Medtronic, Inc. Shareholder/Analyst Call

| About: Medtronic plc (MDT)

Medtronic Inc. (NYSE:MDT)

August 25, 2011 11:30 am ET


Unknown Speaker -

D. Cameron Findlay -

Michael Coyle - Executive Vice President, Member of Executive Committee and Group President of Cardiac & Vascular Group

Omar Ishrak - Chairman and Chief Executive Officer

Omar Ishrak

Here on the stage with me today are 2 of our officers, Gary Ellis, Senior Vice President and Chief Financial Officer; and Cam Findlay, Senior Vice President, General Counsel and Corporate Secretary. In addition, I'd like to introduce 2 new members of our executive committee. First, I'd like to recognize Jeff Martin [ph] , who will join Medtronic on August 29 as Senior Vice President of Strategy and Business Development. Jeff comes to Medtronic from GE, where he most recently served as the Managing Director of Business Development for GE Healthcare. Jeff will have responsibility for the global strategic plan, business development and acquisition integration. Jeff's strong background in strategy, finance and business management make him an ideal fit for this role. Please join me in welcoming Jeff to Medtronic.

Next and although he could not be here today, I want to recognize Rob ten Hoedt, who has joined the Executive Committee as Senior Vice President of Western Europe and Canada. This move recognizes the significant contributions of Western Europe and Canada to our global portfolio. Rob has contributed 20 years of strong leadership to Medtronic during his tenure and has been responsible for Western Europe since May of 2009.

I'd like to acknowledge the rest of our executive committee as well. If you would all please stand up right now and be recognized. Also with us today are members of Medtronic's Board of Directors: Richard Anderson, Chief Executive Officer of Delta Air Lines; David Calhoun, Chief Executive Officer and Executive Director, Nielsen Holdings; Dr. Victor Dzau, Chancellor of Health Affairs at Duke University and President and CEO of Duke University Health Systems; Dr. Shirley Ann Jackson, President of Rensselaer Polytechnic Institute; James Lenehan, Financial Consultant and retired Vice Chairman and President of Johnson & Johnson; Denise O'Leary, private venture capital investor; Ken Powell, Chairman and Chief Executive Officer of General Mills and Ken is also our Lead Director; Robert Pozen, Chairman, MFS Investment Management; and Jack Schuler, Lead Director of the Board of Stericycle and cofounder of Crabtree Partners.

I'd also like to acknowledge board member Jean-Pierre Rosso, who's Chairman of the World Economic Forum USA, who's not able to be with us today. So please join me in giving them a round of applause.

Next, it's an honor for me to introduce our cofounder, Dr. Earl Bakken. This is Earl's 17th year as Director Emeritus. And he has attended every Medtronic annual meeting since the company was founded 62 years ago. I had the pleasure of meeting Earl and his wife, Doris, at their beautiful home in Hawaii in early June of this year. And this was just before I officially started my role at Medtronic.

Earl had prepared a 2-page list of topics he wanted to discuss during our brief time together. And I can tell you it was a fascinating discussion. I appreciated his wisdom, his values, his customer-first approach to business. He and I also discussed the Medtronic mission, which, as many of you know, Earl wrote more than 50 years ago. This resonated very deeply with me. And it was a meeting that I will just never forget. Welcome, Earl.

In addition, Tom Montminy is here representing PricewaterhouseCoopers, our outside independent auditing firm. He will be available to answer questions regarding PWC's audit services following today's proceedings. Other special guests with us in the audience today include former Medtronic executives and board members. A warm welcome to those who are here including Tom Holloran, Ron Londt, Gordon Springer, Bobby Griffin, and Jerry Simonson. And although Bill Hawkins was not able to join us here today, I also want to take a moment to acknowledge his many achievements over the course of his tenure career at Medtronic and thank him for his leadership.

And finally, I'd like to introduce my wife, Helen, who's in the audience today. And after 16 years in Milwaukee, my wife and I moved to the Twin Cities this summer when I accepted this opportunity. And this has actually been a great move for us personally because our son, Idrus, he also lives in the Twin Cities, and he attends law school at the University of Minnesota. But I'll tell you, I'm not exactly sure how happy he is about me moving and joining Medtronic, especially after I told him that his mother and I will be moving in with him.

