Facing westward along Interstate 694 in Fridley, Omar Ishrak’s fourth-floor corner office doesn’t offer much of a view. And yet from here, Ishrak can see the world. Since joining Medtronic as CEO and chairman in June 2011, he has turned the med-tech giant into a growth company that is expanding into markets around the globe.
In January of this year, Medtronic completed its $49.9 billion acquisition of Covidien and began merging two businesses into what is now one of the world’s two largest medical device companies (see “The Top Two,” side bar). The deal ranks as the largest med-tech merger in the history of the industry and the largest merger in Minnesota’s history. It also ranks as the nation’s largest “inversion” deal, involving a politically dicey relocation of Medtronic’s legal headquarters to Ireland for tax reasons.
That component of the Covidien deal threw fuel on a contentious national debate about the trend of companies striking such deals to lessen corporate taxes. President Obama criticized companies for “gaming the system” by “changing your mailing address to avoid paying taxes.” But Ishrak and his team pressed ahead to close the acquisition, stressing that the tax structure change would free up money for Medtronic to reinvest in Minnesota, which remains home to the company’s operational headquarters.
Since the deal closed, Medtronic has added 350 jobs out of the 1,000 that it promises to add here over the next five years. That will add to a headcount of 9,000 Minnesota employees, and another 76,000 around the world. The company also plans to increase its U.S.-based R&D spending in upcoming years.
Steering a company as large as Medtronic through such a colossal and complex change—and doing so in a way that benefits Minnesota today and in the long term—is one reason Ishrak was selected as TCB’s 2015 Person of the Year. The other involves how he joined what was a well-respected, large business, but one that was floundering financially, and corrected its course.
On June 10, 2011, the last trading day before Ishrak started as CEO, the company’s stock closed at $38.02 per share, and revenue had nearly stopped growing. On Oct. 30 of this year, the stock closed at $73.92 per share, an increase of 94 percent, due to the Covidien deal, as well as changes Ishrak led that increased annual revenue by nearly 10 percent (pre-Covidien) within three years.
“Omar is a transformative leader and he is transforming Medtronic more and more every year. … I think he’s really restored the Medtronic that we all know and love: the Medtronic of Earl Bakken—the mission, the purpose—and translating this into some very global strategies. He’s a global leader,” says Bill George, who served as Medtronic CEO from 1991 to 2001 and chairman from 1996 to 2002. “He did this transformative deal with Covidien. I never would have guessed that he and the board would have stepped up to a $50 billion deal, but indeed they did.”
American CEOs can be tough-talking cowboys, full of bluster about themselves, their achievements and their companies. But Ishrak, a native of Bangladesh, has a decidedly different style. He’s soft-spoken and understated. His office is clean and uncluttered. His bookshelves are chock-full of business titles such as The Innovator’s Prescription, Ninja Innovation, How Do I Keep My Employees Motivated?, 7 Lessons for Leading in Crisis, and True North – the last two penned by George.
Analysts expect the post-Covidien Medtronic to generate annual revenue of about $29 billion in fiscal 2016, up sharply from $17 billion in 2014. As a result, the company appears to be neck-and-neck with New Jersey-based Johnson & Johnson as the largest medical device player in the world, according to a November 2014 tally from Medical Device & Diagnostic Industry magazine, which listed the annual revenue of Johnson & Johnson’s medical device unit at $28.7 billion.
He also shows others that he does not presume to have all the answers, according to Randall Hogan, chairman and CEO of Pentair and a member of Medtronic’s board of directors. “He’s an action-oriented person: a good listener, very collaborative, a very effective CEO.”
Yet Ishrak has proven time and time again to be decisive as well. When he landed at Medtronic, the company seemed to be stuck in a rut. Its growth had stagnated and annual revenue was flatlining, posting a gain of less than 1 percent year over year. Regulatory policies, medical device taxation and other changes affecting the industry had not been addressed quickly enough. “It was clear that we needed a set of consistent growth strategies, and they had to be ones that took into account the realities of the health care market globally,” recalls Ishrak.
In short order, he led the development of three core initiatives focused on continuing the company’s strong track record of developing innovative health therapies; globalization with a particular emphasis on what Ishrak calls the “massive” growth potential of emerging markets; and changing how Medtronic markets its products by more clearly emphasizing the economic value its products bring, both near and long term.
For Ishrak, rewiring Medtronic in a “value-based” health care environment where costs are increasingly scrutinized is fundamental. To meet that challenge, he has pushed the company into new lines of business. In September 2013 Medtronic announced the creation of Medtronic Hospital Solutions. Instead of making devices, the Hospital Solutions arm is managing catheterization laboratories for hospitals in Europe.
