Invacare (NYSE:IVC) agreed to a consent decree with the FDA that will temporarily shutter 2 facilities in Ohio and the divestiture of its medical supplies business for $150 million, sending shares up more than 2% today.
The medical device company’s corporate headquarters and a wheelchair manufacturing operation in Elyria, Ohio, will be largely closed until a 3rd-party inspection shows them to be in compliance with the federal watchdog agency’s rules, although Invacare said the FDA has already indicated that the facilities appear to be "in compliance with applicable requirements," according to a press release.
The FDA flagged problems with Invacare’s quality control system over 7 inspections since 2002, "along with failures to properly report adverse events to the agency," according to an FDA statement.
Invacare must also submit audit reports to the FDA for 5 years after it resumes production. Invacare can fulfill wheelchair orders until the U.S. District Court for Northern Ohio accepts the consent decree and will be allowed to ship after that as long a the customer or a physician signs off on the order, according to the company. If Invacare breaks the agreement, the FDA could order it to shut down production, recall the affected products and levy fines of up to $7 million a year.
"The company is pleased to have reached an agreement with the FDA and believes it represents an important step forward for Invacare," president & CEO Gerry Blouch said in prepared remarks. "The terms of the decree contain important exceptions that will allow Invacare to continue to provide medically necessary products for the consumers who need them, as well as ongoing replacement, service and repair of products already in use. Throughout this process, the company will try, as much as possible, to minimize the impact on its associates, customers, and the people who rely on Invacare products to make life’s experiences possible."
Invacare also said it expects to lay off some employees as a result, estimating that the wheelchair-making operation put up about $172 million in sales last year and $114 million so far this year.
The company also said it’s selling its Invacare Supply Group business to AssuraMed for $150 million, saying it plans to use the $140 million in expected net proceeds to strengthen its balance sheet and pay down debt. The ISG business posted net sales of nearly $300 million last year and $246 million during the 1st 9 months of 2012.
"This divestiture represents a significant step forward for Invacare and it allows us to continue to reduce complexity in our business, focus on our core product lines and expand globally, with the long-term goal of returning operating margins back to high single digits," Blouch said in prepared remarks.
Investors responded positively to the news, sending IVC shares up 2.4% to $16.12 apiece as of about 12:30 p.m. today.