Medical Supplies & Devices
SECTOR REVIEW
In Like A Lion, Out Like A Lamb?
■
It’s been a tough couple of days… ok so that’s an understatement. MedTech has
come under intense pressures over the past couple of days as healthcare reform
has become more tangible. Since the President’s address on Feb 24, MedTech
is down 14.5% versus the S&P 500’s decline of 9.9%. Healthcare reform is
negative for MedTech as it threatens the profitability profile of the industry. While
no company is immune, we believe those with greater geographic diversification
(BAX, BDX), lower tech supplies (BDX, COV, BCR), or breakthrough products
(EW) are better positioned than cardio and orthopedic companies (BSX, MDT,
STJ, SYK, ZMH).
■
All eyes are on healthcare reform. Over the coming weeks, we expect additional
details to emerge on healthcare reform. At the present time, the stocks are likely
to continue to be under pressure from the fear of the unknown. Hospital inpatient
reimbursement rates are due in April as are additional details on the budget.
■
There will be several events coming up this month. There are two industry
conferences this month--CRT and the American College of Cardiology meeting.
On the company front, Edwards is expected to complete enrollment in the
medical management arm of its US PARTNER trial. Finally, as the month closes,
keep an eye out for preannouncements across the sector to the extent
underlying demand is impacted by the economy or capex trends.
■
With this edition of the analyzer, we have adjusted several price targets due
principally to the greater risks associated with healthcare reform: BAX to $62
(from $65), BSX to $9 (from $9.50), COV to $42 (from $47), MDT to $35 (from
$37), STJ to $36 (from $37), SYK to $36 (from $38), and ZMH to $40 (from $42).
We feel most comfortable with EW (Outperform) and BDX (Outperform). We like
COV (Outperform) on a fundamental and valuation basis but in the near-term
believe the index deletion issue is a major overhang and the stock in the nearterm
could continue to slide lower. We are most cautious on SYK (Neutral) given
its exposure to hospital capex and elective procedures We’re also somewhat
concerned on BCR (Neutral) given its relative valuation.

Table of contents
A Quick Look Back At Stock Performance 3
Our Views On The Stocks 4
US Healthcare Reform 6
Healthcare Reform 7
Medicare Reimbursement 10
What’s Ahead in 2009 15
A Closer Look At Stock Performance 20
S&P 500 Sector Performance 21
S&P 500 Healthcare 22
MedTech Individual Stock Performance 26
MedTech Valuations 30
Sector Valuation 31
Hot Topics 34
Foreign Exchange Rate Movements Adds Volatility 35
Macro Economic Spill Over Effects Evident 39
CS Purchasing Manager Survey Results 40
4Q08 Earnings Takeaways 49
Company Profiles 51
Bard (BCR-Neutral) 52
Baxter International (BAX-Neutral) 65
Becton Dickinson (BDX-Outperform) 84
Boston Scientific (BSX-Neutral) 101
Covidien (COV-Outperform) 116
Edwards Lifesciences (EW-Outperform) 132
Medtronic (MDT-Neutral) 145
Nanosphere (NSPH-Outperform) 162
St. Jude Medical (STJ-Neutral) 167
Stryker (SYK-Neutral) 181
Zimmer Holdings (ZMH-Neutral) 194
Major Product Categories 207
Cardiac Rhythm Management (CRM) 208
Coronary Stents 218
Heart Valves 225
Blood Plasma Market 237
Glossary 238