Once slated to either strike out on their own or be the subject of a potential sale, Medtronic’s patient monitoring and respiratory intervention divisions will see new life after merging into a single multibillion-dollar arm dubbed acute care and monitoring.
The medtech giant announced the reversal of its spinoff strategy late last month after more than a year of planning. Previously, the company said the move would help it focus investments on other priorities, including in cardiovascular devices, neuroscience and surgery.
But, now, Medtronic is pointing toward the importance of data—which is, of course, generated in massive amounts by ACM’s 8,000-odd workers and its portfolio of patient monitoring devices, pulse oximeters, telehealth platforms and other technologies.
However, not everyone is making the jump: Medtronic said it would be exiting the hospital ventilator business and dropping its legacy Puritan Bennett brand after determining it would be increasingly unprofitable to stay and play in the sector. After seeing massive demand for the machines during the pandemic—and even taking steps to publicly share some ventilator design specifications to help meet the public need—sales have since dropped to well below pre-COVID levels. In a statement, the company said in a statement that it would "work to redeploy employees currently in the ventilator business to roles in other parts of Medtronic where possible or offer comprehensive transitional support."
Fierce Medtech had the chance to speak with Frank Chan, Medtronic’s former president of patient monitoring and now head of ACM, on where the division is headed from here.
Conor Hale: It’s definitely been an exciting time for Medtronic. They first publicized their spinout announcement in October 2022, and last month they said now they're here to stay. So my first question is, has this been a roller coaster ride for you?
Frank Chan: It's been a journey for sure, no question about that. These kinds of processes don't move quickly, and there were a lot of considerations. It would have been a very, very large transaction. But at the end of the day they have, as you know, announced in our earnings call two weeks ago that they're keeping the patient monitoring and respiratory interventions businesses, and we're really excited about that.
We've been operating the businesses really well. And I think the bottom line is that we are competing really well—and what Medtronic really values is to be category leadership.
And they've really committed to increasing our level of investment, to advance R&D and accelerate our growth. So while the last year and a half or so has been a long journey for some of us, I'm really enthusiastic about what's to come at this point—It's good to have certainty.
CH: So what happened during that time that might have changed the math on the decision to spin out the divisions?
FC: I think the way I would characterize it is that we never stopped competing, we never stopped managing these businesses. We never stopped talking about the synergies and, actually, we've had quite a strong cadence of product deliverables over the past couple of years. So we've had a lot of momentum.
And I referred to the concept of category leadership … what Medtronic really does value is to be either No. 1 or No. 2 in the markets that we play in. And we're also a business that plays in markets with fundamentally strong growth. And that's also something that Medtronic values, and believes it has a right to win. So that's how the evolution took place over the last year and a bit.
CH: There was a lot of reporting and rumors about potentially interested buyers over the course of that time. Is there anything you can tell me about that process or why Medtronic didn't decide to jump at any of those chances?
FC: I'm not going to comment on the dynamics of any of those discussions, but I will say there was a lot of interest, and there was a lot of deep consideration on both sides. So we are where we are, with the announcement from a couple of weeks ago.
They've really committed to increasing our level of investment, to advance R&D and accelerate our growth. So while the last year and a half or so has been a long journey for some of us, I'm really enthusiastic about what's to come at this point—It's good to have certainty.
CH: And Medtronic also, of course, said it's exiting the hospital ventilator business. I remember writing about Puritan Bennett machines and the company simply not being able to make enough of them during the COVID-19 pandemic, during a time of absolutely stratospheric demand. Now, the company is saying that sales have slowed and dropped below pre-COVID levels. I'm curious if, when it comes to durable medical equipment such as these ventilators, whether Medtronic feels that, at this point in time, everybody who needs one already has one? Or is it something else?
FC: I think with respect to the ventilation market, you probably heard [CEO Geoff Martha’s] comments in our earnings call from a couple of weeks ago talking about the shift in the marketplace.
It's a fantastic lifesaving technology, and all I would say in terms of that market is we've made the decision to exit, and there are dynamics in that market that have essentially made it relatively unprofitable for us to participate.
CH: So when it comes to the new Acute Care and Monitoring division, is this move part of a major reorganization, or is it more of a name change and simply putting two groups together?
FC: I wouldn't say it's a major reorganization. We’re combining two businesses, patient monitoring and respiratory interventions, and the portfolios have always had some synergies from the standpoint of areas of care that we play in.
If you think of the fact that our value propositions are both related to anesthesia, respiratory and critical care—and the fact that both the businesses play in literally all areas of care in the hospital and also in the home—there's a lot of synergies between these businesses. It's not like these are disparate businesses that don't make sense coming together.
When you take the two technologies together, I would describe them as airway management. Think of airway protection, and then think of patient monitoring—it makes a lot of sense for these businesses to come together.
CH: So when it comes to the ACM portfolio as a whole, how do you see it differentiating itself from major competitors like Masimo?
