Why Wright Medical Group Is Headed in the Wrong Direction

Why Wright Medical Group Is Headed in the Wrong Direction

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Wright Medical Group Inc. , an orthopedic device solutions company with a focus on extremity repair, fell as much as 11% after receiving a not-approvable letter from the Food and Drug Administration for its Augment Bone Graft.

So what: Augment Bone Graft was developed by Wright Medical as an alternative to autograft in hindfoot and ankle fusion procedures. According to the FDA, it's concerned about the subset of patients enrolled in the study, stating that they were too "low-risk" and may not have warranted the need for either autograft or Augment. The FDA also commented that Wright Medical will need to run another clinical trial in a "well-defined high-risk target population" to satisfy that it's an effective autograft substitute. As expected, CEO Robert Palmisano was disappointed and surprised by the FDA's rejection and vowed to work closely with the agency to move forward with its Augment Bone Graft.

Now what: Since announcing the sale of its orthopedic reconstruction business to MicroPort for $290 million in June, shares in Wright Medical have gone up, up, and up some more. However, the sale of this business, compounded with its Augment rejection, could complicate its near-term earnings outlook. As Wright pushes forward with its focus on extremity repair, it'll continue to lose money which gives investors all the more reason to pass on Wright Medical here.

Did you know that your financial health is just as important as your personal health? The Motley Fool's special free report "3 Stocks That Will Help You Retire Rich" names specific investment opportunities that could help you build long-term wealth and help you retire well. The Fool also outlines critical wealth-building strategies that every investor should know. Click here to keep reading.

The article Why Wright Medical Group Is Headed in the Wrong Direction originally appeared on Fool.com.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Originally published