Medtronic's Physio-Control division suspended shipments of
external defibrillators and other emergency-response gear indefinitely until quality-control problems at a factory in Redmond are resolved. According to this story in the Seattle Times:
The suspension will address weaknesses in “the overall quality
system” in the Redmond factory that were identified by the Food and
Drug Administration (FDA) and the company, Medtronic spokesman Rob
Clark said in a telephone interview. The weaknesses are related to
manufacturing processes and not individual products, he said. No
products are being recalled.
The halting of product shipments means Medtronic will delay the
spinoff of Physio-Control as an independent public company, which had
been planned for mid-2007. Clark said that while it is unknown how long
the transition will be delayed, Medtronic plans to spin off the unit
once the problems are fixed.
Clark said “we cannot rule out” the possibility of layoffs at Physio-Control, which has about 800 employees in Redmond.
In December, Medtronic said the Physio-Control division would have
about $450 million in sales for fiscal 2007, with annual growth of 10
to 12 percent forecast.
And this comes on the heels of an announcement that Medtronic is going to spinn-off Physio-Control as a public company. Medtronic hopes to get an
initial market capitalization of $700 million to $1 billion for Physio on the New
York Stock Exchange. Good luck with that.
In 1992, Physio halted production of its main defibrillator products
after the FDA uncovered problems with the company's testing and
documentation procedures, according to Seattle Times reports at the
Back in the late 1980s, when it was the “in thing” for big pharma to buy medical device vendors, Physio was acquired by Eli Lilly (who owned IVAC, Guidant and others). In the 1990s when it was decided big pharma didn't really need to own medical device companies, Lilly divested their entire Medical Devices and Diagnostics Division. From Lilly's 1995 10k (emphasis mine):
During 1995, the company completed the divestiture of the nine
Medical Devices and Diagnostics (MDD) Division businesses. In
1994, a separate company, Guidant Corporation (Guidant), was formed
to be the parent company of five of the MDD companies: Advanced
Cardiovascular Systems, Inc.; Cardiac Pacemakers, Inc.; Devices for
Vascular Intervention, Inc.; Heart Rhythm Technologies, Inc.; and
Origin Medsystems, Inc. In December 1994, Guidant sold
approximately 20 percent of its common stock in an initial public
offering. In September 1995, the company distributed its remaining
80 percent interest in Guidant through a splitoff, an exchange
offer under which Lilly shareholders could exchange their Lilly
shares for Guidant shares. Pursuant to the splitoff, approximately
16.5 million shares of the company's common stock (expressed on a
pre-stock-split basis) were exchanged for the Guidant shares owned
by the company, resulting in an increase in the company's treasury
stock and a corresponding reduction of shares outstanding. The
splitoff resulted in a tax-free gain calculated as the difference
between the market and carrying values of the shares of Guidant
common stock held by the company on the expiration date of the
exchange offer. Sales of three of the MDD companies, IVAC
Corporation, Pacific Biotech, Inc., and Physio-Control Corporation,
were completed during 1994 and 1995, and the divestiture of
Hybritech Incorporated was finalized in January 1996.
According to the Seattle Times writer John Cook, “Venture capitalist Tom Simpson, whose uncle Hunter Simpson ran
Physio-Control from 1966 to 1986, writes to say that this would be the
third time that Physio Control has gone public. It went public for the
first time in 1971. It was sold to Eli Lilly in 1980 for about $126
million and then to Bain Capital in 1994 for $48 million, with the
Boston private equity firm taking it public a year later.” Medtronic acquired Physio in 1998 for $538 million.
Pictured right is Physio-Control's major growth market opportunity – commodity priced, mass-marketed consumer defibrillators – the LifePak CR Plus AED.