Pessimistic Wright Medical wins FDA date for Augment

Wright Medical (NSDQ:WMGI) said it’s not optimistic about an FDA dispute resolution panel on its Augment biologic bone graft product, now slated for May, and would quickly move to cut costs at the BioMimetic Therapeutics subsidiary it bought back in 2012.

The FDA issued a non-approvable letter for Augment back in August 2013, citing the low-risk patient population in a clinical trial backing the U.S. approval application. Yesterday, as part of its release of 4th-quarter and 2013 results, Wright said it doesn’t expect the panel to go its way.

Wright bought BioMimetic Therapeutics, which makes the Augment product in Franklin, Tenn., for $190 million in cash and another $190 million is possible milestones in November 2012. In August 2013, the FDA said Wright would need to run a new clinical trial on high-risk patients to win its favor for Augment. Last November the federal watchdog agency granted Wright’s request for a dispute resolution panel; yesterday president & CEO Robert Palmisano said that the FDA scheduled the meeting for the week of May 19.*

But the company is not hopeful that the FDA will change its mind about Augment and has no plans for another trial, Palmisano said. And if the panel doesn’t go its way, he said, Wright will move quickly to scale back the Augment business except for a small but fast-growing operation in Australia.

"We look forward to making a strong case and believe we have good facts. However, as we have said in the past, we are not optimistic that we will be successful," Palmisano said about the upcoming FDA panel. "It seems like everything is geared against us."

If the FDA maintains its insistence on a new clinical trial, he added, "we will then very rapidly attack the expense basis" of the BioMimetic operation, estimated by CFO Lance Berry to be $10 million to $15 million.

"[P]robably we would keep some infrastructure, because we still have a very growing business in Australia. But generally speaking, we would look to reduce our expense level significantly," Palmisano said. "And as I have said previously, we are not anticipating or entertaining, I would say, the idea of doing another study, so that would just be it."

Wright also reported a swing to red ink for Q4 and 2013, but still beat Wall Street’s forecast with its adjusted losses for the 3 months ended Dec. 31, 2013. The Memphis-based medtech company posted losses of -$135.0 million, or -$2.88 per share, on sales of $67.8 million during the quarter. That chalks up to sales growth of 16.2%, although Wright posted a $5.4 million profit during Q4 2012.

Adjusted to exclude 1-time items, losses per share were -17¢, a penny ahead of expectations on The Street.

Full-year losses amounted to -$273.9 million, or -$6.05 per share, on sales of $242.3 million, for sales growth of 13.2% compared with 2012, when Wright reported profits of $5.3 million. The sales results don’t include the hip-and-knee business Wright sold to MicroPort Medical early this year.

"Our performance in the 4th quarter reflects continued strong implementation of the transformational changes to our business with constant currency sales from continuing operations and global foot and ankle increasing 17% and 22%, respectively. In particular, total ankle sales had another outstanding quarter, with growth of 44%, which we believe demonstrates the substantial potential of this product and the long runway for growth. Notably, the 8 consecutive quarters of strong, double-digit, global foot and ankle growth underscores the significant positive progress that we continue to make in our foot and ankle business by driving productivity gains in our large, direct U.S. sales organization, introducing new products, and increasing medical education programs," Palmisano said in prepared remarks. "With the close of the MicroPort transaction, Wright is now a completely transformed business. During 2014, we look forward to continuing to make investments to accelerate foot and ankle growth and sales productivity, improving our gross margins and exiting the year with positive adjusted EBITDA. I am confident that our Vital Few strategic programs will position us for future success and drive growth and shareholder value."

Wright said it expects to post sales of $305 million to $312 million this year, ahead of The Street’s consensus $278.6 million outlook, which would be a growth rate of 26%-29% including its acquisitions of Solana, OrthoPro and Biotech and an organic growth rate of 13%-15%. Earnings before interest, taxes, depreciation & amortization from continuing operations are pegged at -$20 million to -$15 million, with positive adjusted EBIDTA forecast by the end of 2014.

WMGI shares were trading at $32.79 apiece as of about 11:30 a.m. today, down 3.0% from their $33.80 close yesterday.

*Correction, Feb. 27, 2014: Due to a reporter’s error, this article originally mis-stated the date of the FDA review panel. Return to the corrected sentence.