New cybersecurity allegations emerge as St. Jude Medical reports mixed quarterly results

St. Jude Medical Inc. beat back renewed cybersecurity allegations against its pacemakers Wednesday as it released an earnings report that saw profit fall despite revenue growth.

Chief Executive Michael Rousseau said in an earnings call Wednesday that short-selling firm Muddy Waters Investments falsely portrayed St. Jude as not taking cybersecurity risks seriously. Minutes after he spoke, St. Jude confirmed that it is evaluating new internet videos purporting to demonstrate four cyber vulnerabilities of St. Jude implantable devices.

Rousseau affirmed that St. Jude still expects to be acquired by Abbott Laboratories in a $25 billion deal before the year is out. A shareholder vote on the deal is scheduled for next Wednesday.

Abbott Chief Executive Miles White on a separate conference call with analysts said he hoped to acquire St. Jude by the end of the year and praised the smaller company's handling of claims by short-seller Muddy Waters that its implantable heart devices posed cyber security risks.

Wednesday's earnings announcement showed that St. Jude's U.S. sales of higher-margin defibrillators and pacemakers were in decline before the battery advisory.

In the three months ended Oct. 1, St. Jude generated $378 million from the sale of pacemakers and defibrillators worldwide, a 7 percent decline compared to the same quarter a year ago.

In the U.S., where St. Jude still lacks Food and Drug Administration approval for MRI-compatible pacemakers and defibrillators, sales declined 17 percent.

Rousseau said MRI pacemaker approval is expected before the end of the year, and MRI defibrillator approval will come in the first half of next year.

He predicted that the U.S. market share would quickly bounce back with those approvals. Competitors Medtronic and Boston Scientific already have MRI-approved models of heart devices in the U.S.

"Our experience in international markets shows that once we receive approval for these devices, our share increases quickly," Rousseau said.

John Boylan, an analyst with Edward Jones, said the decline in cardiac-rhythm device sales was not concerning, because it appeared to be related mostly to the MRI compatibility issue.

"We believe that St. Jude will have products with this capability late this year and into next year, which should help it regain some lost market share in the future," Boylan said in an e-mail.

Overall, St. Jude saw a net sales increase during the just-completed quarter, primarily from sales of devices to treat atrial fibrillation, chronic pain and movement disorders. In particular, neuromodulation device sales grew 17 percent to $141 million. Rousseau said it was the eighth consecutive quarter in which the division grew its market share.

Companywide revenue grew by 12 percent on a constant currency basis to $1.5 billion, in line with expectations.

Looking at profit, St. Jude's net income fell 1 percent to $212 million. Adjusted for one-time effects, the medical device maker's profit amounted to 99 cents a share for the three months ended Oct. 1. That was below analysts' consensus forecast of $1.01 a share.

The adjusted results were shaped by net charges of $74 million, or 26 cents a share, for product field action costs, litigation costs and acquisition-related expenses.

St. Jude shares dipped 74 cents, to $78.70.

Abbott separately reported a third-quarter profit that edged past estimates as strength in its medical-devices business more than offset a decline in its nutrition unit. Its adjusted profit amounted to 59 cents a share, on sales of $5.30 billion. Abbott shares dropped $1.16, to $40.01.

Reuters contributed to this report.

Joe Carlson • 612-673-4779