Over the past few months, Endologix (ELGX) has received four new product approvals from the U.S. Food and Drug Administration that open new segments of the Abdominal Aortic Aneurysm ((AAA)) market and improve the ease-of-use of its entire product portfolio. The company is financially strong and on the verge of becoming operating cash flow positive in the current quarter and profitable by the end of 2009 or early in 2010.

Endologix's products address a large and growing market. The world-wide market is over $700 million and is growing at 9% CAGR. Aortic aneurysms are age related with over 2 million older Americans affected and 200,000 new cases diagnosed annually, resulting in approximately 60,000 procedures being performed each year. The treatment of an AAA is not elective and is therefore immune to economic conditions. At some stage, the aneurysm becomes too large to be ignored and requires immediate attention or a rupture and almost certain death will occur.

Personalized Medicine (also known as Theranostics) is the integration of therapeutics and diagnostics. Is the great promise of personalized medicine finally on the brink of acceptance and real recognition? We believe so, although it remains an uphill battle for several reasons. An article as recently as August 20, 2008 in the Wall Street Journal bares testament to this emerging trend in therapy,

Pharmacy-benefits manager Medco Health Solutions Inc. has entered into a partnership with the Food and Drug Administration to study the role of patients' genetic makeup in prescribing medications, a collaboration aimed at expanding the scientific evidence for "personalized medicine.

In the ongoing battle between Orthofix (OFIX) and its dissident shareholder, Ramius LLC, to seat four new dissident directors to the board, both companies fired shots across each other's bows in an attempt to further their respective positions. On January 28, 2009, OFIX sent a letter to Ramius protesting the nomination of Peter A. Feld in which it notes that Mr. Feld is neither a partner nor a senior executive listed on Ramius’s website. Additionally, the letter notes that he is only 29 years of age and has little business or healthcare experience and that his “tenure on the boards of public companies is not only limited, but has on more than one occasion coincided with or been followed by significant adverse events for those companies”. Orthofix noted Mr. Feld’s participation on the boards of CPI Corp., a portrait studio company and Sharper Image, which filed for bankruptcy protection shortly after Mr. Feld left its board.

The most surprising turn of events in our opinion was the Schedule 14A filing made by Ramius on January 22, 2009 in which it said that it would not try to unseat Alan Milinazzo, Orthofix’s CEO, as it had previously sought to do. It seems to us that the whole exercise of changing the management and recovery strategy being pursued by Ramius becomes irrelevant and point less if the “alleged” architect of the problem remains on the board of directors. In response to OFIX’s January 28, 2009 letter, Ramius announced that it had received written requests from the holders of approximately 55% of the Company’s common stock to call a Special General Meeting of Shareholders. With the threshold at only 10% and with Ramius holding 5.3% of the shares, we had predicted in our post of January 13, 2009 that this would likely be the case.

Two of healthcare's largest companies could not have reported more opposite Q4 2008 results and more polar outlooks for 2009 than if they had tried.

On Tuesday, Johnson & Johnson (JNJ) reported results that exceeded analysts' expectations at the EPS line ($0.97, +18% and $0.05 better than expectations) but were disappointing on the revenue line ($15.2 billion, down almost 5%) (Call Transcript).

Earl Bakken can’t be happy with what he reads about the mighty Medtronic Inc. (MDT) he and his brother-in-law, Palmer Hermundslie, founded in his garage in 1949, primarily working with the University of Minnesota hospital.

We have followed Medtronic since 1979 and from time to time have seen the company suffer problems much like any other medical device company. In those days there were problems with rapid battery depletion in pacemakers, faulty connections and lead fractures, all part and parcel of an evolving technology. But it seems to us that lately, Medtronic has experienced some miscues of its own making that call into question management’s attention to detail, its overall philosophy on product development and its dealings with the medical community.

On December 3, 2008, Ramius LLC sent a letter to Orthofix International N.V. (OFIX), requesting that its Board of Directors immediately engage a strategic advisor to explore and execute a sale or disposition of Blackstone at the highest possible price. Ramius also threatened to call a special shareholders' meeting to replace four members of the Board of Directors to force changes in the already announced restructuring of Blackstone and Orthofix’s capital structure.

Making good on its threat, on December 10, 2008, Ramius announced that it had filed a Preliminary Consent Solicitation Statement with the Securities and Exchange Commission to solicit written requests from shareholders of Orthofix, to call a special general meeting for the purpose of making substantial changes to the composition of Orthofix’s board of directors. Ramius proposes to remove James F. Gero, Peter Hewet, Alan Milinazzo and Walter P. Von Wartburg from the Company’s ten-member board of directors and replace them with four new directors.

In 2008, the stock market did not spare the usually resistant medical device market, dropping the Dow Jones U.S. Medical Device index by 37%, barely ahead of the Dow Jones Total Market Index, which declined 39%. In past market declines, medical device stocks, along with other healthcare stocks, have generally outperformed the overall market index, reflecting the stability and defensive nature of the earnings of the companies that comprise the industry. However, in 2008, investors seemed to have paid little attention to fundamentals and threw out the good with the bad.

So what does 2009 hold in store for the medical device industry? We have no greater visibility on the overall market than anyone else. And certainly, the medical device industry is not recession proof. But we believe that on a relative basis, investors will fare better in the stocks of these companies, with less risk than other sectors of the stock market, for several reasons.