Monday, March 05, 2007

Calls of Note Part 1

Wachovia out noting that Medtronic's (NYSE:MDT) interventional spine unit was not present at the 2007 Society of Interventional Radiology (SIR) meeting; MDT's booth only featured vascular products. When Arcuate was missing at this year's AAOS meeting, firm assumed it was because MDT was instead targeting interventional radiologists (IRs). Given that SIR is the key IR meeting, they now suspect MDT may have pulled back from its aggressive Arcuate launch. It is not clear why this "on again/off again" program seems to be off again; firm suspects either legal concerns surrounding the Kyphon (NASDAQ:KYPH) patent lit. or a change in strategy given the pending management changes at MDT. Either way, firm views Arcuate's disappearing act as a positive for KYPH.

Firm says meeting supports their Outperform rating on KYPH: They expect upside to their 2007 revenue (driven by X-Stop) and EPS estimates (driven by lower convertible debt interest); the 15-20% growth forecast for kyphoplasty (KP) among IRs is consistent with their 18% domestic KP forecast. Further, the threat posed by MDT's Arcuate continues to ease while KYPH's acquisition of Disc-O-Tech's Confidence VP system should allow for further IR penetration and share gains in 2008 and beyond.

Notablecalls: Might have called this one actionable on some other day, but with futures indicating another choppy day, don't think this note will catch enough attention.

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