the company's top spot in a quarter of a century.

Medtronic, the world's largest medical technology company with $16 billion in annual sales, is clearly at a crossroads in its 62-year history. Core products have matured and are dogged with controversy, while new blockbusters have yet to reveal themselves. So what sort of course will Ishrak set?

Ishrak, 55, has kept a low profile since beginning his job eight weeks ago. He's made a few tightly crafted statements in news releases, and has tweeted exactly eight times with largely perfunctory messages seemingly aimed at the company's 40,000 employees.

On Thursday, he will face several hundred shareholders at the company's annual meeting in Fridley. Considering that Medtronic shares declined 17 percent during predecessor William Hawkins' four-year reign, the line of questioning may challenge the concept of Minnesota Nice.

But initial reviews from analysts of Ishrak's debut on a conference call Tuesday after the release of first-quarter earnings were largely positive. "I thought he offered well-considered and intelligent thoughts about Medtronic's strategy going forward," said Thomas Gunderson, an analyst with Piper Jaffray Cos. "Is it a major 180-degree shift? No.

"But he's doing what you'd expect a new Medtronic CEO to do: Study the company, get to know its ways, and figure out how everything works today. Then he can focus on how it works tomorrow."

Medtronic shares are up 10 percent since the start of trading Tuesday and closed Wednesday at $34.21, up $1.11.

There were few surprises in Ishrak's remarks on the 75-minute call -- he emphasized "execution, innovation and globalization." A Medtronic spokesman said Wednesday that much of the same narrative will be repeated at the shareholders' meeting.

Known for establishing GE Healthcare's footprint abroad with medical diagnostic equipment, particularly in China, it's not surprising Ishrak stressed the need for Medtronic to compete aggressively in foreign markets.

"Medtronic [employees] have to become global citizens to a large degree," he said in a post-call interview. "They must become interested in emerging markets, experts in emerging markets and help reach those emerging markets with the management team. It's a common charge we must all be unified [behind]."

The fact that Ishrak mixed a little salt with the sugar impressed some analysts.

He praised the company's "world-class capabilities" in clinical research and its grasp of health care economics. But he added, "we need better execution from everybody. That means more rigor, more follow-through. People work hard enough; I don't think that's an issue. It's just more rigor, more consistency and commitment and then delivery."

And, while Medtronic has made significant investments in research and development over the years, Ishrak said they have collectively provided "unsatisfactory returns."

Rick Wise, an analyst with Leerink Swann, said Ishrak "seemed to frankly address Medtronic's challenges and the company's prior inability to cleanly and successfully execute."

Morningstar analyst Debbie Wang praised Ishrak for addressing one of her longstanding beefs with the company, "its willingness to overpay for its acquisitions. We hope this shift will allow the firm to avoid disastrous purchases like that of [spine-surgery firm] Kyphon and focus on technologies that complement its product portfolios and benefit from its distribution system."

Several analysts said they were surprised to hear Ishrak frankly address the elephant in the room -- the cost of medical devices.

Ishrak noted that "macroeconomic conditions in many developed countries have led to constrained health care budgets" and increased pressure on how Medtronic's products are used in patients. A key part of the industry's long-term success, he maintained, is the ability for Medtronic to provide medical technologies that "clearly demonstrate value" at the provider and payer levels.

Wells Fargo Securities analyst Larry Biegelsen said he appreciated Ishrak's candor during the call, but said it will take time to see the tangible benefits of his initiatives.

In the meantime, he said, the lagging heart defibrillator and spine surgery businesses will continue to weigh on Medtronic's revenue and profits.

Staff writer Patrick Kennedy contributed to this report. Janet Moore • 612-673-7752

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