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Big Fall for Cowen Analyst

Dhulsini de Zoysa was a rising star before last month's abrupt firing.

OKLAHOMA CITY -- The price

Cowen & Co.

(COWN) - Get Cowen Inc. Report

paid for one of its top analysts now looks awfully steep.

Cowen reportedly offered top dollar to Dhulsini de Zoysa -- a rising star covering the medical device industry -- when courting her a few years ago. The firm placed de Zoysa in charge of covering some of the biggest names in healthcare, including


(MDT) - Get Medtronic plc. Report


Boston Scientific

(BSX) - Get Boston Scientific Corporation Report

, in hopes of publishing groundbreaking research that would stand out from the rest.

Late last month, however, the firm abruptly backed away from that unique research after an internal review raised questions about the integrity of the work.

"All previously published Cowen research reports on these companies are withdrawn, will no longer be made available to our clients and may not be relied upon," Cowen stated in an Aug. 29 note to clients. Meanwhile, "the analyst who prepared these reports has been terminated."

Cowen declined to elaborate on the situation, and de Zoysa didn't return a call seeking comment. But Sheryl Skolnick, a healthcare expert who once worked with de Zoysa at Fulcrum Global Partners, was stunned by the implications of Cowen's move.

"At Fulcrum, I had the opportunity to review her work," says Skolnick, who has since moved on to become senior vice president of CRT Capital Group. "She had very sound research methodologies and practices. Her i's were dotted, her t's were crossed, and her pieces were thoughtful.

"I found her -- at that point in time -- to be a very talented analyst," Skolnick says. "But what happened between 2004 and 2007, I have no idea."

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Outside the company, some speculate that de Zoysa's proprietary surveys of healthcare providers may have triggered the analyst's downfall. Those reports often prominently featured Boston Scientific and Medtronic, huge medical device makers that ranked among de Zoysa's favorite stock picks.

Over the past year, she published the most reports -- some 28 in all -- on Boston Scientific, though a dozen of those included coverage of Medtronic as well. She penned 14 reports on Medtronic itself, Thomson data show.

Last fall, for example, de Zoysa published some bullish research on Medtronic's new artificial discs for the cervical spine. In one note, she boldly predicted that cervical discs would become wildly popular despite failures that have led to disappointing sales of artificial discs for the lumbar spine.

"Spine surgeons we surveyed expect the cervical segment to take off much faster than the lumbar segment," de Zoysa wrote last September in a survey quoted by

. In fact, "some estimate that artificial discs could replace 50% of cervical fusions by 2010."

Medtronic stands to benefit if sales of cervical discs do take off. The company boasts two first-of-a-kind cervical discs that could help offset possible disappointments awaiting the company's Maverick lumbar discs. The Maverick, while hailed as superior to competing discs, will enter a market already tainted by failures associated with rival lumbar discs offered by

Johnson & Johnson

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and Synthes.

The worldwide leader in spinal products, Medtronic also ranks as a major supplier of popular cardiac devices know as implantable cardiac defibrillators. Thus, the company has scored plenty of ink in de Zoysa's frequent survey-based reports on the "cardiac rhythm management" market as well.

In one of those reports -- perhaps the last one published before de Zoysa took off for maternity leave this summer -- the analyst reassured investors about Medtronic's dominance of the market despite recent gains by Boston Scientific and

St. Jude



"Nearly 95% of practices use Medtronic devices," she claimed. Ultimately, "the company accounts for over 50% of the market.

And Medtronic's hold on the market seems quite secure to us."

A Medtronic spokeswoman declined to speculate on whether de Zoysa's questionable reports had focused on the company and suggested that Cowen itself should be contacted instead. Disclosures in the reports don't indicate de Zoysa had any financial interest in Medtronic. And to be fair, de Zoysa covered more than a dozen other companies -- ranging from biotech

Edwards Lifesciences

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to healthcare giant


(BAX) - Get Baxter International Inc. Report

to joint-maker



-- as well.

Like many, Skolnick wonders what de Zoysa might have done to cause questions about integrity. If anything, based on her own experience with de Zoysa at Fulcrum, Skolnick found the analyst to be more meticulous than most.

"I remember, when she was looking at breast implants made by



, she came up with one of the best models I have ever seen," Skolnick says. "She knows how to get information. She knows how to be a good analyst. So this is all very shocking to me."

Back at Fulcrum, Skolnick says, de Zoysa regularly hosted dinner parties for doctors who could offer "tremendous insight" into device makers rolling out new products. Ironically, Skolnick says, de Zoysa left Fulcrum for Cowen -- which "paid big bucks to get her" -- due, in part, to the rich funding available there for the very surveys that apparently landed her in trouble.

Skolnick has seen de Zoysa weather other storms, including a huge natural disaster that killed thousands of people in Sri Lanka in late 2005, but fears she may never emerge from the dark clouds enveloping her now.

"She survived the tsunami!" Skolnick declares. "She clung to a tree to save her life. ... But unless she brings a lawsuit against Cowen and wins, she will never -- ever -- work in this business again."