As if St. Jude Medical (NYSE:STJ) hasn’t had enough trouble managing public perception of its next-generation Durata pacemaker leads, after the high-profile recall of its Riata leads, the Scottish firm that makes the insulation for the Durata leads is accusing St. Jude of breaching their contract.
"To the extent the asserted breaches are capable of cure, the rectification notice provides for a 30-day rectification period for St. Jude to cure. The board is informed and believes that the material breaches are likely not capable of cure," according to AorTech. "During the Rectification Period, the AorTech Group will continue to meet its obligations to St. Jude under the agreement. If St. Jude’s breaches have not been cured within the rectification period, the AorTech Group is entitled under the agreement at its absolute discretion to terminate the agreement, including all licenses and other rights for St. Jude to use AorTech’s materials or intellectual property, other than use of materials already held by St. Jude. The board has voted to terminate the agreement if the material breaches are not cured."
If the deal founders, AorTech added, St. Jude will "continue to own the necessary assets to manufacture polymers, but will no longer have the rights [to AorTech’s] intellectual property and know-how to manufacture the proprietary AorTech materials."
A St. Jude Medical spokeswoman told MassDevice.com in an email that the kerfluffle will not have an impact on its ability to make the lead insulation, which it calls Optim.
"The allegations raised by AorTech are without merit. The rectification notice St. Jude Medical has received from AorTech is based on inaccuracies and misrepresentations, and we will vigorously defend against these claims," she wrote. "St. Jude Medical has a sufficient supply of inventory from AorTech to continue manufacturing Optim-insulated leads and we have adopted other contingencies that will prevent any supply disruptions of Optim in the future. The manufacture and supply of our Optim-insulated leads will not be interrupted."
That said, AorTech (which until recently was on the auction block) is pursuing deals to sell its polymer business and has entertained at least 1 offer.
"A non-binding offer to acquire the company’s polymer business, the related intellectual property and customer contracts has been received," AorTech said last month. "Shareholders should note that whilst your board is working towards the sale of the company’s polymer business, there can be no guarantee that the transaction can be consummated, either at all or on the terms provided in the non-binding offer nor that funding will be available to allow the company to complete this process."
AorTech did not immediately respond to calls seeking comment.
Wall Street investors are keeping their eyes peeled for any sign of a problem with the Durata leads. In June, a single report (later debunked) of a Durata lead failure similar to the kind that sank the Riata sent STJ shares plunging 6% in a single day.
The Riata affair began in September 2011 with a small Irish study reporting that revision surgeries for the Riata lead were higher than previously reported. A month later, Starks took to the airwaves to inveigh against arch-rival Medtronic (NYSE:MDT) and its alleged attempts to prejudice the market against St. Jude.
Little more than a month after Starks’ diatribe, however, the company was forced to concede that the Riata revision rates were higher than previously reported, and in December 2011 St. Jude yanked the Riata leads off the market, a move the FDA slapped with Class I recall status.
Then, with the online publication in the Heart Rhythm Society’s journal of a study by a prominent cardiologist linking Riata with 22 deaths, things began to get interesting. By late March, St. Jude was disputing the findings of the study, which was conducted by Dr. Robert Hauser. On Friday, April 6, the company asked that the journal retract the story (a request that was summarily rebuffed), and over the course of the following weekend Starks reiterated his accusation that cross-town rival Medtronic was behind a "whisper campaign" against St. Jude.
Medtronic then released its own analysis confirming Hauser’s count of the number of deaths attributable to its own Quattro leads, engendering a swift and unusual response from St. Jude, which published its own tally of the Quattro deaths.
"I can’t recall seeing a more contentious and open dispute between medical device companies in my 19 years working in this field," Ohio cardiologist Dr. Edward Schloss, director of cardiac electrophysiology at the Christ Hospital in Cincinnati, told MassDevice.com.
St. Jude has been busy ever since calming fears about the next-generation Durata leads. The company hosted several events at the Heart Rhythm Society meeting in Boston last month, distancing the Durata leads from their troubled forebears.
In a special, highly attended talk entitled "Should we trust Durata?" Dr. Chuck Love told listeners that "Durata is 85% different from Riata," noting that the Durata device has a more robust coating than the Riata’s silicone insulation.