Wright Medical Acquires Biotech, Shares Up

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Wright Medical Group, Inc. (WMGI) succeeded in its efforts to expand its direct sales and international distribution network in France by completing the acquisition of French orthopedic extremities company Biotech International. The acquisition will also add Biotech’s extremity product portfolio that will boost WMGI’s global Extremities business growth. Following the announcement, WMGI’s stock rose 1.3% to $28.25.

The acquisition was initially announced on Oct 16, 2013 and involved an upfront payment of roughly $75 million in cash and stock. It also includes additional payments of up to $5 million in cash, payable upon attaining certain revenue milestones in 2014 and 2015. Upon closing of the transaction, the upfront payment will include $55 million in cash and about 742,115 Wright Medical shares that will be subjected to a one-year lockup.

WMGI posted a broader loss of $8.2 million or 18 cents per share for the third quarter of the year compared with $1.6 million or 4 cents in the same quarter of 2012. With this, earnings meet the Zacks Consensus Estimate.

Reported net loss was $124.5 million or $2.68 per share, compared with $4.1 million or 11 cents in the third quarter of 2012. Net revenues increased 13.3% (14% in constant currency) to $57.6 million during the quarter, exceeding the Zacks Consensus Estimate of $56.0 million.

Gross profit rose 11.3% to $43.6 million from $39.2 million a year ago but gross margin decreased 200 basis points (bps) to 75.6% from 77.0% a year ago. Adjusted operating loss significantly increased to $11.5 million from $1.0 million a year ago. Adjusted operating (loss) margin rose to 19.9% from 2.0% a year ago.

While announcing the quarterly results, Wright Medical narrowed its revenue guidance for 2013 to $237–$240 million from $235–$240 million, which has incorporated short-term dis-synergies due to the previously announced transaction with MicroPort. However, WMGI reiterated its adjusted earnings per share guidance of a loss of 55 to 59 cents, based on approximately 45.3 million shares outstanding.

Due to the acquisition of Biotech, Wright Medical now expects full year revenues towards the high-end of the guided range. However, the company kept its adjusted earnings per share guidance unchanged.

Arlington, TN-based Wright Medical Group is a global orthopaedic device company specializing in the design, manufacture and marketing of reconstructive joint devices and bio-orthopaedic materials. Currently, WMGI retains a Zacks Rank #4 (Sell).

Other medical product stocks that are performing well include Hill-Rom Holdings, Inc. (HRC), and INSYS Therapeutics, Inc. (INSY), both with a Zacks Rank #1 (Strong Buy), and  Medtronic, Inc. (MDT) with a Zacks Rank #2 (Buy).

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