Whitney Tilson’s email to investors discussing that Penumbra Inc (NYSE:PEN) recalls its JET 7 Xtra Flex catheter.
Get Our Activist Investing Case Study!
Get the entire 10-part series on our in-depth study on activist investing in PDF. Save it to your desktop, read it on your tablet, or print it out to read anywhere! Sign up below!
Penumbra Recalls Its Catheter
1) In my November 10 e-mail, I wrote:
My friend and former student Gabriel Grego, of Quintessential Capital Management, just released a short report on medical-devices maker Penumbra (PEN). You can read it and watch his 37-minute interview with famed short-seller Carson Block here...
I haven't independently verified Gabriel's work... but knowing him and his track record, I have no doubt that his report is correct – which is bad news for a high-flying stock trading at 16 times revenue.
Stunningly, Penumbra shares rose 7.7% that day to close at $261.15, as investors apparently chose to believe management rather than read Gabriel's report.
Big mistake, as the stock has been going straight downhill ever since – falling by almost $100...
The latest news hammering the stock today is that Penumbra has finally done what it should have done long ago: recall its JET 7 Xtra Flex catheter. As Gabriel documented, this device has been failing at an alarming rate, killing at least 14 patients.
Here's the company's press release: Penumbra Announces Penumbra JET 7 Reperfusion Catheter with Xtra Flex Technology Voluntary Recall.
And here's the U.S. Food & Drug Administration's ("FDA") even stronger statement: Penumbra's Urgent Voluntary Recall of JET 7 Catheters with Xtra Flex Technology Due to Increased Risk of Mortality and Serious Injury – Urgent Letter to Health Care Providers. Excerpt:
The FDA has received over 200 medical device reports ("MDRs") associated with the JET 7 Xtra Flex catheter, including deaths, serious injuries, and malfunctions. Twenty of these MDRs describe 14 unique patient deaths, which include reports from different reporting sources for a single adverse event. Other MDRs describe serious patient injury such as vessel damage, hemorrhage, and cerebral infarction. Device failure modes reported in the MDRs include ballooning, expansion, rupture, breakage or complete separation, and exposure of internal support coils near the distal tip region of the JET 7 Xtra Flex catheter.
Bench testing performed by the manufacturer, where the catheter distal tip is plugged and pressurized to failure, demonstrates that the JET 7 Xtra Flex catheter is not able to withstand the same burst pressures to failure as the manufacturer's other large bore aspiration catheters used to remove thrombus in acute ischemic stroke patients.
Both press releases say that the recall was "voluntary." Yeah, right! I have no doubt that, thanks to Gabriel's report, the FDA – after looking into this situation – told the company: "You either voluntarily recall this defective product immediately or we're going to force you to."
Don't even think of bottom-fishing this stock. Not only does it still trade at 12 times revenue, but Gabriel promised in a press release last night that there are many more shoes to drop:
We hope that our activity will remind the public about the critical role of short sellers in promoting transparency and accountability in corporate America.
Our mission is not over yet: we have reviewed evidence suggesting that the JET 7 issues may just be the tip the iceberg of the extensive malfeasance at Penumbra. We intend to share such evidence with the public at the appropriate time and we will not rest until any responsible parties are brought to justice.