Two events this week prompted investors to disproportionately reward and punish stocks of two medical technology companies: Edwards Lifesciences (NYSE:EW) and St. Jude Medical (NYSE:STJ).
One piece of news was largely expected — a panel at the U.S. Food and Drug Administration gave a thumbs up to the expanded indication for Edwards Lifesciences’ SAPIEN transcatheter aortic valve replacement system late Wednesday. If the agency heeds the recommendation and approves the devices, people with severe artery blockage who are at a high risk for open-heart surgery can choose SAPIEN instead. On Thursday morning, the market reacted to the positive panel recommendation by pushing the stock up more than 7 percent.
By contrast, St. Jude Medical stock’s fell 6 percent Tuesday based on a single, so far unconfirmed report of an adverse event of its highly touted Durata lead.
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The FDA Maude database reports that the Durata lead showed externalized conductors, a problem that plagued older ICD leads — especially the Riata leads that have been pulled from the market after the FDA hit St. Jude Medical with a Class I recall.
Medical device analyst Thom Gunderson of Piper Jaffray believes that investors overreacted to both incidents.
The positive panel recommendation on the SAPIEN device was expected, so there really was no reason for the outsize reaction to Edwards Lifesciences’ stock, he said.
And with respect to St. Jude Medical, all we have is one, unconfirmed report, he said.
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” … given that the lead was not returned to STJ, a serial number was not provided in the report, and the reporting physician remained anonymous, the cause of the defect will be very hard to track down,” wrote Gunderson in a June 13 research note.
In other words, there really was no justification for the hammering the stock received, Gunderson said.
“It just shows you that the medtech market is balanced precariously on a razor’s edge,” Gunderson said later in an interview. “Anything can tip it one way or another.”
Nonetheless, the incident does have a lesson for St. Jude Medical, he said. Although the single report of externalized conductors is unconfirmed, it contradicts the bold declaration that officials have made that there are zero instances of this problem in Durata leads.
“They set themselves up for it,” Gunderson said referring to the market reaction. “If you say you don’t have any defects and then you do, investors think you must be wrong.”
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