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Medtronic Goes for Shock Value

With any number of reports saying Americans are getting fatter, medical device company Medtronic (MDT - Get Report) may be positioned to see the bigness trend expand its own results.

Earlier this summer, the Minneapolis-based company agreed to acquire Transneuronix, a privately held medical device company and maker of the Transcend, a pacemakerlike device that is in U.S. trials to treat morbid obesity.

When the Transcend becomes a significant item on Medtronic's revenue statement, "assuming pacemaker-type pricing, the total market opportunity could easily be greater than $500 million," Glenn Reicin of Morgan Stanley wrote in a research report earlier this summer.

Jason Wittes of Leerink Swann, a biotech equity research firm, points out that the company hasn't released a selling price for the device, but he expects the Transcend to be priced at $10,000. And "for Medtronic, anything above a $500 million market opportunity would start to affect them," he says.

However, Medtronic might not reap the benefits of the deal for a year or more, according to Glenn Novarro of Banc of America Securities. He doesn't see the deal materially affecting revenue and earnings until after 2006.

At $52, Medtronic is a buy according to Novarro, and he has a 12-month price target of $63. Shares are now up to about $56. Banc of America Securities does and seeks to do business with companies it covers.

Measuring Prospects

According to the Department of Health and Human Services, surgical treatment is more effective than nonsurgical approaches for weight loss in morbidly obese patients or those who have a body mass index of 40 or greater.

After trying diets, exercise and behavior modification to fight serious weight problems, some people are trying surgery.

In the past year, the obesity rate among American adults rose to 24.5% from 23.7%, according to estimates from the Washington-based nonprofit Trust for America's Health, which ranked U.S. states by girth; the survey declared Mississippi the fattest state.

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