Managing Director Of RBC Capital Markets Glenn Novarro Reveals Medical Device Growth Stock As Top Pick In 2012 And 2013

Wall Street Transcript

67 WALL STREET, New York - August 14, 2012 - The Wall Street Transcript has just published its Medical Devices Report offering a timely review of the sector to serious investors and industry executives. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Orthopedics and Cardiovascular Medical Devices - Medtech Tax Affects Earnings

Companies include: Abbott Laboratories (ABT), Baxter International Inc. (BAX), Johnson & Johnson (JNJ), Covidien, Ltd. (COV), Boston Scientific Corporation (BSX), Edwards Lifesciences Corp. (EW), Medtronic, Inc. (MDT), St. Jude Medical Inc. (STJ), Zimmer Holdings Inc. (ZMH), Stryker Corp. (SYK), NuVasive, Inc. (NUVA) and many more.

The following excerpt is from an interview with the Managing Director Glenn J. Novarro of RBC Capital Markets:

TWST: And do you have a weighting for that group?

Mr. Novarro: We've had a "neutral" weighting on the cardio group. Within the cardiovascular space, our favorite idea has been Edwards (EW). It's been our top pick for the year, and it's performed very well.

It's our top pick because Edwards is a new product story that will benefit from favorable pricing and utilization trends. Its lead new product is called Sapien, a transcatheter heart valve that is implanted in a minimally invasive fashion. We believe that Sapien will double the company's revenue base over the next five years. Overall, Edwards Lifesciences is one of the few growth stocks in med tech.

TWST: What's the general view of the orthopedic and spine group?

Mr. Novarro: Let's start with the large-joint sector of our coverage, principally knees and hips. This market is stable today. It is doing a little bit better than we had projected at the start of the year. Some of this outperformance is macro related, particularly in the U.S., where elective procedures appear to be rebounding in the near term. We think that patients who have been deferring surgery over the past couple of years are now coming back into the system. As a result, we're seeing the knee and hip market perform better than some of the traditional cardiovascular device markets.

Pricing remains an issue in orthopedics, but as of today, pricing is not as bad for knees and hips as it is, for instance, in ICDs or stents.

The orthopedic market is doing better today and has a little bit more of a tailwind going forward. The spine market is stable, but not performing as well as the large-joint market. While volume growth in the U.S. is somewhat comparable, pricing is under more pressure. Whereas pricing in the knee and hip market is going down 1% to 2% per annum, pricing for spinal implants is down more mid-single digits. So the spine environment is a bit more challenged than the knee and hip market. Both markets outside the U.S. face challenges particularly in Europe, but that's because of the economic environment.

TWST: I wanted to ask you about the effects of health care reform. Are the recent Supreme Court decision and the device excise tax still a big part of how you're evaluating companies?

For more from this interview and many others visit the Wall Street Transcript. Available by calling (212) 952-7433 or via The Wall Street Transcript Online.

View Comments