St. Jude wrestles with a skittish marketplace

When it comes to St. Jude Medical and its defibrillator leads, there seems to be a persistent waiting for another shoe to drop.

Lately, the attention has been focused on St. Jude's Durata leads, wires that connect the defibrillator to the heart. While available data show that the leads have been reliable and safe, questions continue to dog the device and prod St. Jude to keep defending itself. The latest: A scientific study, paid for by rival Medtronic, raises the possibility that Durata's insulation could begin to break down after six years in the bloodstream.

St. Jude officials are questioning the validity of the study, saying the device has been proven safe by multiple reviews. And another scientist, a paid consultant to the company that developed the insulation, expressed doubts about the study results.

It's just the latest episode illustrating a skittish marketplace that -- depending on whom the doctors, patients and investors believe -- bounces between being calmed or roiled by each new piece of information. With cardiac rhythm management accounting for about half of St. Jude's overall sales, and implantable defibrillators making up a substantial part of that business, it's not just St. Jude's reputation on the line -- it's also its bottom line.

In a recent interview, St. Jude Executive Vice President John Heinmiller acknowledged the persistent hum of concern about Durata and the challenge St. Jude faces in calming those fears. This, despite Durata showing a five-year survival rate of 98.7 percent.

St. Jude even announced that it is repurchasing $1 billion of its own stock as a way to show confidence in its business.

"It really is a matter of making sure we can get the facts out, and continue to point to the facts supported by data that indicate that this lead is performing very well," he said. "The point is, there's not anything in the actual performance that would indicate there is some other shoe to drop."

Concerns surrounding St. Jude's defibrillator leads are not without precedent -- nor cause, said Danielle Antalffy, an analyst with Leerink Swann Research. "Unfortunately for them, things keep happening," she said in a recent interview.

At the top of the worry list is Riata, St. Jude's now-recalled defibrillator lead that was taken off the market after inner wires were found to have broken through the device's outer silicon insulation. St. Jude pulled the wires off the shelf in late 2010; a year later, the U.S. Food and Drug Administration characterized a letter from St. Jude to physicians as a Class I recall, citing potential dangers of the device not delivering lifesaving therapy when needed. A later study of Riata by local cardiologist Dr. Robert Hauser connected Riata to several patient deaths.

Since then, any whiff of doubt involving St. Jude's Durata lead has heightened scrutiny.

Durata, St. Jude has said, has proven durable. Its insulation, made of a co-polymer that combines silicon and polyurethane, has shown none of the same problems as Riata.

But when a report surfaced in early June of a problem with Durata, news outlets and investors were quick to react. St. Jude's stock price fell 6 percent in a day. It turned out the problem was not the same as Riata's.

Then, last month, an FDA report was released finding flaws in the company's testing and oversight of Durata at its Sylmar facility in California. St. Jude had not divulged that the problems involved Durata. In fact, the Little Canada-based company had redacted the name of Durata from reports it released to the Securities and Exchange Commission. The FDA did not redact the name in its report.

A warning letter to St. Jude is expected in the next couple of months.

Company shares fell about 12 percent in the wake of that news.

Some analysts are asking if a recall is possible, despite St. Jude's assurances to the contrary.

"I think we have gotten to he point where St. Jude management has gotten into a credibility issue," Antalffy said.

Now, more questions have been raised by a Medtronic-sponsored study, the results of which were published in Macromolecules, a journal published by the American Chemical Society. That study concluded that an insulating material, which St. Jude calls Optim and uses to coat Durata and other leads, begins to break down in bodily fluids after about six years.

That's a problem, because it could prevent the device from delivering life-saving therapy when needed.

Medtronic sponsored the study, which looked at two materials, because it was interested in using the other material to insulate a new lead of its own. Based on that research, Medtronic "will not pursue the use of these materials in their present form as a primary insulation material for use in chronic, long-term lead implants," said Christopher Garland, a Medtronic vice president.

Prof. Frank Bates, head of chemical engineering and materials science at the University of Minnesota, was involved in the study. He described the polymers tested as long chains of molecules. What the research showed was that over time, liquid began to break some of the bonds of those chains.

Because researchers didn't have years to study the materials, they heated the water to accelerate the aging process. They looked at how the materials responded in water at 37 degrees Celsius (body temperature), 55 degrees, 70 degrees and 85 degrees Celsius. After a year at 85 degrees, he said, they saw evidence of the Optim material beginning to break down.

St. Jude disputes results

St. Jude is disputing the conclusions of the study.

First off, Heinmiller said, St. Jude has tracked its Optim-coated leads for years -- close to 11,000 leads are being followed as part of an active registry -- and has seen no evidence of the insulation material breaking down.

"This is the most robust set of post-market clinical data on a lead like this that's available anywhere," Heinmiller said. "Nobody knows our business and the data we are working with better than we do. Yet we have a lot of people who like to make comments about how our business is performing."

Second, a consultant for the company that developed Optim said that raising the temperature to 85 degrees Celsius changes the material to the point that the Medtronic study's conclusions might be invalid.

"This is not as clear-cut as one might think from the outside," he said.

The U's Bates, however, disputed Runt's assertion, saying that researchers did indeed look at the effects of heat. Their work, he said, showed that it is the liquid that seems to start breaking down the material.

What remains for St. Jude, it seems, is to wait.

Thomas Gunderson, a senior analyst with Piper Jaffray Co., said "there is a skittishness out there" regarding St. Jude and Durata. But the key is now for the company to have several months of quiet, he said. If there is no bad news, good for them. If there is, the stock could be hit again.

Heinmiller said St. Jude is not sitting on information that could spell more trouble. He was asked what St. Jude must do to regain credibility.