(Recasts, updates throughout with details from FDA complaint, analyst comment, updated stock prices.)
By Jon Kamp
Of DOW JONES NEWSWIRES
Medtronic Inc.'s (NYSE:MDT) (MDT) Physio-Control (NYSE:MDT) subsidiary, which makes external defibrillators but stopped U.S. shipments in January 2007 due to quality problems, is facing an extended outage due to lingering issues found by the Food and Drug Administration.
An FDA complaint filed in U.S. District Court noted that the agency inspected Physio-Control's (NYSE:MDT) Redmond, Wash., plant again from Jan. 2 to Feb. 6, and found continued problems. According to the FDA, "although defendants have taken steps to correct some of the previously observed violations, significant deviations" from current, good manufacturing practice still existed.
The FDA and Medtronic (NYSE:MDT) reached a consent decree agreement that details improvements Medtronic (NYSE:MDT) must make on a pathway to resuming full shipping. Violations of the decree carry financial penalties, which cannot total more than $20 million per year while Medtronic (NYSE:MDT) owns Physio-Control (NYSE:MDT) , and are capped at $7 million per year if Medtronic (NYSE:MDT) no longer owns a controlling stake.
The outage has delayed Medtronic's (NYSE:MDT) plan to spin off Physio-Control (NYSE:MDT) .
"This is not the announcement that investors had been expecting," said RBC Capital Markets analyst Phil Nalbone, who noted that Medtronic (NYSE:MDT) had hoped to resolve the issue by now. Nalbone, writing in a research note, said Monday's announcement indicates "that it is going to take quite a bit longer" for Physio- Control (NYSE:MDT) to resolve its regulatory issues.
The U.S. outage at Physio-Control (NYSE:MDT) has been beneficial to competitors in the more than $1 billion market for external defibrillators, including Royal Philips Electronics (PHG) unit Philips Medical, Zoll Medical Corp. (NASDAQ-NMS:ZOLL) (ZOLL) and Cardiac Science Corp. (NASDAQ-NMS:CSCX) (CSCX).
Shares of Medtronic (NYSE:MDT) , which isn't seen as having much financial exposure to the Physio-Control (NYSE:MDT) situation, were recently up 2% to $50.39, while shares of Cardiac Science (NASDAQ-NMS:CSCX) were up 2.5% to $8.47, and Zoll shares were up 4% to $33.49.
Medtronic (NYSE:MDT) did not estimate when full U.S. shipments will resume. Bill Hawkins, Medtronic's (NYSE:MDT) president and chief executive, said on an earnings call in February that Medtronic (NYSE:MDT) was still hoping at that point to resume full U.S. shipments by the end of the fiscal year, which occurred on Friday.
