It’s pretty tough to be a CEO at a major medical device company these days. Just ask Bill Hawkins, who was reportedly pushed out at Medtronic and Ray Elliott, who abruptly left Boston Scientific.
I’m not sure if the two men ever knew each other but their departures have a weird type of symmetry. Both served relatively brief stints as CEO—less than five years for Hawkins, who was recently replaced by former General Electric Healthcare head Omar Ishkar; less than three years for Elliott, who will step down at the end of the year.
Both men presided over tremendous change at their companies—reorganizing business units, cutting employees, spending millions of dollars on acquisitions. Yet judging from Medtronic and Boston Scientific’s stock prices during their tenure, neither man received much credit for his efforts.
Why? The medical device industry—long dominated by cardiac rhythm management devices that regulate the heart’s electric impulses— has changed dramatically since the days Medtronic founder Earl Bakken developed a battery-powered pacemaker in its garage more than fifty years ago.
Gone are the days when the latest implantable cardioverter defibrillator (ICD) or surgical catheter would significantly boost sales figures and stock prices. Over the past several years, medical device makers have failed to introduce technologies that have significantly moved the needle, analysts say. Today, the maturing global ICD market is driven less by innovation or even incremental technological change than by price and customer relationships, according to recent research reports from Morgan Stanley and Citigroup.
In other words, pacemakers and ICDs have become commodity businesses, where price/volume players like Biotronik, based in Germany, and Sorin Group, based in Italy, are challenging the dominance of the traditional leaders ICDs—Medtronic, based in Fridely, MN; Boston Scientific, headquartered in Natick, MA; and St. Jude Medical, based in Little Canada, MN.
Matthew Dodd, an analyst with Citigroup suggests that better cardiovascular care is making such devices increasingly irrelevant—at least until Baby Boomers get a bit older.
“With heart attacks falling, it makes sense that ICDs—both secondary and primary prevention—are now being impacted,” Dodd wrote. “While both markets are likely to be experiencing a temporary ‘reset’ as demographics will eventually overpower the reduction via better care, the near term prospects for the ICD market don’t look very good.”
That doesn’t bode too well for either Medtronic or Boston Scientific, where cardiac rhythm management products
