Medical Device Link.

Originally Published MX July/August 2005

COVER STORY

Interview by Steve Halasey

In the medical technology marketplace, a company doesn't typically stay around very long if it isn't competitive. And keeping a company among the market leaders in even one sector can be a monumental undertaking for company executives.

But somehow, those challenges don't seem so difficult for company leaders at Abbott (Abbott Park, IL), a 117-year-old healthcare company with leadership positions in a number of the industry's major sectors. Although most consumers recognize Abbott's name because of its strong presence as a manufacturer of pharmaceuticals, the company describes itself as a "broad-based healthcare company that discovers, develops, manufactures, and markets products and services that span the continuum of care—from prevention and diagnosis to treatment and cure."

Richard A. Gonzalez, medical products president and COO, on portfolio reshaping and growth at Abbott. Photo courtesy Abbott

Abbott's principal businesses are pharmaceuticals, nutritionals, and medical products, including diagnostics and cardiovascular devices. But in recent years, the company has increasingly turned its attention to building opportunities in the last of these groups. In 1999, Abbott began a process of strategic self-evaluation that led to the 2004 spin-off of its hospital products group—now known as Hospira (Lake Forest, IL)—and greater emphasis on opportunities in innovative, high-growth areas of medical product development. In 2004, the company posted medical product revenues of more than $8.8 billion, an increase of nearly 14% over its 2003 revenues.

Leading Abbott's advances in the medical device arena is Richard A. Gonzalez, who has served as president and chief operating officer of the company's medical products group since 2001. An Abbott veteran, Gonzalez previously served as divisional vice president and general manager of Abbott's diagnostic operations in the United States and Canada, vice president of the company’s health systems division, and senior vice president for hospital products.

In this interview with MX editor-in-chief Steve Halasey, Gonzalez describes the progress of Abbott's transformation over the past five years, and how it has positioned the company for continued growth.

MX: Let's talk about Abbott's portfolio reshaping over the past five years or so, including the big Hospira spin-off. What is the importance of that transformation so far as the medical products group is concerned?

Rick Gonzalez: Abbott has been a diversified company for a long time. One of the things that we have done over the last five or six years is to validate that a diversified healthcare model is the model we want going forward. We made the determination that a broad-based diversified model is what serves our mission best from the standpoint of what investors expect of the performance of Abbott—a top-tier-performing company that can deliver solid results in a consistent and reliable way.

We believe a broad-based platform allows us to perform better by leveraging our pharmaceutical science expertise with our medical products expertise to create uniquely innovative products. We believe our expertise in these areas is especially applicable in the fields of cancer, cardiovascular disease, and diabetes, where we can leverage the strengths of diagnostics, devices, drugs, and even, in some cases, nutritional supplements. By the same token, a diversified model allows us to perform in a very consistent way because it allows us to balance the risk of investments. In R&D, pharmaceuticals are typically longer-term investments, while medical products have shorter-term product cycle times and investments. A broad-based corporate strategy allows us to better manage risks across the entire portfolio of the business.

How did the reshaping start?

It really started with reconfirming that we wanted to stay with a diversified model. Our process was to examine how we could transform each side of the business in a way that would best take advantage of the synergies across those businesses to create strong-performing units. We have two major groups within Abbott, our pharmaceutical business and our medical products business. We expect both of them to perform at a top-tier level, and we leverage the synergies where they are appropriate and where they can create value-for patients, healthcare providers, and others.

We started the transformation effort by first reshaping our pharmaceutical business. That began in earnest six or seven years ago. When Miles White was named CEO, one of his highest priorities was to strengthen that business. One of his first moves was to bring in Jeff Leiden as president and chief operating officer of our pharmaceuticals business. Jeff and Miles did a fabulous job of reshaping it, and today it is pretty clear we have a very strong performing pharmaceutical business. Financial results show that our pharmaceutical business has delivered double-digit growth 18 out of the last 19 quarters. Abbott's pharmaceutical business has a very strong pipeline and it is recognized as one of the strongest in the pharmaceutical industry today.

After starting the transformation effort with that, we looked very carefully at what we wanted the medical products business to look like in order to complement the performance of our pharmaceutical business. We began that process about five years ago by looking at the markets in which we currently competed. We also evaluated markets that we were not presently competing in that fit the kind of high-growth, high-acuity profile we wanted for the medical products side of the business.

And what was the result of that evaluation?

