Medtronic’s latest quest for growth has focused on a key area: acquiring companies to quickly expand into new markets. To do that, it made more acquisitions in the past year than it had in the previous five, which was driven in part by trying to please some of the company’s new, aggressive shareholders.

But amid the mergers and acquisitions (M&A) and the separation of its diabetes business MiniMed last year through a public offering, the medtech giant has also dedicated considerable resources to investing in its own research and development (R&D). Medtronic’s focus on its cardiovascular business has shown a lot of promise, capped off by a record-setting revenue report at the end of the company’s fiscal year.

Medtronic announced last month it spent approximately $2.8 billion on R&D during the past year, equal to roughly 8% of its annual revenue. The company increased R&D spending by about $150 million year over year and has publicly stated its ambition for it to eventually reach 10% of the company’s total sales volume.

Even with the revenue growth this year, the stock market hasn’t been rewarding to Medtronic. Five years after its price reached an all-time high of roughly $134, it fell below $100 the following year.

The stock went up and down slightly for a few years until last April, when it gradually increased before finally jumping back over the $100-per-share mark in November. However, since the start of this year, Medtronic’s stock has sunk 16% and traded near the bottom of its 52-week range in late May.

This hasn’t fazed Medtronic. Scott Cundy, senior vice president and chief quality, development, and innovation officer, has been overseeing much of the internal R&D effort that has helped generate Medtronic’s strongest annual revenue growth in 10 years. A University of Minnesota Carlson School of Management graduate who has spent more than three decades in quality, regulatory affairs, and product development, Cundy has been with Medtronic for nearly 13 years after leadership roles at D.C.-based Danaher Corporation.

In a wide-ranging interview with Twin Cities Business, Cundy says the company’s innovation strategy increasingly centers on technologies that can improve outcomes, especially through Medtronic’s continued growing presence in its cardiovascular products.

Innovation in its cardiovascular business

The company’s cardiovascular business has long been the biggest driver of its revenue. This year, it stepped up its R&D investment in the hopes of continuing to drive growth—a bet that seems to be paying off. Its fourth-quarter sales accounted for $3.8 billion, a strong year-over-year increase of roughly 14%.

Earlier this year, Medtronic had a big R&D win when it began commercializing its OmniaSecure device, a catheter-delivered defibrillation lead used with implantable cardioverter-defibrillators to monitor the heart and treat irregular heartbeats. The device is much thinner than traditional leads, which increases durability and reduces the risk of lead fractures.

“The goal is to bring technologies that truly make a difference in people’s lives,” Cundy says.

Medtronic remains well-known for its creation of the world’s first pacemaker. In the near-seven decades since Earl Bakken produced the device, Medtronic has evolved it into the size of a U.S. dime. The company’s Micra pacemaker, which is implanted into the heart via a catheter—eliminating the need for traditional wires that can cause complications—helped the company’s cardiac rhythm management business see double-digit growth in its past quarter.

Cundy says Medtronic has also seen rapid gains in its atrial fibrillation (AFib) treatment, which is in line with Medtronic’s largest competitors, who have begun to pursue the market for pulsed field ablation, which is a treatment for AFib. Around 60 million people worldwide live with AFib, an irregular heart rhythm that significantly increases the risk of stroke and other complications.

Strong commercial demand for one of the company’s latest innovations to treat AFib—Affera Sphere-9 PFA catheter—grew Medtronic’s cardiac ablations solutions business by 124% in the U.S. last year.

“This is the fastest-growing sector in medtech right now, and we are the leaders in that,” Cundy said.

As the global population continues to skew older, cardiac diseases will proliferate, says Alfred Marcus, a professor in the University of Minnesota’s Carlson School of Management focused on corporate strategy and technological leadership.

For that reason, Marcus believes Medtronic needs to use its strengths in pacemakers and stents to further bolster itself after reporting its strongest annual revenue growth ($36.4 billion in total revenue this year) in a decade.

Medtronic’s big bet on M&A activity

In the earnings report, Medtronic credited much of its revenue growth to its M&A activity.

Over the past year, Medtronic has announced or completed three acquisitions. In March, the company agreed to acquire neurovascular device maker Scientia Vascular for $550 million. A month later, it completed its $585 million acquisition of CathWorks, a company focused on coronary artery disease diagnostics. In May, Medtronic announced a $650 million deal for SPR Therapeutics, a neuromodulation company.

Combined, the transactions represent more than $1.5 billion in deal activity over the past fiscal year and signal a willingness to deploy capital more aggressively than the company has in recent years.

Before these three announced or completed acquisitions, Medtronic stayed out of the M&A space for nearly three years. In 2022, it acquired Affera for $925 million to further expand its cardio portfolio, and it also bolstered its ear, nose, and throat business when it completed its purchase of Intersect ENT for around $1.1 billion (its largest acquisition, price tag–wise, in five years, according to the company’s website).

Marcus says Medtronic made those atypical decisions after Elliott Investment Management became one of Medtronic’s largest shareholders last year. Elliott is one of the world’s largest hedge funds and has been known for aggressively restructuring companies and pushing for M&A, as with PepsiCo.

Soon after Elliott’s investment, Medtronic announced several governance changes, including the appointment of two independent directors with deep medtech experience.

“Elliott on their back is an excuse for making tougher decisions, and that is a good thing,” Marcus adds. “[Elliott sees] Medtronic needing to go beyond minor alterations in their incremental change. Just tinkering with its portfolio here and there without putting bets on what the world is going to become [means] they are going lag for a long period of time.”

Marcus says that is because stock market analysts are looking for a focus growth and adds that the company has too many businesses to follow.

Medtronic realized this last year and announced it was spinning off its diabetes business, MiniMed. While Medtronic retains approximately 90% ownership, executives have indicated MiniMed will ultimately become fully independent.

A Medtronic spokesperson says the move will allow the company to sharpen its focus on higher-growth opportunities across cardiovascular care, neuroscience, surgical technologies, and robotics.

Reinvention nearly 80 years later

For investors, the central question remains whether Medtronic can sustain its recent momentum in sales.

“I don’t think Medtronic needs a major comeback,” Marcus explains. “It’s on a comeback path but not one that will achieve a dramatic turnaround. It will achieve a path like Best Buy, where it will be around. It has a lot of solid businesses, but it could do a lot more with what it has. They have resources no other company has. They have to figure out how to use them.”

The company expects organic growth between 6.75% and 7.25% next year, slightly below the pace achieved in its past fiscal year, according to its year-end earnings report. That outlook would represent healthy growth for a company of its size. Yet Medtronic’s poor stock performance in recent years proves that people in the medical device industry remain skeptical the company’s revenue growth is sustainable.

Even after shifting its legal headquarters overseas to Ireland in 2014, Medtronic remains one of Minnesota’s most influential employers, innovation engines, and corporate brands.

As the company approaches its eighth decade, Cundy believes its next era of growth will be driven by solving difficult medical problems with technology, as the company has done for many years.

“The reason people stay in this industry,” Cundy says, “is because, every day, you’re reminded that what you do can change someone’s life.”