Zacks_Analysts' Blog : Medtronic's Edge in Spinal Treatment - Analyst Blog

Leading medical devices player, Medtronic (MDT), received some good news with respect to its Spinal segment. The company recently announced that Noridian Administrative Services will continue to provide coverage of vertebral augmentation for the treatment of spinal fractures. This decision will benefit Medtronic as it provides Kyphon balloon kyphoplasty procedures (BKP) for spinal fractures caused by osteoporosis and cancer.

Noridian is a Medicare Administrative Contractor that provides Medicare insurance coverage in 11 states. The extension of the coverage entails the need to provide specific documentation and comply with the required patient care condition before carrying out the surgery. Medtronic believes that positive data presented in the recent past regarding BKP forced Noridian to take a positive decision.

Earlier in March 2011, Medtronic’s Canada unit, presented favorable data BKP for the treatment of spinal fractures in cancer patients. It was observed that patients treated with the BKP got better results compared with non-surgical care after one month of treatment. The study (Cancer Patient Fracture Evaluation or CAFE) was conducted with 134 cancer patients suffering from vertebral compression fractures (VCFs) in the US, Europe, Australia and Canada. This new treatment option will cater to a large population of cancer patients with VCF, where almost 24% with multiple myeloma, 14% of breast cancer, 8% of lung cancer and 6% of prostate cancer have such complication.

Moreover, results of the Fracture Reduction Evaluation (FREE) showed that patients treated with KBP experienced better results with respect to back pain relief, and improvement in quality of life and mobility compared to those receiving non-surgical care. The patients treated with BKP, on average, were also satisfied with their treatment over the 24-month study. 

Spinal and Biologics is Medtronic’s second largest segment after Cardiac Rhythm Disease Management (CRDM) which contributed 21% of total sales during the third quarter of fiscal 2011. This segment has struggled over the past few quarters before returning to growth in the third quarter.

This segment generated $861 million in sales during the quarter compared to $842 million in the year-ago period, up 2%. Revenues from Core Spinal and Biologics were $626 million (down 0.6% year over year) and $235 million (up 10.8%). Revenues from BKP declined 5% during the quarter (same as the second quarter) and were flat on a sequential basis. We believe revenues from BKP should increase gradually with greater acceptance of the procedure based on favorable data.

Although orthopedic medical devices companies were witnessing challenges in the form of pricing pressure and lower procedure volume arising from economic uncertainty, the situation is gradually stabilizing. However, we note that the market for spinal products gets highly competitive with the presence of players such as Zimmer Holdings (ZMH) and Johnson and Johnson (JNJ) in the fray.

We are currently Neutral on Medtronic, which also corresponds to the Zacks #3 Rank (Hold) in the short-term.