We have built a portfolio of businesses that compete in large markets where innovation is rewarded. We have the opportunity to be able to drive strong growth either through capturing share or getting into markets that are growing rapidly, and to deliver the kind of margin performance that we expect out of the business. We have reshaped the portfolio around nine businesses that have those characteristics. We built an operating model that allows each one of the businesses to run in a somewhat independent way, to replicate the entrepreneurial structure of independent businesses that are very market-focused and can respond quickly to market changes. Yet we can still use the structure of Abbott to leverage the synergies across those businesses. Currently our medical products business comprises four diagnostic businesses, two high-tech medical device businesses, our U.S. and global nutritional businesses, and animal health.

As part of implementing those changes, we made the decision to spin off our core hospital products business. We made this decision because, when we put it through the test that I just described—that we want to be in innovative, high-growth, high-margin kinds of businesses—it did not fit those criteria. That core hospital products business is one that I ran for several years, and I know firsthand it is a good business, but it's quite different from other businesses in our medical products group. It's a very stable business, but the investment returns in hospital products weren't as attractive as the opportunities we faced in other parts of our medical products portfolio. That led to the decision that it would be better as a separate investment vehicle and run as an independent company, but not as part of the Abbott portfolio.

Hospira Spin-Off

How long ago was the spin-off of Hospira foreseen? Did it emerge quickly in the conversations, or was it developed over a period of time as you evaluated the potential of the businesses that you wanted to be in?

We started the process of evaluating the business mix nearly five years ago. It took about 18 months for us to complete the entire process, but part-way through the analysis we made the decision on Hospira. We implemented the strategy to set it up as an independent company at the same time that we started to build the independent, flat operating structure that we have in place now for running all the other businesses.

Was there a lot of give and take about some of the product lines—about whether there was innovative potential suggesting a line should stay with Abbott's home group, or whether it was in a commodities-driven sector and should be a Hospira property? Were some product lines on the borderline?

We analyzed the products in our former hospital products division, which included four major businesses. The businesses included our cardiovascular business and our spinal implant business, which are both high-tech device businesses. Another business in this group was our core hospital products unit, which included products like IV solutions, infusion pumps, and generic injectable drugs. This portfolio also encompassed our proprietary pharmaceutical business, which included our anesthesia products, renal pharmaceutical products, and pain products.

We examined those four lines of business and decided which ones fit the model best. Clearly, the two high-tech device businesses fit the model. The hospital-based pharmaceutical business looked exactly like our existing community-based pharmaceutical business. Our next step was to decide where those businesses that fit the model would best reside. Ultimately, we decided that the hospital-based pharmaceutical business fit best in our pharmaceutical organization, so it was realigned to join the rest of our pharmaceutical business.

Following that decision, we decided to preserve our core hospital products business unit, because one of the critical success factors was to make sure that it had the breadth of products needed to be successful in the marketplace. There was not a lot of debate around which products would become part of Hospira and which products would move into these other organizations.

Medical Product Development

After going through this portfolio reshaping, has Abbott increased its focus on medical product development relative to other efforts that the company used to be involved in?

We are now clearly focused on the nine segments and dedicated to developing innovative products within those segments.

Across the Abbott portfolio, our broad-based strategy allows us to balance our longer-term investments in pharmaceuticals with our investments in medical products, which for the most part involve shorter-term returns and development programs. But we are committed to building very strong pipelines on both sides of the business.

In fact, we implemented this strategy about two years ago, and there are two developments that I am excited about. One is the performance difference since we implemented this model—which is pretty dramatic. Over the previous 10 years, our medical products business had grown in the low to mid single digits. We have had this new strategy in place for about six or seven quarters, and we have achieved high-single- to low-double-digit top-line growth in every one of those quarters. Bottom-line growth has been faster. Last year we grew 11% on the top and significantly faster on the bottom. We expect to grow in that same range again this year, and have seen a dramatic improvement in performance.

Is that growth due to the company's strong product pipelines?

Yes. Our product pipeline is the other exciting development, and even more important to our future success. We have worked to create a very strong pipeline of new products on the medical products side, many of them large market-opportunity products, similar to what are often called blockbuster pharmaceuticals, with annual sales potential in the $500 million to $1 billion range. On the medical products side, the corollary to that measure of a successful product is a single product that can generate revenues in excess of $300 million annually. We have eight products in our pipeline that fit that criterion, which we will launch starting in 2005 and all the way out to 2009. I would put our medical products pipeline up against anybody's going forward.

