Zimmer Shows Flexibility

"As the most visible proponent of MIS, we believe that Zimmer stands to benefit on the margin from this shift."

Reicin also downplayed fears about new "gain-sharing" agreements which, some fear, could hurt the rocketing prices of implants. The agreements, which must be approved by the government, could reward surgeons for saving money by choosing less expensive implants. But Reicin, for one, sees a "very, very low" chance for gain-sharing to hit implant prices anytime soon.

Still, Reicin has grown more cautious on the industry -- and Zimmer in particular -- for an unrelated reason. Late last month, the federal government officially began investigating the marketing practices of orthopedic device makers. Specifically, the government is examining the financial relationships between industry salesmen and the orthopedic surgeons who select their companies' products.

Reicin, who immediately downgraded Zimmer from overweight to equal-weight on the news, had been fearing such a probe for some time.

"Perhaps the biggest risk to industry fundamentals relates to the potential of some sort of external shock to the industry if regulatory or legal bodies were to choose to redefine [the] physician/sales rep relationship," Reicin wrote just weeks before the feds launched their probe. "We think that this close relationship is a primary source of the positive pricing environment for the industry. ... [So] if action were to be taken, multiples for the entire orthopedics universe could come under pressure."