Infection prevention and decontamination technologies maker Steris Corp‘s (NYSE:STE) third-quarter profits dropped 20 percent as the company struggles to replace lost revenue from its recalled System 1 sterilization device.
The Mentor, Ohio-based company also decreased its projection for full-year revenue, citing lower-than-anticipated shipments of its new System 1E sterilization device, a replacement product for System 1. Steris now expects full-year revenue to grow 2 percent compared to the prior year, down from its previous estimate of 5 percent.
Even excluding a $20 million charge from a legal settlement associated with System 1, Steris’ third-quarter net income stood at $34 million or 57 cents per diluted share. Including the legal settlement, profits came in at 37 cents per diluted share.
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Steris missed the consensus Wall Street analysts’ earnings estimate by 1 cent.
Revenue was essentially flat at $328 million, according to a statement from Steris. Slow sales of a consumable sterilant used in conjunction with System 1 brought the overall revenue number down.
System 1 is a liquid chemical sterilizing system used by hospitals, surgical centers and other healthcare facilities to sterilize heat-sensitive medical instruments. A December 2009 federal safety alert warned that the system could cause harm to patients. The company has been working to transition customers to its new System 1E product.
Steris had shipped about 50 System 1E units through the end of last quarter and expects to ship about 1,000 this quarter, CEO Walt Rosebrough said during a conference call with analysts. Rosebrough admitted that Steris was “behind schedule” in shipments of the device primarily because the company is waiting for U.S. Food and Drug Administration clearance for one of the system’s accessory parts.
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The accessory part in question, which indicates the presence of biological materials on equipment to be sterilized, isn’t necessary to operate the System 1E, though many customers prefer to use it. The FDA hasn’t identified any “technical problems” with the accessory, called a biologic indicator, Rosebrough said.
“It’s just a matter of working with the agency to clear it,” he said.
The company has about 3,000 System 1E in its inventory, Rosebrough said. It began shipping them in December.
A year ago, the FDA gave System 1 customers 18 months to transition to a replacement device.