(COV) Covidien Suffers Slew of Product Recalls

Recently, health care products major Covidien plc. (COV) has been hit by a number of product recalls, the most significant being the voluntary recall of the Duet TRS Universal Straight and Articulating Single-Use Loading Units (SULU). The company stopped manufacturing the product following a report that indicated that the device caused post-operative abdominal injuries.

The Duet TRS, introduced in 2009, is a single-use tissue reinforcement system used with the company’s Endo GIA laparoscopic stapler. It is a key endomechanical product under the company’s Medical Device segment. Covidien has already sold more than 500,000 units of Duet TRS globally. In the last nine months (ending June 29, 2012), the company generated roughly $50 million from Duet sales.

Covidien anticipates that the loss of the product line along with its associated recall and other costs will offset earnings per share from continuing operations for fiscal 2012 by several cents and fiscal 2013 by 5 to 10 cents.

In January, the company had recalled the same device following reports of patient deaths associated with the use of this product line in thoracic surgery. The Ireland-based company had received reports of 13 cases of serious injuries and 3 deaths following the use of Duet TRS in the thoracic cavity.

Earlier this month, Covidien also initiated the voluntary recall of specific manufactured lots of the DGPHP Radiofrequency Ablation (RFA) High-Power Single Use Grounding Pads and Cool-tip RFA Electrode Kits that include the DGPHP RFA High-Power Single Use Grounding Pads. According to reports, this device could have induced four burn injuries due to the degeneration of the foil within the DGPHP grounding pad.

The company is also recalling a particular model of its cuffed Shiley tracheostomy tubes after it received reports of product complications during mechanical ventilation. The product is a part of the Airway Management segment under the company’s Respiratory and Monitoring Products business.

The impact of the above two product recalls on the company’s results is unknown. Covidien is working with the Food and Drug Administration (FDA) to contraindicate the use of these products. Customers have been advised to report any harmful occurrences to the FDA’s MedWatch Adverse Event Reporting program.

If such a trend continues and similar product recalls follow in future, the company’s goodwill will be adversely affected, which in turn will be beneficial for its peers such as Johnson & Johnson (JNJ), Becton Dickinson (BDX) and C.R. Bard (BCR) in gaining market share.

We currently have a Neutral recommendation on the stock, which carries a short-term Zacks #4 Rank (Hold). Sustained pricing/procedure volume pressure, product recalls, fluctuating foreign exchange rates, and a sluggish U.S. and European economy represent major headwinds.

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