Recently, health care products major
) 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.
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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
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
) 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.