Okay. Now I'd really like to introduce the winners of this year's Star of Excellence Awards, Medtronic's highest award for customer-focused quality and innovation. As many of you know, Medtronic places the highest emphasis on quality for innovative products and services that we provide. The Star of Excellence is our way of recognizing those who successfully innovated and implemented ways to further raise our standards of excellence in these products. This year's recipients of the Star of Excellence are listed in the back of today's agenda. And I'd like all of them to now stand up and receive a well-deserved round of applause for their many contributions to Medtronic's, so please.

Now let's turn to the formal business meeting. The company's Corporate Secretary, duly caused notice of this meeting to be sent on July 15, 2011 to shareholders of record as of the close of business on June 27, 2011, the record date. Wells Fargo Bank, our stock registrar and transfer agent has prepared and certified the shareholder list as of the record date. The secretary has confirmed that a quorum of shares is represented at this meeting and therefore, we may transact business. We have 4 business items on the meeting agenda today.

These 4 items were discussed in the proxy materials made available to you. First, we will vote to elect 11 directors for 1-year terms, expiring on the annual meeting in 2012 or until their successors are qualified and elected. These directors are Richard Anderson, David Calhoun, Dr. Victor Dzau, Dr. Shirley Ann Jackson, James Lenehan, Denise O'Leary, Ken Powell, Robert Pozen, Jean-Pierre Rosso, Jack Schuler and me, Omar Ishrak. The Medtronic board recommends that you vote for each of the nominees.

Second, we will vote to ratify the appointment of PricewaterhouseCoopers as Medtronic's independent registered public accounting firm for fiscal year 2012. The board recommends that you vote for ratification of PricewaterhouseCoopers.

Third, we will hold a nonbinding advisory vote on executive compensation. Also known as a say-on-pay vote. The board recommends that you vote for the nonbinding advisory vote on say-on-pay. Fourth, we will also hold a nonbinding advisory vote on the frequency of say-on-pay votes. The board recommends that you vote for a frequency of 1 year.

At this time, we will be happy to answer any questions on the 4 business items on the agenda. If you have a question relating to the specific proposals to be voted on, please stand up and be recognized. We have several people in our audience with microphones, so we encourage you to address the group so that everyone can hear your question.

At this time, we will only address questions related to the 4 specific business items. If you have questions related to other matters, please save them for our general question-and-answer period, which will come later in the meeting. So are there any questions specific to the 4 proposed resolutions? Okay, please the microphone.

Unknown Speaker

Good morning. My name is Dwayne Carlson [ph]. I'm a shareholder. I have 2 questions. First one has to do with market potential in BRIC countries and secondly, what can you do about hacking?

Omar Ishrak

Both of those questions are general and not related to the resolution so we can kind of talk about them at the end of the period. Any other questions regarding these specific proposals? Okay. Hearing none, I hereby declare that the polls are now closed. Results of the voting will be tabulated, and we will have preliminary results before we conclude the meeting today.

With the voting on the resolutions complete, I'd like to tell you a little bit more about why I believe coming to Medtronic was the opportunity of a lifetime for me, as well as where the leadership team and I will be focused in order to restore the company to stronger growth. When I was approached about this role, I saw it as a tremendous opportunity for several reasons.

First, I was drawn to Medtronic because I felt that the company had a clear and long-standing sense of purpose. Through the Medtronic mission, to alleviate pain, restore health and extend life, we are unified and aligned behind a single goal. This sense of purpose motivates us to do our very best because we know millions of lives depend on it. It also provides a sense of direction as we navigate new and uncharted territory.

The fact that the mission has endured for more than 50 years is a testament to its power and continued relevance. As the management team and I lead the company forward, we will look to the mission as a guide and remain committed to its principles and practice.

In addition to Medtronic's sense of purpose, I was impressed with the company's singular focus on my personal area of passion, healthcare. And more specifically medical technology. Having spent my entire career in healthcare, I was excited about joining a company where healthcare is our sole focus. Improving healthcare for people around the world has been my life-long goal. And as you'll hear me discuss in detail today, I believe we have an enormous business, societal and humanitarian opportunity to improve standard of care and reduce healthcare costs.

