Restructuring charges put Wright Medical in the red in Q3 (Memphis Business Journal)
The implementation of compliance regulations has resulted in a decrease in third quarter sales for Arlington-based Wright Medical Group Inc.
The company’s sales for the third quarter decreased by 2.9 percent to $118.2 million, compared to $121.7 million during the third quarter of 2010. Year-to-date, the company’s sales are $386 million, 1.4 percent higher than the first nine months of 2010.
The company recorded a quarterly net loss of $16 million, or 42 cents per diluted share, which it directly attributes to $14 million in charges from a cost restructuring plan it announced Sept. 15. The plan resulted in the elimination of 80 jobs, including between 40 and 50 locally.
The company also announced the appointment of Robert Palmisano as its new CEO in September. Wright’s previous CEO, Gary Henley, resigned in April.
The company, which specializes in foot and ankle implant devices, was the subject of an investigation by the U.S. Department of Justice into violations of the federal Anti-Kickback statute. It was accused of entering into paid consulting agreements with orthopedic surgeons to influence the use of the company’s hip and knee reconstruction and replacement products from 2002 until late 2007.
Last September, Wright agreed to pay $7.9 million and enter into a Deferred Prosecution Agreement that stated it would refrain from those practices. But earlier this year, the U.S. Attorney’s office informed Wright Medical that it had violated the agreement, leading to Henley’s resignation, which was followed by the firing or resignation of several key executives over the last few months.
In September, the company reached an agreement with the DOJ to extend the Deferred Prosecution Agreement for another 12 months, which also enabled the company to avoid potentially losing Medicare reimbursements for its devices as a part of the government’s crackdown. That blow could have been crippling because Medicare pays for portions of, or in some instances, all of patient costs for the company’s products.
In a statement, Palmisano said the company’s third quarter results reflect the challenges the company faces.
“However, Wright Medical is a company with great promise,” Palmisano said. “We have recently taken many positive steps to better position the company for success, including strengthening our compliance program and implementing a plan to reduce operational costs … I believe these initiatives will in turn drive growth and shareholder value.”
Shares of Wright Medical’s (NASDAQ: WMGI) stock ended the day down nearly 3.5 percent to $16.59.