Medtronic Initiates Product Recall, A Drag On Neurosurgery

Medtronic plc. (NYSE:MDT) has initiated a voluntary product recall of all unused units of its StrataMR adjustable valves and shunts based on an increase in the product complaint rate. Shares of the company registered a 0.05% drop following this announcement.

As of Apr 1, 2017, the product complaint rate was 2.75% of total units of StrataMR distributed. In this regard, we note that this neurosurgery product is part of Medtronic’s Brain Therapies division within its Restorative Therapies broader group.

StrataMR works for the management of hydrocephalus and helps in controlling the flow of cerebrospinal fluid being drained from the brain to relieve intracranial pressure.

However, the problem which led to this product recall was that post-implantation it can lead to under-drainage of cerebrospinal fluid. This may result in health consequences like headaches, nausea, vomiting and lethargy. If left untreated, this can lead to coma and death. According to the company, there already was a death, although the reason behind is not confirmed yet.

Taking into consideration the huge number of disputed units of StrataMR already rolled out, we believe this product recall may impact the company’s top line in the ongoing quarter. As of the date of initiation of this recall, there were already 2,622 StrataMR valves and shunts distributed globally. These are going to be potentially affected by this recall.

Medtronic initiated customer communication of the recall by a letter and requested customers to stop using the affected products that remain in inventory and return all unused units to Medtronic. The U.S. Food and Drug Administration (FDA) and other regulatory bodies also have been notified.

Shares of Medtronic traded below the Zacks categorized Medical - Products industry, over the past one month. The stock declined 3.05%, wider than the broader industry’s loss of 1.05%.

Zacks Rank & Key Picks

Medtronic currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the broader Medical space include Inogen, Inc. (NASDAQ:INGN) , Orasure Technologies, Inc. (NASDAQ:OSUR) and Hill-Rom Holdings, Inc. (NYSE:HRC) . While Inogen sports a Zacks Rank #1 (Strong Buy), Orasure and Hill-Rom carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Inogen gained 62.2% in the last one year compared with the S&P 500’s gain of 15.1%. The company reported a stellar four-quarter positive average earnings surprise of over 49.08%.

Orasure surged 73.9% in the last one year compared with the S&P 500’s gain. Its four-quarter average earnings surprise was a positive 123.5%.

Hill-Rom gained over 33.9% in the past one year, better than the S&P 500 mark. It posted a trailing four-quarter positive average earnings surprise of 12.03%.

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