And finally, I came to Medtronic because I felt that the skills and experience that I have gained throughout my career are well aligned with the needs of Medtronic in this phase of the company's growth and expansion. For example, my experience in driving innovation and helping GE Healthcare globalize its business are particularly relevant and important for Medtronic right now.

As I look at the challenges and opportunities ahead, I feel a tremendous sense of excitement and responsibility. Excitement because the opportunity for what we do has never been greater and responsibility because I recognize that a lot of people are depending on me and my leadership team to help Medtronic reach our next level of growth and prosperity.

Over the last few months, I've been traveling around the world, meeting employees and customers. And I'm anxious to share some of those initial observations and insights. But before I do, I'd like to spend a few minutes reflecting on our performance in the last fiscal year, in addition to the recently completed first quarter.

As you know fiscal year 2011 was a difficult year for Medtronic and for our industry in general. And we know we need to do better. Clearly, we saw a slowdown in key markets, but we also experienced some foreign [ph] execution challenges, such as product launch delays and some quality issues, which resulted in market share losses in some businesses.

However, we have resolved many of these execution issues and their impact will be less significant going forward. And to the team's credit, even in this environment, we were able to deliver operating leverage by streamlining costs and making critical restructuring decisions. This ultimately generated $3.2 billion of free cash flow. We remain committed to returning a significant portion of this to our shareholders in the form of share buybacks and dividends. In June, we increased our dividend for fiscal year 2012 by 8%, the 34th consecutive year of dividend increases. In fiscal year 2011, we also repurchased over $1 billion of stock.

Now unfortunately, we saw some of the same market challenges from fiscal year 2011 carry over into the first quarter of fiscal year 2012. And one of the primary challenges we face is that almost 40% of our business represented by ICDs in spine had a negative growth, which is creating a drag on our overall performance.

But despite the declines in these 2 markets, several areas of our company are growing well. In fact, this quarter, 60% of our overall business grew at a combined 8% and in emerging markets, our growth rate was an impressive 25%. At the business level, diabetes, Surgical Technologies and our cardiovascular businesses each grew close to 10% in the first quarter.

In addition, many of our regions continue to experience high growth, especially emerging markets, which currently comprises 10% of our total revenue but remains our biggest opportunity. Since our last shareholders' meeting, there have been some key product advancements that we believe will drive our growth going forward. For example, we were the first company to introduce a pacemaker designed for use in the MRI environment. We continued to make progress in closing the loop for diabetic patients, taking another step with our Veo pump and Enlite sensor, which we recently introduced in Europe.

We also launched novel cryoballoon ablation catheter system for atrial fibrillation and are gaining share in this important market. And our 4-valve transcatheter valves continue to drive growth in markets around the world. In fact, transcatheter valves represent one of the most exciting opportunities in medical technology, and while this technology is not yet approved for use in the U.S., I'd like to show you a video with one example of how this important therapy is being used in other parts of the world. So let's watch the video.


So that's a truly amazing technology. And this video is just one example of how advancements in technology can create less invasive solutions to address significant medical challenges.

Now to wrap up the discussion on last year, I'd like to make a few comments on the stock. I know this has been an area of frustration for many of you, and it is for us as well. While I recognize our markets have been challenging, the value of our stock is largely a reflection of our own performance. When we are able to demonstrate increased growth and improved performance, I'm confident that the financial markets will reward us.

During tough times, the tendency is to want to focus on market issues rather than our own execution. We need to resist the temptation to blame the markets and use our considerable diversification, breadth and capabilities to adapt our strategies to win because ultimately our job is to deliver growth despite what's happening to our markets.

So with fiscal year 2011 now officially behind us, I'd like to look ahead to the future. Around the world, the opportunities in this industry are enormous. We are in a continuous quest to improve the standard of care. People everywhere want better outcomes, fewer errors, quicker recoveries, fewer side effects and the list goes on. But at the same time, there is continued pressure on global healthcare costs.

Present trends are clearly unsustainable given the demographics in the developed world. For example, U.S. healthcare spending is close to 20% of GDP, and with the aging of the population, this will only increase. It is therefore paramount that we develop solutions that not only improve healthcare but do so while delivering better economic value.

