Steris (NYSE:STE) stock was downgraded by Needham from buy to hold today following a $363 million jury verdict against its main competitor, Sterigenics, over carbon dioxide emissions. ethylene (EtO).
Needham analysts said they expect lawyers to target communities near EtO facilities with advertisements to find people willing to bring more lawsuits against past and present sterilization plant operators .
RELATED: EPA flags high cancer risk EtO sterilization facilities across the country
Analysts believe Steris can handle all of EtO’s legal obligations due to the company’s size, diversification and balance sheet, but said investors are eagerly awaiting Steris to estimate and reserve cash for the bonds. potential.
“Given that breast and blood cancers are relatively common, we are concerned that attorneys may be successful in finding others willing to file more lawsuits,” the analysts wrote. “We expect the risk of litigation and any news or disclosure by the company of additional litigation to weigh on STE’s actions given the uncertainty surrounding its potential legal liabilities.”
Medical design and outsourcing has reached out to Steris for comment and will update this story when more information becomes available.
How many lawsuits does EtO Steris face?
While Sterigenics and parent company Sotera Health (Nasdaq: SHC) face hundreds of lawsuits, only a few have been filed against Steris, analysts said.
“Lawsuits have been filed against a subsidiary of STE regarding a sterilization facility in Waukegan, Illinois, [but] STE has not owned or operated this facility for years,” the analysts said, citing documents filed by Steris. “The STE subsidiary acquired the facility from Cosmed in 2005 and then sold it to Medline in 2008. Many complainants claim that their exposure occurred outside of the three years the STE subsidiary operated the facility. facility and, therefore, STE filed motions to dismiss these complaints.
EtO gas is the most common sterilization method for medical devices due to its ability to permeate packages at relatively low temperatures and kill bacteria and viruses that can cause life-threatening infections. But the FDA is working with industry on safer ways to use EtO and alternative means of sterilization because of the toxic chemical’s cancer risk, particularly blood and breast cancers.
Steris executives said their Applied Sterilization Technologies (AST) unit was conservative about EtO emissions, a claim the analyst said was supported by EPA data. But they worry that current EPA data doesn’t reflect past practices, and there’s a risk that Steris could be found responsible for exposure to EtO over the past few decades.
Analysts also said Sterigenics’ EtO issues are unlikely to benefit Steris in the near term.
“First, we believe it is difficult for medical device companies to quickly change sterilization facilities due to regulatory requirements,” they wrote. “And secondly, we believe that STE is unlikely to have significant capacity to take over SHC’s business unless it builds additional sterilization facilities, which would take a considerable amount of time.”
Concerns over sales of capital goods at Steris
Regardless of the EtO liability, Needham analysts said they were concerned about Steris and the potential weakness in capital goods revenue, which accounts for about 21% of Steris’ total revenue.
“We are concerned that deteriorating financial performance of hospitals due to rising interest rates, rising supply costs and staffing shortages will weigh on healthcare investment activity. of STE, while rising interest rates and an economic downturn could weigh on STE’s life sciences investment activity,” the analysts wrote. “Despite our concerns, we note that STE has a very large order book, which has continued to grow. …Given the large order book, we believe STE should see orders begin to be canceled before growth slows.
PREVIOUSLY: Steris shares fall in Q1 2022, outlook downgraded
Steris is the 26th-largest medical device company in the world, according to our 2022 Medtech Big 100 rankings. The Mentor, Ohio-based sterilization and surgical products company reported annual revenue of nearly $4 .59 billion and approximately 16,000 employees in its last fiscal year.
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