Shares of Wright Medical Group Inc. (WMGI) moved higher despite the termination of the contract with Novartis Vaccines and Diagnostics (NVS) announced on Dec 27. The agreement, amended and restated will be terminated effective Dec1, 2015. Shares of the company reached new high of $30.95 in mid-day trading on Jan 2, finally closing at $30.20.
The termination is believed to have no immediate financial impact, as the contract will continue till Dec1, 2015. Moreover, the recently concluded acquisition of French orthopedic extremities company Biotech International also contributed to the rise in the share price.
Wright Medical confirmed the receipt of a written notice from Novartis confirming termination of the deal.
Per the agreement, BioMimetic had been purchasing its entire requirement of purified bulk recombinant human platelet-derived growth factor from Novartis, which is a component of the Augment product line.
Though the contract stands terminated, BioMimetic will continue to receive supply against its requirement of rhPDGF-BB until the termination date. Following the termination of the agreement, BioMimetic can also seek the help of Novartis to locate a new supplier. Novartis has even agreed to support technology transfer by providing to a new manufacturer all its technology along with the necessary documentation needed to produce bulk rhPDGF-BB.
Wright Medical has started the process of identification and evaluation to get a new supplier for the product. It has also assured that its existing inventory combined with the final purchases from Novartis, will keep its rhPDGF-inventory well stocked until a new vendor is found.
Novartis is believed to have terminated the contract to focus more on diagnostics, and give less priority to vaccines research and development. Recently, it reduced work force in vaccines research, global legal, information technology, human resources, finance and procurement.
Currently, the stock carries a Zacks Rank #4 (Sell). Investors interested in the industry can look into stocks like Cardiovascular Systems Inc. (CSII) and Hill-Rom Holdings, Inc. (HRC), each carrying a Zack Rank #2 (Buy).Read the Full Research Report on WMGI
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