And finally, the biggest long-term opportunity will be our ability to meet the needs of billions of people who today have no access to healthcare at all. And central to addressing these opportunities will be a firm understanding of customer economics, which I will explain in more detail in a few minutes.

Clearly, we don't have all the answers yet. But I would like to share some initial insights on how to capitalize these opportunities based on my first 60 days. As I mentioned earlier, I've been meeting with many of our key stakeholders, including employees and customers. And I've been both encouraged and inspired by the amount of passion, the level of engagement and the intense commitment to the mission that I have observed with everyone that I've met. These discussions have reaffirmed my belief that Medtronic has great growth potential and a solid foundation from which to build.

I've been impressed with the skill and depth of the talent that I have observed throughout the organization. Whether I was engaging scientists and engineers, policy experts, clinical specialists, sales reps or functional leaders, I was struck by the depth and breadth of our capabilities around the world. Also, people seem to understand that in order to reach our full potential, we will need to make some fundamental changes to the way we do business. And most of them seem generally eager to embrace that change.

In addition, I was pleasantly surprised at how robust our technology platforms are. And I saw a number of opportunities where we leverage our breadth and capabilities across adjacent businesses. Let me give you some examples of what I mean. Today we can surround the spinal surgeon with technologies including navigation -- imaging and navigation, nerve monitoring, power instrumentation and implants all grouped into one integrated solution built around the specific needs of this customer. And our cardiac resynchronization devices that employ left-heart leads were developed using technology from our coronary catheter business, paired with defibrillation technology from CRDM.

Using our technologies across businesses to target significant clinical unmet needs is a strong competitive differentiator for Medtronic. And it is a sustainable and reproducible model by which we can and are creating new market opportunities. And finally, we're financially strong, which allows us to make disciplined investments for future growth and maintain our commitment to our shareholders.

Although Medtronic possesses a number of strengths, including financial strength, it is clear that the macroeconomic conditions in many developed countries have led to constraint healthcare budgets and increased pressure on utilization. There is a major shift underway in healthcare, whereby the economics of products and services have become a key decision point for customers and society as a whole. This directly affects the financial health of our customers.

Medtronic is traditionally operated with a business model where success was largely based on innovative new technology to provide unique clinical solutions. But today, demonstrating economic value is just as important and sometimes, even more important than demonstrating our products' clinical utility. In other words, even a clinically-superior product is not always a product of choice.

This is especially true if there aren't any significant and measurable changes in outcomes using these products. If we can show our customers how they can be profitable using our technology, then adoption will accelerate, and these technologies will become then the products of choice. And this is what I call customer economics.

We need to think about customer economics in the broadest sense possible. For example, if you develop a product that allows customers to cut their procedure time, that product clearly delivers economic value to those customers even if it is more expensively priced. Or if we offer a therapy that is so revolutionary that it changes the standard of care, it will create a competitive advantage for that customer and will draw more patients to their facility and that, too, creates economic value for that customer.

And finally, there will be instances in which we have cost-advantage products, where we can lower the price for our customers and drive increased penetration. With some products and in some geographies, this too, will be part of the solution.

While Medtronic has world-class capabilities in clinical research and healthcare economics, we have not consistently translated them into meaningful and succinct financial value propositions directly for our customers. I believe that this single concept and shift in focus, when well conceived and executed, has the ability to create a tremendous competitive advantage for us and has the potential to fundamentally change the delivery of healthcare around the world.

Our ultimate goal, however, is to improve growth at Medtronic. Let me pause for a moment to emphasize this point. Moving forward, returning this company to meaningful growth is our single biggest obligation. And while the systematic use of customer economics is a critical tool in this endeavor, I believe that there are 3 key imperatives to deliver sustained growth: improving execution, optimizing innovation and accelerating globalization.

And let me address each of these areas one at a time. First, I'm focused on improving execution. Since this has the greatest potential for immediate impact, execution is something that every Medtronic employee is accountable for. And it begins with me and the leadership team. Successful execution requires that we align the team around shared goals and how we achieve them.

