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posted: 11/20/2012 10:36 AM

Medtronic second-quarter profit falls on litigation costs

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Bloomberg News

Medtronic Inc., the world's biggest maker of heart-rhythm devices, said second-quarter profit fell 26 percent on legal costs related to a patent dispute.

Net income in the three months ended Oct. 26 decreased to $646 million, or 63 cents a share, from $871 million, or 82 cents, a year earlier, the Minneapolis-based company said in a statement. Profit excluding a $245 million charge for litigation costs and other items was 88 cents a share, matching the average of 23 analyst estimates compiled by Bloomberg.

Revenue increased 1.8 percent to $4.1 billion. The company's drug-coated Resolute Integrity stent, used to keep open heart arteries, bolstered sales after it was introduced in Japan during August. The recently introduced Restore Sensor helped boost revenue of spinal cord stimulators, said Derrick Sung, an analyst with Sanford C. Bernstein & Co. in New York.

"We view the quarter as in-line," Matthew Taylor, an analyst at Barclays Plc in New York, wrote in a note to clients today.

The company reaffirmed its earnings forecast for fiscal 2013 of $3.62 to $3.70 a share.

Medtronic kept the guidance conservative based on the January implementation of a tax on the medical device industry and the uncertain renewal of a research and development tax credit, Gary Ellis, Medtronic's chief financial officer, said on a conference call today.

The device manufacturer anticipates paying as much as $175 million each year to comply with the new tax, Ellis said.

Patent Dispute

Medtronic expects to return cash flow to investors with dividends and buybacks, Chief Executive Officer Omar Ishrak said on the call.

The legal costs were from a patent dispute with Edwards Life Sciences Corp. that centered on Medtronic's CoreValve System, one of the company's transcatheter aortic valves. A federal appeals court earlier this month affirmed an April 2010 federal district court ruling in Delaware that Medtronic's system infringed a single patent held by Edwards, according to statement from Medtronic.

Medtronic rose 1.9 percent to $42.61 at 10:21 a.m. New York time, after gaining as much as 2.8 percent. The shares had gained 9.3 percent in the year through yesterday.

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