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ConforMIS Inc (CFMS) Announces Recall, Trims FY15 Revenue Outlook

August 31, 2015 8:57 AM EDT
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ConforMIS, Inc. (NASDAQ: CFMS) today announced that it has initiated a voluntary recall of specific serial numbers of patient-specific instrumentation for its iUni, iDuo, iTotal CR and iTotal PS knee replacement product systems. ConforMIS has initiated this action in response to three recent complaints of moisture on the patient-specific instrumentation. In all three cases, the knee replacement procedures were completed without apparent incident and the Company does not believe that the customized knee implants used in these procedures were themselves affected. While the number of complaints the Company has received is small, and the Company has not received any reports of adverse events related to these complaints to date, the Company initiated this recall voluntarily and is working to resolve the complaints quickly.

Based on an initial assessment, ConforMIS believes that the recalled instrumentation held excess water before undergoing the commonly used ethylene oxide sterilization process and, as a result, may contain small amounts of ethylene glycol residue. Ethylene glycol residue may form when ethylene oxide comes into contact with water. ConforMIS has temporarily suspended its use of the ethylene oxide sterilization process and is working expeditiously to investigate the root cause of the excess moisture and evaluate potential corrective and preventative actions.

A total of approximately 950 patient-specific instrumentation sets are affected by this recall, of which approximately 650 sets were used in knee-implant procedures and approximately 300 sets have been shipped but not yet used in scheduled surgeries. The patient-specific instruments were manufactured and distributed from the Company's new manufacturing facility between July 18, 2015 and August 28, 2015. ConforMIS is seeking the return of the approximately 300 knee replacement product systems, which include the patient-specific instrumentation sets. The Company does not believe that the customized knee implants included with the sets themselves were affected.

ConforMIS is in the process of notifying the affected healthcare facilities of this recall and is arranging for replacement of the recalled products. ConforMIS will be sending a Customer Notification letter to each affected healthcare facility detailing steps for return of affected products.

The Company expects manufacturing to be substantially reduced in September and possibly October as it completes its investigation and executes a plan of resolution. The Company maintains a validated, alternative sterilization process that it already uses in the production of certain of the Company's implants and instruments and plans to increase its reliance on this alternative process until it has completed its investigation and taken all necessary corrective action. This alternative sterilization process has significantly limited capacity as compared to the ethylene oxide sterilization process. The Company expects that the combined impacts of the recalled products which were shipped but not used, the lower production capacity over the period of investigation and resolution and the potential commercial disruption will have a negative effect on its sales. Assuming the effects of these factors, the Company is revising its guidance for the fiscal year 2015 as it now expects total revenue for the full year 2015 in a range of $64 million to $66 million, representing year-over-year growth of 33% to 37% on a reported basis and 39% to 43% on a constant currency basis. This revised revenue guidance is a reduction of $8 million as compared to the previous revenue guidance in a range of $72 million to $74 million.



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