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>> Well I think we should get started. I'm Bob Arum and I have the pleasure of introducing. Today Speaker this year's. Petite Institute distinguished lecture. Just a slight bit of background on this lecture. We decided a couple of years ago all that we would. Have a single event each year beyond our normal scientific and technical and engineering seminars that really allowed someone to come in and paint a bigger picture and.

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Bring us. A vision as to what's going on and where things are going. First thing was lecturer last fall was Dr Ken the shine then president of the Institute of Medicine of the National Academy of Sciences. And this year we're very fortunate to have Mr Collins who is the chairman and C.E.O. of Medtronic the largest medical device company in the world.

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Georgia Tech and Medtronic have had an evolving ever stronger relationship and the tronic has been tremendously supportive of what we try to do when they are one of our industrial partners but this is actually the first time that art Collins has been on the Georgia Tech campus and it's a pleasure to have you here.

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Art. Art was basically born and grew up in Ohio. Went to a wonderful little State College called Miami University of Ohio. That's just a first rate liberal arts college did a little stent in the Navy and somehow worked out in the Navy that he could spend some time at Penn and get a Masters of Business Administration at the Wharton School while he was teaching undergraduates at Penn.

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Then launched his career with Booz Allen Hamilton and then Abbott Laboratories and in one thousand nine hundred two. John Medtronic. In one thousand nine hundred forty. Came the chief operating officer in one thousand nine hundred six the president two thousand and one. The C.E.O. and now just six months ago in April two thousand and two was maint named chairman.

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As I mentioned to him earlier today I said I just don't know where you going to go from here. But Medtronic has been an inspired company and that has been in part due to inspired leadership. And then trying to is very fortunate to have Collins as its new chairman and C.E.O. We at Georgia Tech are a fortunate to have our Collins here today to talk to us about sustaining growth in medical technology are.

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I welcome you. I thank you. And we're all looking forward to your talk. Give me just a moment while I get wired here. All right well can you hear me OK. Well thank you very much Bob it's it's a pleasure to be here. George at the lecture series.

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As I told the group earlier this morning I was particularly eager to arrive here. I got in late yesterday when I got up yesterday morning. It was one of the few days I've been back in in the Twin Cities in Minnesota in the last few weeks I got up I turned the television set on and was promptly informed it was twenty nine degrees.

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So beyond the weather. It's also good to be here. I've been in and out of the of Atlanta a number of different times but as Bob said earlier this is the first time I've had the opportunity to be on the Georgia Tech campus. I do get an opportunity to visit a number of campuses around the United States.

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Lots of times because there are major. Academic medical centers associated with those campuses and I will tell you that you're very fortunate you have more new construction or construction under way here than I've seen just about anywhere else on any other campus and that is a one measure of progress.

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I was very pleased to accept Bob's kind offer to come down here and address you today. But when he asked me to be the. The lecturer to day. The first question I asked him was Why me and Bob paused for a second and he said that tronic had done a number of wonderful things over the years I've been a strong supporter of Georgia Tech and he said By the way I've done a little research and I found out of in the last eleven years or so that you've been with.

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Medtronic you've occasionally displayed a little bit of good judgment along the way. And I said Thank you Bob. But when he mentioned good judgment I was immediately struck by the story of Harriman at the end of his. Whisht career. He was asked. At a press conference to what he attributed his tremendous success to which he very quickly answered good judgment.

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Another reporter in the back of the room raised a hand and said Mr Ambassador. How did you come about. Good judgment. I thought for a moment and he answered experience to which is small cub reporter in the back of the room. Asked but Mr Ambassador. How did you get the experience to which he very quickly answered bad judgment.

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And I will tell you that over my career I've had my share of good and bad judgment so please take my comments today is as one person's perspective. During our Annual Shareholders conference which we held last month in Minneapolis and we had a. Now. Approximately two hundred buy and sell side analysts from Wall Street and other locations and we deemed it out to thousands of others.

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We had the topic. For that conference the sustainable growth and I'd like to talk about that subject this morning and I'd like to preface my remarks by really underscoring the word sustainable because I'm I'm really not going to talk today about growth that is directed at a short period of time.

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And it's really focused on growth overall longer term and you know some companies have growth strategies in place that will take them to a point of time where they go public. Or perhaps when they become acquired and God forbid perhaps that to a point where the current C.E.O. retires.

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That's not what I'm going to talk about today the type of growth that I'd like to discuss is the type that is sustainable over a long period of time I'm going to talk about some of the care. Seen in companies that have been able to do this over periods of years and in some case decades.

