Spectranetics stock rebounds in probe's wake

Spectranetics Corp. stock recovered somewhat Friday after losing nearly half its value Thursday in the wake of an investigation of its marketing practices that brought agents from two federal agencies to its headquarters with a search warrant.

The medical lasermaker's stock regained 90 cents to $5.63 in heavy trading Friday on the Nasdaq Stock Market with 6.59 million of its 31.6 million shares changing hands - record volume for a second consecutive day. Spectranetics' shares fell $4.12, or 47.4 percent, to a nearly four-year low of $4.73 Thursday before the company asked Nasdaq to halt trading pending a major announcement that came more than six hours later.

Colorado Springs-based Spectranetics said Thursday that U.S. Immigration and Customs Enforcement and U.S. Food and Drug Administration investigators were seeking information and correspondence about:

• The promotion, use, testing, marketing and sales of products used to clear stents that develop blockages, including payments to medical personnel and a hospital it didn't identify.

• The promotion, use, testing, experimentation, delivery, marketing and sales of guide wires and balloon catheters made by other companies outside the United States.

• Payments to practitioners involved in two of the company's studies between 2002 and 2005 on products already approved by the FDA.

• Certain employee compensation packages.

Spectranetics said it is cooperating with the probe and "currently expects that business operations will continue in the ordinary course." A company spokeswoman declined to comment further Friday.

Jason Mills, managing director and life sciences analyst in San Francisco for Canaccord Adams Inc., said in a "daily letter" to investors that "we believe these serious allegations will distract executives, the sales force and customers, and thus believe it could impact the business both near- and long-term. While the company suggested business will continue as usual, we do not think the company has its arms around this investigation."

The investigation comes "at an inopportune time for Spectranetics" as it faces growing competition from companies that likely will try to use the investigation to boost sales, Mills said in the letter. He also said the probe "calls into question" the company's ability to meet its revenue forecast for this year of $104 million to $110 million, which Spectranetics officials reaffirmed last month.

Charles Chon, an analyst with Goldman Sachs in New York, told The Associated Press the investigation could cause changes in sales or marketing that hamper Spectranetics' competitiveness or lead to great spending, disrupt product supplies or cause key company personnel to leave. Lawsuits, fines or penalties could also result, he said, although he said it is too early to determine the probe's outcome.

Four other stock analysts had a more upbeat view, though most expected company sales to take a short-term hit.

After talking with Spectranetics management, Amit Bhalla of Citigroup Global Markets in New York told investors the probe targets current clinical studies and consulting arrangements with doctors are "the key part."

Bhalla said in a note that he believes the company is conducting current clinical studies "according to industry norms" and that "a fair resolution could be reached" if the evaluated products arrived in the United States inappropriately.

Peter Bye, senior analyst for Jefferies & Co. Inc. in New York, said the case appears to have been triggered by "an ex-employee whistle-blower" who tipped off the two agencies. He expects the inquiry to target whether the company illegally promoted, including making prohibited payments to doctors and a hospital, using its laser to clear stent blockages without first getting FDA approval.

Bye cut his revenue estimates for the company by $5.5 million for the rest of this year and $9.8 million for next year as a result of "general sales disruption" from having some of its sales personnel subpoenaed and from having to spend extra time updating doctors on the probe. He also told investors that "prior investigations of this nature have ended with the payment of fairly modest penalties."

Suraj Kalia, senior vice president of Sanders Morris Harris Capital in New York, said he was surprised by the investigation. "Spectranetics plays by the book and has never been known to engage in shoddy marketing practices," he said. The investigation "could be a long, drawn-out process," but he does not believe the allegations will disrupt the company's business.

Charley Jones, vice president and senior investment analyst with Barrington Research Associates Inc. in Chicago, told investors that the probe "has broad implications" on product approvals and labeling, sales representatives, temporary apprehensiveness by physicians and hospitals and will take six to 12 months to resolve. But he added: "This is a good company with good products."

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