Shares of medical device companies slumped Tuesday after market leader Medtronic Inc. said higher unemployment, combined with rising insurance fees and other changes in the health care sector will curb sales growth.
Medtronic Inc., the world's largest medical device maker, reported fiscal first-quarter earnings Tuesday in line with Wall Street expectations, but weaker global demand for medical implants forced the company to slash 2011 earnings expectations.
Medtronic's CEO Bill Hawkins told analysts that persistent joblessness and higher insurance costs have cut down on doctor's visits and use of his firm's devices. The Minneapolis-based company specializes in implantable heart pumps and spinal implants that cost tens of thousands of dollars.
"I think that we are just in this kind of transition phase as we are trying to figure out what is going to happen long-term with the economy," Hawkins told analysts. "I am confident that we will get through this and that people will return to going to see the doctor."
The company reined in its full-year revenue growth projections to between 2 and 5 percent, down from 5 to 8 percent as previously projected.
Medtronic shares fell $3.69, or 10.6 percent, to $31.30 in Tuesday afternoon trading.
Last week J.P. Morgan analyst Michael Weinstein lowered the company's stock rating to "Neutral" from "Overweight," saying the company faced significant headwinds to continued earnings growth.
Last month medical device company Stryker Corp. reported a similar slowdown in sales of its orthopedic implants. The Kalamazoo, Mich.-based company's shares also slipped Tuesday, losing $2.73, or 6 percent, to $43.41. Elsewhere in the sector, shares of Boston Scientific fell 16 cents to $5.48, while St. Jude Medical Inc. shares fell $1.25, or 3.4 percent, to $35.42. Johnson & Johnson shares were down 83 cents at $58.04.
Medtronic, Boston Scientific Corp. and other device makers have struggled in recent years to make up for slowing sales of their top-selling products, implantable defibrillators and stents, which have been hurt by safety concerns and increased pricing competition.
Defibrillators are implanted in the chest and use electrical jolts to correct deadly irregular heart rhythms. The devices are Medtronic's top-selling franchise, though company management provided a bleak forecast going forward. In the U.S. Medtronic said market growth would be flat to negative, while international growth is in the mid-single digits.
Medtronic CEO Bill Hawkins said U.S. sales are being further squeezed by hospitals acquiring more physician practices and implementing cost-cutting strategies. Hawkins said Medtronic must respond to hospital thrift with new products that show a clearly demonstratable improvement over older models.
"That just puts the onus back on us to be able to clearly demonstrate that when we bring out peak materials, there is very clear evidence to support the clinical benefit of using a different material," Hawkins said.
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