Sector Wrap: Orthopedic stocks up on surgeon poll

Shares of orthopedic implant stocks closed mostly higher Friday as a JPMorgan analyst said a survey of orthopedic surgeons indicated that the number of procedures is set to rebound after a disappointing first quarter.

"All of our survey work and recent conversations point to a generally stable outlook for the ortho industry, with volumes likely to expand in the second quarter relative to what we saw in the first quarter," analyst Michael Weinstein wrote.

Weinstein said his analysis is based on a survey of 79 high-volume orthopedic surgeons, who noted that while average volume growth in the first quarter was only 5 percent, growth of 7.8 percent is expected for 2008.

He also said surgeons indicated that last year's Department of Justice settlement with several companies does not appear to have led to a fallout, as 86 percent said they weren't seeing a disruption in procedures. Only 2 percent said they expected to switch vendors, though they said they expect 18 percent of their colleagues to consider switching.

In September, industry heavyweights, including Johnson and Johnson's Depuy Orthopedics, Zimmer Holdings Inc., Smith & Nephew PLC. and privately held Biomet Orthopedics Inc. agreed to pay $310 million to settle charges they gave doctors kickbacks to promote their products.

Weinstein said the current environment favors more established players, as 48 percent of surgeons expect their hospitals to continue contracting with the same companies, while 38 percent believe it will be concentrated among one or two vendors.

Although a majority of surgeons said they expect increased efforts by hospitals to control prices this year, 65 percent said they have not been hindered in using higher-priced new products.

Weinstein said his favorite company in the sector is Wright Medical Group Inc., one of the smaller companies in the sector with a market cap of $1.1 billion. Among larger companies, he mentioned Stryker Corp. as his pick, particularly in the long term.

Stryker shares closed up 79 cents to $64.55. Johnson & Johnson gained 32 cents to $66.74, while Smith & Nephew gained 5 cents to $53.85.

Bucking the trend was Wright Medical Group, which fell 29 cents to $29.69 and Zimmer, which slipped 7 cents to $72.80.