) revealed that the U.S. Food and Drug Administration (FDA) sent
its approval for the required changes in the manufacturing process
for the polytetrafluoroethylene (PTFE) coating on the delivery wire
of the company's Pipeline embolization device. The changes are
related to the company's recall made on Apr 1, 2014. Since the
announcement, shares of the company fell 0.6% till the last trading
In April, Covidien had recalled some of its Pipeline and Alligator
brain embolism devices after internal product testing revealed a
serious problem with their delivery wire. The company had mentioned
that polytetrafluoroethylene (PTFE) coating applied to the delivery
wire of certain lots of its Pipeline Embolization and Alligator
Retrieval devices could delaminate and detach from them.
The changes in manufacturing processes also apply to the Alligator
device as it also uses PTFE coating. Covidien submitted a Special
510(k) change in the manufacturing process for the device to the
Covidien has not received any reports of patient injuries related
to the problem. Since the recall announcement, the company has been
working with its suppliers to rectify changes to the coating
PTFE coating is used to lessen friction between devices and ease
navigation through the vasculature. Delamination of the PTFE
coating could potentially lead to embolic occlusion in the cerebral
vasculature leading to the risk of stroke or even death.
The affected Pipeline Embolization Device was sold in the U.S.,
Australia, France, Germany and U.K., and the affected Alligator
Retrieval Device was sold in the U.S., Australia, Canada, Europe
and Latin America.
Covidien's Pipeline Embolization Device is used for the
endovascular treatment of adults with large or giant wide-necked
intracranial aneurysms in the internal carotid artery from the
petrous to the superior hypophyseal segments. On the other hand,
the Alligator Retrieval Device is meant for use in the peripheral
and neuro-vasculature for foreign body retrieval.
As many as 32 Pipeline Embolization Devices and 621 Alligator
Retrieval Devices were affected by the recall. These devices were
manufactured and distributed from May 2013 to Mar 2014. The recall
is expected to have a marginal negative impact on Covidien's sales
and earnings in the fourth quarter of fiscal 2014.
Covidien posted a 14.3% rise in fiscal 2014-third quarter adjusted
earnings per share to $1.04 from 91 cents a year ago, beating the
Zacks Consensus Estimate by 4 cents. Net earnings rose 11.0% to
$474 million from $427 million.
Total revenues in the quarter grew 4.3% to $2,688 million,
marginally missing the Zacks Consensus Estimate of $2,690 million.
On a geographic basis, revenues in the U.S. market increased 3.2%
to $1,325 million. On the other hand, revenues from non-U.S.
developed markets rose 4.2% to $948 million and from emerging
markets went up 8.1% to $415 million.
In early June, medical technology giant, Medtronic Inc. (
) announced its plans to acquire Covidien for $42.9 billion.
Medtronic's rationale behind the merger is to offset the impact of
high U.S. corporate tax rate by shifting its tax base overseas, to
Ireland. Subject to certain customary conditions, the acquisition
is expected to close in the fourth quarter of 2014 or early 2015.
Post-merger, the combined entity will be known as Medtronic plc and
will boast a comprehensive product portfolio, a diversified growth
profile and broad geographic reach. On successful completion of the
transaction, Medtronic plc is expected to report at least $850
million of annual pre-tax cost synergies by the end of fiscal 2018.
Covidien currently carries a Zacks Rank #3 (Hold). Some
better-ranked stocks in the medical products industry include ICU
Medical, Inc. (
) and Symmetry Medical, Inc. (
). ICU Medical sports a Zacks Rank #1 (Strong Buy), while Symmetry
Medical carries a Zacks Rank #2 (Buy).
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