Medtronic (NYSE:MDT) is providing additional facts in response to a New York Times report detailing an acquisition by Covidien that allegedly changed the course of a government contract designed to increase ventilator supply, now a major problem amid the coronavirus pandemic.
Medtronic bought Covidien for $50 billion in 2015 — years after the events described in the Times article.
The Times article, headlined “The U.S. Tried to Build a New Fleet of Ventilators. The Mission Failed,” ran online on March 29 and detailed Covidien’s $108 million purchase of Newport Medical in 2012. Newport Medical was a small California-based company that previously agreed to a $6.1 million upfront deal in 2009 with the expectation of further payment from the government as it continued to add ventilators to the national stockpile.
According to the report, the plan was for Newport to file for market approval for the ventilators in September 2013, but Covidien after acquiring Newport asked for more funding and assigned Newport executives to new roles away from the project.
By 2014, there were no ventilators delivered to the government, and the government canceled the contract after Covidien expressed its desire to be free from it, according to the Times report.
Medtronic claims that the article lacked important information regarding Newport’s contract with the government.
Medtronic’s statement outlined that after Covidien became aware of Newport’s contract with the government, it learned that the company’s work on the ventilator design had “significant gaps” between the promises made to the government and what the company was capable of delivering, on both the cost of production and product performance fronts. That, according to Medtronic, made Covidien question Newport’s ability to complete the project as agreed.
Covidien was unable to address the gaps it saw and recognized that it could not deliver the product close to the target cost required by the contract. On top of that, the ventilator did not win FDA approval for use in neonatal populations, which was required in the contract, according to Medtronic’s statement.
Fridley, Minn.–based Medtronic added that its present efforts with regards to coronavirus include the increase of ventilator production by more than 40% and 24/7 shifts to produce as many as possible. The company said it is also working with third parties to explore other non-traditional mechanisms to increase ventilator production.
