Medtronic must grow globally, CEO Ishrak says

In his first conference call with Wall Street analysts as the new CEO of Medtronic Inc., Omar Ishrak repeatedly emphasized that the Fridley-based medical technology company must expand beyond its traditional markets.

And much of that growth will likely occur outside the United States. Already, 46 percent of the medical technology company's revenue is generated in other countries, but the new chairman and chief executive clearly wants a larger international footprint.

"There is no doubt that the global health care opportunity, especially in emerging markets, is immense and will continue to grow," Ishrak said Tuesday during the 75-minute call with analysts. "We must capitalize on this tremendous market opportunity."

Such ambitions will involve "significant" investment in research and development, manufacturing, and strategic partnerships in emerging markets, such as Latin America and China, said Ishrak, the former General Electric executive who took over as CEO two months ago.

At $16 billion in annual revenue, Medtronic has become the world's largest med-tech company by developing a diverse portfolio of devices that treat heart disease, diabetes and other maladies. While Medtronic will pursue new products and markets, Ishrak said the company will attempt to wring out more revenue from its core devices -- cardiac rhythm products, including pacemakers and implantable cardioverter defibrillators (ICDs), as well as spine products.

"Historically, Medtronic has focused on adding new, high-end therapies, and incremental innovation to drive growth," he said. "While this has often worked in the past, in today's environment ... we must look for new and creative ways to generate growth."

On Tuesday, Medtronic reported net income for the fiscal first quarter ended July 29 of $821 million, or 77 cents a share, a 1 percent decrease, compared with $830 million, or 76 cents a share, the same period last year. Adjusted net earnings were $845 million, or 79 cents a share, a 3 percent decrease.

Overall revenue in the quarter increased 7 percent to $4 billion, though revenue for ICDs, implantable devices that shock an errantly beating heart back into rhythm, declined 8 percent to $697 million. A pending Department of Justice investigation into how ICDs are used, and a medical journal article that implied the heart-shocking products are overused, conspired to dampen sales of the $30,000 product.

Sales of devices used in spine surgery were flat at $825 million. Revenue from Infuse, a controversial bone-growth product used in spine surgery, declined largely because of the recent publication of several articles in a medical journal repudiating clinical research surrounding the product.

Not all of the earnings report was dour. Revenue in the cardiovascular business, which includes minimally invasive heart valves and stents, grew 19 percent to $850 million. And sales of diabetes products increased 14 percent in the quarter to $355 million.

Leerink Swann analyst Rick Wise said investors "will be encouraged that Medtronic's highly diversified business model is clearly helping the company manage through challenging times within two of its major businesses."

But Ishrak said repeatedly that Medtronic needs "to better adapt to our changing environment," including long-term changes in the way medical devices are approved by regulators, and a health care environment focused more on cost containment. "We will significantly change the way we prioritize products in our pipeline, placing the highest emphasis on our ability to demonstrate not just clinical value, but economic value at both the customer and societal level," he said.