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International health care products major, Covidien plc (COV - Analyst Report) has won the approval of the U.S. Food and Drug Administration (“FDA”) for its motion-tolerant Nellcor pulse oximetry devices. The system can effectively detect and diagnose acute and potentially fatal breathing difficulties at an early stage, thereby allowing faster treatment and elimination of respiratory complications.

The Nellcor devices from Covidien’s oximetry and monitoring products portfolio under the Medical Devices segment are designed to pick up cardiac-based signals and hence is highly correlated to the patient’s physiology. Patient movement, noise and low perfusion can hinder proper readings, which might lead to a delay in treatment. The advanced motion-tolerant pulse oximeters provide accurate readings, despite movements, resulting in improved standard of care.

The Nellcor Bedside SpO2 Patient Monitoring System, Bedside Respiratory Patient Monitoring System, and N-600x Pulse Oximetry Monitoring System are the devices that have been cleared by the FDA. The systems continuously monitor SpO2 as well as the pulse rate for adult, neonatal and pediatric patients. In 2012, the regulatory body had cleared the Nellcor Bedside SpO2 Patient Monitoring System and the Bedside Respiratory Patient Monitoring System for sale in the U.S.

The FDA approval underlines Covidien’s commitment toward patient safety across general as well as critical areas of hospital care. The Nellcor pulse oximeters are the only FDA-approved devices that are compliant with ISO 80601-2-61 (International Organization for Standardization standards for pulse oximetry). Additionally, the company will provide pulse oximetry training through its new Professional Affairs and Clinical Education Online Platform to support the safe use of motion-tolerant pulse oximeters.

Our Take

The FDA approval might soothe the current negative investor sentiment on Covidien. The company recently provided a dismal fiscal 2013 guidance, which complements its Zacks Rank #5 (Strong Sell).

Moreover, it is slated to spin-off its Pharmaceutical unit at the end of Jun 2013. The Pharma business is performing well and contributing significantly to the top line. Following its divestment, Covidien will be left with only the Medical Devices and Supplies businesses. Given the current difficult healthcare environment, uncertainty looms over the growth prospects of these two businesses.

While we strongly recommend investors to avoid this stock due to the risks associated with the Pharma spin-off, other medical stocks such as Conceptus , Atricure (ATRC - Snapshot Report) and Myriad Genetics (MYGN - Analyst Report) warrant a look. While Conceptus carries a Zacks Rank #1 (Strong Buy), the other two stocks carry a Zacks Rank #2 (Buy).

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