Arthrocare (ARTC) Becomes A Battle-Ground Stock

December 17, 2007 2:58 PM EST

Shares of Arthrocare Corp. (Nasdaq: ARTC) are weaker today, continuing last week's trend, due to concerns discussed in the New York Post of improprieties at the company's US Spine business related to the role surgical device distributor DiscoCare. According to the Post, about 75% of Arthrocare's US spinal unit business came from DiscoCare, although Arthrocare hasn't mentioned the unit's reliance on DiscoCare. The report also said the Massachusetts Attorney General's office is looking into the companies' relationship.

On Friday, Arthrocare defended itself, calling the reports materially inaccurate. Arthrocare also said it contacted the Massachusetts Attorney General's office and was informed that there was no such investigation.

Even though Arthrocare said it will contact The New York Post and request a correction - it looks like the Post is standing by its story.

This morning, an analyst at Piper Jaffray said the recent weakness in Arthrocare is a buying opportunity. The firm said if DiscoCare is responsible for 75% of the US Spine revenue, it would represent $0.33 in EPS in 2008. Piper sees the contribution from DiscoCare more realistically at 25%-50% of the U.S. Spine revenue - which would represent 2008 EPS of $0.10-$0.20. The firm is maintaining their Buy rating and $74 price target on Arthrocare.

Contrary to Piper Jaffray's positive tone, Susquehanna Financial took a negative tone today - downgrading the stock from Positive to Neutral, saying health insurers are not covering its spinal technology.

Shares of Arthrocare are down over 4% today to $49.

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