FDA Issues Warning Letter to Stryker

Orthopedic major, Stryker Corp. (SYK - Analyst Report) has received a warning letter from the Food and Drug Administration (“FDA”) following an inspection at its Portage facility at Mich. Products from Stryker’s Instruments division are produced at the facility.

The warning was issued due to a quality systems-related issue at the facility as well as the marketing of unapproved medical devices, including the Neptune Waste Management system.

In Jun 2012, Stryker started a Class 1 recall of its Neptune system due to severe injuries caused by the device. One of the injuries resulted in fatality. The Neptune system collects surgical waste fluids as well as evacuates smoke with minimal human interference during clinical procedures.

Stryker is being warned by the regulatory body for marketing its products without proper regulatory approval and failing to inform the FDA regarding the product recall. However, the letter also acknowledges the fact that the company is working hard to resolve the issue.

Revenues from Instruments sales increased 3.5% to $330 million in the fourth quarter of 2012. Solid sales of power tools were negated by the Neptune product recall, which lowered revenues by $18 million in the quarter.

Despite the warning letter, Stryker hit a new 52-week high on Tuesday. Given Stryker’s leading position in the medical technologies market, the warning letter from the FDA failed to affect stock prices, which remained roughly flat to close at $66.79 on Tuesday.

St. Jude Medical (STJ - Analyst Report), another medical device company, has also received a warning letter from the FDA regarding a breach of manufacturing practices at the company’s Sylmar, Calif. plant. The plant manufactures implantable cardiac defibrillators (ICD) (including the highly controversial Riata ST Optim and Durata leads) from the company’s Implantable Electronic Systems Division.

Stryker currently has a Zacks Rank #3 (Hold). Medical products companies such as CareFusion (CFN - Snapshot Report) and Covidien (COV - Analyst Report), which carry a Zacks Rank #2 (Buy), appear impressive.