Thoratec issued a statement commenting about the recall on a recent voluntary medical device correction notification related to the bend relief component for the sealed outflow graft of the HeartMate II® Left Ventricular Assist System.  Here is what matters today: “The company initiated the voluntary Notification to clinicians on February 23, 2012.”

The company noted, “Following the company’s voluntary Notification to clinicians on February 23, 2012, the FDA posted information regarding the action on its website during the week of March 19th.  Today, this same information appeared in the news section of the FDA website.  However, today’s posting was only a reference to the previous communication, and there was no new information provided.“

Thoratec has also contacted all hospitals where the HeartMate II sealed outflow grafts had been distributed.  It noted, “The company’s voluntary Notification was intended to provide information to clinicians, including a clarification of the instructions for use, and did not involve the return of any product.  Subsequently, the company received acknowledgment forms from surgeons at all such U.S. hospitals, verifying that clinicians have reviewed the Notification and understand the information provided.”

This was a situation where the news seemed more like re-news.  It has happened before and it will happen again in the future.  After having been down as much as 10% earlier, Thoratec shares are down just under 4.5% at $32.81.  It is probably safe to assume that analysts who rate Thoratec as “Buy” and “Outperform” will be defending this one Thursday morning.

JON C. OGG

Back on March 19 the FDA recall site noted, “The reported incidence of the defect, disconnected outflow graft bend relief, is 0.91% (29/3,200). Of these 29 incidents, 24 were observed in x-ray images or during surgical procedures, and were thus unlikely to be related to patient symptoms. However, in at least one reported case, it is noted that the disconnected bend relief may have contributed to the need for reoperation. The bend relief is designed to prevent kinking of the outflow conduit that connects the HeartMate II pump to the ascending aorta.”

The FDA also noted in mid-March that the disconnection of the bend relief from the outflow graft might cause one or more of the following symptoms:

• low pump flow, hemolysis,
• fluctuations in pump flow,
• speed and/or power,
• or worsening symptoms of heart failure.

The rates of incident were very low, but some fatalities at the time were reported.  Unfortunately, recalling heart devices is no easy measure and the product was said to have been sent to 226 hospitals throughout the United States, Europe, Canada and other countries.

Thoratech shares had been down as much as 10% but the stock is now down “only” 5.6% at $32.42 on about six-times normal trading volume.

Dear Patient, We need to borrow you to get at your heart again….

JON C. OGG

Akamai Technologies, Inc. (NASDAQ: AKAM) Cut to Sell from Neutral at Citigroup.
AGL Resources Inc. (NYSE: GAS) Started as Underperform and named as Bear of the Day at Zacks.
Apple Inc. (NASDAQ: AAPL) Reiterated Buy with $460.00 price target objective by Argus; maintained Conviction Buy List and target raised to $550 from $520 at Goldman Sachs.
ARM Holdings PLC (NASDAQ: ARMH) Started as Underperform at Bernstein.
Barnes Group Inc. (NYSE: B) named as value stock of the day at Zacks.
Costco Wholesale Corporation (NASDAQ: COST) Cut to Underperform at Bernstein.
Exxon Mobil Corporation (NYSE: XOM) Reiterated Buy at Goldman Sachs.
First Industrial Realty Trust (NYSE: FR) Cut to Neutral at Credit Suisse.
Hilltop Holdings, Inc. (NYSE: HTH) Raised to Outperform as Bull of the Day at Zacks.
Integra LifeSciences Holdings Corp. (NASDAQ: IART) Cut to Hold at Argus.
International Game Technology (NYSE: IGT) Removed from US Focus List at Credit Suisse.
Merck & Co. Inc. (NYSE: MRK) Downgraded to Hold at Jefferies.
Pandora Media Inc. (NYSE: P) Started as Buy at Needham.
Penn National Gaming Inc. (NASDAQ: PENN) Added to the US Focus List at Credit Suisse.
PVH Corporation (NYSE: PVH) Started as Buy at Stern Agee.
The Royal Bank of Scotland Group plc (NYSE: RBS) Raised to Neutral at JPMorgan.
Southern Copper Corporation (NYSE: SCCO) Cut to Hold at Deutsche Bank.
Thoratec Corporation (NASDAQ: THOR) Cut to Market Perform at Wells Fargo.

