It’s a fitting conclusion to a tumultuous year for home health supply company Invacare Corp. (NYSE: IVC). In an effort to “reduce complexity” in its business and focus on its core products, the Elyria, Ohio-based company has divested its medical supplies business and reached an agreement with the FDA regarding longstanding quality manufacturing issues.
The device company sold Invacare Supply Group to distributor AssuraMed in a $150 million transaction that’s expected to be completed next year. Sales within that business totaled about $300 million in 2011.
Invacare will use the immediate proceeds to strengthen its balance sheet and reduce outstanding debt, company executives said in a prepared statement. AssuraMed, the parent of Edgepark Medical Supplies, is based in nearby Twinsburg, Ohio.
“This divestiture [...] allows us to continue to reduce complexity in our business, focus on our core product lines and expand globally, with the long-term goal of returning operating margins back to high-single digits,” said President and CEO Gerald Blouch, referring to the company’s cost savings strategy that it estimates will save $100 million annually by 2015.
Among its core products are the power wheelchairs whose manufacturing processes have raised concern with the U.S. Food and Drug Administration. Nearly a year ago, the FDA proposed a legal agreement requiring the company to shut down some of its manufacturing operations, citing violations of its Current Good Manufacturing Practices that it said took place at Invacare’s plants between 2002 and 2011.
Just one day prior to the divestiture announcement, Invacare said it had finally reached an agreement with the FDA that limits production and certain design activities around the company’s custom power and manual wheelchairs at an Elyria production facility. In order for production on the wheelchairs to resume, the facility must be inspected and certified to be FDA-compliant by an independent third-party expert, and then the FDA must verify its compliance.
Earlier this year, the company moved production of a line of manual wheelchairs to Mexico and hired a vice president of quality assurance and regulatory affairs, likely in relation to the issue. In a statement, company executives said they expect a reduction in operations workforce at the facility, but timing is uncertain.
The regulatory issues have already delivered severe setbacks to Invacare. Earlier this year, Bouch said they had delayed new product introductions and slowed a globalization initiative. The company also saw a steep drop in net earnings in Q3.
Shares of the company dropped Thursday but have jumped about 5 percent since Friday morning.