Bill Hawkins: How I Made the Toughest Call of My Career
Not many CEOs run companies whose products have saved the lives of family members; Bill Hawkins does, and his connection with Medtronic, the $14.6 billion Minneapolis-based medical device maker, runs deep. His father has had eight coronary stents implanted; his father-in-law has both a Medtronic heart valve and a pacemaker; and his uncle received Medtronic deep brain stimulation to control tremors caused by a World War II combat injury. "Medronic's mission — to alleviate pain and to extend life — is something I take very seriously," says Hawkins.
That sense of mission would be tested in October 2007, only two months into his tenure as CEO, when he learned that the company's Sprint Fidelis lead might have been malfunctioning at an unacceptably high rate.
Leads are ultrathin insulated wires that connect an implanted defibrillator to heart muscles and signal the device to send a life-saving shock to the heart. "Sprint" was the brand name of Medtronic's line of leads; "Fidelis" was the newest, thinnest model. Fractured leads could subject patients to random shocks, even when their heart was working fine. They could also fail to deliver shocks when they were really needed.
Medtronic had identified a number of deaths in which a lead malfunction might have played a role. That put the freshman CEO in a horrific bind. If he recalled the product, he'd sentence his company to a massive loss of revenue and market share. If he soldiered on, he'd be taking a risk that could one day be fatal to Medtronics' reputation — and possibly to other heart patients. Recalls Hawkins: "It was a rough way to start."
An MBA who got his degree in electrical and biomedical engineering from Duke, Hawkins began his career as a field representative for a small company in North Carolina in 1977, and then steadily made his way up the industry, with stints at Guidant, Johnson & Johnson, and Eli Lilly.
Prior to joining Medtronic, Hawkins was with a startup, Novoste, in which he led the company's development of new stents, devices that are inserted into coronary arteries to keep them open. The advent of what are known as drug-eluting stents, which are coated with pharmaceuticals, brought him to Medtronic in 2002, where he led the international development and launch of Endeavor, drug-eluting stent program. He was promoted to president and COO in 2004; CEO in August 2007; and chairman in 2008.
Hawkins' stewardship has coincided with a rough patch in Medtronic's history. The company's stock has lagged the market, and it has been embarrassed by conflicts-of-interest charges in regard to some of the physicians it pays for consultation. But the Sprint Fidelis gave Hawkins his greatest challenge.
Hawkins talks about it here exclusively with BNET.
Hints of Trouble
I was president and COO in March 2007, when a single hospital reported to us it had observed a higher than expected fracture rate in the Sprint Fidelis lead. As much as we strive to make leads that never fail, they sometimes do. They go into people's hearts, which beat 100,000 times a day; the body is a very hostile environment. When you get a report that there is lead failure, you have to balance what you do. You can't just push the panic button and automatically do a recall of some sort. The risks associated with an explant [removing the device] can be greater than the risk of leaving the lead in.
Our cardiac rhythm disease management business convened a group of internal experts who looked at the records of leads at sites around the world. They also looked at data from available sources such as our returned product analysis and our Systems Longevity Study (SLS) which we've used for more than 25 years to monitor the performance of our cardiac therapy products. An independent physician advisory board consisting of several physicians who practice independently of Medtronic also reviewed the situation. The conclusion was that the data did not indicate the lead should be removed from the market, but that we should continue monitoring the situation.
The Ambiguous Data
We've been conducting the SLS for 25 years, checking the results every six months. We also have the ability to remotely monitor our device implants using built-in radio technology that communicates to a Web server. We wrote a special program to look at the performance of 25,000 devices implanted with the Fidelis lead to determine if anything suggested that these leads had a higher risk of fracture.
In early October 2007, two months after I had become CEO, I had just completed a road show. I had been talking with investors, explaining a new acquisition and my vision as CEO. I was feeling pretty good. Then the president of the cardiac rhythm business came up to me and said, "I need to speak with you."
I remember it was a Thursday afternoon. He told me that they had analyzed the data from the 25,000 devices, along with the past six months of the SLS. Our initial look at SLS data showed Fidelis' rates of resistance to fractures had been comparable to that of other Medtronic leads (97.7 percent for the Fidelis vs. 99.1 percent for the previous model, the Sprint Quattro). This difference was not statistically significant. However, trends suggested that the Fidelis might not perform as well over time.
We then met with our chief medical officer, our chief regulatory officer, and an independent physician advisory board. They agreed that while the data was not clear, it did appear that the Fidelis was on a negative trend. So we had to make an extremely difficult decision: Should we suspend the distribution of a product that might be breaking too often? Or was the data insufficient to warrant pulling a key product that was extending people's lives?
I want to emphasize that we had been talking to the FDA about our data, and they never told us we had to take the Fidelis off the market. This was only about our recognizing our responsibility on our own.
Convening the Brain Trust
On Friday, we got in touch with everyone and agreed to meet on the weekend. We met Saturday in our corporate boardroom in Minneapolis. There were about 10 of us there, including the leaders from quality control, R&D, regulatory, me, and the president of the business unit. Separately, our independent advisory council of seven physicians also met that evening.
It's important to understand the culture at Medtronic and how it influences how we think. Our founder wrote in 1960 that the purpose of our company is to "alleviate pain, restore health, and extend life." I am not being coy when I say that I take this very personally and that our company is strongly influenced by this sense of mission. During the course of our Fidelis discussions, not once did we talk about what might happen to the stock price or market share if we suspended distribution. The conversation was about our responsibility to do the right thing.
Epiphany in the Parking Lot
The next day, Sunday afternoon, we met again via teleconference. It was critical that we get this decision right and do it in a timely way. I drove the kids to church and sat in a church parking lot on a conference call for about an hour-and-a-half. It was there that we made the decision to voluntarily suspend shipments. We would take the Sprint Fidelis off the market. We gave ourselves five business days to get ready to go public.
Getting the Word Out
The following week, we prepared materials for physicians around the world. We also prepared letters to doctors, patients, and regulatory authorities. We talked with the FDA, which agreed we were doing the right thing. The day before we announced the suspension [October 14], I called both of Medtronic's major competitors; one returned my call, the other did not. I gave him a heads up that this was going to be announced on Monday.
Also on Sunday, we worked with The New York Times, The Wall Street Journal, and several other papers, providing information under embargo. We had a group of outside physicians ready to help the media understand the issue. We had a Web-based information session for our sales force, and instructed them to contact their customers personally, so that they would not be surprised. We also prepared letters to doctors and regulatory authorities and encouraged patients who were already using the leads to see their doctors (many of these and subsequent communications are available at medtronic.com/fidelis).
And we sent out a notice that there would be an analyst call early Monday morning to let Wall Street know there was going to be material information released. That Sunday was a major production.
On Monday we went live. I made the announcement, and then I flew straight to a board meeting. It was clear that this was going to have a dramatic impact. The board supported me. They told me that for a new CEO, there was no better way to show what you are about than a decision like this.
The key thing was that we had important relationships in place to deal with the situation, such as the independent physician advisory board. With external stakeholders like the press, we knew who to call on that Sunday to share information, and we had the same thing on the investor side. We had all of these contacts in place in advance.
Afterthoughts
It's been tough, but there is no question that we made the right decision. Even though we took a significant financial hit and lost four or five points of market share, people appreciate that we did the right thing, that we were transparent and responsible. It is not easy to give bad news, and I think people respect us for having the courage to share with them as we did. Honestly, I don't think we would have done anything differently.