Medtronic (Minneapolis) blew analysts' expectations out of the water last week when it reported its fourth-quarter financial results – and it has its second-generation drug-eluting stent (DES) to thank for it, at least in part.

The device company reported 4Q08 revenue of $3.86 billion, up 18% from the $3.28 billion reported a year ago. Medtronic also reported a strong close to the year, with revenue for the year up 10% to $13.515 billion, compared to $12.299 billion in fiscal 2007.

In addition to launching the Endeavor DES in the U.S., Medtronic President/CEO Bill Hawkins told investors and reportersduring a conference call that the stabilization of the ICD market, and strong performance in "virtually every business and geography provides positive momentum as we begin our new fiscal year."

Rick Wise, med-tech analyst for Bear Stearns (New York), wrote in a research note that Medtronic's fourth-quarter sales "beat our estimate by $125 million." He also said that U.S. Endeavor 4Q08 sales of $81 million came in "nearly double our $45 million estimate."

After becoming the first to win marketing approval in the U.S. for a second-generation DES earlier this year, Medtronic wasted no time making the Endeavor stent available to physicians. Scott Ward, president of Medtronic's CardioVascular business, told Medical Device Daily at the time that the company would begin commercialization immediately, and expected to ship 100,000 units to U.S. hospitals in the first 30 days after FDA approval.

The Endeavor stent, coated with the drug zotarolimus, received a panel recommendation for approval last October. According to Wise, the device took about 17% of the U.S. market share in its first quarter of launch, exiting at a greater than 20% share.

"This momentum reinforces the positive feedback we gleaned at the EuroPCR meeting and leaves us more optimistic that our 20% peak share estimate within 12 months post-launch is achievable," Wise said.

Attributing the growth to the U.S. launch of Endeavor, Medtronic said coronary stent annual revenue of $710 million increased 27% for the year and quarterly revenue jumped a whooping 56%. The company also reported that annual revenue from its CardioVascular business was up 12% to $2.131 billion and fourth quarter revenue of $643 million represented a 22% increase from last year.

Hawkins also told conference call listeners last week that Medtronic's quarterly performance was highlighted by double-digit revenue growth in six of the company's seven businesses including, Spinal, 35%; CardioVascular, 22%; Neuromodulation, 17%; Diabetes, 20%; and Surgical Technologies Group (formerly known as ENT), 18%.

Other highlights of Medtronic's quarterly performance, Hawkins said, included: more than $800 million in ICD revenue; $174 million in DES revenue split $81 million in the U.S. and $93 million outside the U.S.; overall revenue growth outside the U.S. of 22%; and, on a non-GAAP basis, operating income grew 27% reflecting improved margins from the reduction in operating overhead from 43.4% of sales in 4Q07 to 42.6%.

Noting that the ICD market appears to be on the road to recovery, Wise said in his research note that Medtronic's fourth-quarter ICD sales of $806 million – a 5% growth compared to 4Q07 – came in more than $10 million ahead of Bear Stearns' estimate and that the company "continues to regain ground lost post-Fidelis lead recall last October."

The company stopped selling its Sprint Fidelis defibrillation leads last fall because it was discovered they may break inside the body.

Judging by the question-and-answer session at the end of last week's conference call, investors also were eager to hear about the integration of Kyphon (Sunnyvale, California) into the company's spine business. Medtronic acquired Kyphon in November for $4.2 billion.

The company reported that revenue of its spine business grew 35% to $869 million in the quarter, driven by the addition of $150 million in Kyphon revenue.

"In regards to Kyphon, combined revenue in the third and fourth-quarter of $298 million was at the low end of our previously stated projections," Hawkins said. "While fourth quarter results were disappointing, I remain confident about the strategic fit and ultimate contribution coming from this business."

He added that an "unusual set of circumstances help explain the softness of the Kyphon business this quarter," that the company did not optimally structure and align sales force compensation between January and April, a time he referred to as "kind of a bridge period."

Medtronic CFO Gary Ellis said during the conference call that the company's quarterly results were impacted by restructuring charges of $31 million related to a global realignment initiative that Medtronic began in the fourth quarter.

"This initiative, which is part of our ongoing efforts to eliminate unnecessary costs, focuses on shifting resources to those areas where we have the greatest opportunities for growth, and streamlining operations," Ellis said.

The initiative, which will include charges in both 4Q08 and 1Q09, impacts most businesses and will result in the "involuntary elimination" of about 1,100 positions, he added.

Also, Ellis said, the company recorded IPR&D charges of $47 million, comprised primarily of a $42 million charge related to the acquisition of NDI Medical (Cleveland), a private company developing a urinary urge incontinence therapy.

Collectively, these charges, including the respective tax impacts, had a $0.06 negative impact on Medtronic's fourth quarter diluted earnings per share, according to Ellis.

The company expects its fiscal 2009 revenue to be between $15 billion and $15.5 billion, he said, and it anticipates its FY09 earnings per share to be between $2.94 to $3.02.

"Based on current market conditions, we are more comfortable with the lower end of these revenue and EPS ranges," Ellis said.