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While my experience is as you've heard from Bob's background heavily weighted toward the medical industry I do think that some of the characteristics I'll talk to today cross industries and cross geographic boundaries and perhaps me even the clickable in the noncommercial area. I considered how to structure my remarks today and I've decided to break them into two basic categories.

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First I'm going to distrusts some of the attributes that successful growth companies have displayed irrespective of the industry they're in and they've been important in the present and going forward and I think of these attributes as the the basic blocking and tackling efforts that any company or any institution that grows over an extended period of time needs to be aware of and then I will take some time to talk about three significant trends I believe that will increasingly shape success in the medical device and technology industry in the industry in which I participate.

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We've all seen seemingly very well run companies stumble and fall. Not that they weren't executing on the basics well but they really missed some unanticipated change they couldn't react. Fast enough to either changing conditions and technology changing environmental conditions even though they may have been executing on the basics well.

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But first let's talk about some of the basics and I'm going to start with the organization's culture to sustain growth the entire organization from top to bottom needs to be committed to grow Now this may seem obvious but many companies that have headed down the slippery slope to.

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Stagnation. Really have started by lowering their expectations. We found that growth is not always linear in many cases it's anything but linear but it is always a constant growth companies incorporate growth into their corporate objectives. They include aggressive growth targets these end up to be not only organizational targets but also targets of individuals.

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Growth is planned for and resources are allocated accordingly. Growth is talked about inside the company and outside the company. It is viewed as as a stake that's put in the ground that can't be removed. And short. Limited growth or no growth simply is not acceptable. Having said that.

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I think it goes without saying particularly in today's Post Enron environment the growth needs to be real. It can't be manufactured and it can't be illusionary at Medtronic we've always taken seriously. The responsibility to report our performance accurately with a great deal of transparency for your information as Bob indicated.

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As the largest medical device and technology company in the world. We've had and continue to have very clearly stated growth objectives where we plan to grow a minimum of fifteen percent on the top and the bottom line over any five year period. And we've met or exceeded that objective over the last two decades.

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An important part of the culture that Medtronic. And any growth company is the will to win growth companies make no mistake about it are very competitive and they do not like to lose. Again this starts at the top but it permeates the whole organization insulin by. Already one said Winning isn't everything but one hundred to win is and let me stress along with my previous comment that the will to win needs to be continuous quick apparent when that second slices the future and my book isn't winning at all.

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Also And particularly in today's environment it's important that you win by the rules. We've recently seen what happens to some companies that bend or break the rules and in the end these type of organizations lose and they they lose big time they are either not around or they are a shadow of what they formally were an important aspect of the will to win by the rules is the flip side of the coin.

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That's not giving up when you're losing we've seen this particularly played out at Medtronic where we had to stick in the game until a new product or a new therapy was introduced and that's been a critical element of our success over the longer term as Winston Churchill said in one nine hundred forty one and this is one of my favorite quotes never never never never give up.

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The culture of a growth company also embraces change changed isn't just paraded and accepted it really is encouraged growth companies have a bias for action and they have a passion to continually reinvent themselves and they figured out a common overused phrase that the only constant is in fact change itself.

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That's very easy to say but it is hard to put into practice because most people are very uncomfortable with change. And. Basically I believe it's because of the fear of unknown of the fear of failure. However the most significant fear that I think leaders of growth organizations have is that they won't change rapidly enough.

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They won't. Adapt to their changes in the market place their customers needs technology. Whatever drives change in their particular organization. The finding. The final defining aspect of a growth culture. In my mind is is a tremendous focus on your customers. Customers are not only invited in you go out and visit them.

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You. You always listen to what they have to say this starts with the C.E.O. of a company but it permeates the whole organization. Growth companies tend to be interested in what they're doing well but they're more interested in what is not going well or what could be improved.

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They go out and they visit accounts they don't have rather than simply going back and spending time with their old friends where they're doing well. They focus on their customer's needs. And what they will be in the future rather than simply trying to meet today's expectations and in the importance of a growth culture was recognized very early at Medtronic by our founder old bach and.

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In fact when Pearl wrote the mission statement amid tronic back in one thousand nine hundred eighty four mission statements were commonplace much of what he wrote was really directed at ensuring the health and success of met tronic over the long time and I'm back to that point just a moment.

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While the the culture of a of a growth company is extremely important. There are other very important attributes. While this may seem somewhat obvious. Growth companies tend to position themselves in growth markets. Warren Buffet had it right when he said that good jockeys will do well on good horses but not on broken down nags and we've been very fortunate to be well positioned in the health care sector which represents a very large and growing.

