WMGI's Compliance Issues Deepen as U.S. Attorney Alleges "Material Breach" of DPA
BY LAUREN UZDIENSKI, MAY 6, 2011
Additional resignations and a letter from the U.S. Attorney's Office alleging a "material breach" of Wright Medical's Deferred Prosecution Agreement are further clouding the company's compliance issues. Wright Medical disclosed on Wednesday afternoon that three executives resigned "without good reason," a month after CEO Gary Henley resigned and SVP and CTO Frank Bono was terminated. The letter from the USAO arrived on Thursday morning, according to the company's 1Q:11 press release.
To resolve a DOJ investigation into their consulting practices, Wright Medical entered into a 12-month DPA in October 2010. Few details have been made public, though the company disclosed yesterday that they had received a letter from the U.S. Attorney's Office stating that Wright may have "knowingly and willfully breached material provisions" of the DPA. The company has three weeks to respond to the letter, and they do not expect the U.S. Attorney's Office to take further action until they've received Wright's response. Violations of DPA terms could potentially result in an extension of the DPA period or even prosecution.
The three executives who resigned served as Wright's General Counsel and Secretary, Senior Vice President, EMEA Commercial Operations and Vice President, Clinical & Regulatory Affairs, respectively. On the 1Q:11 call yesterday, one analyst asked bluntly if the management changes were over, to which interim CEO David Stevens replied, "We certainly hope . . . we have finished that process."
This industry is, of course, no stranger to heightened government scrutiny, and ongoing investigations continue to hang over the industry. Zimmer announced in its 10-Q filing that the company recently received a new subpoena relating to possible violations of the Foreign Corrupt Practices Act (FCPA) in Asia Pacific. The company says they are in the process of responding to the subpoena. The SEC initiated a number of FCPA investigations in the orthopedics industry in 2007 and 2008, with Wright Medical among the targets, though that issue was since resolved. Wright announced in March of 2010 that the SEC had concluded its investigation of the company over FCPA issues, and no enforcement action was taken against the company.
