Tokos’ Stock Up 18% After AMA Probe Ends : Rebound: Medical device maker’s chairman tells investors that investigation is over. Firm is coming out of slowdown.

Tokos Medical Corp.’s stock leaped 18% Tuesday after the medical-device maker’s chairman told a group of investors that the American Medical Assn. has closed an investigation into allegations of unethical kickbacks to physicians.

Chairman Robert F. Byrnes also told an audience Tuesday at an investment conference in New York that the company is slowly recovering from financial problems that followed the investigation last year and the expense of a recent acquisition.

“(It is) too early to say what the first quarter looks like, but the last few weeks are an indication we’re coming out of this slowdown,” Byrnes said during a speech at a health-care investment conference sponsored by the brokerage Needham & Co.

Tokos’ stock gained $2.50 a share in Tuesday’s trading on the NASDAQ market, closing at $16. Company officials, although ecstatic to see the rise in the beleaguered stock, said that it is an example of the volatility on Wall Street.

“It always seems to work that way,” Tokos President Craig T. Davenport said, adding that the stock has been depressed recently after a series of controversies that have plagued the company.

Late last year, the company was hurt financially by revelations that both the AMA and the U.S. Food and Drug Administration had launched probes into the company’s dealings. It also saw its stock dive in November when it announced that its fourth-quarter profit would not meet analysts’ expectations.

The company, based in Santa Ana, has survived those ills, Davenport said, and is on the way to recovery.

Davenport said the company has received a letter signed by AMA General Counsel Kirk Johnson that exonerates the company.

“We are not investigating Tokos,” Johnson wrote to Tokos.

The AMA said in December that it was looking into complaints by a Utah physician who alleged that the company was paying doctors to use its monitoring device, which is essentially an early warning system to detect the onset of pre-term labor.

The company had also become embroiled in a New England Journal of Medicine article in July that said the drug ritodrine was ineffective in preventing premature births and could even be harmful.

Physicians were prescribing Tokos’ terbutaline, a similar drug, to many of their patients to inhibit labor. The Journal article prompted questions about terbutaline because it is so similar to ritodrine.

Although the FDA ruled that terbutaline is safe and effective, investors and physicians were skittish, causing Tokos’ sales--and stock price--to fall. With the positive FDA ruling as well as the AMA decision not to investigate further, Davenport said, the company is on the mend.