St. Jude Gets FDA Warning

Medical devices major, St. Jude Medical Inc. (STJ - Analyst Report) has received a warning letter from the U.S. Food and Drug Administration (FDA) regarding a breach of manufacturing practices at the company’s Sylmar, California plant. The plant manufactures implantable cardiac defibrillators (ICD) (including Riata ST Optim and Durata leads) from the company’s Implantable Electronic Systems Division.

In late September 2012, the FDA had commenced an inspection at St. Jude’s Sylmar facility and issued Form 483 on Oct 17, stating few observations about non-conformities with Current Good Manufacturing Practice. On Oct 24, St. Jude sent a redacted Form 483 to the FDA, which identified issues mainly related to quality systems and manufacturing defaults.

However, a detailed inspection report by the FDA in November 2012 contradicted the company’s claim, revealing that the observations are focused on the design verification, validation and testing of the Durata lead. The FDA is concerned that the newer generation Durata lead might face the same problem as the Riata leads, which the company recalled in 2011.

As per the warning letter, the FDA will not clear devices from the facility, which are related to the quality system problem until the issue is resolved. The delay in product approval might lead to competitors in the ICD space such as Medtronic Inc. (MDT - Analyst Report) and Boston Scientific Corporation (BSX - Analyst Report) gain market share.

St. Jude claimed that the letter did not specify any particular issue regarding the clinical or field performance of any particular device. Hence, it will continue to make heart devices at the Sylmar plant while trying to resolve the issue. Further, the company believes that the letter will not impact its financial results.

The company in its third-quarter results had stated that it was expecting the warning letter and hence the news comes as no surprise. St. Jude’s share price increased 1.46% to close at $38.85 on Monday, Jan 14, 2013.

We remain on the sidelines until further details are available from the company’s fourth-quarter results, which are slated to release on Jan 23. St. Jude currently carries a Zacks Rank #3 (Hold), which supports our long-term Neutral recommendation on the stock.