FC: A couple of things come to mind. First of all, I talked about our market share: We're category leaders in all the major areas that we play in. And in the history of these businesses, the two biggest brands I'd say are our Nellcor pulse oximeters and Shiley endotracheal tubes. These two brands collectively have a history of 100 years of clinical performance, let alone the rest of our portfolio.
The other way that I think about differentiation is our focus on performance. And we consider performance to be, obviously, table stakes. We are a medical technology company, and we think of performance in terms of accuracy, response time and the patients that we can serve with the technology.
But then the other points of differentiation would be the fact that all these technologies have clear clinical and economic value propositions against some really meaningful problems that we solve for.
So let me give you an example. We have something called a processed EEG for depth of anesthesia; its brand name is BIS.
When surgeries are guided using this technology, it can reduce the incidence of a serious complication called delirium, which happens postoperatively and especially in elderly patients. It can reduce the incidence by 1 in 5, which is substantial because these are very expensive problems and it causes a lot of issues for patients.
If you think of the points of differentiation for every one of our technologies, you can think of the clinical problems they solve for and the associated economic benefits. It's in line with our philosophy of ensuring that we improve patient outcomes, help reduce the cost of healthcare and expand access to more patients. That's how we think of differentiation.
CH: I was also looking at this approach to pain quantification, with nociception tools. Can you tell me more about that?
FC: Yeah. I talked about the fact that we have an anesthesia value proposition, and one of the things that anesthesia providers think about is pain management. So think of pain, amnesia and paralysis—that's the anesthesia triangle.
One thing that isn't well monitored is pain in the operating theater. So we have a distribution arrangement for this nociception monitoring technology and we're currently piloting it in Western Europe. What we're finding is that it is a logical technology that closes the gap in what we can offer anesthesia providers and helping them manage their patients better intraoperatively.
We consider performance to be, obviously, table stakes.
CH: On that note—and you talked a lot about synergies—also on that earnings call Geoff Martha talked about the importance of data, and I'm curious if you see ACM as the company's digital division? Are there ways it can use its data to support Medtronic’s medical-surgical operations or other arms of the company?
FC: I think so. Our business touches 100 million patients every year, and so we monitor and we gather a lot of data from our patients. So that's fundamental. The second concept there is that we believe there’s value in that data.
If you think of some of the challenges that our caregivers face—think of workflow challenges, think of higher patient-to-caregiver ratios, and efficiency and quicker decision-making—if we can play a role in providing technology that does that, it would be significant.
So with all the data that we capture, we believe that we can move from data to insights and then—eventually, we're not there quite yet—but eventually predictive intelligence. Then we’ll have the ability to be even more meaningful.
But the fact is that the internal capabilities of Acute Care and Monitoring are things like real-time data capture and our ability to connect third-party devices to electronic medical records.
This is what part of what Geoff has been thinking about: Can we be a catalyst or an enabler, or the connective tissue, if you will, to the rest of Medtronic—and that's super exciting to me, because not only do we have those capabilities and we're deploying them to some extent throughout our current portfolio, but if we can be more to the largest medtech company on the planet, then that's pretty exciting to me as the leader of ACM.
CH: You mentioned some new investments in the division, as well. Do you have any more details about that?
FC: I'd love to talk a lot more about that, but for competitive reasons, let me just generalize a little bit.
When you think of the business, the majority exists within the hospital today. We feel that even in the hospital, we can invest in expanding our offerings to offer a complete solution set to the caregivers that we work with. You asked about pain, and that's an example, and you also asked about data.
So if you picture our ability in the hospital to provide better insights to speed up clinical decision-making, those investments will be along those lines.
Other investments are along the lines of this performance of our technologies—that's always table stakes: meaningful clinical value and performance to meet those needs.
But our design intent, Conor, is to ensure that we also think about interoperability and technology that fits frictionlessly in the hospital, because if a technology doesn't fit in the ecosystem, then nobody's going to implement it.
Other investments will be in improving workflow. This is where our remote monitoring technologies and strategy comes in. Investments in that will help caregivers monitor more patients, monitor them more effectively, and then eventually follow that patient as they are discharged from the hospital, to outside the hospital and then into the home.
So the investments will be essentially against the existing core of our business, but also in expanding our value propositions.
CH: I wanted to ask you about how, across the medtech industry—and there's really too many to list right now—but there has been a lot of spinoffs and divestitures of divisions. Some have been completed, some are still in the works. My question is, do you have any advice for anyone looking to perhaps convince their C-suite that they deserve to stay on the mothership, so to speak?
FC: I really like that question, because we've really lived it. I think it comes down to the value and the true identity of your organization. Let me explain: We have an identity in this business to enable patient safety through our technologies—so “the how” matters. We do that through monitoring technologies and airway protection technologies.
But, at the same time, to be able to talk about the markets that you play in, and your ability to provide value that's unequivocal—and what I mean by that is, think of real clinical problems that your technologies are focused on helping to solve—if there's clear ties to these problems and these problems are meaningful, then you've got a ton of value. That's what I would think of how you talk about your business within larger enterprises.
Editor’s note: This transcript has been edited for length and clarity.