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Market. US health care expenditures right now make up approximately fourteen percent of gross domestic product and that's close to one point five trillion dollars and the government expects that. Spending is going to reach about two point six trillion or about sixteen percent of G.D.P. by the year two thousand and ten our business is to provide improved in cost effective solutions for a large product disease states within markets that we currently operate in our biggest businesses and cardiovascular and cardiac problems although we have major franchises in neurological and spinal disorders and most recently have moved into the treatment of a very large disease state one that's growing very rapidly and that's diabetes.

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Changing demographics really play into. Favor for our products in the U.S. alone. The number of individuals age sixty five and over is expected to double by the year twenty twenty five as all the Baby Boomers of which I'm right at the leading edge of. Mature and grow older.

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Even though the events of September eleventh and the ongoing global recession and the loss of confidence in corporate America have significantly changed the world and the environment in which we conduct our business. The medical device and technology industry has been fairly resistant to major economic downturn terms or unrest around the world.

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And not that that will not affect the business going forward but we are we tend to be fairly recession resistant. Not only do. Growth companies generally participate in in attractive growth markets they tend to establish market leadership positions. In the vast majority of the segments in which they operate and perhaps this is just another variation on the will to win theme but market leadership really does bring many benefits market leaders are able to invest more resources in sustaining their growth them to their competitors.

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They also gain from the aura of being number one which is hard to quantify but it does exist at Medtronic we are the leader in most all of the market segments and which we participate in we work hard in Hanson our position we have an objective to be number one in every single market segment in which we are operating in.

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However there is a danger if you simply focus on your competitors particularly if you are already number one at Medtronic we pay a tremendous amount of attention to our competition and we take every competitor very seriously but our corporate mission is to alleviate pain restore health and extend the life.

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And that mission continually reminds us that the enemy really isn't our competition. It's the various disease states against which our products of therapies are directed in fact the major objective. That we have is to improve upon ourselves as Jim Collins and Jerry Corus pointed out in their book Built to Last good enough never is so we're constantly in the mode of improving irrespective of how good we think we are companies that deliver sustainable growth generally invest heavily in their futures at the same time they're disciplined and they expand into areas where they can add value.

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And leverage some existing capability. Last year. Medtronic R. and D. expenditures grew twelve percent to six. Hundred forty six million and right now we are currently annualizing R. and D. expenditures of about a quarter of a billion dollars. Over the last five years internal our India efforts have been supplemented by thirteen strategic acquisitions this investment in our future is paid out and I was mentioning this earlier today to a group where about two thirds of the revenue that we are currently generating come from products that have been introduced within the last two years.

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So you can see how important this new product development in the our in the equation is to our future. With a strong slate of new products that we currently have in place. I think this percentage can even increase over the next year or so. However whether directing internal our efforts or implementing an acquisition strategy companies that go too far afield generally get into trouble.

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Witness what recently happened with companies like Enron Global Crossing World Com and Tyco. The real problem as far as I'm concerned with what happened with Enron wasn't the lack of financial controls that was a contributing problem. The real problem is they got into an area that had nothing to do with their original business and they couldn't really add value and that led them down to that slippery slope and we all know how that finished.

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Robock and our founder recognize this when he wrote Our mission statement back in one nine hundred sixty seven. I'm going to quote direct Roath in the area of biomedical engineering where we just play maximum strength and ability and this is the important one and avoid participation in areas where we cannot make unique or worthy contributions.

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It's just as important for Medtronic to know where we will operate as well as where we will not. Great growth companies found a way to can. Systems leave me challenging expectations and they've developed a track record for success. We focus on this at Medtronic and we're proud that over the last decade we've exceeded our stated growth objectives and we've increased the increased our revenues and our profits at a compound annual rate of seventeen and twenty two percent respectively.

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As I mentioned earlier growth isn't always led here but we work hard not to disappoint our customers our employees and then finally our investors. One final attribute of growth companies that will endure into the future is really the most important one of all great growth companies have great people.

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I've said this on many occasions that people really do make the difference. Great growth companies work hard on crack Dean and retaining. And developing talent. They give talented people an opportunity to succeed. This doesn't by Happy happen by accident. It takes a lot of hard work but the payoff is well worth it.

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While setting the right vision. Is a very important aspect of success and getting the right people in the right positions. I believe is just as important since great visions with mediocre people tend to produce mediocre results. As proud as I am of the current team we've assembled at Medtronic So we are continually working to improve our human resource equation some people come from within and occasionally will need to go outside fact we we.

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About a year ago were able to attract in one of the key business leaders in this area. Bill Hawkins who was the C.E.O. of no boast here in Atlanta. Your loss or gain and he's doing a tremendous job for us. All right. If you buy what I've just discussed you're probably asking yourself well what's going to be different in the future.