Medtronic’s 2013 acquisition of Cardiocom was seen as another sign of the company’s new philosophy. Chanhassen-based Cardiocom makes remote monitoring devices for patients with chronic conditions. With that transaction, Medtronic effectively jumped into the business of disease management, aiming to track patients closely, and ideally reduce hospital readmissions.
In January 2014, Medtronic spent $160 million to acquire New Jersey-based TYRX Inc., which makes antibacterial “envelopes” for medical devices to reduce the risk of infection. Medtronic’s announcement at the time showed it was focused on the big picture: “This acquisition supports Medtronic’s expansion of its medical device product offerings to include broader health care services and solutions, providing meaningful clinical outcomes and economic value for hospitals, physicians, patients and payers.”
In the long run, that will broaden the base of the company. Raj Denhoy, equity research analyst at New York-based Jefferies Group LLC, says that these deals show that Ishrak is “trying to find solutions for hospital customers to help them do what they’re doing more efficiently.”
A Ph.D. electrical engineer who holds patents in his name, Ishrak “understands the science and the technology but also the system and how health care is delivered, and I think it allows him to elevate himself and the way he thinks to a very high and a very visionary level,” says Ken Powell, chairman and CEO of Golden Valley-based General Mills, who also serves on the Medtronic board. “He is a visionary. He understands medical technology and he has a real deep feeling for innovation.”
Powell also credits him for being willing to tackle problems head-on, recalling issues with Medtronic’s Infuse bone graft device.
“There was some controversy and some criticism from the medical community on that product, and Omar’s approach was to turn over all of the research that the company had done and all of the data that it had to an independent third-party group of physicians and medical scientists at Yale University,” recalls Powell. “That was a perfect example of how Omar faces problems. It was a very transparent response.”
Ishrak’s transparency has been evident elsewhere during his term at Medtronic. And it was put to the test even further when the Covidien deal advanced.
Despite the scale and scope of the Covidien deal, Ishrak talks about the transaction with a methodical, matter-of-fact demeanor that betrays his engineering background. As outlined in regulatory filings, the deal came together quickly.
Covidien CEO Jose Almeida called Ishrak in late March 2014 to arrange an in-person meeting on April 2, 2014. At that meeting Almeida floated the idea of a combination of the two companies. Behind-the-scenes discussions unfolded quickly: The companies signed a confidentiality agreement April 23 and announced the transaction agreement less than two months later, on June 15, 2014. The deal closed roughly seven months later.
“The question that we asked ourselves was ‘Does Covidien accelerate the growth strategies and is it consistent with our mission?’ It was really as simple as that. With that very clear decision-making framework, it was possible for us to move quickly and with a consistent view in mind and make quick decisions,” says Ishrak in calm, measured tones. “A transaction this size, actually, if it’s done right, happens quicker because you’ve got to protect confidentiality. … At least the negotiating period is usually pretty short because to protect the confidentiality you can’t have too much time elapse and you cannot have too many people involved,” he recalls.
Ishrak says that the board only began weighing the inversion structure as an option after they’d concluded that the deal made strategic sense for Medtronic.
“We determined although there were perception issues with this [tax inversion], we felt that this was the best structure,” says Ishrak. “It was best for the company, it was best for the health care industry and it would enable us to invest in med-tech in the most appropriate fashion. In the end we felt that this was a good deal for Minnesota, even though officially our domicile would change. We felt that we could do even more in Minnesota because of the freed cash.”
Medtronic, and Ishrak, did indeed take some heat publicly for moving forward with the inversion, even though the company was not the first to make such a move; more than 40 U.S. companies had done inversions before the Covidien transaction came up. Others have done them since (at press time, Pfizer was attempting a $100 billion acquisition of Ireland-based Allergan in what would out-position Medtronic’s deal as the largest inversion in history). By focusing first and foremost on the strategic rationale for merging, however, Medtronic is slowly proving to naysayers that the net effect of the Covidien deal will be positive not only for Medtronic, but for Minnesota.
“He’s not just a visionary, but he’s a bold actor. He takes bold action to position Medtronic to be not just a thought leader, but the leader in medical devices going forward, which is what he’s done,” says Hogan. “I think what he did in terms of crafting the merger with Covidien was strategically astounding, and clearly that was bold and a great thing to do for Medtronic and for Minnesota.”
Medtronic, a pillar of the Minnesota business community, is now technically based in Ireland, where it has more than 4,000 employees. But the company’s operational headquarters remain in Minnesota, where it has more than 9,000 employees.
