Medtronic says Trump call to ‘reshore’ is impractical for medtech

The incoming chief executive of medical device giant Medtronic has challenged the drive by US president to bring manufacturing of supplies for the US market back to the US.

Geoff Martha took over from Omar Ishrak less than a month ago at the end of the company's financial year. Medtronic is based in Ireland after acquiring a rival medical device group Covidien in a tax-driven deal in 2015, but the US remains its operational headquarters.

President Donald Trump has repeatedly argued that the US needs to "reshore" life sciences business, and has named Ireland several times as a country exporting drugs and devices into the US that he feels should be produced locally.

Speaking to The Irish Times, the Medtronic boss acknowledged that the issue was live topic for US business, but said his company does not think that simply bringing manufacturing back to the US is the answer.

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"We all recognise that supply chains are globalised," Mr Martha said. "It is not just where you manufacture. Take our ventilators which we make in Galway, for example. The ventilator has around 1,600 parts that come from suppliers in 14 different countries.

“The minute the US does that [reshores], the question is what does the EU do, what does Ireland do, and it can create a lot of challenges for the global economy.”

However, he said Medtronic had to be prudent and make contingency plans in case it was forced to manufacture more in the US for that market “but I hope it doesn’t come to that”.

Elective procedures

His comments came as Medtronic announced fourth-quarter results that reflected the impact of the coronavirus crisis. The company had warned in April that it was seeing a plunge in revenues across the world as hospitals, which use its medical devices, put off elective procedures to save capacity to treat Covid-19 patients.

Revenues fell by more than a quarter in the three months to April 24th to $6 billion. Profit after tax fell to $646 million, or US 48 cent per share, from $1.17 billion, or 87 cent per share, a year earlier.

The company did not give a forecast for full-year 2021, citing uncertainties surrounding the coronavirus outbreak, but said it had ample liquidity and the board had approved a quarterly dividend of 58 cent, a 7 per cent increase.

Mr Martha said Medtronic would look at enhancing its capacity to develop machines that could be programmed and monitored remotely as it looked to recover from the crisis.

He said the virus had brought home the need ensure its business can function virtually and to increase the remote capabilities of its products.

Medtronic has been dramatically ramping up production of ventilators from its Co Galway plant during the crisis to meet an explosion of demand. Mr Martha said that in just two weeks “we were able to make them remotely controlled and remotely monitored”, making work safer for hospital ICU managing the sickest patients.

While the Irish ventilator business has been multiplying production, Mr Martha acknowledged that Medtronic’s Irish businesses had been badly hit by the fall in elective surgeries worldwide. Galway’s biggest product line is in cardiac care, and that segment of the business reported a 33 per cent slide in the fourth quarter.

Bounce

Mr Martha said he was confident the lost ground would be made up by the end of its current financial year, which runs to April 2021.“We are seeing a bounce back here,” he said.

However, he confirmed there would be delays in some product development as the virus has halted a number of clinical trials.

While wary of the treat of a second wave, Mr Martha said the healthcare industry was better prepared now for the prospect, which meant any disruption would not be likely to be as deep or for as long.

He said Medtronic’s strong balance sheet meant that it has scope to go after acquisitions.

“M&A is not off the table for us. There are certain companies that were more expensive three months ago and not so much now, so we are looking at that.” – Additional reporting Reuters