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So I'd like to now move into the second part of my remarks was par. Paul Harvey says And now for the rest of the story. We all know that there are many changes that are going to impact high tech companies and successful growth companies going forward. And they're going to need to be nimble on all on a myriad of different fronts.

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However in the next ten minutes or so what I'd like to do is to discuss some of the trends that I think will impact. Medtronic future performance and the medical device and technology industry. And I'd like to focus on three trends the first of these trends is the impact of converging technologies an issue that all of you.

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I think should be very interested in the second trend is the changing requirements for market developments and successful new product introductions and the third trend is increasing need for creative partnerships to ensure success. All right the first trend recognizes the significant convergence of several technologies that when properly combined will result in improved cost effective patient outcomes these conversion technologies offer the potential for better solutions across a broad range of medical care in the continuum from wellness to early diagnosis to restraint AFIC cation to surgical or interventional procedures to post-operative patient monitoring incorporating technological advances into medical devices will remain a extremely important part of our future success.

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These advances will continue to provide traditional. Medical device tax. Knology such as Device Manager ization the longevity improved physiological sensors and diagnosis of the spinal materials more efficient and less investment invasive ways to deliver therapy with a number of other benefits these advances in traditional medical technology will be increasingly complemented by two additional technological thrusts the first one is biotechnology Medtronic has historically Incorporated.

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Biologics and substances that elicit a biologic response into many of our products. We've been coat. Pacemaker leads with steroids for better performance we've been chemically coating tissue heart valves for a long jetty and oxygenated is for better outcomes. We've delivered therapeutic compounds through some of our implantable drug.

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So this isn't a new area for Medtronic. But going forward new device biologic combinations will become much more prevalent. For example based on compelling data the F.D.A. recently approved a genetically engineered protein that successfully replaces harvested bone in spinal fusions and this is very important. Our product which is called the in a fuse bone graft is a recombinant human bone morphogenetic protein and what it allows you to do is to combine this with a little cylindrical cage that goes in between the two vertebrae and then causes bone growth and fusion and it allows you not to have to go in with a painful and costly second surgery to harvest bone out of the hip of the patient good medical outcomes and very cost effective.

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Another recent example of a drug device combination includes a drug being used with a coronary step and this reduces Risa most of the recall. Nosing of the artillery after angioplasty. And we're one of several companies that is pursuing pursuing this technology site specific delivery of new drugs and biotech agents will also be part of the unfolding story and we're very excited about our implantable infusion pumps ability to deliver compounds for the treatment of pain.

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Your logical disorders diabetes and significant health problems in addition to biotechnology and the other complimentary technology that will be important to us going forward as information technology. Many of our devices currently have very sophisticated computing and communication technologies and incorporated in the devices. And with the explosion of information technology our devices will increasingly offer expanded information and remote monitoring options in addition the Internet will play a much more important role in the future transmission of keep patient information we have a new Carolynn system that allows individual patient conditions to be monitored in a remote location think about this you have a pacemaker or an implantable cardio over to further later or an implantable neural device that you can a room like this and have a remote monitor continually monitoring that device not only to ensure that the device is performing well.

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But monitoring physiological functions that information can be then downlink through a modem to a secure server captured and then a physician can get on the internet and access that permission information from a robot location. Again timely information transfer and very cost effective. Let me shift now to the second trend and the changing definition of what makes for a successful new product or therapy introduction.

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This is particularly important because successful growth companies. These don't just introduce new products into existing markets they create whole new markets as an investor Peter Bernstein writes in his analysis of growth companies versus growth stocks. And I quote the ability to create its own market is the strategic the dominating in the single most important as in wishing characteristic of a growth company.

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The key point here is. If you want patients that have a need for your product to obtain access to the product. It's no longer enough to develop the product and say Here it is today. It's an increasingly complex multi-step process that is required to ensure that a new product or therapy is adopted as the standard of care in a timely manner.

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The goal can simply be stated in two words patient access the previous focus has been on reducing the cycle time for the product development activity as well as moving that product through regulatory clinical trials and while these two elements are very important. Going forward it's extremely important that we go much beyond that.

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And much beyond that ludes the appropriate cost benefit outcome studies that provide the new product with a definition of good medicine and cost effective medicine that includes not only the regulatory approval from the F.D.A. and other regulatory bodies around the world but also getting adequate reimbursement for hospitals for physicians and for other people involved with the delivery of care requests we choir training doesn't just apply to the Bells force of the physicians who will use the products.

