Medtronic Chairman and CEO William Hawkins is retiring after just three years in the firm’s top spot, a move that may reflect the company’s desire to accelerate change and diversification in the face of sluggish growth in signature businesses.

Medtronic announced Dec. 20 that the 56-year-old Hawkins would retire from the company by April 2011, pending an external search for his replacement.

The company offered few other details. Ken Powell, the firm's lead director, emphasized in a statement Hawkins’ “very significant impact” at the company.

While Hawkins had made efforts to both cut costs and diversify the company's business, a new CEO may be able to push such efforts forward even faster, analysts suggest.

Hawkins expressed that he was confident “we made the right investments in talent, quality and innovation to position the company for long-term growth and future success.”

More than 60% of Medtronic's revenue comes from cardiac rhythm management (CRM), stents and spine devices, but those units are expected to experience very slow growth in the coming years and are also facing significant pricing pressures, digging into profit margins. The struggling global economy is also impacting the company's bottom line.

In this context, the company's stock has dropped 26% since Hawkins moved up to the CEO role in August 2007. In addition, during the CEO's tenure, the firm has struggled to successfully integrate spinal kyphoplasty device firm Kyphon, acquired for $3.9 billion in 2007. (See “ Also see "Medtronic Taps Into Expanded Spinal Market With $3.9 Billion Kyphon Deal" - Medtech Insight, 30 July, 2007. ” – “The Gray Sheet” July 30, 2007.)

"What’s really hurting Medtronic is the erosion of spine market fundamentals and, within that, its 2007 acquisition of Kyphon," J.P. Morgan analyst Michael Weinstein noted in a Dec. 20 report on the Hawkins announcement.

While Hawkins had made efforts to both cut costs and diversify the company's business, a new CEO may be able to push such efforts forward even faster, analysts suggest.

An external candidate could bring in “fresh ideas and strategies to help reinvigorate the business and boost company credibility,” Wells Fargo Securities analyst Larry Biegelsen suggested.

“Accelerating management transition is a key step in the process of adapting to industry maturity,” Morgan Stanley analyst David Lewis explained. "Our view is that adapting to the new operating environment will require meaningful changes in corporate strategy, spending prioritization and capital allocation."

Lewis told “The Gray Sheet” that he is supportive of pursuing an external candidate.

“Given the pressure that the broader medical device and health industries are facing, it is an interesting time for the board to consider CEOs from industries that have faced similar pressures, even outside of the medical device industry,” he noted.

Lewis said such an executive should have “a proven track record of delivering shareholder returns in a different way,” after facing similar issues with negative pricing pressures and negative margins over a prolonged period.

Next CEO Faces Steep Challenges

Whoever the new CEO turns out to be, he or she will face steep challenges.

Major Acquisitions Under Hawkins

Also see "Medtronic Taps Into Expanded Spinal Market With $3.9 Billion Kyphon Deal" - Medtech Insight, 30 July, 2007. ($3.9 billion): Deal for kyphoplasty firm was initiated in July 2007, a month before Hawkins moved up from COO to CEO, but he was charged with the challenging integration once the deal closed that November
Also see "Medtronic Bets On Blockbuster Hypertension Market With Ardian Acquisition" - Medtech Insight, 29 November, 2010. ($800 million): Pending deal, announced in November, would give the firm a novel catheter technology for treating hypertension
Also see "Medtronic Catapults Into Transcatheter Valve Market With Billion-Dollar Buys" - Medtech Insight, 2 March, 2009. ($700 million/$325 million): 2009 acquisitions announced on the same day in February immediately made Medtronic a long-term competitor in the high-growth transcatheter valve space
Also see "Medtronic Warms To Cryoablation With $380 Million Acquisition Of CryoCath" - Medtech Insight, 29 September, 2008. ($380 million): Maker of Arctic Front cryoablation catheter was acquired in 2008; Medtronic approval for treating atrial fibrillation Dec. 17, 2010
Also see "Medtronic Shores Up Tissue Valve Portfolio With ATS Medical Acquisition" - Medtech Insight, 3 May, 2010. ($370 million): Maker of pericardial tissue heart valve offerings acquired in August 2010
Also see "Medtronic Gains Peripheral Pipeline, Drug-Eluting Balloons With Invatec Buy" - Medtech Insight, 1 February, 2010. ($350 million): April 2010-closed deal for peripheral vascular and drug-eluting balloon firm
Also see "Medtronic Makes Another Big Play In A-Fib, Purchases Ablation Frontiers" - Medtech Insight, 19 January, 2009. ($225 million): Radiofrequency catheter ablation technology for atrial fibrillation added in 2009
Also see "Medtronic Expands Ortho Biologics Presence With Osteotech Acquisition" - Medtech Insight, 23 August, 2010. ($123 million): Demineralized bone matrix developer purchased in November 2010

"It’s hard to offset a flattish top-line [growth rate] and significant pricing pressure on more than 60% of your business," J.P. Morgan's Weinstein observed.

Medtronic has increased its emphasis on new growth areas including diabetes, neuromodulation, transcatheter valves and hypertension. (See “ Also see "Medtronic Bets On Blockbuster Hypertension Market With Ardian Acquisition" - Medtech Insight, 29 November, 2010. ” – “The Gray Sheet” Nov. 29, 2010.)

Hawkins defended Medtronic’s growth and diversification strategy during a Nov. 23 conference call held to discuss fiscal 2011 second-quarter earnings, asserting that “our strategy for making smart, disciplined and opportunistic acquisitions is also working.”

He told investors that efforts to add new therapies and emerging markets to the business will continue and would “be an increasingly important driver of our growth.”

But businesses outside of the core units of CRM, stents and spine will have to significantly pick up from current levels to propel Medtronic into a better growth pattern, Weinstein argued.

Hawkins moved up to CEO from the post of chief operating officer. He became chairman of the board in 2008. Hawkins first joined Medtronic in 2002 as senior VP and head of the company’s vascular business.

Hawkins previously worked for Johnson & Johnson and Eli Lilly, and was president and CEO of vascular brachytherapy device maker Novoste immediately before joining Medtronic. (See “ Also see "Bill Hawkins Will Take Medtronic Reins From Art Collins" - Medtech Insight, 5 March, 2007. ” – “The Gray Sheet” March 5, 2007.)

By Mark Hollmer

Medtronic’s Hawkins To Retire; Company Sets External Search For New CEO

More from Archive

More from Medtech Insight