PREVIEW-Medical device usage in focus as Medtronic reports

* Medtronic reports Q2 results on Tuesday

* Some analysts see another cut in company’s 2011 outlook

* Lack of growth in spine, heart markets is key concern

* FDA warning letter is holding up new product rollouts

* Medtronic stock down 21 percent this year

By Susan Kelly

CHICAGO, Nov 22 (BestGrowthStock) – Medtronic Inc (MDT.N: ) is
expected to announce a higher profit when it reports quarterly
results on Tuesday, investors will pay more attention to
whether its spine and heart device markets remain stalled.

Sales slowed in Medtronic’s first quarter, which ended in
July, prompting the company to cut its full-year outlook and
spreading gloom through the medical device business.

Other device makers have felt the pinch of declining
healthcare demand, missing revenue targets as Americans who are
out of work or shouldering more of the financial burden of
their employer-sponsored plans postpone medical care.

“Patient traffic is still down,” said Morningstar analyst
Debbie Wang. “If it’s not acute and it’s not symptomatic,
people can just delay going in to see the doctor.”

Some analysts are bracing for the possibility that
Medtronic, the world’s largest stand-alone medical device
maker, could reduce its full-year forecast for a second time,
if a pickup in demand for its implanted heart defibrillators
and other devices fails to materialize.

“Medtronic’s guidance for fiscal year 2011 will in all
likelihood need to come down on the upcoming call,” J.P. Morgan
analyst Michael Weinstein said in a recent note to clients.

Much is riding on the company’s performance in the latest
quarter.

“In their main divisions, they are still growing well below
the market,” said Jefferies & Co analyst Raj Denhoy. “To
accelerate from what they’ve done in the first two quarters is
going to prove pretty difficult because we’re already halfway
through their fiscal year.”

Analysts on average expect Medtronic to post fiscal
second-quarter earnings per share excluding items of 81 cents,
up from 77 cents the year before, according to Thomson Reuters
I/B/E/S. Revenue growth is seen as rising just under 2 percent
to $3.9 billion in the quarter.

Medtronic’s two biggest divisions — cardiac rhythm disease
management unit, which includes pacemakers and implantable
defibrillators, and its spine device business — face more
competition and pressure on product pricing. The concerns are
reflected in Medtronic’s share price, which is down about 21
percent for the year to date.

“Those two businesses are dragging down the performance of
the company,” Denhoy said.

A warning letter from U.S. regulators over quality system
procedures at the company’s Mounds View, Minnesota,
manufacturing facility is hampering new product flow in the
heart rhythm division.

Rival St Jude Medical Inc (STJ.N: ), meanwhile, has benefited
from product introductions in the ICD market. “They might be
gaining share that is coming out of Medtronic’s hide,” Wang
said.

In the spine business, Medtronic is facing competition from
companies including CareFusion Corp (CFN.N: ) in the market for
devices that perform kyphoplasty procedures to treat vertebral
fractures.

At the same time, spinal fusion surgery, long the backbone
of Medtronic’s spine business, is under scrutiny from insurance
companies that question the need for the procedure in many
cases in the absence of convincing medical data on its
effectiveness.

Analysts have mixed views on whether the broader challenges
facing medical devices, including a shift in pricing power away
from industry and to the hospitals that buy the products, are
stabilizing. Some see healthcare utilization deteriorating
further before it gets better.

“I think it’s going to get worse next year as employers
raise deductibles and co-pays,” Wang said.
(Reporting by Susan Kelly. Editing by Robert MacMillan)

PREVIEW-Medical device usage in focus as Medtronic reports