Checking on the Heartbeat Over at Medtronic

Analysts wonder how patients will deal with safety concerns.
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With all the goings-on at its two rivals, Medtronic (MDT) - Get Report has been off the radar screen lately.

Investors have been focused on

Boston Scientific

(BSX) - Get Report


St. Jude Medical


. Recent months have brought a big tie-up between Boston Scientific and Guidant, along with a big earnings warning at St. Jude.

But Medtronic, the Minneapolis-based medical-technology powerhouse, is set to report its fiscal fourth-quarter earnings after the close on Tuesday. The company still holds a big share of the market for pacemakers, the electric devices that deliver periodic shocks to hearts that beat with abnormal rhythms.

The company's shares have languished in recent months, and some observers say safety issues are hanging over the sector.

While some analysts believe the fears are short-lived and tied to recent device recalls, Prudential medical devices analyst Larry Biegelsen contends worries could be here to stay.

There's a concern among both doctors and patients that the devices' benefits don't outweigh the risks, says Biegelsen. He says these concerns -- along with worries about the cost-benefit tradeoff on the part of users -- may help convince patients to opt for drugs instead of the devices.

"Medtronic's implantable cardioverter defibrillator sales results will be the key data point reported in our view and will give some clarity regarding the direction of the ICD market," wrote Biegelsen in a recent report.

Analysts are expecting Medtronic to make 62 cents a share on sales of $3.08 billion.

Kaufman Brothers analyst Timothy Lee says Medtronic should report $1.37 billion in sales of its cardiac rhythm devices, which include pacemakers and implanted defibrillators. That's up 9% from a year ago. He expects it to post sales of $186 million in cardiac surgery products, flat with a year ago, and sales of neurological and diabetes products of $550 million, up 11%.

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Lee reiterates his buy recommendation on the stock, but warns that the company runs the risk of greater-than-expected slowdown in the overall device market. He also worries about delays in regulatory approval of key new products and greater-than-expected loss of market share in key markets.

Prudential's Biegelsen estimates that the ICD market grew 6% to 7% in the first quarter of 2006, with Medtronic's share holding at 52% worldwide. He expects Medtronic's ICD operation to bring in $775 million in sales for the quarter.

In addition to ICD sales, Biegelsen says key growth drivers will include surgery devices and biologics. He also cites neuromodulation devices for pain and movement disorders. Medtronic has more than 40% of those markets, as well as 65% of tthe market for diabetes insulin pumps and a small presence in drug-eluting stents.

During its earnings call Tuesday, Medtronic is also expected to discuss plans to increase spending on its cardiac rhythm and spinal businesses. That could entail hiring 90 to 100 salespeople. The company is also expected to detail clinical trial expansion plans for its urological therapies and treatments for neurological problems like Parkinson's disease, depression and chronic pain.

Shares were 75 cents lower Monday to $48.55.