Despite tactful handling of its Fidelis lead recall,
may have more problems on the horizon with the insulated defibrillation wires, according to a Deutsche Bank research report late last week.
Deutsche Bank analyst Tao Levy said Friday in a research note that while the impact of the recall has not been as severe as anticipated, more bad news may roll in. Aside from concern that lead fractures could continue to require more replacement procedures, Levy said the Fidelis lead may also offer poor sensing capabilities, essentially leading to inappropriate shocks. "This latter concern is something new we have learned from our clinician contacts, and we could see published in medical journals," he noted in the report.
"Bottom line is that while MDT has done a good job in managing the Fidelis recall, there will be clinicians who are not only frustrated with the number of leads affected but also by the increasingly poor performance of the lead," Levy wrote. The analyst said this could result in permanent loss of market share in implantable cardioverter defibrillators, reiterating that both
St. Jude Medical
stand to benefit from any market share loss that Medtronic suffers.
A spokesperson for Medtronic said Monday that the company is aware of the report but doesn't have immediate comment.
In October, the Minneapolis-based medical-device maker suspended its Fidelis family of defibrillation leads because of the potential for the wires to fracture. Last week the company gave a
compelling report on the progress of the lead recall, which resulted in a 2% decline in earnings.
Amid the lead update and earnings discussions, analysts and investors speculated that shares, having plausibly hit the bottom, were due for acceleration in 2008. JPMorgan analyst Michael Weinstein summarized in his report last Tuesday that, "With F2Q results behind the company and, by all indications, the ICD business not falling off a cliff, investors can for the first time in weeks focus on Medtronic's fundamentals outside of CRM and the potential for a 2008 acceleration story at a dramatically discounted price."
In his report on Friday, Deutsche Bank's Levy maintained a buy rating but cautioned about being overly optimistic.
In his post-earnings note just three days earlier, he said, "With the company facing easy comparisons in fiscal 2009 due to a full-year benefit of the Kyphon acquisition, Physiocontrol coming back on line, and Fidelis impacts under wraps, we believe mid-teens top line and better on the bottom line are in the cards, which keeps us positive on MDT shares."
Shares rose 38 cents, or 0.8%, to $48.70 in recent trading Monday.