Thoratec’s Hammering (THOR)

Thoratec Corporation (NASDAQ: THOR) is having a rough morning.  The heart failure device company has a product recall it announced last Friday, and medical device recalls are not what the public likes to hear about.

Thoratec issued a worldwide medical device correction of all serialnumbers of the HeartMate II Left Ventricular Assist Systems havingCatalogue No. 1355 or 102139.  These have been distributed since thebeginning of clinical studies in November 2003.

The company said that over time, wear and fatigue of the percutaneouslead connecting the HeartMate II LVAS blood pump with the SystemController may result in damage that could interrupt pump function,require re-operation to replace the pump and potentially result inserious injury or death.

It also said that the estimated probability of the need for pumpreplacement due to percutaneous lead damage is 1.3% at 12 months, 6.5%at 24 months and 11.4% at 36 months.

There is just one small problem with recalls and product defects inmedical device companies.  Patients generally have to undergo a newsurgical procedure to have the recalled item removed and have to havenew devices inserted.  This is almost always done at the same time, butit isn’t quite the same as taking your car in because the windshieldwipers have a 15% failure rate.

The other issue about medical device recalls is that they can destroythe image medical device company which issued a recall.  Lastly, it canturn doctors away to competing products or encourage them to stop useof the recalled product even if the replacement is fine.  Few doctorslike to admit it, but they also have to respond and react to publicopinion or negative press.

Thoratec shares are down 14% at $21.53, and the 52-week trading rangeis $12.92 to $29.72.  The company is very lucky that this reactionisn’t worse.

Jon C. Ogg
October 27, 2008