Medtronic to spin off local defibrillator unit

Physio-Control, the pioneering medical-device company from Redmond that developed the world's first portable heart defibrillator, is going back to its roots.

The medical-device giant Medtronic said Monday it is spinning off its defibrillator division into an independent, publicly traded company under its original name, Physio-Control.

The reborn Physio-Control will have about 1,200 employees globally, in 100 countries, with 800 at its Willows Road headquarters in research and development, manufacturing and administration. It estimates it will have about $450 million a year in sales, with estimated annual sales growth of 10 percent to 12 percent.

"Physio-Control really created this industry," said Brian Webster, 43, who will run Physio-Control as chief executive. "We've enjoyed market-share leadership in this business for 51 years, and we intend to keep it that way."

Webster said the company does not plan layoffs and may do some hiring to expand.

Medtronic Chief Executive Art Collins said the company's board chose to spin off Physio now so the parent company can focus on devices for chronic diseases, in markets with larger profit margins and more growth potential than defibrillators. The Minneapolis-based company, with a market value of $61 billion, makes a wealth of devices ranging from cardiac pacemakers, to neurostimulators, to insulin pumps.

Physio-Control believes it will have more control over its own destiny as an independent company, and will be able to attract more investment for its Lifepak line of products, said Webster. The division will also presumably have more stable management than in recent years, when it became a revolving door for up-and-coming Medtronic managers.

Webster himself was promoted a month ago to run the Redmond unit. He has 15 years' experience at Physio-Control, working his way up through operations, sales and marketing. He estimated the company will have an initial market capitalization of $700 million to $1 billion. Physio's profits and other financial details aren't being disclosed yet.

The spinoff is expected to be completed in six to nine months. Medtronic shareholders will be issued shares in Physio-Control tax free at an exchange rate to be determined. Then Physio-Control plans to sell shares to new investors to raise capital for growth. Physio-Control will have its own board of directors and likely will be traded on the New York Stock Exchange.

In a research report, JP Morgan analyst Michael Weinstein wrote that he considers the deal a positive effort by Medtronic to unload slower-growing assets. Weinstein said it was "a noteworthy shift in management's thinking" because it is the first time Medtronic had exited a key business since the early 1990s.

Webster, however, said Physio plans to boost sales by at least 10 percent a year, partly through new products from its internal research and development in the next six to 12 months.

Originally, Physio-Control grew out of research at the University of Washington by Dr. William Edmark in the 1950s, and was later built into a pioneering device company by Hunter Simpson. It famously advanced emergency medicine in the 1970s by equipping Seattle Medic One with the world's first portable defibrillators.

The company has kept a relatively low public profile since it was bought by Medtronic in 1998 for $540 million.

Physio-Control will now compete directly with several companies in the defibrillator market, including giant Philips Medical Systems, Zoll Medical and Bothell-based Cardiac Science.

Webster said Physio is unlikely to outsource manufacturing in the future because quality is so imperative with a life-and-death device.

Physio-Control has changed hands multiple times over the years. It was bought by Eli Lilly in 1980, then sold to Bain Capital, which took it public later in 1995. Medtronic bought it in 1998.

Harold Kawaguchi, who worked at Physio-Control from 1965 to 1985, culminating as senior vice president, said the announcement is "great news for the community." Employees have been "emotionally whipsawed" through ownership changes over the years, and it should be empowering for them to be on their own again, he said.

He said Physio-Control should be poised to do well because it has had strong owners who cared about making top-quality devices, encouraging innovation and treating employees well.

One downside to going public, Kawaguchi said, is the financial demands from Wall Street and the reduction of job security that goes with that.

After the news, Medtronic stock rose $1.19 a share to close at $53.35 a share Monday.

Luke Timmerman: 206-515-5644 or ltimmerman@seattletimes.com

Information in this article, originally published December 5, 2006, was corrected December 5, 2006. Due to a technical error, a previous version of this story had portions out of order.