One the eve of Thanksgiving, St. Jude Medical finds not much to be thankful for

If St. Jude Medical (NYSE:STJ) executives were hoping for some respite from a slew of bad news during  Thanksgiving, they did not get it.

Reuters reported earlier Wednesday afternoon that shares of the Minnesota medical device manufacturer tumbled more than 13 percent on an inspection report from the Food and Drug Administration which found that the process that St. Jude Medical uses to validate is Durata ICD lead is inadequate. [In October, St. Jude Medical made a regulatory filing of the same inspection report, but with more parts redacted than the one FDA issued.]

The report, based on an inspection spanning Sep. 25 through Oct. 17, also noted:

Your firm was unable to clearly identify the full content ofyour Durata design history file, for example:  I was unable to determine when your firm approved your Durata design inputs, outputs, verification, validation, design transfer and when you conducted your final approval ofyour Durata design. I was also unable to determine  which inputs were changed or unchanged from 1997 onward which is the origination ofyour Durata design.


Given this inspection report, a formal warning letter, of which the CEO Dan Starks had warned analysts in October, now seems more likely.

And were that to happen, it would be a remarkable turn of events for Durata that St. Jude Medical has defended vociferously even as a prominent cardiologist warned against using it. Starks had described Durata’s lead insulation to be 50 times more resistant than silicone to the problem of lead abrasion – where wires poke through their covering – that ultimately caused the recall of Riata and other ICD leads.

A St. Jude Medical spokeswoman issued this statement:

With limited exceptions, company communications with regulatory agencies are confidential. We therefore have no comment other than to reiterate that none of the observations in the Form 483[the formal name of the inspection report issued by FDA] identified a specific issue regarding the clinical or field performance of any of our products.

Reuters quoted Goldman Sachs analyst David Roman as speculating that if these design and process troubles implicate St. Jude’s entire U.S. ICD business, the revenue hit could be $200 million, with additional costs for remediation – for every inadequacy cited in the inspection report, there is the same, single line showing the St. Jude response: promise to correct.

The revenue hit and the remediation costs still don’t show the full picture. There is a risk of litigation costs too and if the product is recalled, there are costs associated with that.

But there could be one silver lining – if St. Jude Medical doesn’t sell as many leads as it used to, the medical device tax liability will be lower too.

[Food face image from BigStock]

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