I am taking steps to ensure that business units, geographies and functions have a clear understanding of their roles and responsibilities. Further, we will implement systematic operating processes to increase consistency and accountability and drive more operating rigor throughout this organization.

I'm taking a very hands-on approach to the way we run our businesses. When we do something well, I want to understand how and how we can replicate that performance across our business. If something goes wrong, I want to know why and how we intend to fix it and how we can avoid making the same mistakes in other parts of our business in the future. Improvements in these areas are critical to driving operating efficiencies and delivering better, more predictable and sustained business performance.

Next, let me discuss optimizing innovation. Our second area of focus. Innovation has always been a strength for Medtronic. Indeed, our customers would say innovation is at the heart of our reputation as a leading medical technology company. Medtronic probably boasts the first company to introduce many important breakthroughs, from the first implantable pacemaker in 1960 to Deep Brain Stimulation in 1987, to the first insulin pump with real-time glucose monitoring in 2006. These technologies, along with many others, have become the standard of care in the industry and are helping millions of patients live better, fuller lives.

However, if you look at our recent performance, including last year, we can see that the current innovation formula has to change. Last year, we invested more than $1.5 billion in R&D. And we introduced 16 new products, more than any other prior year. Yet, as a whole, the company only grew 2%. So what does this mean for our innovation process? It means that we need to improve our overall R&D productivity. And as I've just mentioned, the number of new products does not necessarily have a direct correlation with growth.

Therefore, the most important area that needs improvement is our method of selecting and prioritizing our investments. Essential to this new process will be the broad incorporation of the customer economics concepts that I mentioned earlier. During the selection process, we need to systematically consider how we will demonstrate that the use of our technologies will improve the profitability of our customers.

In addition to our focus in customer economics, we will look for ways to get additional growth from our existing therapies. Historically, Medtronic has concentrated in adding new high-end therapies, an incremental innovation to drive growth. And while this has often worked in the past, in today's environment, with longer regulatory cycles and more cost-sensitive buyers, we must look for new and creative ways to generate growth.

I want our businesses to significantly increase their focus in truly understanding how to expand penetration. We need to analyze, in granular detail, the barriers that prevent our products from becoming the standard of care. And we must do this for every product in every major country and prioritize these opportunities by their economic value and by the degree of difficulty in developing the evidence necessary to prove that economic value.

In addition, I'm challenging our businesses to think more broadly across the patient care continuum. To look both upstream at heart-targeted diagnostics can select patients who need our therapies and downstream by developing new business models around connected care and chronic disease management for patients who have our devices.

And finally, I'd like to make a point about technology and healthcare. Traditionally, advances in technology have had a positive impact in society. However, in healthcare, technology is often viewed as the culprit that drives up cost. Using an integrated approach to the innovation process, including assessment of both clinical and economic value to make decisions about our portfolio, will enable us to shift this perception of our products being part of the problem, to instead being part of the solution.

Now let's look at the third major area of focus to help us drive increased growth: accelerating globalization. Providing access to billions of people who are underserved is both our biggest opportunity and our biggest challenge. Right now, 46% of our total revenue comes from geographies outside the United States. And while this may seem like a lot, consider the fact that 95% of the world's population lives outside the United States. And the opportunity for us to capture a greater percentage of that market is much higher.

In addition, the population in emerging markets is tenfold of that in developed countries. Yet today, emerging markets represent only 10% of our total revenues. These statistics are further compounded by the fact that the growth rate of the U.S. market is basically flat, while the emerging world is growing at much faster double-digit rates. We have begun to explore some of these opportunities through exciting pilot programs that look at new business models that may improve -- that did prove effective in emerging geographies.

However, the number and size of these investments is nowhere near the scale it will have to be for us to capture the growth that we're capable of in these markets. Reaching the global middle class to increase access to our therapies opens up immediate opportunities for us beyond anything that we've done before. And in many ways, increasing global penetration is potentially a faster and less risky investment than our traditional tendency of relying on addition of more new products for the flat U.S. market.

To illustrate the incredible need and opportunity that exists today, I want to share a video with you that helps explain the problem created by the global burden of chronic disease and a few ways in which Medtronic is poised to help.


