Medtronic Organizational Changes

Medtronic Organizational Changes

yesterday Medtronic (NYSE:MDT) announced organizational and leadership changes.
According to press release issued by the company; “
Effective immediately, the company will consolidate its businesses
into two operating groups, each designed to leverage technologies and

“This new structure enables us to capitalize on existing
synergies across our businesses and further advances our goal of operating as
One Medtronic, an integrated company focused on chronic disease,” said chairman
and CEO Bill Hawkins.

One group will combine the company’s Cardiac Rhythm Disease
Management (CRDM), CardioVascular and Physio-Control businesses; and the other
group will combine its Spinal and Biologics, Neuromodulation, Diabetes, and
Surgical Technologies businesses.”

The release goes onto to state; “Chris O’Connell has been
promoted to the new position of executive vice president and group president
for this newly created group.  O’Connell was formerly president of the
company’s Diabetes business. Reporting to O’Connell will be
 Bob Blankemeyer, senior vice president and president, Surgical
 Steve La Neve, senior vice president and president, Spinal and
 Katie Szyman, who has been named as senior vice president and
president, Diabetes, and formerly served as senior vice president of Strategy
and Innovation; and
 Tom Tefft, who has been named senior vice president and
president, Neuromodulation, and formerly served as vice president and corporate

Given the increasingly competitive nature of the insulin pump
market Diabetic Investor does not see these changes have a major impact. The
fact is these changes have more to do with controlling costs then increasing
market share.

Looking at their diabetes business specifically the company has a
difficult task ahead. As Diabetic Investor has been reporting for some time
Animas and Insulet (NASDAQ:PODD) have been gaining market share in the insulin
pump area while Dexcom (NASDAQ:DXCM) continues to expand their presence in the
continuous glucose monitoring market. Dexcom also has agreements with both
Insulet and Animas that will allow the Dexcom CGM to communicate with future
versions of the OmniPod and Animas insulin pumps.

The company also is well behind in its efforts to enter the
wireless pump market. Diabetic Investor isn’t quite sure just what the problem
is but when a relatively unknown company like Medingo can get their wireless
pump approved before Medtronic even submits their patch pump to the FDA you know
the company is in trouble. Insulet has already done a fine job of validating
this market segment and has proved that a wireless offering has been able to do
something traditional pumps cannot, expand pump usage.

For reasons only Medtronic seems to understand they believe
the future for the insulin pump market lies in expensive, complicated closed
loop insulin delivery systems. While Diabetic Investor sees a future for a semi-closed
loop system which allows for greater patient intervention, we don’t see
patients and their physicians allowing a machine to make all dosing decisions.
As sophisticated and reliable as pumps have become they are still machines and
as we have all too often machines breakdown and fail.

We also question
given the focus on lowering healthcare costs if it’s a wise move to ask
insurers to reimburse for a system that will likely cost well north of $10,000.
The fact is companies like Insulet and Medingo offer a more compelling option
for insurers as their systems offer lower upfront costs.

To be fair
Medtronic has been in a tough spot since the day they acquired MiniMed. At the
time MiniMed basically owned the insulin pump market and had they not made some
key blunders it’s unlikely either Animas or Deltec would have made it. The fact
is Medtronic never really understood the insulin pump patient where customer
service trumps fancy technology. They falsely believed with almost 75% market
share that no one would be able to mount a sustained effort against them.

All of this
changed when Johnson and Johnson (NYSE:JNJ) bought Animas and Insulet introduced
the OmniPod. For the first time Medtronic was facing a competitor who actually
understood the market and had the resources to compete. The company largely
ignored Insulet believing the company would never be able to bring the OmniPod
to market let alone capture much market share. Instead of upgrading their
technology and refocusing on customer service the company drank the corporate
kool aid.

unthinkable, Diabetic Investor believes that with the right moves JNJ could
overtake Medtronic for leadership in the insulin pump and CGM markets.  JNJ with LifeScan and Animas have focused squarely
on the insulin using patient. The company sees what’s happening and understands
the impact healthcare reform will have on these markets. Should they acquire either
Insulet or Medingo they would have the most complete line of insulin pumps
forcing Medtronic into an unusual position of playing catch up.

Already Medtronic
sales reps are feeling the heat as the company insists on raising sales quotas
while not providing them with the tools they need to compete. As Diabetic
Investor has reported the situation has become so bad that many of these reps
have resorted to childish sales tactics and negative selling to meet their ever
increasing sales quotas. There are even reports coming from the field that
several physicians have banned Medtronic reps from their offices.

Once the envy
of the insulin pump world Medtronic has taken a once great company with an unbelievable
loyal following and turned it into just another company. Try as they might no
corporate restructuring can undo the damage that has been done. Years from
today Medtronic will look back and wonder just what went wrong. They will ask
themselves how it came to be that a company who once dominated their market
could fall from grace. They will search high and low for answers and do their
best to place blame when the answer is actually quite simple. When it comes to
the insulin pump market customer service trumps everything. As we have said too
many times anyone can build an insulin pump the real talent comes from knowing
how to run an insulin pump company. This is something Medtronic has never
learned and will end up making them rue the day they acquired MiniMed.