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COVER STORY

In early August, Medtronic Inc. (Minneapolis) released preliminary financial results for the first quarter of fiscal 2007. Although analysts were disappointed by lower-than-expected earnings in the implantable cardioverter defibrillator and spinal device segments, the company's neurological division reported some of its strongest growth to date. Neurological revenues of $276 million represented a nearly 18% increase over the year-ago period.

Revenue breakdown by business segment for Medtronic Inc. (Minneapolis) in fiscal 2006 ($ millions). Due to rounding, prcentages do not total 100%. Source: Medtronic 2006 annual report. (click to enlarge)

For fiscal year 2006, Medtronic's neurological division reported annual revenue of $1.02 billion, a 10% increase over the division's sales in fiscal 2005. Neurological sales represented about 9% of Medtronic's overall annual sales of $11.3 billion for 2006, a percentage consistent with the division's contribution in 2005 (see figure).

Representing the division's largest business, sales of neuroimplantables were $833 million in 2006, up 13% over sales of $739 million in 2005. The category saw a significant surge in sales in the fourth quarter of 2006. After averaging quarterly sales of approximately $190 million in the preceding seven quarters, the category's revenue leapt to $240 million for the period.

Highlights for the neurological division in the fourth quarter of 2006 included FDA's approval of the unit's RestorePrime neurostimulation system for the treatment of chronic pain. In addition, Medtronic's Activa therapy for the treatment of Parkinson's disease was upgraded by the American Academy of Neurology to the status of a treatment option for patients with motor complications.

Sales of Medtronic's gastroenterology and urology products are also included within the neurological division's financials. Annual revenue for these products declined slightly from fiscal 2005 to fiscal 2006, from $188 million to $183 million. Sales for the fourth quarter of 2006 were $42 million, compared with $52 million in the year-ago period.

Despite flagging sales in the gastroenterology and urology category, several of the neurological division's key developments anticipated in the first half of fiscal 2007 center on new offerings in the area. These developments included the commercial release of the Prostiva radio-frequency therapy system, a next-generation device for treating enlarged prostate, as well as the launch of the new InterStim II system for the treatment of overactive bladder and urinary retention.