FDA OKs Conmed Tissue Device - Analyst Blog

Surgical devices maker Conmed Corp (CNMD) has secured approval from the U.S. Food and Drug Administration (FDA) for its new tissue sealing device for use in a broad range of surgeries. The device, dubbed Altrus Thermal Tissue Fusion System, uses thermal energy to seal, cut, grasp and dissect vessels up to 7 millimeter (mm) in size.

The market for energy-based instruments is worth roughly $1.5 billion and is reportedly growing 11% annually. The use of these devices has expanded in surgical settings over the last few years to reduce procedure time and cost and improve patient outcome.

Conmed expects Altrus to generate modest revenues of between $5 million and $10 million in 2011. While the device is not expected to deliver meaningful profit initially (given the start-up costs), the company reckons it as a long-term growth driver. Conmed expects Altrus to make significant penetration of the tissue sealing market and emerge as a better alternative to the existing products available for surgeons.

Conmed is a major medical products manufacturer specializing in surgical instruments and devices. The company is poised to benefit from the uptrend in the adoption of minimally invasive techniques as a large percentage of its products are designed for these procedures, representing an attractive opportunity to sustain revenue growth.

Conmed derives roughly 75% of its total revenues from single-use disposable products, which remain the mainstay of its business. Hospitals and clinics are expanding the use of these products, which reduce overheads from sterilizing surgical instruments and products following surgery.

However, Conmed operates in a highly-competitive orthopedic surgery market against much larger, more technically-competent companies, such as Johnson & Johnson (JNJ), Smith & Nephew (SNN) and Stryker Corporation (SYK).

Moreover, the orthopedic industry faces severe pricing pressure and Conmed is no exception. Conmed is also susceptible to foreign exchange headwinds, which may drag its top line moving forward. We currently have an Underperform recommendation on Conmed.