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It extends to the education of those physicians that will die of. And refer patients to specialists. It also involves communicating not only with physicians. But also with patients and their families who are becoming much more proactive in managing. The health care of themselves and their loved ones. This has to be done in a responsible way but it is going to be an important part of the future and we're effectively utilizing public relations to a degree.

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We've never utilised before. We have a number of web based communication formats rather than. Existing. Consumer advertising in fact some of you may have seen earlier this week. If you watched the Today show where they had Jerry Lewis on and Katie Kirk was doing an interview. Jerry Lewis talked about one met tronic product.

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It was a neuro stimulator to treat pain and I don't know if you know the history of Jerry Lewis but because he was doing all these pratfalls early in his career he damaged his back significantly. Got addicted to pain pills almost died from that was cleaned up but he still had this intractable pain and he was very close to taking his life.

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The Dr Debakey down and used recommended one of our devices which is a pacemaker type product that has its leads go into the spinal cord basically gave him his life back without pain now he's one of the do is we have to quiet him down. Periodically from what he wants to say.

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We. I'd like to give you an example of one product in this regard. It's a it's a very important product it's a BY been trickier pacemaker the treats heart failure. And it's I think it's a very good case study. In August of two thousand and one we became the first company to receive F.D.A. approval for a pacemaker that pases both sides of the heart to drink treat congestive heart for the products name is in sync and.

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I would say that it bears no resemblance to the musical group other than Both are very popular. The F.D.A. approval was significant but to really understand this the really effort really started years in advance. We consulted with leading medical researchers in the United States and Europe to ensure that the product was correctly designed prior to the European launch of in sync in August of one thousand nine hundred ninety eight.

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Now remember that when you think about how efficient the F.D.A. is but this started back in the mid ninety's product was initially introduced in Europe in one thousand nine hundred eighty. We met with the F.D.A. repeatedly in order to anticipate what questions they would have and helping to design our U.S. clinical trials.

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We carefully manage the clinical trials to ensure that proper data was collected even if it meant a slower uptake compared to one of our competitors that was the beginning in the end we got to market more rapidly. We prepared meticulously for the F.D.A. panel meeting during which we present presented the data and answered all the questions and then received a unanimous panel recommendation for approval.

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While our competitor at the same time was recommended not recommended for approval. Prior to the F.D.A. approval we scaled up manufacturing trained our U.S. sales force and. Put in place a series of physician proctors as would be needed and we hired additional field personnel all before we launched the product we work closely with the media which resulted in feature stories in The Wall Street Journal The New York Times a major news coverage on all the major networks and other journals and periodicals we ensure that the necessary information was disseminated to referring physicians and patients and we consulted with patient advocates advocacy groups and major medical societies we even are faced with Medicare officials and payers to ensure that adequate reimbursed.

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Exist for this therapy the ultimate goal of all these steps is to improve patient access and accelerate the adoption of this new therapy as a standard of care and we recognized every step along the line was important. Keep in mind that heart failure is a large and growing medical problem it affects over twenty million people around the world and over five million million in the United States alone.

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It's also the single most expensive Medicare expenditure that we have in represents a multibillion dollar opportunity for Medtronic how are we doing well in two words we're doing very well. I'm going to next Monday. Be involved in releasing our second quarter fiscal results tell you what they are but I make you all insiders and I know you don't want that on your back.

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But we will indicate that this this market. Remember the product was introduced just about a year ago has grown to revenues in excess of half a billion dollars the most rapid takeoff of any product in the history of the medical device industry. It's also become increasingly evident that medical products and a medical products company if they're not prepared and capable of operating a cross this full spectrum from product development to therapy adoption as a standard of care they are not going to be successful in the future.

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All right let me get on to the third of the final trend that I'd like to highlight today and in many ways it's an outgrowth of the first two and that is as information in biotechnology is combined with traditional medical technology to provide better. Options. It's clear that not one company will have at its disposal all the keys to success as a result.

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Increasingly in the future successful growth companies will. Need to be involved in enhanced partnering in fact this trend. Is making for very interesting bedfellows. Let me further make my point by giving you just some examples of the breath of our current partnering initiatives and some that may be right for further collaboration as we move forward in the area of product development we've utilized I.B.M. Microsoft and privately held benchmark.

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Electronics to help design our new. Twenty nine hundred programmer which was approved by the F.D.A.. Within the last year and this program's all of the active medical devices. Janetta since the two it was our partner for the genetically engineered infused bone graft that I talked about earlier. Also we licensed and.