Well, this video is a powerful demonstration of the need for what we do. And what's at stake if we don't accelerate globalization? As I said earlier, historically, we've been primarily focused on high-end products for the U.S. patient population. And clearly the U.S. will continue to be an important region for us, but we simply can no longer afford to think and act only in a U.S.-centric way.

We are taking initial steps to create a more optimal global structure to ensure we have deep engagement of our business teams. For example, earlier this month, we announced organizational changes that will help us accelerate globalization. Rather than having a U.S. and an international region, we will now have 8 regions around the world, with the U.S. being one of those regions and operating in a manner consistent with the others.

As a result, of these changes, every business unit will have representatives from each of our 8 regions on their leadership teams, creating 1 integrated team representing the world. To provide context, 10 years from now, our market in China will exceed that of the U.S. We must take action today so we can be the leaders in this enormous change. I'm also challenging our entire organization to generate fresh new ideas that uses our latest and most innovative technologies to create new and potentially disruptive business models specifically directed towards each of the major emerging markets.

Through this process, we will significantly increase our investment in local R&D, manufacturing and strategic partnerships in these regions. We will also be active in helping build healthcare infrastructure where needed. I'm confident that through these efforts, the underserved population around the world will rapidly gain access to Medtronic's technologies thus, unlocking enormous business opportunities.

In closing, I'd like to come back to the Medtronic mission. In my role as CEO, I have the privilege of being one of the executive officers who performs the Medtronic mission and medallion ceremony. This ceremony is a special time when new employees all over the world are invited to learn about the history of the mission and receive their medallion, like the one that I have here, which Earl gave to me personally during my visit with them in Hawaii. And as I watched Earl lead the mission and medallion ceremony for a group of new Medtronic employees just a few days ago, he talked about the development of the first pacemaker that literally looked like a big box. But today, it's the size of a small pager.

And as I considered this incredible achievement, it made me think about my own childhood and experiences I had growing up in a developing country. As a result of growing up in Bangladesh, I'm keenly aware of the way people live in poor countries and how they are often deprived of the most basic human healthcare needs, a privilege that many of us in the developed world often take for granted.

Even something as simple as the technology inside that rather big box that Earl developed in the 1960s, that today is part of museums, is still not available to millions of people in the emerging world. The mission of Medtronic is not just about alleviating pain, restoring health and extending life for those from wealthy nations, it applies to all people. This is both our responsibility and our opportunity.

Our mission and vision calling us to make sure that every patient who could benefit from our diagnostics and therapies will get them. Today, we improve the lives of more than 7 million people each year with our products and therapies. By 2020, we aspire to reach 25 million patients annually. I'm both inspired and humbled by this incredible opportunity.

I hope you will all join me on our journey together to greater growth and improved health. I'd like to thank the Medtronic shareholders, customers and employees for everything you do to help ensure the people who could benefit from our technologies ultimately get access to them. Thank you very much for your attention this morning. Thank you. And at this time I'd like to ask Cam Findlay to review the outcomes of the shareholder balloting. Cam?

D. Cameron Findlay

Thanks, Omar. The voting results for the business items before the shareholders are as follows: Proposal 1, to elect 11 directors for a 1-year term. This was approved with each nominee being elected by a majority of the shares voted. Proposal 2, to ratify the appointment of PricewaterhouseCoopers LLP as Medtronic's independent registered public accounting firm for fiscal year 2012 approved by a majority of the shares voted. Proposal 3, to hold a nonbinding advisory vote on executive compensation, this is the so-called say-on-pay vote, approved by a majority of the shares voted. Proposal 4, to hold a nonbinding advisory vote on frequency of say-on-pay votes, an annual 1-year say-on-pay frequency vote received the greatest number of votes. The final vote results will be filed on a Form 8-K with the Securities and Exchange Commission on Tuesday, August 30, 2011. Omar?

Omar Ishrak

Thank you, Cam. With that, I would now like to open the question-and-answer session. Some ground rules again. If you would like to ask a question, please raise your hand and someone will bring a microphone to you, so that our audience can all hear you clearly.

