A Medical Device Daily

Less than a week after Physio-Control (Redmond, Washington) reported that it suspended shipment of products to U.S. customers (Medical Device Daily, Jan. 18, 2007), the automated external defibrillator (AED) company has told its employees that it is considering layoffs, according to an article in the Seattle Post-Intelligencer.

In December, the firm’s parent company Medtronic (Minneapolis) reported that it would spin off Physio-Control into an independent company (MDD, Dec. 5, 2006). However, those plans were put on hold last week when the company reported problems with Physio-Control’s manufacturing processes. No products are being recalled, the company said.

Physio-Control, which provides AEDs and other emergency response products to hospitals, emergency response organizations and various public and private enterprises, said the decision to suspend U.S. product shipments was made to “address quality system issues” in the company’s Redmond facility. The FDA was involved in the decision to cease shipments, but it is still unclear just how great of a role it played in the company’s “voluntary” decision.

“We’ve told our employees that we may, in fact, have to reduce the size of the force,” Medtronic spokesman Rob Clark told the Post-Intelligencer. “Clearly with the suspension of operations, the work is scaled back. That will have an effect on the resources that we need during this period.”

Although the company has voluntarily stopped shipping its products to U.S. locations, it still ships to its overseas customers. Medtronic will be reaching out to the regulatory bodies in other countries, Clark said.

U.S. sales account for two-thirds of Physio-Control’s business, according to a Prudential Equity Group research report issued Sunday. The report predicts a 70% decline in sales at the plant and gives revised earnings estimates for Medtronic assuming that the company can cut 30% of its fixed costs at Physio-Control and that U.S. sales resume within one year.

Medtronic officials do not yet have a timeline for any potential layoffs, Clark said. Physio-Control employs 1,200 people, about 800 of them in Redmond.

The FDA sent warning letters to Medtronic about its Lifepak defibrillators in 2000 and 2005, notifying the company about several violations the agency had found during its inspections. Among the complaints outlined in a letter dated June 9, 2005, were that Medtronic did not follow proper procedures on a complaint involving a patient death.

Those issues have since been resolved and are not related to the current problem, Clark said. The current problem is a “quality systems related issue,” not affecting any particular product on the market. But it could take awhile to fix, he said.

“We’re working very quickly to try to resolve it,” Clark said. “We understand that we have employees that are anxious to know.”

Clark told MDD last week that Medtronic still plans to spin off Physio-Control once business is back to normal, though the spin-off likely won’t meet its October deadline.

Physio-Control brings in about $400 million per year, Clark said, which represents about 3.5% of Medtronic’s $11.3 billion annual revenue.

Founded in 1955, Physio-Control is one of Redmond’s 20 largest employers, according to the city. In 1992, the company shut down its manufacturing, sales and marketing because of alleged violations of good manufacturing practices found by the FDA.