The Uninsured Are Killing Medical-Device Makers

At least we could see it coming.

Since Medtronic's (NYSE: MDT  ) fiscal calendar is a month behind fellow medical-device makers Johnson & Johnson (NYSE: JNJ  ) , Boston Scientific (NYSE: BSX  ) , St. Jude Medical (NYSE: STJ  ) , and Intuitive Surgical (Nasdaq: ISRG  ) , it wasn't a big shock to find out that Medtronic expects weaker demand for medical devices. The rest said the same thing a month ago.

It comes down to being able to afford the procedures, which in many cases can be postponed for months without an immediate effect on the patient's health. The high unemployment rate has translated into a larger number of uninsured people, and even those who have insurance may not have the money to shell out for a large copayment.

Medtronic beat analysts' estimates by $0.01, but earnings were helped by lower taxes. It was a generally weak quarter, with revenue up a measly 2%. Sales in Medtronic's largest segments -- cardiac rhythm and spine -- actually fell year over year.

Things aren't expected to improve anytime soon. Management decreased its forecast for the fiscal year, which ends in April, to a range of $3.38 to $3.44 a share, down from $3.40 to $3.48.

The good news for Medtronic and the rest of the industry is that these medical conditions aren't going to cure themselves. Sure, they may lose a few patients -- a sad but realistic possibility of waiting to get something like a pacemaker -- but a vast majority of the patients will eventually get their procedures once the economy picks back up.

Investors willing to be patient and use time arbitrage to their advantage should be able to benefit from the pent-up demand.

Intuitive Surgical is a Motley Fool Rule Breakers choice. Motley Fool Options has recommended a diagonal call position on Johnson & Johnson, which is a Motley Fool Income Investor recommendation. The Fool owns shares of Johnson & Johnson and Medtronic. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool has a disclosure policy.


Read/Post Comments (4) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 24, 2010, at 1:37 PM, jesterisdead wrote:

    I am sure the 2.3% government tax on medical device makers in Title IX, Sec.1405 of HR4872 isn't helping their bottom line. That and the $14.3B taxes on insurance providers and $4.1B tax on drug manufacturers makes it hard for the unemployed to afford medical treatments.

  • Report this Comment On November 24, 2010, at 4:54 PM, TMFBiologyFool wrote:

    jesterisdead - Unless I missed something, the tax on medical device makers hasn't kicked in yet.

    GermanInvestors - we're talking about relative growth being lower not that there was no growth. ISRG saw procedures grow in the low 30 percents, but that's still relatively lower demand.

    -Brian

  • Report this Comment On November 24, 2010, at 8:42 PM, russfischer1013 wrote:

    The world is about to catch up with the pacemaker companies. $35,000 for a device that has a material cost of about $100?

    Does anyone know of an electronic product except pacemakers that has gone up in price over the past 40 years?

    These companies are filled crooks and fraud and bribes to cardiologists.

    $1000 pacemaker coming soon.

  • Report this Comment On December 01, 2010, at 2:01 AM, rmiers wrote:

    The Bible says, "fair value for fair value". Now i promise I'm not a Bible Thumper but do believe firmly in the Christain faith.

    When people's health, pain, and eventual death is concerned we should not shirk or hide our human responsibility.

    I literally hate Obama's healthcare plan as it still leaves huge holes and excessive costs in place. It breaks promises to it's citizens and their doctors. It is a huge fraud on the AMerican people, Thats why they wrote it in code.

    I live in a Big Texas city where no-one goes without. NO big brother, local control and excellence..

    Darn good free care too. The Feds don't belong in our personal lives.

    However, I did see a pharmacy try to charge over 200 bucks cash for some nitro today (pump style) We can't have that. Davinchi is only expensive during purchasing and training.

    If Obama would just buy five thousand Davinchi miracle machines he would empty the hospitals, let the patients get back to work and avoid all this BS,

    Finally, TORT REFORM

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