St. Jude May Get FDA Warning Letter on California Plant

St. Jude Medical Inc. (STJ), a maker of heart rhythm devices, may get a regulatory warning letter involving a manufacturing facility in California, Chief Executive Officer Dan Starks said. The shares fell.

The Sylmar plant is being inspected by the U.S. Food and Drug Administration, which probably will lead to a negative report and possibly a warning letter, Starks said on a conference call today. He declined to comment on what the FDA might find at the facility, which makes defibrillators.

St. Jude has been under the microscope since it stopped selling Riata wires, used to connect defibrillators to the heart, in 2010 and recalled them a year later because the cables could break through their insulation. The issue with so-called externalized cables sparked appropriate attention from doctors, patients and regulators, which increases the odds the manufacturing plant will be cited for shortcomings, Starks said.

“We would not be surprised if these observations are ultimately followed by the issuance of a warning letter,” Starks said on the call. If a warning letter is issued, “we will respond in a way that demonstrates our top priority is patient safety and quality assurance,” he said.

St. Jude dropped 4.9 percent to $40.85 at 4:05 p.m. in New York. The shares of the St. Paul, Minnesota-based company have risen 19 percent so far this year.

Not Aware

Starks said he isn’t aware of any specific problems at the facility and is laying out the potential implications of the review for investors. A warning letter can prevent a company from getting additional products approved by the FDA until any deficiencies are corrected. Starks declined to say what devices the company might seek clearance for in the U.S. next year.

“When you ask what is wrong in Sylmar, there is nothing,” Starks said. “Everyone should be realistic about what the likely outcomes are. There isn’t more to it than that,” he said. “In the long run, we think it’s good for our markets that the public knows the FDA is exercising its role in a very vigorous and robust way.”

Cardiac rhythm management products including defibrillators and pacemakers generated $691 million in third-quarter sales, a drop of 8 percent from a year earlier, St. Jude said in a statement today. The device maker lowered its forecast for 2012 sales of defibrillators to $2.83 billion to $2.86 billion, from $2.86 billion to $2.9 billion.

Lowered Guidance

“Beyond defibrillators, St. Jude also lowered 2012 sales guidance in cardiovascular and neuromodulation, which potentially suggests continued pressure on the company’s non-ICD business,” wrote Danielle Antalffy, an analyst at Leerink Swann in New York.

Net income decreased to $176 million, or 46 cents a share, from $227 million, or 69 cents, a year earlier, St. Jude said. Earnings excluding one-time items were $261 million, or 83 cents a share, topping by 2 cents the average of 23 analyst estimates compiled by Bloomberg.

St. Jude disclosed the possibility of a warning letter in order to be as transparent as possible, said John Heinmiller, the company’s executive vice president, in a telephone interview. Once the FDA notes several observations during an plant audit, they may be concerned there are “systemic or pervasive” flaws in the company’s quality systems, he said.

“We have enough insight into the status of the audit that we thought our comments - that we wouldn’t be surprised if we receive a warning letter - would be appropriate,” Heinmiller said. “It’s too early to speculate” on the nature of the deficiencies, he said.

To contact the reporters on this story: Michelle Fay Cortez in Minneapolis at mcortez@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net