Within a couple of days, Wright Medical Group Inc. (Arlington, TN) announced a cost-restructuring plan, the extension of its deferred prosecution agreement (DPA), and named a new president and CEO. It’s a lot to swallow for a company that has seen one executive after another leave this year following a scandal involving its compliance program.

The problems began in April with the abrupt resignation of then-CEO Gary Henley prior to a board meeting that planned to discuss how management was handling the company’s ongoing compliance program. The heart of the issue dates back to the September 30, 2010 settlement in which Wright Medical stated that it would pay $7.9 million to resolve a government kickback investigation. The company also received a letter from the U.S. Attorney’s Office for the District of New Jersey, stating that it had “knowingly” violated provisions of the DPA. The scandal snowballed and led to several executive resignations, the last of which occurred in August.

Less than one month later, the company announced a cost-restructuring plan in the hopes of improving cash flow and shareholder value. The plan will cost about $25 million to $30 million, with the first phase occurring over the next nine months. As part of the initiative, the company will lay off 80 employees, or 6% of its workforce. These employees have already been notified, according to the company. Wright Medical also hopes that the steps it takes to improve operating efficiencies most the company to an adjusted earnings per share of about $0.05 to $0.06 next year and about $0.08 thereafter.

The same day it agreed to extend the terms of its DPA for 12 months (to expire September 29, 2012). As a result, the U.S. Attorney’s Office for the District of New Jersey will not take any additional action concerning the DPA breach referenced in its May 5, 2011 letter—unless it finds out (before the expiration date) that the company knowingly breached any DPA provision after 9/15/2011, or by conduct after that date. The company also agreed to the Office of the Inspector General’s (OIG) amendment to the corporate integrity agreement. These obligations begin after the DPA expires.

And the final twist came a day later with the appointment of Robert J. Palmisano as the new president and CEO of Wright Medical. Palmisano most recently served as president and CEO of endovascular company ev3, where he led the company through a market capitalization that more than tripled (from about $800 million to $2.6 billion) in just two years. “In recent months, we have taken many positive steps to better position the company for success, including strengthening our compliance program and implementing a plan to reduce operational costs,” said interim president and CEO David Stevens in a company statement. “We believe Bob is the right person to continue building on this progress.” Stevens will remain Chairman of the Board. The company has temporarily suspended its sales and earnings outlook to allow Palmisano to transition into his position.

Focus Going Forward

• Implement first phase of cost restructuring plan over the next nine months.
• Continue to strengthen compliance program.
• Transition from interim to permanent senior management while operating under the terms of the DPA and the surveillance of the federal monitor.

Highlights

• September 2011: Names Robert J. Palmisano president and CEO.
• September 2011: Announces cost-restructuring plan.
• September 2011: Reaches agreements with U.S. Attorney’s Office of New Jersey and the OIG.
• July 2011: Announces exclusive deal with ArthoCare for foot and ankle products.
•  April 2011: Appoints chairman David D. Stevens as interim CEO following the resignation of Gary Henley.
• January 2011: Expands relationship with Kinetic Concepts to supply Graftjacket regenerative tissue matrix through December 2018 for orthopaedics markets.

Leadership

• Robert J. Palmisano, president and CEO
• Lance A. Berry, senior vice president and CFO
• Timothy E. Davis, Jr., senior vice president, corporate development
• Rhonda L. Fellows, senior vice president, government affairs, national accounts, and reimbursement
• William L. Griffin, senior vice president, global operations
• Karen L. Harris-Coleman, senior vice president, sales and marketing, Japan, Latin America, and Pacific Rim
• Eric A. Stookey, senior vice president and chief commercial officer
• John T. Treace, senior vice president, global marketing and U.S. sales