STJ ST. Jude Medical, Inc.

With a desire to expand its biologics and bone grafting portfolio, leading medical devices company, Medtronic (MDT) has recently launched Marrowmax bone marrow aspiration needle kit, a simpler procedure to suck out the bone marrow from patients with the help of a syringe. This segment offers huge potential as bone grafting is the most common form of spinal treatment in the US. It is estimated that more than 350,000 bone grafting procedures are performed in the US each year.

After a temporary setback following the delay in the approval of Amplify rhBMP-2 Matrix for spinal fusion procedures from the US Food and Drug Administration (FDA), this news surrounding the launch of Marrowmax is expected to boost and complement the company’s biologics portfolio.

Medtronic derives revenues under the Spinal segment from Core Spinal and Biologics businesses. After a certain period of dismal performances, during the third quarter of fiscal 2011, this segment generated $861 million in sales 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%) respectively.

Stability in the Spinal segment was driven by steadying InFuse sales and a strong performance in Other Biologics. Also the improving macro economic conditions are strengthening Medtronic’s foothold in the global spine market.

Medtronic is optimistic about further improvement in its spinal business banking on new product development. Recently it launched Vertex Select Chromaloy Plus Rods and Atlantis Vision Elite Anterior cervical plate system. Also, following the acquisition of Osteotech, Medtronic’s Biologics offering is expected to strengthen. We believe these measures should accelerate the growth rate further in the Spinal business.

Medtronic has taken several strategic initiatives to maintain its leadership position in the fiercely competitive medical devices industry as it battles  other major players such as Boston Scientific (BSX) and St. Jude Medical (STJ). Additionally it is targeting the under-penetrated emerging economies. Moreover, its restructuring initiatives should help it sustain long-term growth. We are currently Neutral on Medtronic, which corresponds to a Zacks #3 Rank (Hold).

 
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