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What: Shares of medical device maker St. Jude Medical (NYS: STJ) are under heavy fire today, falling as much as 15%, following a report by the Food and Drug Administration questioning the safety of one of the company's lead products.
So what: The report released by the FDA claims that design verification activities in one of St. Jude's leads, known as Durata, are inadequate. This isn't the first time, either, that St. Jude's leads, which connect a heart defibrillator to the heart, have come under fire. The previous version of Durata, known as Riata, was recalled last year after the insulation wore away and exposed the wire cables. An analyst at Goldman Sachs places the revenue risk of a recall at $200 million.
Now what: Now we sit back and wait to see what happens. I've never been a fan of speculating either way, but in St. Jude's most recent earnings report, it warned shareholders that an FDA warning letter might be coming. Today's news is disappointing, but hardly a surprise. Keep in mind that Durata's revenue risk is only around 5% of total sales for the year, so we could be looking at an overreaction. Then again, the FDA may take this cue as reason to look more closely at other St. Jude devices. Like I said, this is too early to call and we should really stay away until we see what St. Jude and the FDA have to say.
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The article Why St. Jude Medical Shares Were Zapped originally appeared on Fool.com.Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. The Motley Fool owns shares of St. Jude Medical. Motley Fool newsletter services have recommended buying shares of Goldman Sachs. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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