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Medtronic: The Cents of Making Stents

Late yesterday an FDA panel of outside experts unanimously recommended the agency approve Medtronic's drug-coated stent called, "Endeavor". Unlike drugs, there is no telegraphed date for an agency decision, but analysts think the FDA will approve the device by the end of the year or early next year.

Source: American Heart Association

Stents are the fragile, little wire mesh cylinders (photos and video make them look much bigger than they really are) that are used to reopen clogged arteries. And although their long-term safety is the subject of a raging debate, when the stents are coated with a drug many studies have shown they cut the chances of reclogging.

They're expensive--around three-thousand bucks apiece--and there's a big markup, so the profit margins are hefty.

For the last few years Johnson and Johnson and Boston Scientific have had a duopoly in the multi-billion-dollar-a-year stent business. It's been a fierce, hyper-competitive battle between the two of them. So, if the FDA approves MDT's Endeavor--with a unanimous recommendation approval is pretty much a certainty--there could soon be three players.

And not long after that Abbott Labs could win FDA approval of a fourth drug-coated stent. Its "Xience" stent is expected to go before an outside advisory panel next month. And as part of the strange structure of BSX's Guidant acquisition, BSX would sell the same stent, but under a different name.

JPMorgan medical device analyst Mike Weinstein in a research note to clients says he recently surveyed 50 rock-star interventional cardiologists--the doctors who put in stents--and they told him not only do they want a new drug-coated stent, but they "want to believe" the new one will be better and safer than the older two.

Weinstein says the consensus of medical device analysts is that MDT's Endeavor will grab 10%-15% of the market. But based on his survey, Weinstein thinks the penetration will be as high as 28%. "Every two (percentage ) points of upside to Street share assumptions on Endeavor translates into a penny of upside to Medtronic's Calendar Year 2008 EPS (earnings per share)," he writes. So, there's a lot at stake here for the companies and investors.

Lots of disclosures: JPMorgan makes a market in MDT , ABT , JNJ and BSX. A JPM exec is an ABT Director. Someone on Weinstein's team is long JNJ. JPM has done investment banking for BSX and JNJ and wants to do more for them and for MDT and ABT.

The next major news on stents will likely come out of the big scientific conference known as "TCT" (transcatheter cardiovascular therapeutics). The gathering of thousands of doctors is taking place Oct. 20-25 in Washington, DC. They will hear a lot of potentially stock-moving data presented on stents. We will be reporting live from there on Monday the 22nd.

Questions? Comments? Pharma@cnbc.com