So that is exciting. Transforming the medical products pipeline was clearly an intention of this model. We're focused on creating very innovative, very differentiated products within these fields.

Does that mean the company is increasing its R&D spending in medical products?

We continue to increase R&D across Abbott. Our broad-based business model is R&D-driven, so we consistently try to increase resources dedicated to R&D. In general, we have increased R&D significantly over the last five years, and we hope to continue to increase it.

You indicated that one of the purposes of the reshaping is to free up business units to be more entrepreneurial. Are they making their R&D decisions independently, or is that a corporate decision? To what extent are R&D costs shared across the corporation?

Essentially, each of the organizations is a fully integrated business. There is an independent R&D organization within each one of these divisions. As part of our planning process, the businesses stack-rank their R&D programs and make a proposal for which products they would like to invest in R&D.

Collectively, at the medical products group level, we utilize our portfolio management process to help make decisions. Simply put, this process is one in which all the heads of R&D within these units and all the division presidents and I get together and go through the stack-ranking of all those programs. We look at the portfolio of R&D programs across all of the medical products group and try to stack-rank those that offer the greatest opportunity-the greatest level of innovation.

Ultimately, our process is a combination of both. Each unit and each division stack-ranks its own programs and determines what it would like to fund. Within medical products, we review the same analysis and stack-rank all of medical products' programs against those criteria and determine which programs to fund that year.

Those reviews are carried out annually?

Yes.

That must be a pretty intense process. Do you also schedule out projects? You have already alluded to products coming down the pipeline for launch in 2009, so presumably you are looking quite a way forward.

I would say the average development time for a product in our area, although they vary from one unit to another, is probably 24 to 36 months. We have programs in different phases of evolution right now, but we are constantly looking out over a five-year time horizon on the medical product side.

Strategic Synergy

How does all of this leave the medical products group in its relations with the pharma group, particularly in some of the synergies that having a diversified corporation would make available to the medical products group?

As I mentioned before, a major benefit of our broad-based model is that we are better able to examine the intersections between pharmaceuticals and medical products and determine where we can create a unique product. Where those intersections exist, we try to take advantage by creating teams across those units so as to be able to maximize our performance in developing products in those areas.

The classic example is drug-eluting stents. We have two drug-eluting stent programs in development now, a first-generation program and a second-generation program that features two pharmaceuticals on the same stent. Scientists and researchers from our pharmaceutical R&D group and our medical products cardiovascular device group are working together as a team to develop that kind of product.

Another example is biomarkers. We are probably the only company today with an FDA-approved in vitro diagnostic to determine which patients can benefit from a particular cancer therapy. I'm referring to our PathVysion product, which is used to determine which patients will benefit from Herceptin and which will not and therefore will need to get a different course of therapy. Today, within our molecular diagnostics division, we have scientists who work directly with their pharmaceutical colleagues to identify markers that can either determine the predisposition of a certain cancer toward a therapeutic agent or determine an ability to monitor the progress of that therapeutic against that particular cancer. This is yet another example of where we have active collaboration between two organizations.

Are those just some of the areas of cross-disciplinary synergy?

Yes. Diabetes provides another good example. Our diagnostic unit and our diabetes care unit, whose primary focus is to develop blood glucose monitoring technologies, have a product in development called Freestyle Navigator, which is a continuous glucose monitor. In use, a patient wears a patch for several days. The patch has a sensor built into it that delivers data to a small wireless monitor that allows patients to know what their blood glucose level is every minute. This technology allows the evolution to the next stage of medical management where a monitor can be interfaced to a pump device that can automatically deliver insulin based on the monitoring results.

We have multiple projects in development where the expertise that we have across the corporation allows us to create uniquely innovative products.

A somewhat rare phenomenon, but one showing a strong trend in diagnostics and pharma, is comarketing arrangements between the company that has the diagnostic and the company that has the drug. Potentially, that is a synergy for Abbott as well. Are you linked at the marketing end of the process as well as at the product development end?

Today we do conduct comarketing between several units. We make nutritional supplements for diabetics-a product called Glucerna-and we have our diabetes care business that makes glucose-monitoring products. Those two organizations work together to copromote those products to physicians. We also collaborate at the retail level, beginning with direct-to-consumer advertising.

