Medtronic: Tapping the Brain for Profit

Pacemaker pioneer moves from heart to head to boost the bottom line.

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Persuading people—lots of people—to have holes drilled into their skulls and electrode-tipped wires connected to their brains might seem like a puzzling corporate strategy. But when it comes from a company that's already induced hundreds of thousands of people to attach silver-dollar-size devices to their hearts, it just might work.

Medical device maker Medtronic has used its groundbreaking innovations in the field of cardiac rhythm disease management to build itself into a business with $13.5 billion in annual sales. It invented the battery-operated external pacemaker half a century ago and still maintains a 50 percent share in the market for pacemakers and implantable defibrillators. But now the company is turning to the brain to drive sales and earnings growth. Its neuromodulation unit makes devices that treat a slew of chronic neurological disorders—including Parkinson's disease, essential tremor, and dystonia—with powerful results. In coming years, Medtronic plans to release similar gadgets to relieve symptoms of obsessive-compulsive disorder, depression, and epilepsy. "My biggest challenge in neuro is trying to figure out what not to do," William Hawkins, Medtronic's president and CEO, said in an interview at its Minneapolis headquarters.

This enthusiasm for neuromodulation comes as annual sales growth in Medtronic's cardiac rhythm unit has slowed from 24 percent in 2003 to just 2 percent in the past fiscal year. But neuromodulation is indeed promising: Parkinson's alone afflicts roughly 1.5 million Americans, with 60,000 new cases diagnosed each year. "We think that there is more headroom for growth in the neuromodulation space than any other part of Medtronic," says Hawkins. He expects the unit to generate revenue growth of 13 to 15 percent annually over the next five years, compared with cardiac rhythm disease management's projected growth rate of 5 percent to 7 percent.

Surgery. Medtronic sees the potential of neuromodulation in patients like Jerry Wildenauer of St. Paul, Minn. Wildenauer, a chiropractor, was diagnosed with early-onset Parkinson's disease in 1996. In the years since, the degenerative neurological disorder—triggered by the death of brain cells—turned his limbs rigid and slowed his movements, making a task as simple as retrieving change from his pockets a tedious chore. Meanwhile, medications he took came with powerful side effects, including profound exhaustion.

So in 2004, Wildenauer opted to undergo deep brain stimulation, a therapy that employs an implantable device to send electrical signals to the brain in an effort to restore normal function. It took doctors almost eight hours to drill into his skull, embed the Medtronic-made gadget in his chest, and connect electrode-tipped wires to just the right targets in his brain. Weeks later, Wildenauer had a second device implanted on the left side of his brain. The results were dramatic. "It was like they threw a switch, and my body just totally relaxed for the first time in years," says Wildenauer, now 56. Just like that, he reclaimed many of the abilities that Parki nson's had stolen from him, such as playing the guitar and dancing with his wife.

William Marks, a physician at the University of California, San Francisco Medical Center who specializes in movement disorders, calls DBS a "revolution" in neurology: "It can really substantially improve [symptoms] to the point where [with] many patients, you don't even know that they have Parkinson's."

Fears. Yet the challenges to neuromodulation's growth as a treatment are stiff. The DBS procedure and device cost about $60,000 (although they are often covered by insurance). The brain is less understood than the heart, and brain surgery is lengthy, complicated, and invasive. "Putting a probe in someone's brain is a major operation," says Sara Michelmore, an analyst at Cowen & Co. Given people's fears about brain surgery, how can Medtronic make physicians and patients more willing to undertake the procedure?

It's yet another challenge for a company that traces its family tree to 1949, when two brothers-in-law started repairing medical devices in a Minneapolis garage. Soon they were making products of their own. After Medtronic released the external, battery-powered pacemaker in 1957, things really took off. The device, the size of a paperback book, was held outside the body but used wires to send electrical impulses to the heart to restore normal rhythms—a groundbreaking development for cardiac arrhythmia sufferers. (DBS applies similar principles to the brain.)



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