Medtronic has been in the news lately for allegedly hiding side effects of one of its treatments. According to Bloomberg:
Studies funded by Medtronic Inc. (MDT) failed to disclose serious side effects associated with the company’s Infuse bone-growth treatment, misleading doctors about its safety and causing unnecessary use of the product, a series of articles reported.
No side effects were reported in 13 clinical trials funded by Minneapolis-based Medtronic, while data provided to U.S. regulators showed as many as half of patients had complications including infections, pain, cyst formation and cancer, a review in The Spine Journal found. The report said financial ties between Medtronic and researchers weren’t clearly disclosed.
Doctors began raising questions about Infuse shortly after its approval in 2002 for spinal fusion when patients started experiencing unanticipated side effects, said Eugene Carragee, chief of spinal surgery at Stanford School of Medicine near Palo Alto, California, who led the review.
2002 was a long, long time ago in medical technology terms and the information is just now coming to light. Or is it?
Below is a relative performance chart of Medtronic compared to the S&P 500 from the end of 2002 to the current time. Over that stretch, Medtronic has had very poor relative strength and has underperformed the market by more than 50%! In 2002, Medtronic reported earnings per share of $1.40. Value Line projects that Medtronic will earn $3.60 in 2011, an increase of more than 150% from the 2002 level.
Yet Medtronic’s stock price is actually down more than 5% from the end of 2002. There are a lot of smart people making decisions with large amounts of money in the market. If a stock is performing terribly on a relative basis, more often than not there is a good reason for it. Ignore relative strength at your peril.