Screening through charts of positions, there are a few names now back over their 20, 50, and 200 day moving averages - NuVasive (NUVA) is one. I don't see any news in particular but a nice article in Investors Business Daily from late October I thought I'd bring here; I always like their stories because they usually can explain some more complicated fundamental stories in "layman's terms".
The stock market action (aside from yesterday) continues to be "student body left" or "student body right" - everything is good or everything is bad trading. While it feels better to the upside then downside, it is not really an investing atmosphere when individual stocks continue to not differentiate and everything has to be either bought or sold en masse. I will be interested to see the markets reaction later this week to retail numbers and the jobs report...
Still trying to find a leadership group if there is any sustained move up - right now the most oversold stocks are simply reverting to a mean but nothing has been consistent - I still have hopes that healthcare should be one group that works over a longer period since it should be relatively immune to a recession. NuVasive has my favorite business model - razor and blade - sell the razor once, sell the blades forever. Unfortunately there are a lot of legal expenses hitting due to a patent suit, but that's not an operational issue - just a cost that is a pain to maintain.
- In a stalled economy, investors might be rightfully concerned about weak spending for high-ticket capital gear. That's certainly been a concern for followers of medical-equipment stocks. Some might lump medical-device maker NuVasive in that boat. That would be unfair.
- Most of NuVasive's (NasdaqGS:NUVA - News) sales are from dozens of small disposal tools and grafts used to perform a minimally invasive lateral back-fusion surgery it developed with specialists. Analysts say the economy doesn't much matter when it comes to back surgeries. People in pain don't want to put off procedures, and reimbursements don't stop when the economy does.
- "By the time people make a decision to have this spine procedure, they are already in such pain it's not something they can delay for economics," said Joanne Wuensch, an analyst with BMO Capital Markets
- NuVasive's year-over-year sales have grown 50% to 65% the last eight quarters. Though sales have been growing in double digits, profits are another story. Investments in new products, surgeon education, new sales reps and technology have kept the young company in the red.
- Though it doesn't consider itself a big-ticket capital equipment company, NuVasive does make a costly software-driven nerve avoidance navigation system that enables surgeons to perform its unique spinal-fusion surgery. The company gives those units away to hospitals to encourage them to adopt the minimally invasive procedure, since it helps spur sales for its disposable products. Each procedure generates $1,300 to $1,700 from disposable products, the company says. Surgical instruments add $500 to $900. The implants and biologics that are needed to complete each procedure generate even more -- almost $11,000 per procedure.
- The novel lateral procedure involves making small incisions in a patient's side rather than larger ones in the back or front. Recovery time is shorter since surgeons don't have to cut into much muscle or bone, and costs are lower.
- As more physicians are trained to perform the operation, NuVasive stands to gain added revenue. Almost 2,000 surgeons have been trained to perform the lateral surgery.
- One key new product line comes from the July acquisition of the biologics product line Osteocel -- bone-marrow grafts used in spine-fusion surgery. NuVasive said Osteocel would add $28 million to 2009's top line. Osteocel kicked in $4.4 million in the third quarter.
- NuVasive expects its expanded biologics division to generate $100 million in revenue annually in the next several years.
- NuVasive's introduction this month of a next-generation nerve-avoidance system -- NeuroVision M5 -- also will help generate new revenue, analysts say. The new system allows surgeons to navigate further up the spine to the neck area so that they can perform minimally invasive cervical procedures as well. The M5 "is a big deal," said analyst Jose Haresco of Brean Murray Carret. "The NeuroVision has already been out a few years, and it needed an upgrade." "This moves us another three years ahead of our competitors," he (CEO) said in a phone interview.
- Competition in the $7 billion worldwide spine market is intense, dominated by Medtronic's (NYSE:MDT - News) Sofamor Danek, which has about 50% market share. Other larger players include Johnson & Johnson's (NYSE:JNJ - News) DePuy unit, Synthes and Stryker (NYSE:SYK - News).
- Lukianov says the Osteocel grafts give his firm an edge over medical-equipment giant Medtronic because they sell for about half the price of Medtronic's version.
- Haresco wrote in a client note that smaller, more specialized players such as NuVasive and Kyphon have been taking market share from their bigger rivals. Lukianov says NuVasive holds 6% market share in the U.S., up from about 4% last year. Almost all of NuVasive's sales are in the U.S., but Lukianov says the company plans to expand next year in key markets in Europe and Asia.
- Meanwhile, some analysts are concerned over legal expenses from a patent infringement lawsuit brought by Medtronic on some of NuVasive's products. In the third quarter, NuVasive spent $600,000 in legal expenses to defend itself and officials say they expect to spend $1 million in the fourth quarter and $4 million to $5 million in 2009.
Disclosure: Long NuVasive in fund; no personal position