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The Heart Is Just the Start
CEO Art Collins explains how Medtronic is moving into treating spinal injuries, neurological disorders, diabetes, and more

The benefits of "pacing" the heart -- using electrical stimulation to control its beating -- were known as far back as the early 1900s. But it wasn't until mid-century, in Minneapolis, Minn., that the first portable pacemaker was created. It came to be in the wake of an unnecessary death, after a patient's freestanding pacemaker shut down during a power outage. Open-heart surgery pioneer Dr. C. Walton Lillehei of the University of Minnesota recognized the need for a battery-powered pacing device. Advertisement

He turned to Earl Bakken, an electrical engineer, who, with his brother-in-law, Palmer Hermundslie, had founded Medtronic (MDT ) in Minneapolis as a medical-services company in 1949. Inspired by a Popular Electronics article on how to build a metronome using then-new transistors, Bakken knocked together a device, about the size of a paperback book, that ran off of 9-volt current. In 1957, The modern pacemaker was born.

These days, one of Medtronic's pacemakers is little bigger than a couple of silver dollars stacked up. Packed into the laser-welded titanium case is a core of semiconductors and a battery that can last for up to seven years. The device can even track and transmit data about both its condition and the patient's health.

THROUGHOUT THE BODY.  Even more advanced is Medtronic's implantable defibrillator. These pocket-watch-size gizmos not only pace the heart but have enough computing power to diagnose dangerous rhythms and the battery power to zap the cardiac muscle back into a normal pace with a mini-jolt of electricity.

Medtronic is a market leader in supplying these implantable cardiac devices, which accounted for just under 50% of its sales. Last year, revenues grew by 19%, to $9.1 billion, while net earnings surged by 23%, to $2 billion.

Though Medtronic started with the heart, its products now extend throughout the body. CEO and Chairman Art Collins points out that its expertise in treating heart-rhythm problems naturally led to new lines of business in cardiac surgery and treating vascular disorders. And more recently, implantable devices have shown promise in helping neurological conditions in the brain and spine, as well as chronic diseases such as diabetes.

Along with a panel of BusinessWeek writers, Industries Editor Adam Aston recently talked with Collins about the direction of Medtronic's business. Here are edited excerpts from their conversation:

Q: Beyond the heart, what are some other applications for implantable, intelligent medical devices?
A: We're pacing the spinal chord to treat intractable pain. We're running the leads of the electrodes down to the subthalamic region of the brain to treat Parkinson, dystonia, and other movement disorders. We have a lot of research going on to potentially treat epilepsy, Tourette's syndrome, obsessive-compulsive disorder, and other neurological disorders. We treat the sacral nerve to treat incontinence. We're pacing the stomach for gastrointestinal issues.

These are all very good examples of how we've taken a base technology and looked at where it can be applied in the body. We're just scratching surface. Think about how the body works: It's a series of electrical-chemical reactions. Sometimes you have a defective circuit and you need to replace it, as when pacemaker takes the place of conduction that's not taking place.

Or it can interdict an aberrant signal that's not good, as in stimulation of the brain to treat Parkinson's disease. This is some of the most dramatic therapy, especially when the device goes into the brain.

Q: How can you treat the brain with one of these devices?
A: There are remarkable videos of this sort of treatment. You see an individual literally shaking out of control with Parkinson's. Since you don't have nerve endings in the brain, the patient can be completely awake as you thread the lead down in the brain. When the lead hits the right spot, they go calm. This is already an approved product, called Activa, and can be used to treat the symptoms of Parkinson's disease, tremors, dystonia, and other conditions that we're working on.

Q: These devices can do more than manage electrical signals?
A: Sure. The key is that many treatments can't be delivered systemically [delivered orally or injected] because they'd be digested before delivery, or can't pass through the blood-brain barrier. Implantable devices are site-specific, so different treatments can be delivered in different degrees at specific locations. It could be a pump, as in the deal we just entered with Genzyme (GENZ ) to deliver cell therapy. Or it could be catheter-based, through the vascular system.

