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Medtronic CEO plans to pick up the pace

FRIDLEY, Minn. -- During Art Collins' six-year tenure as chief executive of Medtronic Inc., the company morphed from a regional player in medical technology into a global leader.

FRIDLEY, Minn. -- During Art Collins' six-year tenure as chief executive of Medtronic Inc., the company morphed from a regional player in medical technology into a global leader.

That's the assessment of his successor, Bill Hawkins, who assumed the CEO position and a $1.1 million base salary Aug. 23, just before the Fridley-based company's annual shareholder meeting. Collins, 59, announced his retirement earlier this year, and Hawkins, his chief operating officer, had been groomed for the top spot.

But just what do Hawkins and his new No. 2, Chief Operating Officer Michael DeMane, have in mind for the $12.3 billion company?

And will those plans push up the company's long-sluggish stock price -- which prompted one disgruntled shareholder last week to ask: Is Medtronic too big? (Hawkins' response: "No, our size and scale enable us to continue to grow and serve patients.")

Best known for its historic role in developing the pacemaker, Medtronic now sells a wide variety of products that treat chronic diseases and conditions, including heart disease, diabetes, spinal maladies, movement disorders and chronic pain.

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Hawkins, 53, an engineer by training, spent much of his first shareholder meeting as CEO outlining his plan of attack: Develop existing markets, many of which are underpenetrated, expand geographically, and explore new clinical opportunities through internal research and development and by acquisition. (The company has about $6 billion in cash on its balance sheet.)

Hawkins said Medtronic continues to spend about 10 percent of its annual revenue (about $1.25 billion last year) on research and development, and introduced 20 new products in the past year. "Innovation continues to be the lifeblood of our industry," he said.

Yet Hawkins inherits a number of challenges, including increased regulatory scrutiny of medical devices, pressure from insurers to make devices that not only work, but that do so in a cost-effective manner, and a protracted sales slump in heart defibrillators, one of the company's top-selling products.

Medtronic also faces ruthless competition in several markets, mostly from rivals Boston Scientific Corp. and St. Jude Medical Inc., which are either based or have major operations in the Twin Cities.

While the company's fiscal first-quarter results, released last month, failed to dazzle Wall Street, company executives say the best is yet to come in the second half of the fiscal year with new products.

"The launch of several new products should drive solid growth in upcoming quarters," Deutsche Bank analyst Tao Levy wrote in a note to investors earlier this week.

Much of the optimism is tied to sales expected for the company's drug-coated heart stent, called Endeavor. A Food and Drug Administration advisory panel will meet in October to recommend whether the stent should be approved for sale in the $2 billion U.S. market.

But some analysts remain skeptical about Medtronic's claim that Endeavor can be launched by the end of 2007. "This seems aggressive to us, and, when pushed on the issue, the company did not seem particularly confident," wrote Morgan Stanley analyst Glenn Reicin, in a note to investors earlier this week.

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"This product will do a lot better than some people think," Hawkins said at the Aug. 23 meeting.

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