FDA’s Augment Letter May Force Wright to Rewrite Turnaround Story

Article preview from IN VIVO - September, 2013

To the surprise of many, the FDA issued a “not approvable” letter to Wright Medical Group for its Augment biologic bone graft. Now company executives must figure out what to do next to grow in the extremities space.

 

FDA’s Augment Letter May Force Wright to Rewrite Turnaround Story

Article preview from IN VIVO - September, 2013

Wright Medical Group Inc.’s turnaround story could lose a significant supporting character with the possible death of its Augment bone graft. Wright last week received a “not approvable” letter for premarket approval application of Augment from the Food and Drug Administration. Augment’s demise isn’t definite as the company still may appeal. But analysts aren’t optimistic the firm can change the FDA’s ruling without conducting a new round of clinical trials on the biological bone graft used in foot fusion. Not only would such an endeavor be expensive, the results could limit use of the bone graft to smaller patient populations, cutting significantly into the $300 million annual opportunity the company had anticipated.

To be sure, the decision is a setback, but not a fatal blow. Wright is still one of the fastest growing players in the burgeoning extremities market. Augment, acquired last year in the purchase of BioMimetic Therapeutics Inc., was supposed to accelerate that growth, says Joanne Wuensch, medical device analyst for BMO Capital Markets. “The biologic piece was going to be a nice differentiating product for them, not only because biologics produce a higher margin, but because they were hoping to use it to drive foot and ankle revenue,” she states. “It’s disappointing … but they have a very successful extremities franchise.”

Wright executives told analysts in a conference call that they hadn’t yet developed a response to the FDA. They intended to comb over the 18-page letter and arrange a meeting with the agency. Looking at the longer term, however, CEO Robert Palmisano remains steadfast in the strategy he brought with him when he joined Wright in 2011. There is no turning back. In June, the company moved to exit the sluggish hip-and-knee market by selling its ortho recon business to Hong Kong-based MicroPort Scientific Corp. Hip-and-knee sales still account for 53% of Wright’s sales in 2012, but they sported 0% to 3% growth. Wright will look to recoup those sales by building out its extremities franchise. “Our plan is to be a pure-play extremities bio company,” Palmisano told analysts last week. “With or without Augment, we have the fastest-growing, medical-device extremities business in the world and we're just going to keep on pounding that and keep on executing on that and I think we're going to be very, very successful.” Wright declined to make Palmisano available for additional comment.

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