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Novel antisense agent for coating coronary stance from a biotech company A.B.I. biopharma and we have a number of very important discussions going on at this point. The coating that we're currently using on our coronary stent was obtained from Abbott Laboratories the company that I used to work for before we partnered with a number of biotech and pharmaceutical companies for compounds that were delivering through our drug pumps.

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Examples include an I specificity drugs like backlit that we got from Vargas non-opioid analgesics called Creole which is from a lot of various insulin compounds from a Ventus and Lilly and ongoing efforts with am going to develop proteins to treat neurodegenerative disorders. Our new Carolyn patient monitoring system this is the remote system I talked about earlier is in partnership with you you net an exodus to ensure state of the secure data transmission.

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Retrieval in order to provide enhanced web based ordering. Capabilities for our hospital companies we formed a Global Health Care Alliance with. G E. Johnson and Johnson Abbott and Baxter. When we needed help in designing our Web sites and accessing the large health care. Portal capability on the Internet we partnered with web M.D. who in turn has partnered with Microsoft in a well.

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In order to obtain better information transferred to referring physicians we've experimented with CO promotions with and this is very commonplace in the pharmaceutical industry and we've done this with suffer a lot in our neurological business we have several discussions ongoing now. Well needless to say this is a complex world and particularly in the area of intellectual property and we spent a fair amount of time talking about this earlier today.

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No company has everything they need and you'll see that many companies in fact competitors will deal with and with each other to get access to needed intellectual property and patents trademarks. Well I'd like to conclude my formal remarks here and leave some time for some questions but let me leave you with one final thought to consider.

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And that is the rate of change that we have experienced in the last decade in my mind is only going to increase and it could be factorial increase over the next decade and that bodes very well for companies that innovate. That plan well and are able to react very quickly.

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And astutely and companies that remember again a saying that I surely didn't quite in but one that's been out there a long. A long time and that is the best way to predict the future is to invent it. And as someone once said in the future isn't what it used to be in fact it's going to be a lot more exciting.

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So thank you very much for inviting me down to Atlanta and for your. Tension and tension but I am. The question was How will the F.D.A. play into this whole equation will they be a roadblock going forward. All of our products. Almost all of our products go through the F.D.A. as well as the other rug regulatory bodies around the world.

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The F.D.A. has been a roadblock in fact we have taken a lead in trying to get more resources for the F.D.A. We did an analysis not too long ago and we were shocked to find out that the number of reviewers in the department of the F.D.A. call C.D.R. H. that reviews medical devices is actually lower now than it was five years ago and the number of medical device submissions is up and the complexity of those submissions as you for I've talked about drug device comment.

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Combinations information systems is up on the drug side of the equation. The funding had been up the number of new drug compounds Stabler down why they had user fees and when you would submit a application the company admitting would pay a fee. We had to get our industry together we finally got them together we negotiated with the F.D.A. at the White House both houses of Congress and right before the last elections a F.D.A. reform bill was an act and that gives greater resources it also talks about electronic labeling outsourcing some of the reviews.

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The F.D.A. is going to be critical in this area. I think. And we were talking about this earlier. Also I think the that you have well intentioned people. At the F.D.A. However if you took the F.D.A. as infrastructure their information systems the way they process their work and you applied it to a commercial company that commercial company would be bankrupt.

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So what is going to be the challenge of Mark McClellan who is the new commissioner of the F.D.A. It's been without a leader for over two years. He's going to have to deal with how not only does he take resources but how does he. Prove the way in which the F.D.A. does its work to make it more streamlined without giving up the very important oversight that the F.D.A. has and safety and efficacy and just so I want to be clear on this point we want a strong F.D.A. We do not want products coming into the market that are not safe and efficacious.

[00:44:10]
But we want them to be View and conduct their work in a timely fashion. Yes. And the question I have really relate to a press release that I read recently about the Medrano foundation funding the work up at University of Minnesota I think it was Katherine verify your own stem cells and was curious as to if onic envisioning any product.

[00:44:39]
Commercialization coming out of that work or is it primarily exploratory just to see how stem cells might impact. There's a if you dimensions of your question let me see if I can answer all of them to begin with because the the headquarters of Medtronic is in Minneapolis and and were a twin cities of the Minnesota company we have a very strong relationship I have had with the university over the years.

[00:45:08]
Much of the funding that we have provided the university however has not really been utilized as well as we would like to have seen it. What we ended up doing was going to the then president of the university. Mark Yudof who is. No longer the president has gone back to Texas and asked if we consolidate our efforts and if we put some additional money in where are they headed and they came back with a definition of some stole research and so it was in a collaboration with the university that they identified an area we thought it was an emerging area of biotechnology and we funded that effort.

