Zacks_Analysts' Blog : Medtronic Launches Spinal Device - Analyst Blog

Leading medical devices company, Medtronic (MDT) has launched Kyphon Express Curette for scraping bone in the spine. The device will also find application in treating vertebral compression fractures (VCFs) using Kyphon Balloon Kyphoplasty. The potential in this segment is huge as VCFs are the most common form of osteoporotic fractures. It is estimated that about 90,000 spinal fractures take place in the US each year.

Medtronic derives about 22% of its revenues from the Spinal segment, which recorded a 9% decline in sales to $829 million during the last reported quarter. Revenues from its two divisions – Core Spinal and Biologics were lower by 10.6% ($622 million) and 5.5% ($207 million), respectively.

The dismal performance at the Spinal business can be attributed to current macroeconomic conditions, which are delaying elective procedures due to high co-pays and expired benefits.  This in turn has resulted in lower growth for the overall market, driven by decline in both procedures and price mix. According to company estimates, during the first quarter, growth in the US spine market declined by 400 basis points sequentially and is currently growing in the low to mid-single digits. Based on current conditions, Medtronic expects revenue growth from this segment to remain flat with a 3%-4% growth in the spine market.

Despite weakness in the market, Medtronic is optimistic about growth improving in its core spinal business banking on new product launches, including Xpander II balloon and Xpede cement. In Biologics, Amplify received favorable recommendation from the advisory panel of the US Food and Drug Administration (FDA) and expects approval later this fiscal. Following the acquisition of Osteotech, Medtronic’s biologics offering is expected to strengthen. We believe these measures should accelerate the growth rate in the Spinal business, to some extent.

We are currently Neutral on the stock.