St. Jude Medical (NYSE:STJ) is having a bad week.
An unconfirmed report about lead wires poking through their insulation on its newer, apparently more resistant ICD lead saw the stock slide 6 percent on Tuesday. An analyst called it a overreaction, though there is cold comfort in that.
And now, the Minnesota medical device company has been hit with a shareholder class action lawsuit in its own backyard for failing to disclose the full extent of the problems with its now-recalled, defective Riata and older leads, thereby maintaining an inflated share price.
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Sales of the Riata ICD leads were discontinued when it was found that the lead wires came out of their insulation. The leads have also failed because of short circuiting. In April, St. Jude Medical stopped selling two other leads that had the same problem of wires coming out of their insulation.
The plaintiff in the class action lawsuit is Robert Satow, who filed the lawsuit on behalf of other shareholders. Here is a portion of the complaint:
(St. Jude Medical) failed to disclose the full extent of the problems with its products. First, defendants failed to disclose that the Riata and Riata ST were also associated with short circuits unrelated to the protruding wires. Although less frequent than the protrusions, the short circuits were much more dangerous. Second, defendants failed to disclose that two other leads sold by the company, the QuickSite and QuickFlex Left -Ventricular leads, suffered from the same protruding wires that plagued the Riata and Riata ST.
Subsequently, on March 27, 2012, The New York Times disclosed the results of an analysis performed by an independent researcher, Dr. Robert Hauser, which indicated that the Riata and Riata ST caused short circuits. Defendants vehemently challenged these findings, thus maintaining the artificial inflation in St. Jude’s stock.
On April 4, 2012, defendants finally disclosed that the QuickSite and QuickFlex Left-Ventricular leads also suffered from the same protruding wire defect as the Riata and Riata ST. Sales of the QuickSite and QuickFlex Left-Ventricular leads were discontinued.
As a result of these disclosures, the closing price of St. Jude’s stock dropped from $43.80 to $38.91 over three trading days, a decline of over 11%. This decrease was a result of the artificial inflation caused by defendants’ misleading statements coming out of the price.
A St. Jude spokeswoman offered no comment to the charges, noting only that St. Jude Medical typically updates investors of significant litigation in its quarterly earnings report. The next one is expected in August, she said.
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