[00:45:47]
Now the second part of your question other strings attached any funding that goes out of the Medtronic foundation and keep in mind that. Last year our contributions charitable and civic contributions were about twenty five million dollars About sixty five percent of that goes through the Met tronic foundation any.

[00:46:11]
Any donation or funding that comes out of that has no strings attached. So if the University of Minnesota comes up with some breakthrough in stem cell research. We are not assured. Nor do we have any right of first refusal or any other strings that are attached to that now we do through other parts of metronomic have relationships with different research institutions that have a much closer tie with funding and then access to what comes out of that funding but not in this particular area.

[00:46:43]
Yes. Two thirds of your revenue comes from products that are less than two years old. Correct. Well two things aren't you kind of scared now aren't you afraid to look in your rearview mirror. And don't you really need all these bright young people in this room to keep that pace.

[00:47:05]
No yes that the point is that. If if you if you get spooked by the the ability to change and this is another theme off of this. Change if you're not willing to continue to modify and out of new products but the way that you're you're reacting in a number of different areas.

[00:47:30]
The chances are that someone else is going to be innovating and passed by so is it a little bit daunting to think about the fact that we need to not only continue to need to do to innovate in revenue base that's now somewhere in excess of seven billion dollars But we've got to keep doing this if we're to grow fifteen percent the math is you double in five years.

[00:47:54]
So in five years. We're going to be whether it's a fourteen or fifteen billion dollar corporation and the only way you're going to continue to grow is to keep changing keep bringing out new products keep bringing in moving into new markets where you can add value. So that's the name of the game here.

[00:48:10]
I mean it's a rapidly moving industry. Now the second question and you talked about the need for all the bright people in the room. I will tell you that the single most important resource that Medtronic has is not found on an income statement or a balance sheet or.

[00:48:29]
A cash flow statement. It's the human resource. That's the real key to our success. It's in fundamental and that tronic for a long period of time and I will tell you that there is a there's a war for talent out there. We're not the only company that is that is recognize this.

[00:48:46]
So if we're going to continue to grow at this fifteen plus percent or greater. We're going to have to have people good people that are going to really be involved in developing this growth so no question. That's the most important area that I spend my time on. Yes.

[00:49:07]
Mike. The trends that you listen here for the future seem to require a lot of capita. And. I was wondering what kinds of strategies would be different for the smaller company of the person that you know idea that they want to develop and maybe not want to be the.

[00:49:33]
You know the child of a larger company but try to create their own new diversified company. You know what. How do you think they progress from eight to a new Met tronic let me let me answer your question in two ways First a very technical comment with respect to capital.

[00:49:51]
We're fortunate in Medtronic in our industry that this is not an extremely capital intensive industry by capital I mean investing in large manufacturing plants we tend to have our greatest investment be in the programmers that we make and then we put out in our various. Hospital locations to program our products.

[00:50:19]
So our Cap Ex or the capital expenditures that we have compared to other industries are very low in fact will probably be less than four hundred million dollars this year. Now getting away from from that whole question. And by the way we are very fortunate as we we generate a lot of cash which for small companies is as many of you know as is is paramount.

[00:50:43]
We're generating cash free cash flow in the neighborhood of about one point two billion dollars a year. So we're fortunate where we can finance just about anything we want to do if we want to go out and borrow money which we did. Briefly to help finance because it financially made sense a major acquisition we went out and did a convertible debt for one one a quarter percent over a year ago which isn't bad.

[00:51:08]
You know. A bad rate but to your most important question a company that's starting the first thing the advice I would give is that. If some. And starts with an objective to be a full fledged integrated Medtronic the odds of that happening are very low in fact one of the biggest problems small companies have when they start is to broaden their horizons too far.

[00:51:35]
The most effective small companies I've seen have a laser focus on doing one thing and doing it very well and until they do that. Well they don't expand fact interesting point. Back in one nine hundred sixty. It's hard to believe right now. In one nine hundred sixty Medtronic right now with a capital market capitalization over fifty five billion dollars.

[00:52:01]
In one nine hundred sixty minute tronic was bankrupt simply because they tried to expand to rapidly and that's when the mission was written and when we fixed that. But thank God we fix that. But now I think there's plenty of opportunity for small companies to come up with good ideas new products particularly in the area of technology.

[00:52:24]
The question is making sure that you have a very firm definition of what your product is and what your objectives are now some of those companies may find you continue to grow going forward. They may be acquired or they may decide that they're going to continue to to to focus in a more limited area.

[00:52:41]
The other point I'd leave you with particularly in our industry is it would be very difficult impossible I would say for any company to come into our basic pacemaker or implantable cardio different related line simply because the intellectual property hurdles would be insurmountable. You might have good ideas you might have technology but you never get around the intellectual property.

