Medtronic picks GE’s Omar Ishrak as next CEO
Thursday, May 12, 2011
Medtronic Inc., the world’s largest medical device maker, has selected the head of GE Healthcare to become its chief executive as it tries to re-energize sales in the midst of an industrywide slump.
The Minneapolis-based company said Omar Ishrak will join the company as chairman and CEO on June 13.
Ishrak, 55, had been the president and CEO of General Electric Co.’s health care systems business, and worked at the company for 16 years. The unit specializes in medical imaging devices including ultrasound and magnetic resonance machines. He will replace outgoing Chairman and CEO Bill Hawkins, who announced plans to retire in December after three years with the company.
Ishrak takes the reins as Medtronic and other device makers face a daunting set of challenges: sluggish sales, reduced reimbursement from insurers and tighter regulation by the federal government.
Medtronic’s two biggest businesses — implantable defibrillators and spinal implants — have faced weakening sales due to safety recalls and the loss of health insurance for unemployed workers. As a result, the company announced 2,000 layoffs in February and slashed its 2011 earnings expectations. The medical devices market grew by double digits for much of the last decade, but sales growth has shrunk to the low single digits amid economic challenges and slower development of new products.
“To restart growth for a company this large, he’s going to have his work cut out for him,” said Edward Jones analyst Aaron Vaughn. “Investors will be patient for a period of time, but something will have to happen over the next year or two to jumpstart growth.”
Citi Investment Research analyst Matthew Dodds said the choice of Ishrak “is unexpected but looks promising.” He noted that Ishrak’s background is in diagnostic and imaging devices rather than implanted devices, which are Medtronic’s primary focus. Ishrak holds a doctorate in electrical engineering, a technical expertise that could help guide Medtronic’s strategic outlook.
Analysts said Ishrak will probably not shake up the company beyond selling off several smaller units. Instead they expect him to focus on execution, cost controls, and expansion into emerging markets. Ishrak will continue the integration of new businesses, begun under Hawkins, designed to move Medtronic into growing markets, including easily-implantable heart valves.
Ishrak’s appointment came a day after Medtronic competitor Boston Scientific Corp. announced that CEO Ray Elliott would retire later this year, less than two years after he was tapped to guide the struggling company back to profitability. Boston Scientific stock fell 9 percent on the unexpected news.
The turnover in leadership underscores the challenges facing device companies, analysts said.
“It’s not easy being a medical device company CEO these days, battling the troubles within the industry and attempting to live up to demands from Wall Street for quick results,” said Wedbush analyst Phillip Nalbone in a note to investors. “We expect the challenges in Medtronic’s business to persist long after Mr. Hawkins has departed.”
Ishrak became president and CEO of GE’s clinical systems unit in January 2005 and was named president and CEO of the health care systems unit in January 2009. He will earn an annual base salary of $1.4 million at Medtronic.
“I am honored and excited to have the opportunity to lead Medtronic — a great company with a renowned, mission-based heritage of saving and improving lives,” Ishrak said in a statement. The company did not make Ishrak available for interviews.
General Electric Co. said Tom Gentile, the head of its aviation services division, will replace Ishrak as president and CEO of GE Healthcare Systems.
Shares of Medtronic fell 60 cents to close at $42.05 Wednesday.