Health indices dipped back into the red Thursday, as some stocks in the sector weathered FDA and legal concerns.

Baxter International ( BAX) fell 2.5% on news of an FDA alert regarding its blood thinner heparin and an investigation into related manufacturing facilities.

The agency has warned doctors and patients earlier this week that there have been 350 reports of side effects, including 4 deaths, so far this year. It's investigating a Chinese facility and also a New Jersey facility.

In January, Baxter recalled nine lots of the blood thinner in light of reports of allergic reactions. The company said on Monday that it will halt manufacturing of the multiple-dose vials while it searches for the cause of the increase in adverse reactions. Shares of Baxter declined $1.54 to $60.32.

At ease and heading the other direction Thursday, Cephalon ( CEPH) gained $3.98, or 6.9%, to $61.40. The Federal Trade Commission said it would sue Cephalon on Wednesday, alleging that the company illegally blocked the sale of generic versions of its Provigil drug by paying potential competitors to hold off on sales. But, analysts and investors seemed free of short-term worry on Thursday.

Cowen and Co. analyst Eric Schmidt reaffirmed an outperform rating for the stock and Jefferies & Co. analyst David Windley reaffirmed buy rating.

Elsewhere, contact solution recalls and acquisition-related charges resulted in a wider fourth quarter loss for Advanced Medical Optics ( EYE), but shares advanced on word of a cost-cutting plan. The stock jumped saw shares rise $2.03, or 9.6%, to $23.29.

Advanced Medical Optics reported a quarterly loss of $12.3 million, or 20 cents a share, widened from a loss of $7.6 million, or 13 cents a share, in the previous year. Revenue rose 25% to $304.6 million from $243.6 million.

Analysts polled by Thomson Financial expected an adjusted loss of 6 cents a share, on revenue of $287.4 million.

The company said that to lower costs its cutting 150 jobs, or roughly 4% of its workforce, and consolidating operations. The company expects the moves to cost between $25 million and $30 million in 2008, resulting in savings between $4 million and $7 million in 2008, and $10 million to $12 million annually thereafter.

Advanced Medical Optics also cut its 2008 earnings outlook, now expecting adjusted earnings between $1.25 and $1.45 a share, down from a previous outlook of $1.55 to $1.75 a share. It sees revenue of between $1.22 and $1.24 billion, vs. its prior guidance of $1.23 billion and $1.25 billion. Analysts had predicted a full-year profit of $1.37 a share on revenue of $1.22 billion.

Elsewhere in earnings, specialty pharmaceutical company Angiotech ( ANPI) slid after reporting worse-than-expected fourth-quarter results. The copmany reported an adjusted loss from continuing operations of $7.5 million, or 9 cents a share, compared with a profit of $12 million, or 14 cents a share, a year earlier.

Revenue, was $70.7 million as adjusted for non-recurring items and $71.4 million on a GAAP basis, compared to $83.2 million and 93.2 million in 2006, respectively.

Analysts polled by Thomson Financial forecast a loss of 3 cents a share for the quarter on revenue of $71.1 million.

Shares dropped 37 cents, or 11%, to $3.03.

Meanwhile, Clinical Data ( CLDA) advanced nearly 5% after the company posted improved fourth-quarter results. The company reported a loss of $4.4 million, or 21 cents a share, narrowed from a loss of $6.3 million, or 43 cents a share, in the year-earlier quarter. Revenue rose 31% to $10.5 million on strong sales growth in PGxHealth predictive tests.

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