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JON C. OGG

Annaly Capital Management, Inc. (NYSE: NLY) Started as Market Perform at Wells Fargo.
BHP Billiton Limited (NYSE: BHP) Reiterated Strong Buy as Value at Zacks.
Brightpoint Inc. (NASDAQ: CELL) Raised to Outperform as Bull of the Day at Zacks.
France Telecom (NYSE: FTE) Raised to Neutral at UBS.
Fusion-io Inc. (NYSE: FIO) Started as Neutral at Goldman Sachs; Started as Equal-Weight at Morgan Stanley; Started as Neutral at JPMorgan; Started as Outperform at Credit Suisse.
Invesco Mortgage Capital Inc. (NYSE: IVR) Started as Outperform at Wells Fargo.
Medtronic, Inc. (NYSE: MDT) Cut to Underperform as Bear of the Day at Zacks.
ONEOK Inc. (NYSE: OKE) Cut to Neutral at BofA/ML.
The Talbots Inc. (NYSE: TLB) Raised to Neutral at Janney Capital.
Thoratec Corporation (NASDAQ: THOR) Started as Outperform with $43 target at Credit Suisse.
VCA Antech Inc. (NASDAQ: WOOF) Raised to Buy at BofA/ML.
WebMD Health Corp. (NASDAQ: WBMD) Cut to Neutral at Citigroup; maintained Buy but cut target to $44 at Canaccord Genuity.

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Alcatel-Lucent (NYSE: ALU) Reiterated Hold at Argus.
Analog Devices Inc. (NYSE: ADI) Raised to Overweight at JPMorgan.
Barnes & Noble, Inc. (NYSE: BKS) Raised to Neutral at Goldman Sachs.
Dollar Tree, Inc. (NASDAQ: DLTR)  Raised to Overweight at Barclays.
Edison International (NYSE: EIX) Raised to Hold at Citigroup.
Estee Lauder Companies (NYSE: EL) Raised to Outperform as the Bull of the Day at Zacks.
Family Dollar Stores Inc. (NYSE: FDO) Cut to Equal-weight at Barclays.
Green Mountain Coffee Roasters Inc. (NASDAQ: GMCR) Raised to Buy at KeyBanc.
Intel Corporation (NASDAQ: INTC) Cut to Hold at S&P Equity Research (late-Monday call).
Linear Technology Corp. (NASDAQ: LLTC) Cut to Neutral at JPMorgan.
Netflix, Inc. (NASDAQ: NFLX) Cut To Equal-weight at Morgan Stanley.
Salesforce.com (NYSE: CRM) Raised to Buy at Jefferies.
Thoratec Corporation (NASDAQ: THOR) Cut to Underperform as Bear of the Day at Zacks.
United States Steel Corporation (NYSE: X) Raised to Buy at Goldman Sachs.

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A 33% run-up in Bankrate (RATE),  for more details.

Thoratec (THOR) up 12%, details.

Powerwave (PWAV) drops 45%, details.

Gramercy Park (GKK) up 55%, details.

Douglas A. McIntyre

Thoratec issued a worldwide medical device correction of all serialnumbers of the HeartMate II Left Ventricular Assist Systems havingCatalogue No. 1355 or 102139.  These have been distributed since thebeginning of clinical studies in November 2003.

The company said that over time, wear and fatigue of the percutaneouslead connecting the HeartMate II LVAS blood pump with the SystemController may result in damage that could interrupt pump function,require re-operation to replace the pump and potentially result inserious injury or death.

It also said that the estimated probability of the need for pumpreplacement due to percutaneous lead damage is 1.3% at 12 months, 6.5%at 24 months and 11.4% at 36 months.

There is just one small problem with recalls and product defects inmedical device companies.  Patients generally have to undergo a newsurgical procedure to have the recalled item removed and have to havenew devices inserted.  This is almost always done at the same time, butit isn’t quite the same as taking your car in because the windshieldwipers have a 15% failure rate.

The other issue about medical device recalls is that they can destroythe image medical device company which issued a recall.  Lastly, it canturn doctors away to competing products or encourage them to stop useof the recalled product even if the replacement is fine.  Few doctorslike to admit it, but they also have to respond and react to publicopinion or negative press.

Thoratec shares are down 14% at $21.53, and the 52-week trading rangeis $12.92 to $29.72.  The company is very lucky that this reactionisn’t worse.

Jon C. Ogg
October 27, 2008