Invacare acknowledges 'difficult time'

HME sales, down 13.6% in first quarter, continue to drag
Friday, April 26, 2013

ELYRIA, Ohio – Invacare in April submitted two audits to the Food and Drug Administration (FDA) for approval, but it’s an accomplishment that has been overshadowed by another poor earnings showing.

Invacare reported April 25 that net sales for the first quarter of 2013 decreased 4.9% to $337.6 million compared to the same period last year. In the North America/HME segment, where the company has been hardest hit by a consent decree that limits manufacturing at its Taylor Street manufacturing facility, Invacare reported net sales decreased 13.6% to $152.2 million.

“We know this is a difficult time for our shareholders, as it is for our associates and management,” said President and CEO Gerry Blouch during a conference call. “Management owns 15% of stock—it’s our company and our money and our future—so we take this very seriously.”

In the fourth quarter of 2012, when the decree went into effect, Invacare reported nets sales for North America/HME decreased 8.8%.

Things went from bad to worse earlier this year, when, after feedback from the FDA, Invacare had to modify a documentation process that allows it to continue providing power wheelchairs under the decree. The result: The number of new orders that were fulfilled in the quarter with appropriate verification of medical necessity (VMN) documentation would have represented only 4.1% of its unit volume of shipments from the facility in the same period last year. 

“Unfortunately, (the additional documentation) has been a bridge too far for many (providers),” Blouch said. “New orders fulfilled for the first quarter with appropriate VMNs were progressively weakened.”

On a positive note, Invacare expects to hear back from the FDA about the two audits, which were conducted by a third-party, in two weeks. Once approved, the audits will pave the way for the company to resume making parts and components that are needed to manufacture products at other facilities; and resume design activities.

Both will give Invacare a much-needed boost, particularly the first. Sales in Asia/Pacific have suffered because the company has been unable to supply facilities there with microprocessor controllers for wheelchairs. Invacare reported net sales for the first quarter decreased 27.6% to $137.6 million for this segment.

By the end of the second quarter, Invacare expects to complete and submit a third audit to the FDA. The agency then has 30 days to schedule its own audit and 45 days after it completes its audit to write up a report.

“How long they’ll be here—I don’t think we know,” said CFO Rob Gudbranson.

Investors asked how Invacare plans to maintain its provider relationships when, for the better part of this year, it will be handcuffed in many ways by the decree. “How confident are you that you’ll be able to resume this business?” one asked. Blouch said Invacare customers are loyal and appreciate the company’s efforts on its behalf, like lobbying representatives in Ohio to take a leading role in exempting complex rehab from competitive bidding.

“We’re optimistic that once we’re back in business those relationships will not have chilled and we’ll be in good shape,” he said.

Until then, Invacare continues to try to take some of the sting out of the sales slump with various cost containment measures. The company recently laid off 68 employees at its Taylor Street facility, and going forward, it plans to do everything from minimizing travel expenses to delaying its move into negative pressure would therapy.

Invacare may also try to raise some cash by selling off non-core businesses. Earlier this year, the company completed the sale of Invacare Supply Group to AssuraMed for $150.8 million. Execs declined to tell investors which businesses may be for sale.

“They’re small businesses…but they’re substantial enough,” Gudbranson said.