St. Jude Medical (STJ) Warning Letter 'Anticipated', Questions Remain

January 15, 2013 11:10 AM EST
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In filings on Monday, St. Jude Medical Inc. (NYSE: STJ) disclosed receiving a FDA warning letter related to its Sylmar CRM facility. According to analysts at Jefferies, the letter was "much anticipated" and most of the negative Riata/Durata news is "out".

"We remain neutral on STJ, however we acknowledge that in the absence of new data, the worst of the near term pressure from Riata/Durata is likely over," said analyst Raj Denhoy. "There remain a number of unanswered questions on the design of the Durata lead, however to date, the clinical performance remains quite good. Until longer term data is available, it's hard to imagine the FDA will take action or a larger share of physicians will change their practice (either away or towards Durata)."

Jefferies has a Hold rating on St. Jude Medical with a revised price target of $39 from $34.

A copy of St. Jude Medical's disclosure is below:

On January 11, 2013, St. Jude Medical, Inc.’s (the “Company”) Implantable Electronic Systems Division (formerly known as its Cardiac Rhythm Management Division) received a warning letter dated January 10, 2013 from the U.S. Food and Drug Administration (the “FDA”) related to observed non-conformities with Current Good Manufacturing Practice at the Company’s Implantable Electronic Systems Division’s Sylmar, California facility. This warning letter is specific to the Company’s Sylmar, California facility and does not impact any of the Company’s other manufacturing facilities. As previously disclosed by management on its third quarter earnings call on October 17, 2012, this warning letter was expected.

The FDA inspected the Company’s Sylmar, California manufacturing facility from September 25 to October 17, 2012. On October 17, 2012, the FDA issued a Form 483 (the “Form 483”) identifying certain observed non-conformities with Current Good Manufacturing Practice. Following the receipt of the Form 483, the Company’s Implantable Electronic Systems Division provided written responses to the FDA detailing proposed corrective actions and immediately initiated efforts to address FDA’s observations of non-conformity. The warning letter relates to the observations reflected in the Form 483.

The FDA letter notes that it will not grant requests for exportation certificates to foreign governments or approve pre-market approval applications for Class III devices to which the quality system regulation deviations are reasonably related until the violations have been corrected. The warning letter does not, however, identify any specific concerns regarding the performance of, or indicate the need for any field or other action regarding, the Riata ST Optim or Durata leads or any other St. Jude Medical product. Accordingly, the Company will continue manufacturing and shipping product from the Sylmar facility and customer orders are not expected to be impacted while we work to resolve the FDA’s concerns.

The Company takes this matter seriously and has already begun to respond to the FDA's requests. The Company is giving the highest priority to fully remediating these concerns.

Consistent with the Company's prior disclosures on this matter, the Company has taken the appropriate regulatory circumstances into account in managing its business and setting investor expectations, and believes the FDA's concerns can be resolved without a material impact on the Company’s financial results. The Company will provide financial guidance for 2013 which will incorporate any impact from this warning letter on its fourth quarter earnings call scheduled for January 23, 2013.

For an analyst ratings summary and ratings history on St. Jude Medical (NYSE: STJ) click here. For more ratings news on St. Jude Medical click here.

Shares of St. Jude Medical closed at $38.85 yesterday.

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