Q: What other partners do you work with?
A: We have gone to the outside to obtain therapeutic agents. We've been coating pacemakers and implantable cardiac-defibrillator leads with steroids for a number of years to getter performance, but we didn't develop the steroids. We coated our tissue heart valves and oxygenators used in heart surgery with coatings we obtained from the outside.

Even in our drug pump now, we have a major treatment for spasticity using a drug we licensed from Novartis (NVS ). It's highly effective. But it couldn't be delivered systemically because you'd have to give too much of it to get the therapeutic benefit, and if you did, you'd have toxic side effects.

Another example is our INFUSE bone-graft cage device, which uses a recombinant human bone morphogenic protein accessed from Genetics Institute. We actually married it with the spinal cage and took it through all the clinical trials. Now we're getting very good fusions of vertebrae.

Q: What about your insulin-delivery systems?
A: We pump insulin, we don't make it. We have implantable pumps coming, and we would marry them with continuous glucose monitors along the line to get to an artificial pancreas. In France, we actually have a fully closed-loop system in use, which measures glucose, sends feedback to an insulin pump, which releases what's necessary.

In the U.S., we'll probably have an open-loop system -- the data will go from a continuous glucose monitor to an external pump, then the patient will look at it and make a decision -- probably in the 2006 time frame. And the first fully closed-loop system here hopefully a year or two after that.

Q: Let's talk about quality. How do you assure your devices won't fail?
A: First of all, quality must be designed into the product. You can inspect it in, but that's not the most efficient way. This all starts with the initial design of the product, the engineers and scientists working on early prototypes in close collaboration with people who have to manufacture it. There are many forms of quality. Some have to do not only with mechanics, electrical circuitry, but also with the software, which is very complex.

To the degree that we use outside suppliers, we have to make sure they have adequate quality systems in place -- it has to be something that really is ingrained into the fabric of the organization. I hold an executive committee [meeting] with my direct reports every Monday morning. The first subject is always quality -- before we talk about how sales are going, how's the market share, what are the new products, or anything else.

Q: But problems do crop up. How do you solve them?
A: One of the biggest problems I've seen is that if we have a quality issue, there's an accepted wisdom that the problem is the responsibility of the quality manager. It's not. It's the responsibility of everyone who has touched the product -- the general manager, R&D, manufacturing and so on. Similar to if we have a personnel problem. Is that the problem of the personnel manager? No, it's the problem of all the line people, the people that are involved in it.

Quality is the first and foremost. That's what we stake our reputation on. We have to have innovation. We have to continually move the state of medical technology forward with the intent of coming up with better medical outcomes, more effective delivery of economical health care. But once you do that, when you say a device is going to work in a certain way, it has to work in that way.

Q: Do you do your own chip design in-house?
A: We have our own fab [a chipmaking plant]. We're vertically integrated. We made a decision a number of years ago first based on the fact that we have relatively small number of [integrated circuits] that we use compared to the large chipmakers. We wanted to be sure we could get the attention we need from the chip plant, when we needed it.

We were also concerned about the volatility of the chip business: The semiconductor industry goes up and down. We didn't want to be in a position that we're put on backorder because a toymaker with more clout has a bigger order.

Q: Does the sophistication of your products vary by market. Do patients in a developing nation -- like China -- buy the same devices as those in the U.S.?
A: We've been in China about a decade. It's one of the faster-growing parts of world for Medtronic. Initially, we were building a basic pacemaker there, with plans to sell it in Asia. It was very high quality but had limited functionality. So we made it, but found in China that the majority of the market was not interested in this model. They wanted a more fully functional unit, more top of the line. That surprised us.

It shows that in a country of 1.2 billion people, even if you take 5% of the population who can afford these products, you have tremendous market potential. You realize there's a large number of individuals who can afford advanced technology. Now, after the fact, one of our major challenges has been to ensure that we can support the procedures for these advanced products, that the referring physicians are aware of the therapies.

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