Credit Suisse Assesses Risk At St. Jude Medical

An investor short shares of St. Jude Medical, Inc. STJ and published a report in Muddy Waters Research citing vulnerabilities in the company’s cardiac rhythm management [CRM] remote monitoring system. A complete stoppage of St Jude Medical’s worldwide CRM sales seems unlikely, although there is risk to 2017 sales and EBITDA, Credit Suisse’s Matthew Keeler said in a report.

Analyst Keeler maintains a Neutral rating on the company, with a price target of $81.

Where The Risk Lies

The report published by the investor mentions that the company’s Merlin@Home remote monitoring platform is less secure than those used by competitors due to a lack of encryption and authentication and that “hackers were able to gain access to STJ devices and as a result were able to deplete batteries/cause devices to pace at unsafe levels,” Keeler mentioned.

Related Link: St. Jude's Abbot Merger On Track For Q4

St Jude Medical’s shares could remain under pressure until the company addresses the matter, the analyst stated. He added, however, that the report by the investor was unlikely to result in the St Jude Medical’s products being removed from the US market, since there had been no related patient events to date.

“In our view, a complete stoppage of WW CRM sales for STJ is unlikely (contrary to the case described in the report) given what we know now (STJ's platform is not causing/facilitating patient harm). Assuming STJ disables RF communication capability in its devices (to prevent hacks while a software patch is developed) we suspect that it could retain meaningful market share,” the Credit Suisse report noted.

However, St Jude Medical may suffer an estimated CRM share loss of ~300bps in the US and ~170bps outside the US, translating to ~$225 million in sales risk, comprising of ~6-7 percent of 2017 EBITDA.

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