Last year was turbulent and often disappointing for the medical technology industry, one of Minnesota's most important. The big med tech companies based in the state begin to report their latest earnings this week, as well as their outlook for 2011.
Last year saw continued congressional and Justice Department investigations of med tech companies' products and practices.
For example, Little Canada-based St. Jude Medical last week agreed to pay $16 Million to settle federal allegations the company paid kickbacks to physicians.
Boston Scientific was also fined -- nearly $300 million -- because its Guidant unit didn't disclose potentially lethal problems with a device.
Last year, a paperwork snafu forced the Massachusetts-based company into a month-long halt on sales of a key product -- implantable heart defibrillators that shock an errantly beating heart into a proper rhythm. The company also cut jobs and sold off divisions.
Aaron Vaughn, a med tech analyst with Edward Jones, says 2011 will be year of diversification and refocus for Boston Scientific, and its several thousand Minnesota employees.
"For 2011, I believe Wall Street is looking to see what the growth for this company going forward is, now that some of these ancillary issues are behind the company," Vaughn said. Where does the growth come, going forward?"
“[Patients will] put off orthopedic implants, spine procedures. They will live with pain rather than having the procedures.”Jan Wald, med tech analyst
Earlier this month, Boston Scientific agreed to pay as much as $375 million to purchase Plymouth-based Atritech. That firm has developed a new kind of device to treat patients with an irregular and unusually fast heartbeat.
The deal was part of a strategy to beef up Boston Scientific's portfolio of high-demand products.
Debbie Wang, a med tech analyst with Morningstar, says Boston Scientific is several years behind rivals in key product lines, such as cardiac rhythm management or CRM.
"Its pipeline is not quite as robust as what we've seen with Medtronic and St. Jude," she said. "But they are on schedule to launch a number of new CRM products, which is something that they desperately need, since their CRM line is probably the oldest one out there at this point."
But analysts aren't expecting those new cardiac rhythm management products to do much to pump up Boston Scientific's sales until 2012 or later. On average, analysts expect the firm's 2011 sales to rise only about 1.5 percent.
Minnesota's largest med tech firm, Medtronic, has been dogged by investigations of its financial relationships with doctors. But one of the biggest questions facing the company is who will succeed CEO Bill Hawkins, who plans to retire in April.
Aaron Vaughn of Edward Jones says the Fridley-based company has not met Wall Street's expectations for growing sales in its cardiac rhythm and spine businesses.
"I think Wall Street is going to look to see what this new executive is going to do with the company and where he wants to take it going forward," said Vaughn.
Analysts -- on average -- expect Medtronic's sales to rise about 5 percent in 2011, and earnings per share to increase by 8 percent.
The weak economy is a problem for Medtronic and its peers. Economic insecurity discourages some people from getting costly operations that require sophisticated medical devices.
"They'll put off orthopedic implants, spine procedures," said Jan Wald, an analyst with Noble Financial Group. "They will live with pain rather than having the procedures. It's harder to slow down defibrillators, because it's life-threatening."
If the economy really turns around, Wald expects a surge in demand for many of the devices made by Medtronic and its rivals.
Those rivals include St. Jude Medical. Wald expects a relatively good year for St. Jude, with continued growth in its major businesses.
"Atrial fibrillation, a major business of theirs, should do well in 2011," he said. "Cardiac rhythm management is pretty much more of the same. We're looking for them to have a stable market, or perhaps even take a little bit of share in 2011 from its competitors. And we're also looking for decent year for them in their nureostimualiton business."
Even if the financial results of these companies improve, the medical technology sector itself faces ongoing challenges. There's an upcoming tax on devices in the federal health overhaul. And the industry is now bracing for a new U.S. Justice Department probe of reports that patients who don't fit treatment guidelines receive defibrillators anyway.