Racking up the legal fees at Wright Medical…

July 30, 2008

Back in December, Wright Medical (WMGI), a company best known for replacing Jimmy Connors’ hip, disclosed that it had received a subpoena from the Department of Justice. The subpoena was seeking records dating back to January 1998 for “any consulting and professional service agreements with orthopaedic surgeons in connection with hip or knee joint replacement procedures or products.”

Two days ago, Wright announced second quarter earnings that beat expectations by 2 cents a share, prompting the stock to pop and prompted analysts at RW Baird to raise their rating on the stock to outperform.

But there was an interesting disclosure in both the earnings release and 10Q that the company filed yesterday: legal expenses related to the DOJ investigation are really piling up. Through the second quarter, the company has spent $3.18 million on legal fees so far on the investigation. To be fair, the company did warn back when it reported first quarter results that the legal expenses “may continue to be significant” and the fees themselves represent less than 2% of sales.

Still, combine that with an additional $2.34 million the company disclosed spending on legal fees for an unfavorable appellate court decision involving a former consultant during the quarter and you have to believe that Wright’s management has to be at least somewhat distracted by all of those attorneys poking around. And, don’t forget that as we footnoted here, Wright also has the SEC poking around too.

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