As we expand and have more opportunities surrounding biomarkers and cancer, with therapeutics that we are developing, we will increase our activity in this area. Obviously, we do some today with Herceptin, where Genentech's sales organization promotes the use of our diagnostic to physicians. Also, we have a sales organization that calls on laboratories to promote the diagnostic assay, and they obviously promote the therapeutic in the process.

Do the internal corporate synergies make it easier to accomplish those kinds of arrangements than would be the case if you had to work with a separate company as a partner?

Yes. I think it is in many cases much easier to work within your own organization because you have an opportunity, obviously, to spend more time together.

On the structural side, you mentioned that you set up cross-disciplinary teams to work on these projects. Other companies might have to figure out whether to form a joint alliance or some kind of strategic partnership. In some cases, two partners have set up a third company to avoid arguing with one another. How does that work from a strictly business standpoint at Abbott? Who gets the revenue and who gets the credit, and who has the management responsibilities?

The good news at Abbott is that both of these units report to Jeff Leiden and me, and we have a very close working relationship. For example, Jeff and I chair the drug-eluting stent team together. So we can typically break down any kinds of barriers that arise.

With regard to sales responsibility, it is the unit that has developed the product that gets sales responsibility for it. If the product were a therapeutic, for example, then the pharmaceutical group that promotes that product would get credit for the sales. If it is a diagnostic and a therapeutic together, then the diagnostic unit that developed the diagnostic would get credit for the diagnostic piece of it and the pharmaceutical group would get credit for the therapeutic piece of it. Typically, these things are not all that difficult to work out.

We do tend to reward these teams in the natural way they are designed to be compensated, so that they cooperate and we get maximum performance out of the team. We cross-credit teams like that to make sure that their incentives are aligned.

Growth through Acquisitions

Strictly with regard to the medical products group, the whole point of the reshaping was to set the company up for growth, and one way it has been growing is by being very active in acquisitions. How are those working out?

We have been very pleased with the companies we have brought in and made part of our medical products group.

As I indicated earlier, we have spent a lot of time developing a business strategy across the corporation and at the medical products group level. We require each of the units to have a long-range strategic plan. We tend to look at acquisitions against the backdrop of that strategic plan. They have to fit into the plan in a way that complements the strategy and helps the performance of the business.

What do you look for?

There are certain technologies that we will acquire that supplement our internal R&D efforts. A technology might get us to market faster or might be a unique technology that we believe we could not develop internally—or would take too long to develop internally—which means we might decide to license or acquire the technology. Some of our acquisitions fit that profile.

Other acquisitions we've made fit a different profile. Those decisions were made in areas where we needed to build more mass in a certain segment of the market. The TheraSense acquisition provides a good example. TheraSense was a great company that was performing very well, and we had a strong-performing unit in MediSense that we acquired in the mid-1990s. We combined them and found it is one of those cases of adding one plus one and getting something greater than two.

As a result of combining product lines, consolidating critical mass, we're now the number-three player in that market and growing very rapidly, taking a significant share in that market worldwide. The TheraSense acquisition was designed around creating more mass in that segment.

We've also made other acquisitions designed to get us into new segments, either complementary segments within a business or brand-new segments. Our 2003 acquisition of Spinal Concepts is an example. We believed there was an opportunity to enter the spinal implant market behind the right technology. We believed the best way to do so was behind a company that had demonstrated it was very innovative, had a broad enough product line within the segment to be in a position to compete, and, particularly, had made some significant advances in the minimally invasive area and had some technology in the exciting nonfusion area.

We were not in the spinal implant business before this acquisition and we decided to enter because of the technology that company had and the fit that it had in a high-tech hospital-based business that was of interest to us. Longer term, we believe that biologics will play an increasingly important role in the treatment of the spine, and we have some very good expertise on the pharmaceutical side of our business in biologics that we want to leverage for the future.

The acquisitions play different roles, but they are all based on the Abbott strategic plan.

When these acquisitions come on board, are they fully integrated into Abbott or expected to have some kind of independence in terms of product development?

That is the beauty of our model. The model is designed to allow these businesses to operate in an environment where R&D and innovation can flourish; where they can be very, very focused on their market; and can understand what their customer base needs, or their patients need, in order to take advantage of the competitive trends in that market.

When we acquired TheraSense, we integrated our MediSense organization into the TheraSense organization in California. Now that organization operates with a culture that is a nice blend between the medicines culture and the TheraSense culture. Abbott diabetes care is a totally independent organization that is focused solely on trying to improve care for diabetic patients.

