Medtronic (NYSE: MDT), maker of cardiac management devices, has had ups and downs recently. Recently, Medtronic's remote heart monitor failed a crucial FDA evaluation. The size of an old-fashioned pocket watch, Medtronic's new device, called the Chronicle implantable hemodynamic monitor, was to be used for cardiac monitoring once implanted in patients who had already experienced one heart attack. The device would send cardiac information to doctors who could then monitor patients remotely. In the event of warning signals, doctors could direct patients to get to the hospital prior to experienceing a second cardiac event so that immediate preventive treatment could be started. The point of the device was to reduce the severity of additional cardiac events before they happened, thus reducing both the length and cost of hosptial stays. Medtronic estimated that close to 10% of all heart patients in the US, half a million people, could benefit from such a monitoring and early warning implant. The clinical trial involved just 274 patients. The FDA reluctantly concluded, voting 9-2, there was not enough evidence of reductions in hospitalizations to justify approving the device at this time. Several cardiologists on the panel encouraged Medtronic to continue developing implantable cardiac monitoring devices.

Despite the recent setback, Medtronic CEO Art Collins remains optimistic that Medtronic's interactive patient monitoring devices will eventually gain FDA approval. Medtronic released 3Q 2007 results earlier this month. 3Q revenue was up 10% to just over $3 billion, with EPS up 17%. Fully a third of Medtronic revenue was from outside the US. Almost half of Medtronic's total revenue comes from cardiac devices, down from two-thirds several years ago. Medtronic has branched out to target ear, nose and throat devices, insulin pumps and glucose monitors for diabetes patients, as well as stents and artificial valves used in cardiac surgery.

Currently, Medtronic has more than 200 clinical trials underway, including an artificial spinal disk trial in the US. More than 200,000 patients in the US are potential recipients for such replacement disks each year. Medtronic's R&D budget tops $1 billion per year. The company holds 8,000 active patents.

Smith & Nephew plc (NYSE:SNN) announced the acquisition this morning of Swiss company Plus Orthopedics for $889 million in cash. This will solidify Smith & Nephew's position as the number 4 global player. The other three major firms are Stryker Corp. (NYSE:SYK), Zimmer Holdings (NYSE:ZMH), and soon to be acquired Biomet Inc. (NASDAQ:BMET). Biomet is undergoing due diligence by a group of private equity firms led by the Blackstone Group. The transaction is expected to close by October of this year.

The orthopedic sector has the wind at its back. The approval process for an orthopedic device is rigorous, but not as lengthy as the cardiac device sector. The marketplace is global in nature and the demographics are about to enter the sweet spot.

With 78 million U.S. baby boomers alone, and another 80 million-plus baby boomers in the European markets, the aging of this group is ripe for the sector. New hips, knees, elbows and shoulders will see record recipients as each year unfolds. Besides the basic joint-replacement products, the spinal sector is also expected to see massive growth. Minimally invasive surgical procedures are expanding the addressable market as the risk profile for such surgeries is significantly less. The dread of osteoporosis affects nearly 700,000 women in the United States alone.