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On Apr 10, 2013, musculoskeletal major Integra LifeSciences Holdings Corporation (IART - Snapshot Report) 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.

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 Conceptus , Cyberonics (CYBX - Analyst Report) and Cepheid (CPHD - Analyst Report) are worth considering. These stocks carry a Zacks Rank #1 (Strong Buy).

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