The same approach is in place with our spinal business. We decided to allow Spinal Concepts to remain as an independent organization in Austin, TX, and we have started to build upon that. In 2004, we acquired a French spinal company called SpineNext. We have integrated SpineNext into the Spinal Concepts organization and call the combined global organization Abbott Spine.

Our approach is to allow our medical products businesses to operate independently, yet they have the advantage of the corporation's scientific, regulatory, clinical development, quality control, operations management, strategic planning resources, and financial capabilities available to drive their strategy forward faster than they could as fully independent companies.

This sounds very similar to the way that Johnson & Johnson has structured its business and its strategic acquisitions. In reshaping Abbott's businesses, did you have an eye on J&J and how it did things?

We set up a model that we believe will work for us. Our decentralized medical products group model was built around the assets, skills, and expertise Abbott has developed over 100 years in medical products. In contrast, our pharmaceutical products group is based on a centralized model that allows it to leverage our scale to accelerate our rate of innovation in our five therapeutic areas of focus. In the end, we ended up with models for our medical products and pharmaceuticals businesses that fit the unique skills, strengths, and assets that Abbott has developed.

Are there particular areas where you have very strong units that are looking out for add-ons that will be complementary to them?

In every one of our units the management teams evaluate how to accomplish their strategic plan in the most effective way. But we've also created a business development function at the medical products level that reports directly to me. It has the responsibility of working directly with each of the divisions to support their strategies. In each business, the management teams are both looking inside to develop products and looking at what resources are available on the outside to complement that effort—technologies and other kinds of things. We go through a constant process of evaluating internal and external opportunities.

Do you have partnerships in any particular areas right now that you think are going to be big producers?

A very good example of that is our molecular diagnostics unit, which we believe will play an increasingly important role at Abbott as the field of predictive medicine moves from the concept stage into mainstream medicine, and there is clear evidence this shift is well under way. When we built our molecular diagnostics business, we began by acquiring Vysis, which was the leader in oncology molecular testing. We had our own molecular unit that we had built at Abbott quite some time ago, so we combined those two to create the first part of our molecular diagnostics division.

Our next step was to identify a significant partner that could provide the basic discovery capabilities in genomics. The result of this effort is our partnership with Celera Genomics (Rockville, MD), a world-class player. Our partnership is an extremely positive one. Celera has the responsibility for discovering exciting new genomic assays. We have the responsibility for developing those assays, commercializing them, and developing any instrument platforms that are necessary to be able to run those assays in a more automated way.

That partnership has been in place now for several years. I think each of us complements the other's expertise. No one in the world, in my opinion, is better at doing genomic discovery than Celera, and Abbott is obviously world-class when it comes to development of those assays. So our partnership with Celera is a very good marriage.

You are very active in the spine area. Are there alliances there as well?

We do not have any alliances in the spine area. However, we do have an alliance with Medtronic in drug-eluting stents. They provide us with certain technology; we provide them with certain technology and the pharmaceutical compound that they use in their program. Our alliance with Medtronic is a very good relationship.

The Future of Diagnostics

You are very familiar with the diagnostics industry. Overall, what do you see as the future of diagnostics in the context of medical care, personalized care—the coming buzzword areas?

I think you have to break it down into different pieces when you talk about diagnostics. If you look at the traditional laboratory, the key there is very straightforward: laboratorians want efficient, cost-effective systems that allow them to do testing with less labor and a higher level of safety. Automation allows them to do that more effectively. Our laboratory customers look for speed, automation, and high-quality results. Those are the qualities they consider most important.

Our systems are designed to deliver against those expectations. That has been our strategy in that field for quite some time—creating systems that consolidate immunoassays and clinical chemistry onto one platform, providing front-end and back-end automation for laboratories of a size where that is important to them. That is our core strategy and what is important in addressing trends that we see in that market.

How about in other areas, such as molecular diagnostics and your diabetes care business?

With respect to molecular diagnostics, there again there is an established infectious-disease market where automation, speed, and moving toward real-time polymerase chain reaction technologies that improve the performance of those assays are the trends. There is also the whole field of identifying new molecular tests. With cancer, the scientific focus is the development of tests that can determine the susceptibility of tumors to different types of therapy or that can diagnose cancer early when markers are at very low levels. This is at the core of the efforts to discover new genetic markers that will determine the predisposition of patients to cancer risk or cardiovascular risk. Discovery of new markers is very, very important in this area.

