St. Jude Medical drops after Muddy Water findings of 'negligent product design'

The ticker and trading information for St. Jude Medical is displayed where the stock is traded on the floor of the New York Stock Exchange
Brendan McDermid | Reuters
The ticker and trading information for St. Jude Medical is displayed where the stock is traded on the floor of the New York Stock Exchange

Shares of St. Jude Medical briefly fell more than 8 percent Thursday after Muddy Waters Capital announced the firm is short the stock because it believes St. Jude's cardiac devices are vulnerable to cyberattacks.

The stock later recovered its losses, ending the day down nearly 5 percent.

In a report published Thursday, the short selling firm suggested the recall and remediation of St. Jude Medical's cardiac devices. Such an event would result in roughly a 50 percent decrease in St. Jude Medical's revenue for the next two years — the estimated period for remediation.

Muddy Waters cited in its report demonstrations of "two types of cyber attacks against St. Jude's implantable cardiac devices."

The report also describes a "crash" attack that causes the cardiac devices to malfunction and a "battery drain" attack that could be harmful to device-dependent users. Both vulnerabilities can be exploited by low-level hackers, said Muddy Waters.

The firm said it has "little doubt that St. Jude Medical is about to enter a period of protracted litigation over these products. Should these trials reach verdicts, we expect the courts will hold that St. Jude Medical has been grossly negligent in its product design."

Muddy Waters estimated $6.4 billion in awards if litigated to a verdict.

Shares of St Jude, which agreed in April to be purchased by Abbott Laboratories, were last down more than 5 percent on heavy volume after Carson Block, head of Muddy Waters, announced his position against the stock on Twitter. The shares were at one point down more than 8 percent before regaining some ground. Block also discussed the rationale for his position on Bloomberg Television.

Block also said he has taken a "long" position in Abbott, a bet that its stock will rise. Abbott shares were down slightly after the report. Representatives for St. Jude and Abbott had no immediate comment.

"The allegations are absolutely untrue," Phil Ebeling, St. Jude's chief technology officer, said in a Bloomberg report. "There are several layers of security measures in place."

Shares of St. Jude Medical have gained nearly 26 percent so far this year.

STJ YTD

— Reuters contributed to this report.