WASHINGTON (AP) -- Shares of St. Jude Medical moved higher Wednesday after regulators unexpectedly approved two new heart devices from the company, despite ongoing safety issues at the company's plant in California.
THE SPARK: St. Jude announced late Tuesday that the Food and Drug Administration approved its next-generation Ellipse and SJM Assura devices, which are designed to lower the risk of malfunction. The Ellipse is an implantable defibrillator, while the Assura combines a pacemaker and a defibrillator. Both new products are designed to reduce friction between the device and its lead wire, which attaches to the heart. The low-friction design is expected to reduce the risk of lead damage, which can cause the device to malfunction.
THE BACKGROUND: The St. Paul, Minn.-based device maker has been plagued over the past few years by recalls of lead wires that can break and potentially cause devices to malfunction.
St. Jude stopped selling its Riata wires in late 2010 because of evidence that the silicone coating of the wires could wear and break down over time, increasing the chance a defibrillator 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. It recalled the wires in late 2011.
In November the FDA released an inspection report of the Sylmar, Calif., facility where St. Jude manufactures its defibrillators and other heart devices. The inspectors noted a number of problems with the company's testing procedures, indicating staffers were not following their own quality-control guidelines.
THE ANALYSIS: Wedbush analyst Tao Levy called the FDA approval decision "a positive," noting that it came a year ahead of Wall Street expectations. The FDA typically does not approve new devices from facilities that have an unresolved warning letter.
"It appears that the regulatory agency viewed the safety enhancements of the Ellipse and Assura important enough to approve despite the warning letter," Levy said in an investor note. "We view today's news as a significant positive for St. Jude as it will reduce the safety concerns clinicians may have when implanting a St. Jude device with the Durata lead."
Levy reiterated an "Outperform" rating on St. Jude.
SHARE ACTION: Shares of St. Jude Medical rose $1.31, or 2.99 percent, to $45.14 in morning trading.