Can Medtronic's new spinal discs stand up to FDA scrutiny?

NEW YORK (CNNMoney.com) -- The first-ever spinal replacement disc for the neck could hit the U.S. market as soon as this month.

Sometime in July, the FDA is expected to reach a decision on Medtronic's Prestige disc, which is designed to replace diseased vertebrae in the cervical (or upper) part of the spine, and to relieve the pain associated with the condition. Medtronic actually has two cervical discs in the works - Prestige, made of stainless steel, and Bryan, a mix of titanium and polyurethane.

The Food and Drug Administration will decide this month whether the Prestige disc, which is already available in Europe, merits approval for the U.S. market. It would be the first cervical disc to enter the U.S. market.

On July 17, advisors for the FDA will vote on whether Medtronic's (Charts, Fortune 500) other cervical disc, Bryan, merits approval. This is a non-binding vote that will be taken into consideration by FDA regulators at a later time, when they decide whether the Bryan disc is ready for the market.

Medtronic spokesman Jeffrey Newton wouldn't say when he expects the discs to enter the market. "It is premature to speculate or try to predict the final FDA approval date," said Newton.

But Stephan Ogilvie, analyst for ThinkEquity Partners, wrote in a published note that he expects Prestige to get approved in July and to enter the U.S. market immediately, boosting Medtronic's earnings as early as this fall.

Jason Wittes, analyst for Leerink Swann, described the Bryan and Prestige discs as addressing "potentially a billion dollar market," but it would take years to achieve that level. The $7,000 to $10,000 disc replacement procedure will be slow to catch on with insurers, he said, so the initial sales growth will be sluggish.

"They're not going to have reimbursement right out of the gate," said Wittes. "It's going to take some time to get the insurers on board."

The artificial discs are replacements for diseased vertebrae, which dampen pain while preserving mobility. And while no other competitors are making neck discs in America, Medtronic is up against the tried-and-true procedure known as spinal fusion surgery, where diseased vertebrae are supported with bone grafts and metal plates. The key to the success of these discs is wooing doctors away from the fusion procedure, analysts say.

Les Funtleyder, analyst for Miller Tabak, said that surgeons, like insurers, will also be slow to take up the new technology, given the serious and sensitive nature of spinal procedures.

"Spinal surgeons are fairly conservative physicians, so it's unlikely that the product is going to take off immediately," said Funtleyder. "Because it's a sensitive area -- the center of your spine -- they tend to be conservative."

Medtronic, which reported $12.3 billion in revenue for its fiscal year 2007, ending in April, has hedged its bets with a diverse array of products. In addition to discs and stents, the company makes pacemakers and implantable defibrillators to control heart beats, implantable devices that kill nerve pain, insulin pumps for diabetics, and implants for the ear, nose and throat to treat a variety of conditions.

The largest part of its business -- pacemakers and defibrillators that control heart beats -- totaled $4.9 billion in sales for FY 2007. Spinal devices accounted for $2.5 billion, while vascular items like stents totaled $1.2 billion.

The $3 billion stent market is crowded with competitors, including Johnson & Johnson (Charts, Fortune 500), Boston Scientific (Charts, Fortune 500) and Abbott Laboratories (Charts, Fortune 500).

Medtronic is waiting on two other FDA decisions that could impact this year's performance. Also under review are the Maverick disc for the lumbar (or lower) spine, and the drug-coated Endeavor stent.

Newton of Medtronic said Maverick and Endeavor are already available overseas, and the FDA is expected to complete its review of Maverick later this year.