Spectranetics (Colorado Springs, Colorado) was jointly served by the FDA and U.S. Immigration and Customs Enforcement (ICE) Thursday morning with a search warrant issued by the U.S. District Court, District of Colorado, a story that was first reported on by Medical Device Daily last week (Medical Device Daily, Sept. 5, 2008).
In a statement released Thursday evening, the company furnished more details on the raid, saying that the government requested information and correspondence relating to products used in the treatment of in-stent restenosis, such as catheter guidewires and balloon catheters, manufactured by certain third parties outside of the U.S.
The company said that federal authorities are also seeking information on two post-market studies completed during the period from 2002 to 2005 and payments made to personnel in connection with those studies, as well as on compensation packages for certain company employees.
Spectranetics, which employs 470 people, including nearly 300 in Colorado Springs, said it is cooperating fully with the appropriate authorities regarding this matter, adding that it currently expects that business operations will continue in the ordinary course.
Citi Investment Research (New York) analyst Amit Bhalla wrote in a research note that it is not clear why the FDA and ICE are both involved in the investigation, and noted that the company has yet to hold a conference call to provide more details.
He reiterated a "Buy" rating on the stock, with a price target of $16 per share.
Charles Chon of Goldman Sachs (New York), whose firm coincidentally on Thursday morning recommended that investors sell their stock in the company because of increased competition in the laser atherectomy market, said in a research note that the investigation could cause changes in sales or marketing that might hamper Spectranetics' competitiveness or lead to greater spending, disrupt product supplies or cause key company personnel to leave. Lawsuits, fines or penalties also could result, he said, although he added that it is too early to determine the outcomes of the investigation.
Chon maintained a "Sell" rating on the company's shares.
Another analyst, Jason Mills of Canaccord Adams (Vancouver, British Columbia) said he believes the company's assertion that business will continue as usual is off the mark. "We do not think the company has its arms around this investigation," he wrote in a research report, adding that the investigation "comes at an inopportune time for Spectranetics in a competitive atherectomy space."
Mills maintained a "Hold" rating for the stock and recommend that investors "stay on the sidelines" for now.
Larry Haimovitch, president of Haimovitch Medical Technology Consultants (Mill Valley, California), a frequent Medical Device Daily contributor who follows Spectranetics, said he was "shocked" by the raid. He told MDD that he suspects the problems at the company are coming from rank-and-file employees and are not tied to upper management. As a CEO, Haimovitch said, "you can't know all the things that are going on at your company."
He added that the allegations "look a little bit broad and it's hard to know exactly what's going to happen and how long it's going to take to get all this cleaned up."
Looking at the company's business in general, Haimovitch said that while Spectranetics is starting to face some stiff competition in the atherectomy market, he noted that the company enjoys a much larger market share in the vastly under-penetrated laser lead removal market, where its only substantial competitor is Cook Medical (Bloomington, Indiana). Haimovitch said that if Spectranetics is successful in growing this market to its avowed goal of 50,000 leads removed per year, it will be a major beneficiary.
The company confirmed that Nasdaq halted trading of Spectranetics common stock pending the raid announcement on Thursday. The company's stock stopped trading a little after 1 p.m., EDT, on Thursday, but not before it had shed nearly 47% of its value, or about $4.28 a share to trade at $4.73.
Trading of the company's stock resumed on Friday, and it had gained back 19% of its losses, or about 90 cents, to close at $5.63.