Wright Medical Granted DPA Extension, Announces Reorganization Plan

Wright Medical Technology Inc., a subsidiary of Wright Medical Group Inc. has reached agreements with the United States Attorney’s Office for the District of New Jersey (USAO) and the Office of the Inspector General within the U.S. Department of Health and Human Services (OIG) to extend its Deferred Prosecution Agreement (DPA) for 12 months. The DPA will now expire on Sept. 29, 2012.

The USAO has agreed to not take any additional action regarding any breach of the DPA referenced in the initial May 5 letter from the USAO unless it finds, before the new expiration date, that the company has willfully breached the DPA after Sept. 15.

In addition, the company will not be excluded from federal programs or be required to pay a fine, an outcome that industry analysts deemed worse-case scenarios.” The USAO said it was pleased with the “extensive cooperation” from the newly appointed senior management team, a testament to the company’s recent efforts to redeem itself.

“While an extended monitoring will continue to be a distraction for management, we think at least some of the ‘heavy lifting’—new compliance policy implementation, management changes—is already underway and that additional costs beyond incremental monitoring expenses should be limited,” analysts from Leerink Swan said. “The agreement in our view demonstrates that WMGI’s efforts in recent months, including multiple senior management changes as well as former CEO Gary Henley’s resignation, are paying off.”

J. Gilmore Childers, first assistant U.S. attorney in New Jersey, directly attributed the company’s improved standing with prosecutors to the federal monitorship, “Our office is pleased with the extensive cooperation from the newly appointed interim senior management team,” Childers said. “Today’s extension will allow Wright to make the transition from interim to permanent senior management while still under the terms of the DPA and the surveillance of the federal monitor.”

Wright Medical Technology also agreed to an amendment to the Corporate Integrity Agreement that requires substantive company obligations to begin on Sept. 29, 2012, when the amended DPA monitoring period expires.

“Wright Medical and our board of directors have taken significant steps to enhance the company’s compliance,” said David D. Stevens, Wright’s board chairman and CEO. “We believe that voluntarily extending the term of the DPA will provide the company with an opportunity to further demonstrate its commitment to the highest standards of ethical conduct.”
In addition to its agreement with federal prosecutors, the company announced a new cost-restructuring plan on Sept. 15. The initial phase of this plan is expected to be completed during the next nine months, and additional efficiency initiatives will be implemented both next year and in
the future.

Part of that plan includes a type of reduction that has become all too familiar to most—layoffs. Wright Medical executives expect to cut about 6 percent of the company’s workforce, or 80 employees.

Objectives of the cost-restructuring plan include generating annual operating efficiencies to bolster the 2012 financial results while enabling long-term investments. Wright Medical estimates that the plan will have a favorable impact to adjusted earnings per share of approximately 5 cents to 6 cents in 2012, and a favorable annual impact of approximately 8 cents thereafter.

“Our industry continues to face a challenging economic environment and, after extensive analysis and consideration, we believe this plan will enhance the company’s prospects for growth and value creation,” Stevens said. “We are taking these actions now to better position the company to grow its earnings in 2012 and we are confident that this plan will result in a leaner, more cost efficient operation, which is in the best interest of our business and all of our stakeholders.”

Wright Medical Technology is headquartered in Arlington, Tenn.