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Like other companies in the health care industry, Fridley-based medical device maker Medtronic Inc. faces some daunting unknowns as the nation debates health care reform.

What kinds of devices will be used to treat patients in the future? How will they be tested? How will they be paid for? All are at stake for Medtronic and many other med-tech companies with Minnesota roots.

Medtronic, which will announce fiscal first-quarter earnings Tuesday and hold its annual shareholders meeting Thursday, also faces pointed competition in almost every market in which it sells -- from pacemakers to spine surgery devices to insulin pumps. The global market for one of its core products -- heart defibrillators -- has been declining. In recent months, the company has been pummeled with bad publicity about its consulting relationships with doctors.

Then there's the company's stock price, which hasn't exactly set the world afire in recent years.

In the past two years, Medtronic's stock has declined 28 percent, while the S&P Health Care index, which includes some of the company's peers, increased 14.4 percent. Medtronic closed Friday at $37.80, up 17 cents.

Not a sell in sight

So, given the uncertainty, the competition and a long-standing, lackluster stock performance, why do 29 analysts have buy or hold ratings on Medtronic's stock?

Not a sell recommendation in sight.

"Although its growth profile has changed markedly in recent years, Medtronic remains one of the strongest companies in the health care industry," wrote William Blair & Co. analyst Ben Andrew in a note to investors last month.

Year to date, the company's stock is up 20.3 percent, compared with the S&P Health Care index, which has inched up just 7.4 percent.

Andrew, who has an "outperform'' rating on Medtronic's stock, cites a stabilizing market for pacemakers and defibrillators and the company's pipeline of future products, such as an MRI-friendly pacemaker.

"We believe the company's heavy research-and-development investments will begin to reaccelerate growth in fiscal 2011,'' he wrote.

Andrew Adams, a portfolio manager with the St. Paul investment advisory firm Mairs & Power, takes a longer view on Medtronic's stock -- say, 10 years out. His firm recently increased its holdings in Medtronic by 33,084 shares, upping the ante from about 3.4 million, according to Bloomberg News.

"Their pipeline is pretty diversified," Adams said, citing promising products in Medtronic's spine and cardiac rhythm divisions, traditionally two of the strongest performers in the company's portfolio.

Headway on diabetes care

Beyond that, Adams notes that Medtronic's diabetes products continue to edge toward a "closed loop" diabetes management system, which closely mimics the insulin delivery of a normal pancreas. This so-called "artificial pancreas" technology continuously monitors glucose levels in diabetics and automatically adjusts insulin delivery depending on need.

Medtronic said recently that it plans to launch the first "semi-closed loop" system in several European countries later this year.

Nearly 24 million Americans have diabetes. "It's a huge market," Adams said, "and a big opportunity for Medtronic. They are slowly making good headway on the artificial pancreas."

Adams is also encouraged by Medtronic's pipeline of neuromodulation products -- pacemaker-like devices that use electrical impulses to treat depression and epilepsy. (The products are still in clinical trials.)

In the near term, med-tech companies such as Medtronic have to wonder what a congressional overhaul of health care will mean to their long-term growth. Several analysts said reform will likely embrace the concept of "comparative effectiveness" -- using clinical studies that weigh both the costs and benefits of certain medical devices as a way of managing health care costs.

"Medtronic remains among the best-positioned medical technology companies under health care reform, given its focus on clinical and cost-effectiveness evidence," Andrew said.

And, as FAF Advisors analyst Tim Nelson notes, that piece of health care reform "will take a long time. These studies take years to complete."

Janet Moore • 612-673-7752

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