Boston Scientific Corp suspended sales of its implantable heart defibrillators on Monday after failing to notify regulators of changes in how it manufactures the devices, sending shares down as much as 19 percent to a one-year low.

Boston Scientific said it had voluntarily stopped shipments and was retrieving all inventory of its implantable cardioverter defibrillators (ICDs) and cardiac resynchronization therapy defibrillators (CRT-Ds). It said patient safety was not at risk.

The devices, which analysts say generate about 15 percent of the company's revenue, coordinate heart-pumping through electrical pulses.

The suspension delivered a severe blow to Chief Executive Ray Elliott's efforts to restore credibility and otherwise rebound from product recalls and heavy debt stemming from the company's $27 billion acquisition of Guidant Corp in 2006.

It's a big black eye if these quality issues from two or three years ago are coming back, said Jeff Jonas, analyst at Gabelli & Co. That's going to be a big problem. I think it's something they will resolve in a few weeks rather than longer, but it's tough to say.

Shares of Medtronic Inc and St Jude Medical Inc rose 4.2 percent and 7.7 percent respectively, as analysts projected that the rival heart device makers were poised to benefit from Boston Scientific's setback.

Boston Scientific shares were down $1.00, or 12.9 percent, at $6.78 in afternoon trading on the New York Stock Exchange, where they earlier fell as low as $6.31.

The shares had fallen sharply in premarket trading as several analysts revealed the suspension before the company's announcement. Boston Scientific informed its sales force on Sunday about the suspension and the sales force in turn started telling physicians, company spokesman Paul Donovan said.

Boston Scientific said it found two errors in its filing procedures with the U.S. Food and Drug Administration for changes made to its manufacturing processes.

In the first instance, the company's regulatory department did not see the need for a supplemental filing, Donovan said. In the second error, a filing was incomplete, he said.

The company has informed the FDA of the errors and plans to work closely with the agency to resolve the situation.

We are acting voluntarily and expeditiously to resolve this situation, and we have seen no evidence of any risk to patient safety, Elliott said in a statement.

Products affected by the sales suspension include the Cognis, Confient, Livian, Prizm, Renewal, Teligen and Vitality device brands. Pacemakers are not affected, and the company is not recommending removal of any of the devices.

It is not clear what the implication of this will be clinically, but I can tell you that it certainly does erode physician confidence in the brand, said Dr. Micah Eimer, a cardiologist and associate professor at University of Chicago attending the American College of Cardiology meeting in Atlanta.

Dr. Kevin Monahan, an electrophysiologist at Boston University Medical Center who was also at the meeting, said it would be premature to say the brand is damaged, but if there's another shoe to fall, that's another story.

The actions could hurt the company's previous forecasts, including revenue, operating profit and cash flow for the first quarter and full year, Boston Scientific said.

Donovan declined to elaborate on how long the sales suspension would last or how removing the products from the market might affect the company's earnings.

Yields on Boston Scientific bonds widened sharply as their prices fell. Yields on its 4.5 percent notes due in 2015 rose to 280 basis points over U.S. Treasuries from 230 basis points at Friday's close, according to MarketAxess. The bonds were some of the day's worst performers.

Analysts said the suspension hurts the company's attempts to regain momentum after a series of stumbles.

Last month, the company announced a restructuring of its cardiovascular and cardiac rhythm management divisions and said it would cut its work force by as much as 10 percent.

Boston Scientific in December paid $22 million to settle a U.S. Department of Justice probe dating back to 2005 into whether its Guidant division had paid physicians to implant Guidant-brand pacemakers and defibrillators.

In November, Boston Scientific agreed to pay $296 million to settle a separate DOJ probe into the Guidant recalls.

Boston Scientific's history of recalls and regulatory issues continues to generate negative sentiment from the clinical community and could lead to longer-term share gains for both St Jude and Medtronic, Jefferies analyst Peter Bye said.

(Reporting by Susan Kelly, additional reporting by Dena Aubin, Debra Sherman and Lewis Krauskopf; Editing by Gerald E. McCormick, Maureen Bavdek and John Wallace)

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