Shoulder device sales power Wright to beat-and-raise Q3
Wright Medical has reported 14% growth in third quarter sales, resulting in it beating analyst estimates and raising its outlook for the year. Jefferies analysts said it is "hard to find fault" with the strong quarter, adding that the company's 2017 struggles "seem a distant memory as the retooled sales force is making hay with new products and the end markets remain very healthy."
The performance was driven by Wright's upper extremities business, which recorded growth of 19% as a result of strong demand for its Simpliciti shoulder implant.
Despite the top-line growth, Wright posted a $35.8 million loss from continuing operations as a result of interest expenses and other charges.
The growth of Wright's upper extremities unit continues unabated. The unit was a small, stagnating part of Wright's business prior to its $3.3 billion acquisition of Tornier in 2015. In 2014, U.S. sales of upper extremity devices fell 12%, resulting in the unit generating 7% of Wright's total revenues in the country. The unit fared better globally but, even so, was a small piece of the overall business.
That is no longer the case. The Tonier deal meant that by 2016 upper extremities was Wright's biggest division internationally, although it still trailed the lower extremities group in the U.S. Since then, the upper extremities business has gone from strength to strength. After a year of 19% growth, the unit overtook the lower extremities business to become Wright's biggest U.S. division in 2017.
The upward trend seen last year continued through the first half of 2018 and into the third quarter. In the most recent set of financials, the upper extremities unit generated quarterly revenues of $65.3 million, 19% more than in the corresponding period of last year. The unit is up almost 21% over the first nine months of 2018. Over that period, Wright's upper extremities products have generated 14% more sales than the once-dominant lower extremities business.
Wright's performance is underpinned by demand for devices acquired in the Tonier deal. CEO Robert Palmisano picked up the continued penetration of the Simpliciti shoulder implant, ongoing rollout of the Perform Reversed shoulder joint replacement and rising interest in the Blueprint 3D planning software as key contributors.
Last year, demand for these products and other upper extremity products offset weak performance at the lower extremities unit, which posted flat sales figures for 2017. Wright delivered the subpar results despite expanding the sales force for its core foot and ankle business.
Going into 2018, Wright targeted a return to growth at the U.S. lower extremities unit, the former bedrock of its business. Wright has achieved that goal. Sales grew 12% in the third quarter. The rise followed the same pattern as in the second quarter, with double-digit growth in total ankle leading the way, supported by improved performance at the core lower extremities business.
The performance contributed to Wright raising its revenue outlook for the second quarter in a row. Wright now expects full-year sales to come in at $825 million to $828 million, up from $812 million to $822 million three months ago. The revenue projection excludes sales from the recently-acquired Cartiva.
"With a salesforce that finally seems solid after the [Tornier] acquisition (which closed three years ago), new product launches, the recent Cartiva acquisition, strong end markets, and no discernable competitive threat, there's no reason we can see to suggest Wright can't maintain double-digit underlying sales growth," Jefferies said in a research note.
Wright expects Cartiva and its treatment of great toe osteoarthritis to add $7 million to net sales in 2018, and support growth at the lower extremities business in the years to come.
"Cartiva is experiencing rapid commercial adoption and is well positioned for future growth as it addresses large markets with significant unmet needs and strong patient demand. We expect this acquisition to support our growth prospects in our core lower extremities business throughout 2019 and beyond," Palmisano said in a statement.