[00:53:07]
So a word to the wise on all of you if you get involved in in businesses that are generating new novel ideas think happened. Patent patent patent. And it's one of the areas that will allow you to give a get a sustainable capability. Yes. From pacemakers and other devices.

[00:53:37]
What's the progress of technology to modify the operational performance remotely without invasive surgery on those devices. Well the technology exists in mind that if you were to receive a pacemaker an implantable cardioversion for belayed or. Implantable neural stimulator. In the surgical suite that product would be implanted and it could be programmed using a small head that looks like a pager that is very close to the body and it sends.

[00:54:11]
Using our energy using advanced telemetry signals and forth it can modify the settings so as as telemetry technology advances further. There's nothing that indicates that you can't not only uplink information that would be captured and be reviewed by a physician but there's nothing that tells the physician they couldn't downlink signals that would actually go the other way and modify the device.

[00:54:38]
Now we're taking this in a stepwise fashion but that technology exists today. What is very interesting and I think you'll find this in a number of areas of medical technology that technology will tend to advance much more rapidly than a lot of the legal and ethical considerations that go with it.

[00:55:01]
For example if you are able to capture this information. The question is who's information is that who has access to it. We there's a there's a major. Law that is going into place in the spring of this next coming year which is it's called HIPAA the at acronym is HIPAA.

[00:55:20]
Health insurance protection and with the actor. I think I've got that right. And it covers the whole question of safety and security of medical information and another major thrust with the mapping of the human genome. My guess is that before we have therapeutic solutions we're probably going to be able to diagnose the prevalence or the the risk of certain disease states prior to having been able to do something with it.

[00:55:48]
What do you do with that information who has access to that these are ethical and and other legal considerations that over the next decade are going to be very fundamental deal with in fact Bob and I were talking earlier. It may be that one of the. Of the disciplines that you include at.

[00:56:08]
I V V is a whole question on policy to deal with some of these issues because they're going to go hand in hand with technology. Yes QUESTION. You talked at length about Marge product disease state. What do you think the obligations of a great company are for small disease states or drugs or orphan products that you know don't draw the large income lines that you've discussed today.

[00:56:40]
I think I think it's an important responsibility of a leader and we are the leader in this industry to adapt technology to important as the states that may not be huge commercial successes now I will be very honest with you. The only way that we have the flexibility to do that is that we're operating in very large disease states we can meet our growth requirements going forward but I'll give you an example.

[00:57:08]
We have a technology right now that we have in a. It's a you could categorize as an orphan drug type of a situation. Where we use a peacemaker type product to treat a certain gastric problem where many people literally can't keep food in their stomach and ultimately they waste and they die.

[00:57:36]
Is this a huge market. Absolutely not. Is an area that we are involved in yes. So there is a balance where you can you can also make the exact same argument for providing products in a certain developing countries in the world that may not have as much of an ability to pay so we recognize those needs exist we try to fulfill them but the only way you have the luxury to do that is you position yourself in other areas that can really fun to lot of that effort.

[00:58:15]
Well if I understand your question about is the luxury intentional. Most all of our efforts are directed at trying to provide therapies that will provide whether it's the ability to live or a little life to the largest number of people and you know it's hard failure is not only a major financial success but literally we're providing therapy to millions of people.

[00:58:41]
So that steps. Now there will be times though that we will make decisions where we'll go into a market. Perhaps because it's not the largest market but we can add value but it's not I don't want to leave you with the impression that this company is a altruistic to the to the extent of forgetting about its ability to grow and make a fair profit and continue to to to do what we do today.

[00:59:10]
So there's a balance there. But what we try to do is to use our technology to reach the largest group of people and do the most good and by the way that's good economic. I think we probably ought to bring this to an end and there are several things I have to do.

[00:59:26]
First I want to give you the envelope. No one has not been audited by Pricewaterhouse but everyone here needs to know that there is an honorarium that goes with this lecture and art has asked that this be donated to penumbra an organization in Minneapolis that focuses on African-American arts and the cultural experience and we're happy to see that happen.

[00:59:52]
So thanks very much. Although the monetary value of this is nowhere near what's in the envelope. We hope that is something that will help you remember your visit to an attack on me. It's very nice and I think this looks perhaps like the fifth building that you're going to thank you so thank you very much.

[01:00:27]
All right thank you everyone as a final thing. Thanks everyone for coming and there's up with a lunch out in the atrium. Everyone is invited to attend and to take advantage of that opportunity to talk to our Collins as well as others one on one. Thank you all very much enjoy the much.