If you were starting a business from scratch with the intention of it going global, you could do worse than zeroing in on medical devices. The industry features customer base numbers in the hundreds of millions, and almost all the purchasing is done via third parties.

Medtronic plc (MDT), the $116 billion Dublin/Minneapolis based global entity, exemplifies the industry, selling medical devices in 160 countries and turning a profit of $3.5 billion on revenues of $28.8 billion in 2016. (For related reading, see: Top 3 Healthcare Stocks for 2017.)

The Heart of the Matter

Medtronic’s four major reporting segments according to its latest annual report are cardiac and vascular; minimally-invasive therapies; restorative therapies; and diabetes.

Cardiac and vascular accounted for 35% of sales — or $10.2 billion — in fiscal year 2016, which is the final year that the company will be quoting sales figures in U.S. dollars — more on that later. The cardio and vascular operations are further divided into subgroups that manage the following types of diseases: cardiac rhythm and heart failure; coronary and structural heart; and aortic and peripheral vascular. The cardiac and vascular division makes, among many other devices, pacemakers and defibrillators.

A pacemaker costs roughly as much as a bare-bones Jeep Wrangler, while a defibrillator can run about $2,000. Almost always it’s going to be an insurer or medical provider that’s footing the bill. Other heart products in the Medtronic line include cryoballoons, which freeze heart tissue that’s responsible for irregular beats. Such devices are prohibitively expensive for personal use, although it's highly unlikely that a patient with an irregular heartbeat would be administering her own cryoballoon anyway. Instead the devices are sold to hospitals — so far, more than 400 of them — enabling thousands of patients to be treated.

Medtronic makes other devices that would have been the stuff of science fiction to the eyes of the company’s 19th century founders. Cardiac monitors inserted into the body that record electrical activity during fainting spells and palpitations? Surgical replacements for diseased heart valves? It’s easy to forget that modern medicine is as amazing as interplanetary travel. (For related reading, see: Medtronic Makes a $458 Million Acquisition.)

This Won’t Hurt a Bit

Medtronic's minimally-invasive therapies division accounted for 34% — or $9.6 billion — last year. This division has two subdivisions of its own, the first which covers vital items that seem less revolutionary than pacemakers and defibrillators—products like staples and mesh and bronchoscopes, which are flexible contraptions that go up through a nostril to afford an examination of one's lungs.  

Also falling under the corporation's minimally-invasive therapies unit is the patient monitoring and recovery division, which makes ventilators, resuscitation bags, and even such ordinary stuff as gauze and bandages. Curity, recognized in drugstores everywhere as the 'Pepsi' to Band-Aid’s 'Coca-Cola,' is a Medtronic brand.

As Good as New

Restorative therapies is an unheralded division that took in 25% — or $7.2 billion — in sales in 2016, making it Medtronic’s third-largest unit. Its subdivisions include neurovascular, surgery, spine, and neuromodulation. Given that minimally-invasive therapies are accounted for elsewhere, the therapies in this division range from moderately to maximally invasive. Products include interbody spacers, about which the American Academy of Orthopedic Surgeons says: "Your surgeon gains access to your spine by removing the bone and retracting the nerves. Then the back of the disk can be removed and a spacer inserted." Sounds as easy as an oil change. 

Medtronic also makes implements for different pieces of the spine, the cervical region requiring more care than the thorax and the lower part of the back. 

Bone grafts for degenerative disc disease are a functional lifesaver, a medical necessity. No one thinks of them as a commodity or a brand-name product, but indeed they are, and Medtronic is among the world leaders in the market. For the record, Medtronic’s most popular bone graft includes proprietary use of a protein that stimulates growth in certain parts of the spine, jaw, and face.

The other branches of the company’s restorative therapies business include deep brain stimulation, which is a developmental means of fighting/retarding the progress of Alzheimer’s disease. It’s a breakthrough that’s already been adopted in much of the world, but which, ironically, has been slowed by the bog of regulatory approval in the U.S., although the FDA graciously offers what’s called a humanitarian device exemption for deep brain stimulation, upon certain conditions.

Other space-age breakthroughs under the restorative therapies umbrella include blades for tissue dissection and coils administered to treat diseases not only of the blood vessels, but of those critical few that lead to and from the brain. (See also: Top 3 Healthcare ETFs for 2017)

Sweet as (Blood) Sugar

Lastly there's Medtronic's diabetes group, which generated $1.8 billion — or 6% — of revenue in 2016. Spurred on by the spread of one of the world's fastest-growing diseases, Medtronic is betting big on helping manage the disease and is well-known for its insulin pump that continually monitors the levels of glucose in a patient's blood. A generation ago, the average diabetic injected himself with a hypodermic needle and could only hope that the insulin would do its job, let alone track and save data. Today, a tiny integrated system not only administers insulin, but suspends its delivery when glucose levels stabilize. The system costs a few hundred dollars, but for conscientious diabetics, that’s a bargain.

Tagged the MiniMed 640G, the system is almost primitive when compared to professional-grade cousins that capture real-time data in a physician’s office.

Overseas Tax Advantages 

Facing a 10-digit IRS liability if Medtronic remained based in Minnesota, Medtronic moved its headquarters to Dublin in 2014 after it bought Irish medical devices company Covidien. Ostensibly, the move was the inevitable result of purchasing, but it also allowed Medtronic to take advantage of friendlier tax laws, a practice known as corporate inversion, which many multinational firms including Pfizer have exploited of late. Such maneuvering of headquarters to keep profits outside the U.S. so companies can avoid taxes has ignited lots of recent debate in Congress over the country's corporate tax code — and it played a big role in the 2016 election.  

Consequently, by becoming an Irish firm, Medtronic can now put far more of its cash flow to work — an extra quarter of every dollar.

The Bottom Line

Check the logo the next time you’re lying prone in a surgical imaging machine. First, it’ll take your mind off whatever analysis the technicians are conducting on your body, and second, you’ll have firsthand evidence of Medtronic’s importance in a modern, advanced economy. As one of the most technologically adept companies in its industry and also a serial acquirer — it has averaged one acquisition every five months in this decade — Medtronic only continues to get larger. 

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