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September 09, 2016 12:00 AM

St. Jude Medical sues short-sellers; FDA launches probe

Maria Castellucci
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    Medical-device manufacturer St. Jude Medical has filed a lawsuit this week against short-sellers that claimed that its pacemakers and other devices are vulnerable to hacks.

    The lawsuit was filed Wednesday against short-selling investment firm Muddy Waters, cybersecurity company MedSec Holdings, and three principals in those firms.

    The St. Paul, Minn.-based company has consistently denied allegations made in a report published last month (PDF) by Muddy Waters and MedSec Holdings that St. Jude's devices, “lack even the most basic forms of security.” Muddy Waters and MedSec have also released videos that demonstrate how the devices can “crash.”

    From the lawsuit, St. Jude Medical “seeks to hold these firms and individuals accountable for their false and misleading tactics, to set the record straight about the security of its devices, and to help cardiac patients and their doctors make informed medical decisions about products that enhance and save lives every day,” the company said in a prepared statement.

    Muddy Waters didn't respond to a request for comment on the pending lawsuit.

    Also this week, the Food and Drug Administration confirmed that it has launched an investigation into Muddy Waters' claims. FDA spokeswoman Angela Stark said the agency is working with the Department of Homeland Security to conduct an investigation into the Muddy Waters report. She added that, “At the present time, patients should continue to use their devices as instructed and not change any implanted device. The FDA will provide updates as we learn more.”

    In response to the FDA investigation, St. Jude Medical spokeswoman Candace Flippin said in a prepared statement that the company supports the inquiry and will work closely with agency. “We are confident in the safety and security of our remote monitoring systems … We will continue to work closely with the FDA as ensuring patient safety is our top priority,” she added.

    St. Jude Medical said short-seller Muddy Waters “intentionally” released false claims against its cardiac devices in order to benefit if St. Jude stock depreciated. The company's stock fell 5% after the report was released from $81.88 a share to $77.82 a share. Stock was selling Friday morning at $78.77 a share.

    The allegations made by Muddy Waters and MedSec have been met with criticism. An independent report released Aug. 30 by researchers at the University of Michigan found flaws in their analysis. The researchers said they came to “strikingly different conclusions” when they reproduced the experiments.

    U-M also pointed out that Muddy Waters had a financial incentive to see St. Jude stock decline.

    St. Jude Medical is a global provider of medical devices. It has a market value of $22.5 billion. In its second quarter, St. Jude reported $1.5 billion in net sales, a 10.8% increase from the same quarter a year ago.

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