Now as we get started, I actually want to address the question that was raised before about the BRIC countries and about hacking. As you heard in what I just talked about, the developing world and the emerging markets, of which clearly the BRIC countries are part of, are a huge focus for us. And in fact, India and China separate a little bit from Brazil and Russia, which have smaller populations compared to India and China. But like I said, I think the Chinese market will be bigger than the U.S. market within 10 years, if not sooner. And I think the Indian market will be close too, simply by their last numbers and their growth rates. So those are all areas of enormous focus for us. We'll establish R&D in both of those countries, and we'll establish particular focus in Brazil and Russia as well.

And then, In terms of the hacking question, look, this is a pretty rare incidence. We've never had an actual report of a real hacking case, which has affected anybody. But at the same time, we take the security of our software very seriously. And we expect to continue to improve that security over time, as we do new releases and so on. But we also consider it a very unlikely event for something like this to occur. So any questions, please, # 3?

Question-and-Answer Session

Unknown Speaker

Lois Clobusher [ph]. My concern is for what you were doing for research and development for Alzheimer's as the aging population is increasing and baby boomers increasing. Would really like to know if we could find a cure for that.

Omar Ishrak

Well, we have some research work in the area of Alzheimer's. And I found it very interesting when I've heard about it. There's some unique technology that we have that can do drug delivery for Alzheimer's. But the expert is Steve Oesterle, and I'd like Steve to just step up here for a second and give a much better answer than I possibly can.

Stephen Oesterle

So thanks for this question. There is no ambiguity about the challenges of Alzheimer's disease. We think it's one of the most profound disease states that Medtronic has an opportunity to treat in the coming decade. You should be glad to know that we have some unique technology at Medtronic. We have the world's only implantable pump, which is a drug delivery system. Some of you may know that the brain actually doesn't want drug to get into the tissue of the brain, that's been called the blood-brain barrier. We actually breach that barrier with catheter systems. We have, again, in one of our businesses, a shunt system that we use to relieve pressure inside the brain. We can use that as an infusion catheter, and so out of our neuro division, we have scientists who have patented actually monoclonal antibodies that are targeting a protein deposition of the brain that is thought to be the proximate or the likely cause of Alzheimer's disease, an abnormal accumulation of protein. So Medtronic actually has unique technology. We actually have unique antibodies that we have patented. I and again, the company is investing significant money in this. This perhaps is one of the biggest things that Medtronic will ever do. So I don't see who asked that question but I want to assure you that every pharmaceutical and biotech company in the world knows we're doing this. They have flocked to us. They covet our technology, which implantable infusion systems, to get things into the brain. But we actually don't need them at the moment because we have some of the therapies that biologic themselves. And so this is one of the internal venture products that is underway at Medtronic. It's a fund that again, you should be glad to know, is established for long-term things that are more than 5 to 10 years out that ultimately, I think, will define our company. So I feel really confident that we have a pretty interesting solution there and perhaps one of the best in the world.

Omar Ishrak

Maybe another question? # 5 there, perhaps.

Unknown Speaker

Susan Cross[ph] . My question is you were talking about the high-end technology and so forth. In the emerging company -- countries, excuse me, will we be looking also at the low-end technologies that could be more affordable in developing countries and patients?

Omar Ishrak

Sure, of course. The qualifier that I'd put on that is that we don't want to confuse high-end and low-end with patient safety and reliability of product. So that is always going to be the case no matter what the product is. If it comes from Medtronic, it will be guaranteed. I will do everything in our power to make it the highest quality possible and try to provide as much patient safety as we possibly can. So that's just a given. Now having said that, we need to understand the markets and see what the true needs are, and we've found actually that the true barriers to adoption of our technology today is not necessarily the price. It's often the local infrastructure, the physicians necessary to actually do the procedure to the healthcare overall system and just patient knowledge, and access to those patients are sometimes bigger barriers than just the price. And in addition, it's not to say that we won't eventually get to the price, but I just want to emphasize that even the sort of roughly the same pricing that we have today, there's a huge population in some of these countries of people who can actually afford it because the middle class in some of these countries is pretty big. There's 200 million, 300 million people in India where the middle class is the same size as the United States. And they can afford this technology. And we haven't even penetrated in those areas yet. So that's a more immediate opportunity. But surely the billions of people, the underserved and so on that I talked about going down the economic pyramid, we need to come up with more disruptive methods and the cost of the product is one of them, but the underlying infrastructure is almost equally as important. One more question there, #1.

