Why Medtronic Is One of the Smartest Companies on the Planet

MIT Tech Review recently named Medtronic (NYSE: MDT  )  one of of the 50 smartest companies of 2013, placing the 65-year-old medical device company side by side with much younger companies like Google (NASDAQ: GOOG  ) , and SpaceX. Medtronic's industry rivals Boston Scientific (NYSE: BSX  ) and St. Jude Medical (NYSE: STJ  )  failed to make the cut.

MIT Tech Review offered a simple reason for its admiration of Medtronic: the fact that it continues to reduce the size of life-saving implantable devices.

The report cited Medtronic's 2 gram pacemaker, the tiniest in the world, as its top example. That pacemaker, which is the size of a Tic-Tac, is even smaller than St. Jude Medical's battery-sized pacemaker, which it acquired by buying Nanostim last October. Both Medtronic and St. Jude's pacemakers are implanted without open chest surgery through the femoral artery in the thigh.

Medtronic's history of miniaturizating pacemakers. Source: Medtronic.

However, Medtronic's tiny pacemaker is only one of several life-changing medical devices from the company. Let's take a look at three more reasons Medtronic should be considered one of the smartest medical device companies on the planet.

Connected pacemakers
Long before Medtronic was shrinking pacemakers down to the size of Tic-Tacs, it was helping doctors remotely monitor patients' pacemakers.

The idea was simple -- a patient at home holds a device (Medtronic's CareLink Home Monitor) up to the chest for a pacemaker reading, and a diagnostic report is sent via a telephone line to the physician's office.

Medtronic launched the CareLink system in 2005, building upon the remote monitoring technologies introduced by Biotronik in 2001. Over time, Medtronic's CareLink network evolved into an Internet-based service, which connects to a patient's EHRs (electronic health records). St. Jude Medical followed suit with a similar system (Merlin@home) in 2008, as did Boston Scientific (Latitude) in 2009.

Medtronic's CareLink inspired those industry peers to take the next step and develop pacemakers that could continuously report diagnostic data over wireless connections. St. Jude Medical eventually won that race, releasing a Wi-Fi pacemaker known as the Accent in 2009, although Medtronic and Boston Scientific followed shortly afterwards.

Medtronic, St. Jude Medical, and Boston Scientific all hope that these innovations can eventually boost sales for their cardiac rhythm management businesses -- all of which are very slow growth businesses:

 

Cardiac rhythm management revenue (most recent quarter)

YOY growth

% of total revenue

Medtronic

$1.18 billion

1%

28%

St. Jude Medical

$687 billion

1%

50%

Boston Scientific

$468 million

2%

25%

Source: Company quarterly reports.

A pacemaker for the brain
We generally associate pacemakers with the heart, but what about the brain?

Source: Medtronic

Medtronic recently developed a "smart" brain pacemaker -- known as the Activa PC -- which can record neural activity while simultaneously delivering an electrical current to stimulate the brain. The device was implanted in the first patients worldwide last August.

The concept of deep-brain stimulation with electricity isn't new -- it's been used in the past to treat patients with neurological disorders such as Parkinson's disease, depression, and epilepsy. However, most devices are one-way stimulators that have to be preset by specialists to treat certain conditions. St. Jude markets one such implantable device, which was approved in 2009 in Europe to treat Parkinson's disease.

In most cases, these devices can only be programmed to monitor the brain for a single purpose. For example, a brain stimulator designed to block seizures could only kick in upon detecting an incoming seizure.

By comparison, Medtronic's Activa PC+S DBS reads neural activity continuously to adjust the stimulation of the brain in a closed loop. The device can also be used to remotely monitor and study the neurological changes associated with harder-to-detect conditions such as depression.

A wearable artificial pancreas
That idea of a closed loop design can also be seen in Medtronic's MiniMed 530G, a breakthrough combination glucose monitor and insulin pump dubbed as the "world's first wearable artificial pancreas."

MiniMed 530G. Source: Medtronic

MiniMed 530G's loop is easy to understand -- insulin is continuously injected until blood sugar levels drop below preset levels. When that happens, the glucose monitor part shuts off the pump for two hours. This could significantly improve the quality of lives for patients with type 1 diabetes, who need to continuously monitor their blood sugar levels with pinpricks throughout the day.

However, the MiniMed 530G is not a fully automatic artificial pancreas, which would ideally deliver insulin continuously according to fluctuating glucose levels.

To address that need, Johnson & Johnson's (NYSE: JNJ  ) Animas division and insulin pump maker DexCom are developing a new artificial pancreas that goes a step beyond Medtronic's device with a system that tries to keep blood sugar between a preset range by modifying insulin delivery accordingly.

For J&J, an artificial pancreas is a key way to beef up its diabetes portfolio -- which it has been growing on the medical device front with wireless glucose monitors from LifeScan, and on the pharmaceutical front with new drugs like Invokana.

The Foolish takeaway
In conclusion, Medtronic certainly deserves its spot as one of the smartest companies of 2013. Its innovations in remote patient monitoring and closed-loop systems definitely make it one of the most cutting-edge medical device makers today. More importantly, Medtronic's products continuously inspire other companies -- like St. Jude Medical, Boston Scientific, J&J, and DexCom -- to develop even more advanced devices.

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