Both the company and Ishrak are plugged into the community.
After its inversion deal, Medtronic no longer qualifies as one of Minnesota’s Fortune 500 companies. But it still has deep roots here, ranging from how many people it employs to how much it gives to Minnesota charities and how much it still influences the state’s medical device industry, which Medtronic essentially created. The company also continues to invest in other Minnesota businesses.
In August 2013, it spent $200 million to acquire Cardiocom, which developed remote patient monitoring “telehealth” services. The deal signaled Medtronic’s intent under Ishrak to broaden itself beyond just medical devices, expanding into health care services.
In June 2014, at the same time that the Covidien deal was evolving, Medtronic struck a deal to buy St. Paul-based Corventis Inc., a maker of wireless patches, for approximately $131 million. Medtronic launched a heart-monitoring patch last fall.
Shaye Mandle, CEO and president of St. Louis Park-based LifeScience Alley, points to the Cardiocom deal as a signal that Medtronic is paying close attention to what local startup companies are doing.
“They have been engaged with TreeHouse Health, a digital-health-focused incubator in downtown Minneapolis,” says Mandle. “I also know they’ve been very engaged with the folks at Mayo Ventures; there’s an incubator down there [in Rochester] as well.”
Mandle notes that in the wake of the Covidien deal, Medtronic has pledged to invest $10 billion over the next 10 years in U.S. technology ventures. He points out that as one of the three U.S. centers for the medical device industry, along with Boston and California, Minnesota should benefit from Medtronic’s continued investment.
“I know Medtronic is looking for the right deals,” says Mandle, noting that local companies could be in the deal pipeline.
Ishrak was not known in the local business community before he was tapped to lead Medtronic in 2011. He spent 16 years at General Electric Co., where he ultimately served as president and CEO of GE Healthcare Systems, a $12 billion division of GE Healthcare. GE overall is a much larger company than Medtronic is, with 2014 revenue of $148.6 billion. But Ishrak says that his time there taught him how to think big.
“The key lesson that certainly I learned at GE is around management rigor, around how to scale. It’s not a formula necessarily in my view; you have to have a certain level of consistency in your operation as to how you drive things forward in business and you’ve got to do that in scale. And if you’re going to do that in scale you’ve got have some things systematic—you cannot do one-off stuff,” says Ishrak.
This partly helps explain why George believes that Ishrak ranks at the top of the class among global CEOs.
“I don’t use that word ‘transformative’ lightly,” reflects George. “There are not many global leaders that have the vision that he has. He’s in a class with the best, people like [former CEO] Sam Palmisano at IBM and Paul Polman at Unilever. He’s very progressive.”
George adds that Ishrak has a rare combination of skills: the ability to see the big picture, but still notice the finer details. He notes Ishrak’s educational background.
“You don’t get an Ph.D. in electrical engineering from King’s College in London unless you’re very, very thorough and detailed-oriented—just to go through that rigor. You see that in his mind now,” says George. “You have lots of visionaries who don’t want to put the foundation under it, you’ve got a lot of people who have the rigor but don’t have the vision. He’s one of those people who has the vision and the rigor.”
Since closing its mega-deal acquisition of Covidien this past January, Medtronic has continued buying up companies at a brisk clip. Since March, it has committed more than $1 billion to acquire seven businesses:
March 2015: Completed its deal to acquire the privately held Sophono Inc., a Boulder, Colo.-based producer of magnetic hearing implants, for about $17 million.
April 2015: Acquired Netherlands-based Diabeter, a clinic and research center for children and young adults with diabetes, for approximately $10 million.
June 2015: Announced plans to acquire Cleveland-based CardioInsight Technologies Inc. for approximately $93 million. CardioInsight has developed a system to improve the mapping of electrical disorders of the heart.
June 2015: Announced its acquisition of Sunnyvale, Calif.-based Aptus Endosystems Inc. for about $110 million. Aptus is developing technology for the repair of aneurysms.
July 2015: Announced plans to buy Carlsbad, Calif.-based RF Surgical Systems Inc. for about $235 million. The medical device company is focused on detecting and preventing surgical items left in patients after wound closure.
August 2015: Discloses it had signed a deal to pay up to $458 million for Redwood City, Calif.-based Twelve Inc., a medical device company developing a transcatheter mitral valve replacement device.
September 2015: Announced it had acquired Campbell, Calif.-based Lazarus Effect for $100 million. The medical device company is focused on technology to remove clots for stroke patients.
Burl Gilyard is TCB’s senior writer.