NuVasive, Inc., built for speed and growth, continued with double-digit revenue growth in the third quarter. The 14% growth over last year’s third quarter to $169.2 million wasn’t the heady 20%+ growth rate of years past, but still way over the market which is only growing in the lower single digits.
“NUVA put up a big $10 million beat, ” wrote Jefferies analyst Raj Denhoy.
Third quarter sales prompted company management to up full 2013 guidance from $655 million to $670 million. Net income was $18.3 million. Cash and equivalents assets came in at $303 million. The company is still, ultimately, shooting for $1 billion in revenue.
In making the sales announcement on October 29, 2013, Alex Lukianov, chairman and CEO, said, “The execution of our market share taking strategy has been outstanding through the first three quarters of 2013, and we are pleased to be increasing full year revenue and non-GAAP operating margin guidance to reflect solid outperformance. We are building on the momentum established at Eurospine and at NASS [North American Spine Society] to close this year well and kick off 2014 with continued strategic execution!”
The company saw accelerating sales growth in lumbar (+12%), cervical (+27%) and biologics (+11%) and international (+31%). Monitoring sales were down 4% as the business is still hampered by reimbursement problems.
Spine Market Improving
During a call with analysts, Lukianov said last quarter’s reported results suggest that U.S. spine market growth improved slightly from the flattish rate of growth experienced all of last year and into the first quarter of this year. “We are encouraged by the improvement, but we still believe that the market is stabilizing. As a result, we are wary of calling a quarter or two of improvement in market growth a trend. We expect U.S. market growth will be flattish this year and into 2014.”
Fighting Insurer Pushbacks and PODs
He said progress has been made against some of the market dynamics that have been pressuring growth for the last several years. “The publication of the systematic literature review on fusion for degenerative disc disease in the April issue of the journal Spine is being used to fight insurer pushback against lumbar spine fusion on a case-by-case basis.”
While not directly attributing market share gains to a recent Office of Inspector General POD (physician-owned distributor) alert, Lukianov said the competition from PODs appears to be slowing. He noted the development and implementation of anti-POD policies by several hospital systems. “However, we believe that PODs will likely need to be dismantled on a grand scale to materially impact market growth.”
DePuySynthes Integration Woes
Lukianov was asked about DePuySynthes’ acknowledged difficulties with integration of their spine team. Did he think NuVasive benefitted from that?
“I think that there’s been an ongoing abundance of qualified salespeople, and they’ve certainly been coming from the major players in our general direction. Needless to say, there’s always some churn. But there’s definitely an abundance. I wouldn’t say it’s entirely changed. I think the entire acquisition has obviously created a fair amount of disruption among the distribution networks. So yes, I think [it’s had] an impact.”
Jefferies’ Denhoy says he sees NuVasive poised for above market growth/share gains on a combination of recent product launches (Bendini System, MAS PLIF, PCM Cervical Disc) and continued penetration of XLIF in Japan.
