St. Jude falls on FDA concerns, sales estimate

NEW YORK -- Shares of St. Jude Medical Inc. declined Wednesday after the medical device maker cut its 2012 revenue estimate and said it may get a warning from federal regulators about a defibrillator plant in California.

THE SPARK: St. Jude reported its third-quarter quarter results Wednesday morning. Its results surpassed Wall Street forecasts, even though the company said its revenue fell 4 percent. Sales were hurt by austerity measures in Europe and a decrease in heart procedures in the U.S. The company said sales of heart rhythm implants fell 8 percent.

The company narrowed its annual profit guidance and said it now expects $5.45 billion to $5.52 billion in annual revenue. The new estimate reflects lower sales of cardiac rhythm devices and other cardiovascular products. St. Jude previously expected $5.49 billion to $5.61 billion revenue for the year.

Analysts were forecasting revenue of $5.56 billion, on average, according to FactSet, with estimates ranging from $5.51 billion to $5.69 billion.

In addition, St. Jude CEO Dan Starks said the Food and Drug Administration is inspecting a facility in Sylmar, Calif., that makes cardiac rhythm products. Starks said he "would not be surprised" if the company gets a warning letter from the FDA. The warning would notify St. Jude of problems it needs to fix and could stop or restrict sales of products made at the plant.

THE BIG PICTURE: The inspection is related to St. Jude's Riata and Riata ST wires, which are used to attach a defibrillator to a patient's heart. Defibrillators are lifesaving devices implanted in the chest to correct dangerous heart rhythms, monitoring the heart for irregular beats and occasionally triggering electrical shocks that correct the problem.

St. Jude stopped selling the Riata products in late 2010 because of concerns about the insulation, and it recalled them in late 2011. If the insulation on the wire is eroded, there is a greater chance the device could malfunction and either deliver a shock when none is needed, or fail to shock the patient's heart when it is not beating properly. Around 79,000 Riata leads are implanted in U.S. patients.

Earlier in 2012 St. Jude recalled two other wires, QuickSite and QuickFlex.

THE ANALYSIS: Mizuho Securities analyst Michael Matson said concerns about Riata are still hurting St. Jude's growth. He said the heart rhythm device business did not do as well as expected during the third quarter and added that St. Jude is probably losing market share in that segment.

Matson maintained a "Neutral" rating on the stock and cut his price target to $40 per share from $45.

SHARE ACTION: Shares of St. Jude lost $2.20, or 5.1 percent, to $40.74 in late afternoon trading, up from a low of $40 earlier in the session. The stock has risen 13.7 percent since the end of August and was trading around six-month highs prior to the quarterly report.