Orthopedic, Sports Medicine and Spinal Surgical Procedures Rebounding from Recession: Interview with Leading Analyst from Piper Jaffray Highlights Stocks that Benefit

Wall Street Transcript

67 WALL STREET, New York - August 6, 2012 - The Wall Street Transcript has just published its Medical Devices Report. 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: Baxter International Inc. (BAX), MAKO Surgical Corp. (MAKO), Stryker Corp. (SYK), Johnson & Johnson (JNJ), Zimmer Holdings Inc. (ZMH), Wright Medical Group Inc. (WMGI), NuVasive, Inc. (NUVA), Symmetry Medical, Inc. (SMA), Medtronic, Inc. (MDT) and many more.

In the following excerpt from the Medical Devices Report, a leading industry analyst from Piper Jaffray (PJC) discusses the sector for investors:

TWST: Where are you focusing your attention in the medical device space these days?

Mr. Miksic: We've been making a call, since January, across a couple of segments of our universe, that surgical trends and procedure trends are improving in the U.S., after approximately four years of going sideways or declining due primarily to the U.S. recession. That call crosses over probably half a dozen stocks in orthopedics, sports medicine and spine.

And then, as there always is, there are some large-cap stocks that we're focusing on as well, large, diversified names like Baxter (BAX), which we believe was oversold in the low $50s.

Separately, on the new technology front, there is a category of names we have dubbed advanced surgical technology, which includes MAKO (MAKO) and another small-cap name, Novadaq (NVDQ). We cover a broad space, and there is, as always, a lot of moving parts. And many times, they are not all moving in the same direction.

TWST: When you talk about surgical trends and procedures, you are seeing an uptick in numbers?

Mr. Miksic: We did a fair amount of work in the form of field checks, survey work, conversations with surgeons and distributors especially focused on orthopedics. Hips and knees had become something that patients actually deferred for the first time about four years ago, and that was news then. Growth continued to deteriorate or slow over the subsequent three or four years, and we had been looking for evidence of the turn - checking the industry, running surveys, looking at the numbers from all different angles. We saw that evidence in December and January, capped it with our surgeon survey, which we published in January, and we made that call. That has played out in orthopedic trends for the first half of the year.

In the last week, we've got, as we talk about moving parts that are moving in different directions, we have a lot of data points from many different places, often pointing in opposite directions. For example, the knee numbers were very strong, stronger than expected, in the first quarter and second quarter in the U.S. Conversely, there were some cautionary comments out of the cardiac space last week, which raised the question: "Well, is that cardio or is that surgical and utilization in general?" The market doesn't like that kind of confusion and uncertainty.

There was some softer performance in Europe, raising questions there. There were some cautionary comments and results on the hospital capital side, and some companies attributed that to the Affordable Care Act, raising the question: "Well, does that have implications for utilization in the back half?" So there is a lot of confusion on the battlefield at the moment. Troops running in opposite directions, if you will, but we feel very good about the call we are making on orthopedics and spine, particularly in the U.S.

TWST: There are a lot of headwinds facing this group. Which ones are you paying the most attention to the most, and/or which ones are do you see changing?

For more from this interview visit The Wall Street Transcript Online, a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers, and research analysts. This special issue is also available by calling (212) 952-7433.

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