On Apr 10, 2013, musculoskeletal major
Integra LifeSciences Holdings Corporation
) initiated a voluntary recall of some of its products
manufactured during Dec 2010-May 2011 and Nov 2012-Mar 2013 at
its Anyasco, Puerto Rico facility.
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The recall was announced as the company detected that certain
lots of offerings under DuraGen, NeuraWrap, NeuraGen and other
family of products had slipped the quality standards due to
deviations from an approved production process.
While we await further details regarding the voluntary product
recall, the move is bound to immediately hamper Integra's
revenues and profitability. The company, already into its second
quarter of 2013, expects the recall to adversely affect its
financial results for the first half of 2013.
Presently, Integra envisages first-quarter revenues to be lower
by roughly $8-$11 million compared with prior expectations. This
is due to lower sales on account of the recall and the imminent
product shortage. Thus, the company expects first-quarter
revenues in the range of $194 million to $197 million.
The costs associated with the recalls and remediation plans is
also a matter of concern for Integra. It expects, therefore, to
report higher expenses in the first quarter on account of scrap
related to affected finished good products that were not released
to customers, affected work in process, and legal and consulting
costs, of about $2.5 million to $4.5 million.
Accordingly, Integra now expects to record adjusted earnings per
share in the range of 30 cents to 40 cents in the first quarter.
On a reported basis, it expects loss per share in the range of 8
cents to 30 cents in the first quarter. The company is slated to
release its first-quarter results on May 2.
With regard to the second quarter of 2013, Integra might not be
able meet its market demand for the identified products. The
company forecast revenues in the band of $205-211 million for the
second quarter. Further, Integra is presently evaluating the
impact of the recall on full year results. As a result, the
company expects to revise its guidance for 2013 during the first
quarter conference call.
Amid safety concerns and manufacturing defects associated with
its products, concerns about Integra's production capabilities
might have grown. It has to be accepted that this could lead to a
loss in consumer confidence and trust.
On the upside, there were no reports of adverse events in
patients using the affected product. Meanwhile, Integra continues
to manufacture these products at its Puerto Rico facility.
We remain watchful of further developments regarding the product
recall and its impact on Integra's financial results. The stock
carries a Zacks Rank #3 (Hold).
While we remain on the sidelines for Integra, other medical
stocks such as
) are worth considering. These stocks carry a Zacks Rank #1