Wright Medical (NSDQ:WMGI) shares are up nearly 4% today after the orthopedics company yesterday said it inked a $240 million settlement this month for nearly 1,300 product liability lawsuits brought over its metal-on-metal hip implants and released 3rd-quarter earnings that beat expectations on Wall Street.
Wright, which lost an $11 million verdict in the 1st Conserve bellwether suit last year (the company is still litigating that decision), said it will pay $180 million in cash and cover the remaining $60 million with insurance. The deal covers about 85% of the claims lodged over Wright’s Conserve, Dynasty and Lineage implants that needed revision surgeries within 8 years and aren’t subject to the statute of limitations.
“We are very pleased to have reached this settlement agreement, in particular the population of claims that the settlement covers as well as the required 95% opt-in rate for those claims. With this clarity, we will continue to focus on accelerating growth opportunities in the extremities and biologics markets. This settlement addresses approximately 85% of the known U.S. revision claims that do not have potential statute of limitations issues and removes a great deal of the uncertainty that has been associated with this litigation,” president & CEO Robert Palmisano said in prepared remarks.
Wright pledged to “vigorously defend” the estimated 1,300 claims not covered by the settlement.
“We do expect there will be future revisions to some degree that will result in future claims. And then we’ll have to deal with those as well,” CFO Lance Berry told analysts during a conference call. “So, I’d say, the ones that aren’t subject to the settlement, we will have to address those over time.”
“A large number of the ones that aren’t part of the settlement are non-revision cases. So, without getting into a lot of detail about that, those are ones that probably have little or we don’t know how to value those because the ones that have always been settled by us have been cases that have been revised. So, there’s a large number of those that are non-revision cases that we will continue to monitor. They’re still cases, but should be very manageable,” Palmisano added, according to a Seeking Alpha transcript.
In a separate release, Wright said it pared its 3rd-quarter losses on a 96.3% sales jump compared with Q3 2015. The company posted losses of -$110.1 million, or -$1.07 per share, on sales of $157.3 million for the 3 months ended Sept. 25, improving the bottom line by 11.4%.
Adjusted to exclude 1-time items, losses per share were -19¢ per share, a penny ahead of the -20¢ consensus on The Street, where analysts were looking for sales of $157.8 million.
“As anticipated, our 3rd-quarter results were impacted by revenue dis-synergies; however, the underlying drivers of growth in our business remain strong as we continued to see excellent growth from new products, in particular our Simpliciti and Aequalis Ascend Flex shoulder systems, our Infinity total ankle replacement system and the ongoing commercial activities for Augment bone graft and the Salvation limb salvage system. Global extremities and biologics pro forma constant currency net sales growth of 9%, adjusted EBITDA from continuing operations of $5.7 million and adjusted gross margins from continuing operations of 78.2% reflect the strength of our markets and our unique position in them,” Palmisano said in a press release.
Wright narrowed its forecast for full-year losses, saying it now expects to log adjusted LPS of -52¢ to -47¢, compared with prior guidance of -54¢ to -47¢. The company also narrowed its full-year top-line outlook, saying revenues are now slated to be in the $677 million to $683 million range, compared with prior guidance of $675 million to $685 million.
WMGI shares traded as high as $22.44 today and were selling for $21.53 apiece today in mid-morning activity, up 3.6%.