STERIS turns corner in disagreement with FDA on System 1 sterilizer

STERIS Corp. seems to have turned a corner in its disagreement with the U.S. Food and Drug Administration about what customers should do with 23,000 System 1 sterilization units worldwide. The latest STERIS response to the FDA’s challenge of its System 1 lacked any mention of disagreement, unlike other responses the company has made to the regulator since it targeted the device in a May 2008 warning letter.

MENTOR, Ohio — STERIS Corp. seems to have turned a corner in its disagreement with the U.S. Food and Drug Administration about what customers should do with 23,000 System 1 sterilization units worldwide.

In a letter to customers posted late Thursday evening at the company’s Web site, STERIS President and Chief Executive Walt Rosebrough simply repeated the FDA’s recommendation that health care facilities find an alternative to System 1. The post followed a second FDA teleconference with hospital leaders about the units that use chemicals to sterilize medical instruments and endoscopes.

“If an acceptable alternative is not readily available, FDA stated that health care facilities should not cancel surgical procedures and may continue using System 1,” Rosebrough said in his letter. “The FDA has requested that health care facilities prepare a transition plan, which the agency believes could be implemented within three to six months.”

Rosebrough also repeated his company’s commitment to support customers with sterilant, accessories, parts and service as they move to alternate technologies. But the latest STERIS response to the FDA’s challenge of its System 1 lacked any mention of disagreement, unlike other responses the company has made to the regulator since it targeted the device in a May 2008 warning letter.

In that letter, the FDA said STERIS had made so many changes to System 1 since its 1988 launch that it no longer considered the device approved as safe and effective. The FDA now refers to System 1 as a “violating device.”

In 2008, STERIS disagreed with the FDA’s assertion that the company should have re-applied for approval to sell the device after some of the changes had been made. Then, STERIS maintained that changes made to System 1 through the years did not warrant a new application and the company had complied with FDA requirements while making the changes.

Instead of making a new application to market System 1, STERIS applied to the FDA on Jan. 5 to sell a next-generation chemical sterilization system — essentially an updated and improved System 1 — largely to put to rest its ongoing disagreement with the regulator. The new system eventually would replace System 1, if approved by the FDA. STERIS said it would stop selling System 1, but continue to service and support it through through 2011.

STERIS made no mention of helping customers move to other instrument-sterilizing technologies in its January announcement (pdf). It seems this lack of transition is at the heart of  the FDA’s beef with STERIS now.

On Dec. 3, the FDA issued a safety alert about System 1, saying it had received some reports of malfunctions “that had the potential to cause or contribute to serious injuries to patients, such as infections.” The FDA also said it is aware of injury reports by workers who used the system.

Once again, STERIS disagreed with the regulator. “We disagree with the FDA’s recent notice and are working to engage in further dialogue with the agency about this matter,” Rosebrough said. “Since its introduction in 1988, we estimate that the System 1 Sterile Processing System has safely and effectively sterilized more than 300 million devices when used as directed.”

An FDA official acknowledged during a Dec. 4 conference call (pdf) with hospital administrators that “we’re not aware of any confirmed cases of infection directly attributable to inadequate processing” by System 1, according to an unofficial transcript of the call posted by STERIS.

During a second conference call (pdf) with hospital administrators on Thursday, Timothy Ulatowski, director of the Office of Compliance in the FDA’s Center for Devices and Radiological Health, was quoted as saying: “We believe that since January, STERIS has been working to transition its customers with legally marketed alternatives to System 1. Based on communications with STERIS and an inspection of the firm, we determined that STERIS was not taking appropriate action to support this transition.”

Judging by its latest statement, STERIS is trying to help with the transition. “We are continuing to work with the FDA to help [customers] meet its requirements and make a smooth transition to an acceptable alternative,” Rosebrough said in Thursday’s customer letter.

During the latest teleconference, one caller was confused about why the FDA has not stopped hospitals from replacing old System 1s with new System 1s during the transition period. “We have not directed that the use of the STERIS System 1 stop immediately,” Ulatowski said Thursday.

The disagreement with the FDA is hurting the price of STERIS stock. Since Dec. 3, the day the FDA issued its safety alert, STERIS shares have lost 15 percent of their value, closing Friday at  $28.33 on the New York Stock Exchange.

Some of Friday’s 2.3 percent drop in stock price might have come as a result of a research report by Stephens analyst Shawn Fitz, who downgraded the shares to “equal-weight” from “overweight” and lowered his price target by nearly a third to $25 from $40.

In his report titled “Don’t Tug on Superman’s Cape … And You Don’t Mess Around With the FDA,” Fitz said the FDA’s recent communications about System 1 “will have a material negative impact on demand for units and disposables.” Fitz estimates disposables alone — sterilant and other supplies used to operate System 1 — account for $96 million in annual sales for STERIS. Loss of this revenue likely will cut 5 cents from the company’s quarterly per-share earnings in fiscal 2010, which ends in March, he said.