More Faults in Halted Medtronic Device?

-TheStreet.com

11/26/2007- Despite tactful handling of its Fidelis lead recall, Medtronic (MDT) may have more problems on the horizon with the insulated defibrillation wires, according to a Deutsche Bank research report late last week. Deutsche Bank analyst Tao Levy said Friday in a research note that while the impact of the recall has been not as severe as anticipated, more bad news may roll in.

Aside from concern that lead fractures could continue to require more replacement procedures, Levy said the Fidelis lead may also offer poor sensing capabilities, essentially leading to inappropriate shocks. "This latter concern is something new we have learned from our clinician contacts, and we could see published in medical journals," he noted in the report. "Bottom line is that while MDT has done a good job in managing the Fidelis recall, there will be clinicians who are not only frustrated with the number of leads affected but also by the increasingly poor performance of the lead," Levy wrote.

The analyst said this could result in permanent loss of market share in implantable cardioverter defibrillators (ICDs), reiterating that both St. Jude Medical (STJ) and Boston Scientific (BSX) stand to benefit from any market share loss that Medtronic suffers.

A spokesperson for Medtronic said Monday that the company is aware of the report but doesn't have immediate comment. In October, the Minneapolis-based medical-device maker suspended its Fidelis family of defibrillation leads because of the potential for the wires to fracture. Last week the company gave a compelling report on the progress of the lead recall, which resulted in a 2% decline in earnings. Amid the lead update and earnings discussions, analysts and investors speculated that shares, having plausibly hit the bottom, were due for acceleration in 2008. JP Morgan analyst Michael Weinstein summarized in his report last Tuesday that, "With F2Q results behind the company and, by all indications, the ICD business not falling off a cliff, investors can for the first time in weeks focus on Medtronic's fundamentals outside of CRM and the potential for a 2008 acceleration story at a dramatically discounted price." In his report on Friday, Deutsche Bank's Levy maintained a buy rating but cautioned about being overly optimistic. Shares rose 38 cents, or 0.8%, to $48.70 in recent trading Monday.

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