Unknown Speaker

My name is Jim Whiteclove [ph] of Shoreview, shareholder. First of all, I want to thank Earl Bakken and Medtronics for saving my life 1.5 years ago with a foreseen [ph] Medtronic's valve. My question is can you give us any closer idea when FDA will approve CoreValve for the U.S. and Canada?

Omar Ishrak

I think I'm going to ask the business leader to give a clear answer on that. I'm not quite sure yet. Mike do you want to step up and give an answer. Mike runs our Cardiovascular group.

Michael Coyle

Sure, it's a very good question. We're actively enrolling patients in the CoreValve clinical trial right now. There's about a 1 year follow-up period associated with that. And then, of course, FDA has to review the data, which is, in itself is another year kind of review process. So this looks more like a 2014-type product for the United States. But of course, it is available generally in Europe and in many other parts around the world.

Omar Ishrak

Another question?

Unknown Speaker

My name is John Bergman [ph], a long time shareholder from Edima [ph] . Thank you very much for your comments. I have 2 questions if you don't mind. In your remarks you stressed improving service to our customers and developing helping them speed up their process and so on. My question, this seems to be a departure from patient focus. So I'm wondering if you would define for us who our customers are specifically. The second question is this, for the last couple of shareholder meetings, in the last couple of years, Medtronic has incurred a lot of criticism for paying consulting fees to medical doctors, not so much the fact of paying the fees with for the staggering dollar amounts involved and you've drawn questions from Senator Grassley and others. I wonder if you would comment on what your approach will be to that issue.

Omar Ishrak

Sure. Thanks for the question. Let me take the first one, first. Our customer -- in the end, we've got a customer, and we've got stakeholders. In the end, there's a certain entity somewhere who buys our equipment. So that's our commercial customer, that's our economic buyer and that is the channel, which eventually drives our financial growth. And we need to satisfy that channel and that customer that they will be better off, financially better off if they employ our technology to serve their customers, which are the patients. So our direct customer, with whom we transact business is, in fact, a hospital system of some sort. The patient is a very important stakeholder because that patient happens to be the customer of our customer. And of course, we work with the patient to provide things that are needed. In addition, there other stakeholders. There's the physician, sometimes a buyer and sometimes not. And we intend to serve all of them, with the right value proposition and bridge the discussion between the physicians, the administrator, the patient with essentially the value proposition of what we're selling in a transparent and clear fashion, both clinical and economic. Now, your second question regarding some of the physician practices. That's been an issue, and to some degree in some of our businesses, this industry and the industry that we're in, in healthcare, we're highly dependent on working with physicians to provide innovation. And that's just how it is. That's how all our innovation is generated by working with physicians directly. So we've got to keep that linkage. That so happens that if that's the case and there's payments to physicians, the controls are unknown. And going forward, we put in -- in the last few years, we've put in processes, business processes, through which these dealings are transparent. They're above board. Integrity is at the highest level, and we've really taken the measures to do so. So we really just have to put controls, systematic controls, systematic processes, be open, be transparent and never compromise our own integrity when we do these transactions. And we're putting those processes in place, and I'm glad to say that in all our businesses, we made good progress in the last several years in putting these things in place and then expect that we will be leaders in demonstrating how to work with physicians in a collaborative fashion with integrity and with transparency and still drive innovation. One more question. #4?

Unknown Speaker

Marian Holmes[ph] , a shareholder. I'm just wondering if Medtronic is currently using the ATS heart valve.

Omar Ishrak

I think so. But Mike, you want to just expand on it? I'd give a short answer. Mike can expand on it.

Michael Coyle

We acquired the ATS organization about a year ago and have acquired with that some very exciting technology in the mechanical heart valve and some tissue technology that has really completed our offering of surgical valves to the cardiac surgery community. So it actually has been an important growth driver for our surgical valve business, and we're just thrilled to have those products in our portfolio.

Omar Ishrak

Okay, thank you very much. This concludes our formal 2011 Annual Shareholders Meeting. I would like to, again, thank you for being here, and I now declare this meeting adjourned. Thank you very much.

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