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.

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

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