Device Makers Look to Evolve

Medtronic (MDT Quote) could soon conquer another major device market.

The company already ranks as a leading player in the lucrative cardiac and spine markets. But soon, some believe, Medtronic could dominate yet another market -- by acquiring top joint maker Zimmer (ZMH Quote) -- as it seeks to capitalize on opportunities and overcome challenges in the ever-changing medical device industry.

"Through the acquisition of Zimmer, Medtronic would hold the No. 1 share in hips, knees and spinal markets," UBS analyst Kristen Stewart wrote in an industry report earlier this month. "The combination would create an orthopedic powerhouse ... [and] instantly transform Medtronic into a more diverse company."

Such a deal, should it transpire, could prove to be one of the largest for the $200 billion global medical device industry next year. Other buyouts, particularly in the booming spine business, are expected, as well.

Device makers, in general, might need some extra muscle. With Democrats poised to control Congress, the industry could find itself operating in a much tougher environment amid increasing government scrutiny.

Some feel that shift already.

"There have been several issues lately that appear to be driving the environment: the desire to rein in the potential patients that could be indicated for a therapy to those that can benefit the most, and to provide more visibility into companies' clinical investigations ... and post-market surveillance," wrote A.G. Edwards analyst Jan Wald in a research report. "These are not bright spots for medical technology companies."