Moving on to diabetes care, it's about convenience. The state of the art in testing, from the standpoint of the sensitivity and specificity of glucose tests, has really been achieved by most of the technologies that are on the market today. What patients are looking for in diabetes monitoring is a higher level of convenience. So we have to be able to meet or exceed patient expectations for convenience, while delivering pain-free testing.

Our challenge is to determine how best to provide patients with continuous pain-free alternatives for measuring glucose. It is well known in this field that diabetic patients who better manage their blood glucose levels have better clinical outcomes. There is a financial benefit from that and, more important, there is a medical benefit from the standpoint of fewer complications. I think we'll see that field moving toward continuous monitoring and then, ultimately, open- and closed-loop systems.

There are different needs, depending upon which area of diagnostics you are in.

There is also point-of-care testing, where Abbott's i-Stat platform figures significantly.

Bedside testing is becoming more prominent, particularly in areas like emergency rooms and intensive care units and operating rooms where the time it takes to ship a sample to the traditional lab is problematic when critical clinical decisions are going to have to be made on the basis of test results. We are seeing technology move in that direction.

Our i-Stat platform is clearly the market leader in this area. Our point-of-care business technology started off with blood gases, but now it is moving very quickly into complete cardiac marker panels for emergency room testing, for coagulation testing that is used at the bedside in those settings, and then, ultimately, for providing a full Chem 8 panel at the bedside. We will introduce later this year an i-Stat Chem 8 panel that will deliver this important medical need. In certain settings, where the information is needed from a clinical standpoint or there is a better economic model for providing those results close to the patient, such as in a physician office laboratory, we think those kinds of technologies represent the leading edge.

To what extent do you think the application of advanced information and communication technologies is important in diagnostics, say, in connecting point-of-care instrumentation to a mainframe laboratory information system or integrating home-use technologies or physician office laboratory instruments into that same information network?

In thinking about diagnostics, we are in the world of providing clinical information to physicians so they will be able to make effective decisions about their patients. The information flow is an important aspect of that.

As an example, take the i-Stat system. It interfaces with all the various monitoring systems that are available today in those settings. Also, as part of our point-of-care blood glucose monitoring systems, we have a laboratory information system that interfaces to the hospital information system to be able to collect that data and provide it to the care setting. Our i-Stat system interfaces with that system as well, so we can provide hospitals at the unit level with the kind of information technology that they need to be able to utilize that information effectively. I think this technology does play an important role.

Does having all these different pieces of diagnostics manufactured by Abbott give you the capability to integrate systems in various settings more efficiently than might be possible for a manufacturer that does just point-of-care instrumentation?

It does offer us an opportunity, where there is a common customer or a common need, to be able to bring all of those components together in a way that helps provide the best solution possible. Indeed, where there are such opportunities, we clearly try to optimize that part of our operations and new product development efforts.

Is Abbott involved at all with the move toward the electronic health record or electronic patient record that the federal government is supporting?

No. We are trying to work in a direction where we provide the appropriate level of interfacing into those units, and we try to make our systems interface compatibly.

Reimbursement

Do the issues surrounding the payment and reimbursement structures for diagnostic testing worry you? To what extent do you think they are obstacles to the growth of the market?

The reimbursement systems in diagnostics have been pretty well established now for a number of years. Obviously, there are still constraints that various payers have placed around healthcare spending in general, and diagnostics are a part of that process. The area where it is more leading-edge is molecular diagnostics, or new technologies like continuous glucose monitoring. It is now much more important during clinical trials to demonstrate not only a clinical benefit, but also the economic benefit that the technology provides, in order to establish the appropriate level of reimbursement in those environments.

Increasingly, we are seeing clinical programs that are designed that way, much like in some of our high-tech device businesses. For example, we are conducting a landmark study of carotid stenting with embolic protection to demonstrate that, with an asymptomatic patient, the technology offers safety and efficacy equivalent to the surgical procedure-and maybe the potential of greater safety along with equivalent efficacy. In order to get that technology adopted, we are going to have to establish reimbursement on that type of product. Our study involves collecting the appropriate data that the Centers for Medicare and Medicaid Services (CMS) would want to see for Medicare reimbursement. Reimbursement does play an important role in adopting new technology.

Medicare traditionally has not reimbursed for preventive care, but the carotid stenting trial points in that direction. Is that an area where the government needs to rethink its reimbursement policies?

Our groundbreaking clinical trial involving asymptomatic patients is designed to demonstrate that a less-invasive procedure like carotid stenting with embolic protection is, in effect, equivalent to surgery in patients with risk sufficient to justify a need to undergo the existing surgical procedure.

Those patients typically now are undergoing the surgical procedure for which there is diagnosis-related group-based reimbursement. We want to be able to show that our product will perform clinically at least equivalently. Of course, as I said, there is some chance it will actually demonstrate improved safety over the surgical procedure. Then it would be seen that there is economic value in reimbursing these devices so that hospitals would be able to adopt the technology and patients would have the opportunity to benefit from this less-invasive technology. From the interactions I have had with CMS, I think that if you demonstrate a clinical performance that is appropriate and you demonstrate that there is reasonable economic value in a procedure, CMS will provide reimbursement. I think they have demonstrated that with the reimbursement they provided to J&J when that company launched the first drug-eluting stent.

Product Pipeline

Several products in your pipeline seem to be coming to fruition pretty quickly, notably the ZoMaxx II stent, the StarClose device, and some of the Abbott Spine nonfusion products. Which are the most important? Which have something developing in the near term?

In the middle of this year, we will launch our Xact carotid stent with EmboShield protection in the United States. We think that is a very exciting opportunity. We believe the filter that we have has some ease-of-use and deployment advantages as well as, potentially, some advantages in particulate capture.

StarClose is next in the lineup. We have launched that product in Europe. It is doing very well. It is a clip-based vascular-closure system that marries the best of suture-mediated closure technology and collagen technology. Suture-mediated devices are known for security of closure, particularly to anticoagulated patients like those that have been stented. We combine that gold standard for security of closure and the ability to ambulate patients quickly with the ease of use of a collagen-based product in a very rapid three-step deployment process.

We will launch StarClose in the United States in the third quarter of this year. The premarket approval (PMA) application has been submitted and we expect approval in that time frame. We are excited about what StarClose will do. Vascular closure is a big market, still growing fairly rapidly, and we believe, based on our European experience, that StarClose will do well in it.

Next would be the Freestyle Navigator continuous blood glucose monitoring system. We hope to launch that in the first half of 2006. This year we are finishing up a clinical trial that will enable us to gain approval on a “reportable results” (change in glucose level) claim for that product. It will be the first product of its kind in the marketplace, so we are excited about this opportunity.

ZoMaxx, our drug-eluting stent program, has been in clinical trials. It is more than halfway through the trial in Europe, and we expect to launch the product there in 2006. We are just starting up our U.S. clinical trial and expect the product to launch in the United States in late 2007.

And we're excited about our carotid asymptomatic product with embolic protection. We have already started our U.S. clinical trial for this product, called ACT, for asymptomatic patients. We expect to launch that product in early 2008.

And how do the company's spine products fit in?

Three nonfusion products are coming along in our spinal business. We have a product called the Wallis Dynamic Stabilization Device that I am very excited about. I think it could change the treatment of younger patients as it relates to fusion in that patient population. We will provide physicians an alternative that will be less invasive and easier for the patient to recover from; that will provide those patients with some level of motion preservation; and—I think this is the most exciting part—will still allow the physician to perform a fusion procedure later in the patient's life, should it become necessary. Its trial will start up here in the United States very soon. Again, it is a conservative-care comparison trial. If we can demonstrate better pain relief versus conservative care, this is a technology that will be uniquely available early on, particularly for younger patients with back pain.

We also have two artificial-disk programs in development, a cervical and a lumbar disk. We expect these products will be out in the 2009 time frame.

It is easy to see why you have so much confidence in your product pipeline down the road. What do you think the key obstacles to any of those products might be? Is the competition especially stiff? Could any of those be blockbuster products?

Actually, I think if you go down that complete lineup, every one of those products has the potential to be what we would describe as a blockbuster medical device or medical product. In every one of those areas there are competitors, obviously, and very competent competitors. I clearly recognize and respect the competition, as they do us, in each of these markets. But I am confident across the board that what we have done is to find opportunities to provide a true innovation where there is an unmet need, a clinical need in many cases. Every one of those products is designed to address one of those unmet needs.

Whenever you do a clinical trial, obviously you have to see what the results are at the end of that trial. But I would say that, if we meet the end points of these trials, these will be very successful products in the marketplace.

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