With any number of reports saying Americans are getting fatter, medical device company Medtronic ( MDT) 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.

Critics of the study say it may lack accuracy because it depends on Americans self-reporting their weight and height -- which often leads to people underreporting their weight and overestimating their height.

Medtronic is buying Transneuronix for about $260 million and will make added milestone payments if certain revenue targets are met. Transneuronix has been researching electrical stimulation to treat obesity for more than eight years in the U.S. and Europe.

More than 700 patients have been implanted with Transcend, and about 300 patients are enrolled in Transneuronix-sponsored trials that so far have shown meaningful weight loss and a good safety profile for the device. The product is currently in trials in the U.S., and results are expected later this year. The Transcend could go on sale as early as the end of 2006.

Transcend is currently approved for use in Europe and Canada, but sales are so far minimal, according to Morgan Stanley's Reicin. Morgan Stanley does business with the companies it covers.

"This is more of a long-term project," Wittes says.

Medtronic's management hasn't commented on the device's expected effect on earnings, Wittes says, so he hasn't yet changed his estimates. He has a market-perform rating on the stock.

"Anyone in neurostimulation is interested in gastric stimulation," says Ryan Rauch of Jefferies & Co. "If it's clinically effective, it could clearly be a significant market opportunity." Jefferies doesn't have an investment banking relationship with Medtronic.

Because of the possibilities of broader interest, the Transcend could see competition from companies such as Cyberonics ( CYBX), maker of a vagus nerve stimulator used in epilepsy and depression, and Advanced Neuromodulation Systems ( ANSI), a producer of spinal-cord stimulation devices.

Try It On for Size

While the stomach normally contracts at a rate of three times a minute, the Transcend stimulates the stomach 12 times a minute, causing it to distend and creating a feeling of fullness, according to Medtronic.

The implantation of the device takes about an hour, whereas current weight-loss, or bariatric, surgeries can take several hours. The most common bariatric surgeries in the U.S. are gastric banding, in which an elastic belt is wrapped around the stomach to limit its size, and gastric bypass, where a portion of the stomach is stapled and the lower intestines are rerouted to this smaller section of the stomach.

Gastric banding has a mortality risk of 0.2%, according to Inamed ( IMDC), one gastric-band maker. A possible side effect is that the band could slip; this may require surgery to readjust.

Brands of gastric bands include the Lap-Band, made by Inamed, the Swedish Adjustable Gastric Band from Johnson & Johnson's ( JNJ) Ethicon Endo-Surgery, and the Midband from the French company Medical Innovation Developpement.

Despite a mortality rate of about 2%, gastric bypass surgery is the most popular bariatric surgery in the U.S. Patients who opt for a gastric bypass can eat more food than those who chose gastric banding, and initial weight loss after surgery is more dramatic, gastroenterologists say.

Bypass surgery includes risks like loss of stomach fluids and the development of gallstones. According to Medtronic's estimates, 130,000 bypass procedures and 30,000 gastric banding procedures were performed last year; combined, the number is increasing about 30% a year.

If it's proven safe and effective, analysts say, Transcend could not only take a chunk of the bariatric surgery market, it could also be indicated in less severe cases of obesity.

However, "I wouldn't hold my breath and wait for it to get to less obese patients, at least in the first couple years," Wittes says. Leerink Swann doesn't have an investment-banking relationship with Medtronic.

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