Medical Device Daily Associate

Shipments of automated external defibrillator (AED) products by the Physio-Control (Redmond, Washington) unit of Medtronic (Minneapolis) have been halted, delaying planned spin-off of the unit announced late last year (Medical Device Daily, Dec. 5, 2006).

At the time, Medtronic said the spin — slated to take place in the first half of the company’s fiscal 2008, between May and October 2007 — was being made because the AED technology did not match well with the company’s focus on implantable defibrillators, especially on the marketing side.

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 company said the action is not related to a specific product, does not affect Physio-Control products currently in use worldwide — and thus is not cause for a recall — and does not impact any other Medtronic products.

In addition, the company said it will continue to service and repair its installed base of products. Physio-Control and Medtronic said they intend to work “expeditiously with the FDA” to address open issues in order to resume shipments to the U.S. market.

“The product shipment suspension affects all the products that are manufactured through that [Redmond] facility,” company spokesperson Rob Clark told Medical Device Daily. “That’s essentially all of our major [AED] platforms. That’s our singular manufacturing and distribution center for these products.”

While Clark noted that the shipment suspension will delay the spin-off of Physio-Control, he said that Medtronic still intends to go forward with the transaction “as soon as these matters are resolved.”

He added that it is premature at this time to provide a specific timetable for lifting the shipment suspension.

“We’re hopeful we can address them very rapidly and very quickly and that we can work with the FDA to get them resolved.”

Just how quickly the quality problems will take to be resolved is anyone’s guess, but analysts were not optimistic that the issues will be resolved quickly.

Morgan Stanley analyst Glenn Reicin, wrote in a report that the suspension of shipments, which he also sasid was not related to one specific product, will require much more than a “quick fix.”

He noted that there have been similar over-arching quality problems at other companies, such as Boston Scientific (Natick, Massachusetts), Baxter International (Deerfield, Illinois) and Abbott Laboratories (Abbott Park, Illinois), and that these have typically taken longer than 12 months to resolve. That is not exactly good timing for Physio-Control, which is poised and ready to go it alone.

Larry Biegelsen, a Prudential Financial analyst, wrote that he expects some clarity on the cause of action and Medtronic’s expectations for resolution at the company’s analyst meeting tomorrow.

The company expressed confidence that it could handle this issue expeditiously.

“The quality of our products and systems is paramount to Physio-Control and Medtronic,” said Brian Webster, president of Physio-Control. “This action will allow us to focus necessary resources on remaining issues, which we are confident can be resolved in a timely manner.”

Medtronic said that Physio-Control’s action is not expected to have a material effect on its third fiscal quarter, ending Jan. 26, 2007.

Physio-Control, which operated as Medtronic’s Emergency Response Systems division, was acquired by the firm for $538 million in stock in June of 1998. Earlier in that year, the company laid off 600 Medtronic employees and closed eight plants.

The company has about 1,200 employees and currently has a market share of about 45% to 50% for defibrillator monitors and roughly 35% for AEDs.