Medical Device Daily Senior

In an economy where people are more careful with their money than ever before, even the big guys in the industry have to take a disciplined approach with their business model. That was the take-home message from Medtronic (Minneapolis) CEO Omar Ishrak Monday at the 30th annual J.P. Morgan Healthcare Conference in San Francisco.

“The business model has to be adjusted without compromising the need for, and the desire for, higher standard of care,“ Ishrak told his audience during a presentation that was also webcast.

Ishrak said Medtronic has identified three key imperatives to improve its growth: improved execution; optimizing innovation; and globalization.

“We want a business that moves quickly and is agile,“ he said in explaining the first of these three imperatives, improved execution.

Doing so requires a business alignment “so that everyone is moving in the same direction,“ he added. Things like quarterly assessments and constant market connection are examples of this, Ishrak said, noting that he makes a point to meet in person with customers in the U.S. a few days a month. “Me and my management team want to stay in touch with customers,“ he said.

In order to optimize innovation, Ishrak said the company will aim to improve its R&D spend and “optimize“ its capability. “This is not about going and getting engineers to work harder, nor is it about improving our technical capability,“ he said. “It really is more about what we work on and how we work on it . . . working on things that don't have an effective value proposition has to be de-focused. If there is no value proposition the innovation is not going to succeed.“

Doing this means providing economic value to customers, Ishrak said, adding that the company aims to develop products that either improves the hospital's standard of care, increases procedure volumes, or improves quality of care so that the hospital's quality metrics go up. “All of this will provide more revenue to a hospital,“ he said.

Products that improve workflow for hospitals is another way the company strives to add value for its customers, Ishrak noted. “Reducing ICU stays . . . moving the shift of care from one type of physician to another or moving the care from the hospital to home,“ are examples of innovation that improves hospital workflow, he said.

Finally, Ishrak noted, Medtronic will optimize product prices by providing better value for the same price.

“Customer economics is something that is going to be a screen for all of our new products,“ Ishrak said.

Of course the company also recognizes the need to reach emerging markets for future growth. “Contrary to popular perception, our margins in emerging markets are actually as good if not better than . . . other markets,“ Ishrak said.

Also, going forward, Ishrak told the audience that Medtronic will have to be more disciplined in its approach to acquisitions – as it will be for new product development and existing products – by first asking: Is it a growth market? Can Medtronic win in that market? And finally, can Medtronic add value to that market.

During another webcast presentation from the J.P. Morgan conference, the CEO of a considerably younger company, CareFusion (San Diego), offered his perspective on how companies like CareFusion can turn the current challenges in helathcare into opportunities.

“As all of you know, this is certainly not new news in this room today, this is certainly a challenging environment in healthcare markets in various parts of the globe,“ CareFusion CEO Kieran Gallahue said. Specifically, he noted that “30% of U.S. hospitals are running at negative operating margins . . . they understand that they need to make some fundamental changes“ including capturing efficiencies in their supply chain, primarily in the areas of pharmaceuticals and medical devices.

So while there is a lot of “doom and gloom“ out there where healthcare is concerned, Gallahue says that “actually, for those who can provide solutions that are clinically differentiated and that are economically differentiated, the changes that are occurring today and the challenges that are occurring today actually represent opportunity.“

CareFusion was born as a spin off from Cardinal Health (Dublin, Ohio) in 2009 (Medical Device Daily, June 10, 2009) and the company offers both medical systems and procedural solutions.

“We think of CareFusion as having three different stages to its life cycle,“ Gallahue said. “The first couple of years, the stand up phase . . . I often think of it as a teenager moving away from home. We exited that phase in approximately August of this past year, a landmark occasion for our company . . . now we have moved into the second phase, which is building the foundation for growth, and that sets the tone for the next phase, which is the acceleration of growth.“

Gallahue said the company's current phase, building the foundation for growth, is about simplifying the business the company operates in. “It is not one silver bullet, it is not one activity,“ he added.

“In many ways it's about going back to blocking and tackling, it's about simplifying the business so you can make decisions more quickly,“ Gallahue said. “Having a balance of medical systems business and a procedural solutions business allows us the opportunity to grow in multiple ways . . . our intention is to use the cash that is freed up in the simplification efforts in order to drop part of that to the bottom line and what remains to innovation and market expansion.“

Published: January 10, 2012