PREVIEW-Shaky orthopedic device market set to rebound

* Analysts expect modest 2010 rise in hip, knee procedures

* Sales seen improving gradually as year progresses

* Q4 results expected to confirm market is stabilizing

By Susan Kelly

CHICAGO, Jan 25 (BestGrowthStock) – U.S. orthopedic device makers,
hobbled in 2009 by sluggish procedure volumes, are poised for
modestly better growth this year as pent-up demand and a
recovering economy spur sales.

Investors will look for evidence of improving demand for
hip and knee replacements when device makers Stryker Corp
(SYK.N: ) and Zimmer Holdings Inc (ZMH.N: ) as well as Johnson &
Johnson’s (JNJ.N: ) DePuy unit report fourth-quarter results this
week.

“We got some signs last quarter that the deferral of
procedures that had been going on for much of this economic
crisis was easing up a little bit. After a tough year or two
for some of these companies, their prospects definitely look a
little brighter in 2010,” said Morningstar analyst Julie
Stralow.

Growth in the market for reconstructive joints slowed last
year as patients, unable to afford surgery or unwilling to take
time off from work in the weak economy, delayed those procedures.

“We all found out hip and knee surgeries were more elective
than we thought,” said Noble Financial Group analyst Jan Wald, who
has “hold” ratings on both Zimmer and Stryker.

But demand didn’t fall off a cliff, as some investors had
feared, and the market’s recovery is expected to be similarly
gentle.

“We’re sensing there’s some stability in the market,” said
Wald, who expects device makers’ fourth-quarter results to bear
that out.

Demand should really begin to improve in the first or
second quarter, he said. Overall, he expects the global market
for reconstructive joints to grow in the mid-single digits in
2010, up from about 3 percent last year, excluding the impact of
currency translations.

Hospitals will continue to feel the pinch from lower
patient admissions and will keep pressure on their physicians
to control costs. That pressure will be passed on to device
makers, Wald said.

“We don’t see much pricing power on the part of the
companies, so whatever they get is going to be volume and
procedures, not necessarily pricing,” he said.

However, year-over-year earnings comparisons will become
easier as people who delayed surgery become more confident
about using their funds and taking time off work to have the
procedure, Stralow said.

Stryker earlier this month released preliminary
fourth-quarter sales that were above expectations, and
privately held orthopedic device maker Biomet Inc has also
reported encouraging quarterly results, suggesting the market
is holding up, analysts said.

Robotic surgical systems maker Intuitive Surgical Inc’s
(ISRG.O: ) surprisingly strong fourth-quarter profit (Read more your timing to make a profit.) last week
bodes well for Stryker’s hard-hit medical equipment unit,
Stralow said.

“It looks like hospital administrators may be willing to
open their wallets a little bit more. If we see momentum in
that business, maybe investors will come back to that name,”
she said. Stryker’s medical equipment unit sells beds,
stretchers and operating room equipment.

Bernstein analyst Derrick Sung sees the U.S. hip and knee
market growing 6 percent in the fourth quarter and recovering
to 8 percent in 2010 due to easier comparisons with the prior
year, pent-up demand and new products.

“While we expect weakness to persist in outside-U.S. hip
and knee markets, growth appears to have bottomed in Q2,” Sung
said in a research note on Monday.

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(Reporting by Susan Kelly; Editing by Phil Berlowitz)

PREVIEW-Shaky orthopedic device market set to rebound