Defibrillator Boost May Recharge Greatbatch

A growing resurgence in the market for implantable cardioverter defibrillators (ICD) is providing a boost to Medtronic (MDT - commentary - Cramer's Take) and offers a potential further boon to Greatbatch (GB - commentary - Cramer's Take), a small-cap company that provides specialized batteries for implantable medical devices.

ICDs are high-powered battery devices that are implanted in the chest of cardiovascular patients to correct irregular heartbeats, but overall market growth for these life-saving devices has come under pressure over the past year with repeated recalls from Guidant's product line.

Last week, however, Medtronic delivered a terrific earnings report, showing stellar performance in ICD sales. While it still appears too soon to embrace Medtronic's 10% to 15% long-term market growth forecast, it does seem that the worst may be over in the industry's inventory work-down process.

Medtronic reported a 14% sequential quarterly gain in ICDs, but its modest 4% year-over-year increase is now more consistent with analysts' 5% growth expectations for the overall market. I now believe there is further potential for sentiment to improve toward ICDs in the first half of '07.

Greatbatch fills a highly specialized battery and implantable component niche that supplies most of the major cardiac rhythm management (CRM) manufacturers. The company's business has been under pressure recently, as ICD market growth has slowed and inventory levels have been worked down. Medtronic's results are the first positive sign for the ICD market in quite a while, as competitors St. Jude Medical (STJ - commentary - Cramer's Take) and Boston Scientific (BSX - commentary - Cramer's Take), which earlier this year acquired Guidant, both reported negative trends last month. Although Medtronic's strong ICD results were driven by market-share gains, there are several positive signals for the overall industry.

The first positive is the boost Medtronic received from its overseas ICD exposure, with more than 30% growth in its European and Japanese regions. This strong pickup in overseas performance establishes another important driver for the ICD marketplace.

Another key component in the expected ICD recovery story is the renewed marketing effort by Medtronic to boost overall physician awareness and ICD market-penetration rates. This quarter, the company is embarking on a $100 million annual ICD awareness campaign to meet this objective. This aggressive marketing effort by Medtronic is likely to boost penetration rates and benefit all of the players in the ICD segment during 2007.

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At the time of publication, Michael Latwis had no positions in stocks mentioned, although positions may change at any time.

Michael Latwis has directed health care content at TheStreet.com Professional Products. He also has worked at Barclays Wealth management division and was previously associated with Lazard Freres and Fiduciary Trust. Latwis covered companies in the pharmaceutical and specialty pharmaceutical sectors as well as biotech, medical technology, healthcare services, retail and media stocks. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Latwis appreciates your feedback; click here to send him an email.