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Jefferies & Company Medical Technology Investment Choices From Raj Denhoy, Managing Director

67 WALL STREET, New York - August 8, 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: Innovation Counters Pricing Pressure - Orthopedics and Cardiovascular Medical Devices

Companies include: Edwards Lifesciences Corp. (EW), Volcano Corporation (VOLC), Cyberonics Inc. (CYBX), Medtronic, Inc. (MDT), Boston Scientific Corporation (BSX), St. Jude Medical Inc. (STJ), Stryker Corp. (SYK), Zimmer Holdings Inc. (ZMH), Insulet Corporation (PODD), DexCom, Inc. (DXCM), Johnson & Johnson (JNJ) and many others.

In the following interview excerpt from the Medical Devices Report, Jefferies & Company Managing Director Raj Denhoy reveals his outlook for the sector:

TWST: And are there particular areas you like better than others right now?

Mr. Denhoy: I'm not sure you could define it by clinical areas. The broad theme that we continue to focus on is that there is a fundamental shift taking place right now in the way medical devices are being sold and brought to market. The way that this industry has done business over the last 25 or so years is fundamentally changing. The model for a long time has been that the surgeon or the clinician who uses the technology was the ultimate customer. That is now changing.

The customer is being more broadly defined. The customer is still the clinician but it now includes the hospital, the insurance company and the governments who are paying for the technology, and their focus tends to be a little bit different. And the industry is still trying to adapt to this change.

Some of the larger device categories - things like hips, knees, spine, defibrillators, pacemakers and stents - are starting to be show the effect of this changing dynamic. A lot of what's sold in those markets could be considered commodities. There is very little clinical differentiation amongst the various products and the various companies. And as the purchasers tend to focus on this more, it's starting to drag down pricing. I think this trend is going to continue for a long time as a major secular headwind for this industry.

There have also been some short-term challenges in those markets. The economy continues to sap some of the growth out of procedures as patients are electing to delay. We've seen Europe become quite challenging for these companies, and it looks like that's going to continue for some time. There has been some increased scrutiny on the use of medical technology, whether the right patients are getting the right technologies, which continues. But I think the longer-term secular changes - the way the health care is delivered and who purchases it - are perhaps more damning challenges for the industry over time.

As a result, we try to look for innovative technologies, new markets, companies that have some technology they can use to still grow, in a sense. Those are becoming more difficult to find, but there are still some of them out there. We're focused on things like transcatheter heart valves, and Edwards Lifesciences (EW), which is really pioneering the use of these valves, is replacing surgical aortic valves. These do everything you want them to do - lower costs, improve outcomes. This is the stuff people should be focusing on. For example, Volcano (VOLC) has technologies for improving PCI procedures. Cyberonics (CYBX) has technology for improving epilepsy, and we think, over time, depression as well.

TWST: We've talked in the past about the litany of headwinds facing the medical device sector. With the Supreme Court decision and the medtech tax settled, is there a little more certainty?

For more from this interview and many others visit The Wall Street Transcript Online - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts.