St. Jude Medical (NYSE:STJ) shareholders filed a lawsuit this week accusing the company and its CEO of down-playing device failures that led to the recall of a set of defibrillator leads in a "scheme" to artificially inflate the company’s share price.
The lawsuit accuses the company of concealing problems with its Riata and QuickFlex line of leads, which were both recalled in the last 6 months.
St. Jude recalled its Riata defibrillator leads in December over concerns that the electrical wires could poke through their insulated coating and protrude into the body.
Reports later emerged that the devices may also be prone to internal short circuits that were more rare than the exposed wires but potentially more dangerous.
Shareholders accused St. Jude of hiding the electrical problem and down-playing the risk of Riata lead failure, noting that Starks told investors during a conference call that the company has "the most robust post-market surveillance of lead reliability of anybody in the industry. … So we have a lot of confidence that we have a good handle on St. Jude Medical device reliability."
A few months into the Riata recall, St. Jude also pulled its QuickSite and QuickFlex left-ventricular leads after finding 39 confirmed cases of exposed wires.
"The wire protrusions from the QuickSite and QuickFlex left-ventricular leads were apparent to Starks since they utilized the same silicone coating that malfunctioned in the Riata leads," according to the complaint.
The lawsuit further noted the latest news of exposed conductors reported in a single Durata lead, the company’s next-generation defibrillator lead that touts a more durable coating that the silicone used in the Riata, QuickSite and QuickFlex leads.
St. Jude has attempted to distance its Durata leads from the Riata recall foofaraw with reports and presentations highlighting the differences between the leads. Some Wall Street analysts cast a skeptical eye on the latest Durata lead exposure report, given that the report lacked important identifying characteristics. Nonetheless, the news sent STJ shares tumbling 6% when the issue was reported Tuesday.
Noted cardiologist Dr. Robert Hauser, who was responsible for the highly controversial study linking the Riata leads to internal short circuits, backed the validity of the Durata report but warned that The Street was making too much of it, Reuters reported.
"It’s one case, so it’s concerning, but hardly definitive. It just raises the question," Hauser told the wire service. "The impact is probably going to be greater than what this case actually represents."
