If you were starting a business from scratch and intending to go 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 (MDT), the $145 billion Minneapolis-based global entity, exemplifies the industry, selling medical devices in 150 countries while generating more than $30 billion in revenue. Medtronic’s four major reporting segments are cardiac and vascular, minimally invasive therapies, restorative therapies, and diabetes. Let's look at each to see how the company makes money.
Cardiac and Vascular Segment
Cardiac and vascular accounted for $11.4 billion of revenue in fiscal year 2018 and makes, among many other devices, pacemakers and defibrillators. This segment is divided further into subgroups that manage the following types of diseases: cardiac rhythm and heart failure, coronary and structural heart, and aortic and peripheral vascular.
- Medtronic (MDT) is a medical-device company that generates more than $30 billion in revenues from four business segments: cardiac and vascular, minimally invasive therapies, restorative therapies, and diabetes.
- The cardiac and vascular segment is the largest, generating more than $11 billion in revenues, and makes devices like pacemakers and defibrillators.
- Medtronic is a world leader in the area of implants and bone grafts.
- In 2014, to minimize tax liabilities, Medtronic officially relocated its headquarters to Dublin, Ireland—a controversial corporate practice called corporate inversion.
- Now, with operations in 150 countries, the medical-device company only gets larger still.
The cost of traditional pacemakers average $2,500, according to the Alliance of Cardiovascular Professionals, while a defibrillator can run about $2,000. Almost always, an insurer or medical provider pays the bill.
Another heart product in the Medtronic line is the cryoballoon, which freezes 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 their own cryoballoon anyway. Instead, the devices are sold to hospitals, 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 nineteenth-century founders. This includes cardiac monitors inserted into the body that record electrical activity during fainting spells and palpitations, as well as surgical replacements for diseased heart valves. It’s easy to forget that modern medicine is as amazing as space travel.
Minimally Invasive Therapies Segment
Medtronic's minimally invasive therapies division accounted for $8.7 billion of revenue in 2018. This division has two subdivisions of its own, the first 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 the lungs.
The patient monitoring and recovery division, which develops ventilators and resuscitation bags, also falls under the corporation's minimally invasive therapies unit. Finally, Curity—a maker of gauze, bandages, and sponges—is also a Medtronic brand and within this segment
Restorative Therapies Segment
Restorative therapies is an unheralded division that took in $7.7 billion in sales in 2018, making it Medtronic’s third-largest unit. Its subdivisions include neurovascular, surgery, spine, and neuromodulation. Given that minimally invasive types 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 implants 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, as 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 therapy business include deep brain stimulation, which is a developmental means of fighting 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.
Lastly, there's Medtronic's diabetes group, which generated $2.1 billion in revenue in 2018. Spurred by the spread of one of the world's fastest-growing diseases, Medtronic is betting big on helping to manage diabetes and has become known for its insulin pump that continually monitors the levels of glucose in a patient's blood.
The number of adults in the U.S. with diabetes, or 9.4% of the population, in 2015, according to the CDC's Division of Diabetes Translation.
A generation ago, the average diabetic injected him or herself 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. However, known as the MiniMed 630G, 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 tax liability if Medtronic remained based in Minnesota, the company relocated 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 choose to exploit.
Such maneuvering of headquarters to keep profits outside the U.S. to 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 will take your mind off whatever analysis the technicians are conducting on your body, and second, you’ll have first-hand 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 gets larger.