Where spine device companies stand in 3Q — 76 things to know

Spinal Tech

Spine device companies and orthopedic companies with a focus on spine had a busy third quarter with many new product launches, revenue increases, full-year guidance and net loss to go around.

 

Here are 76 things to know about the companies, listed by company in alphabetical order.

 

Alphatec Spine

 

1. Consolidated net revenue was up 2 percent over the same period last year, reaching $51 million.

 
2. United States revenues were up 3 percent to $34.8 million in the quarter; international revenues were down 2 percent to $16.2 million.
 
3. Less-invasive product solutions sales increased 35 percent internationally and around 9 percent overall for the third quarter, driven primarily by the Illico MIS platform.
 
4. Biologics revenue grew 18 percent in the United States when compared with the same period last year, reflecting the company's broad product suite.
 
5. Consolidated gross margin improved from 48.3 percent to 71.2 percent during the quarter due to significant one-time changes incurred last year as well as the continued focus on managing costs and driving efficiencies across the supply chain.
 
6. Total operating expenses were down 8 percent. Increased research and development spending was primarily associated with product design and development activities.
 
7. In the third quarter the company launched the Arsenal spinal fixation system.
 
8. The GAAP net loss for the quarter was $3 million, compared to $14.5 million last year.
 
9. Unrestricted case and cash equivalents were $20.2 million, compared to $19 million reported as of June 30, 2014. The company also reported $2 million in restricted cash which must be used for future patients in obligations associated with the Orthotec settlement.
 
10. The company expects full year consolidated net revenues at the lower end of the previous range; now the expectation is $208 million to $212 million.

 

Amedica

 

11. Total product revenue was up 13 percent to $6 million in the third quarter, compared to $5.3 million in the same period last year.

 

12. Revenue growth was attributable to a 57 percent increase in the silicon nitride ceramic product revenue over the previous year due to increased market adoption of the Valeo spinal interbody devices. The company is focusing on its core silicon nitride technology.

 

13. For the nine months end, silicon nitride ceramic product revenue grew 50 percent to $2.7 million.

 

14. Gross profit for the third quarter was $4.1 million, up from $3.6 million from the third quarter of 2013.

 

15. The company reported net loss at $4.9 million, higher than the $2.3 million reported in the third quarter last year. The increased net loss is primarily due to a non-cash stock compensation expense reaching $2 million.

 

16. Cash and cash equivalents totaled $10.4 million. Principle obligations under long-term debt were $26 million.

 

Globus Medical

 

17. Worldwide sales were $117.8 million, a 9.9 percent increase over the third quarter last year. Sales in the United States were up 8.7 percent and international sales were up 23.2 percent. The company traditionally has seen sluggish procedural growth between the second and third quarters. "The strength in 2014 is indicative of the continued solid execution of our business model, namely, new product introductions and expansion of our sales footprint," said Dave Demski, President and COO of Globus Medical, in the conference call reported by Seeking Alpha.
 
18. International sales were 9.5 percent of total sales for the quarter. "We are pleased with the progress being made in expanding our penetration within our existing international markets and further the steady improvements of the contribution to our bottom line," said Mr. Demski.
 
19. Net income for the quarter was $23.1 million, compared to $20.3 million in the third quarter last year.
 
20. Cash, cash equivalents and marketable securities ended the quarter at $345.8 million, increasing by $32.8 million in the quarter. However the company remains debt-free.
 
21. Senior Vice President and CFO Rick Baron resigned during the third quarter to pursue other interests. Dave Demski, Globus Medical's President and COO will become CFO on an interim basis until a new CFO is hired.
 
22. Gross profit was $90 million for the quarter, up from $81.8 million over the same period last year. For the nine months end, the company reported $265.9 million gross profit. The increase reflects a favorable product sales mix and the company's ability for ongoing leverage in the OUS sales model.
 
23. Physician-owned distributorships were a hot topic for the month, with Stryker's CEO Kevin Lobo commenting on them during their third quarter conference call. Mr. Demski addressed them as well, with the Department of Justice's civil and criminal actions against a POD and affiliated physicians. "While we saw no direct impact as a result of these events, we are hopeful that continued scrutiny and publicity from DOJ will convince those involved with PODs, particularly hospitals that they should discontinue doing business under the POD model," he said.
 
24. Globus Medical acquired allograft tissue processing and manufacturer Transplant Technologies of Texas for $35 million upfront and $15 million in milestone payments over the next three years. "It is important strategically, as they bring a long track record of profitable selling biologics," said Mr. Demski. He expects the acquisition to drive value in these ways:
 
•    Sales for existing TTOT customers
•    Currently sold Globus product sourcing
•    Current TTOT product sales by the Globus sales force
•    New product development for sales through both Globus and TTOT
 
The purchase is expected to contribute around $2 million in additional sales for the fourth quarter.
 
25. Innovative fusion sales increased 8.2 percent to $67.7 million over last year's quarter. Disruptive technology sales also increased 12.3 percent to $50.1 million.
 
26. Research and development expenses for the quarter were $8.1 million. They were 6.9 percent of sales compared to 6.1 percent over the same period last year. Expenditures associated with the company's robotics project were the prominent driver in this increase.
 
27. Annual sales are now expected to reach $462 million to $467 million.

 

K2M

 

28. Total revenue grew 19.7 percent to reach $47.6 million in the third quarter. The increase was due to $7 million in greater sales volume in the United States due to the expanded customer base.
 
29. The company reported $34.4 million in domestic revenue, a 25.1 percent increase over the same period last year. International revenue hit $13.2 million, a 7.8 percent growth.
 
30. Domestic complex spine revenue was up 28.7 percent to $14.6 million. By procedure category, here is the break down for the company's revenue in the United States:
 
•    Complex Spine: 42.4 percent
•    Minimally Invasive Surgery: 15.3 percent
•    Degenerative Categories: 42.3 percent
 
31. Gross profit increased 12.5 percent to $31.5 million, up from $28 million over the same period last year. The gross profit includes amortization expense on investments in surgical instruments and the medical device excise tax.
 
32. The amortization expense increased 63.7 percent to $2.3 million for the quarter. The increase was due to higher instrument purchases to support the company's revenue growth throughout the year. The company also paid $500,000 for the medical device tax in the quarter.
 
33. K2M experienced $12.9 million in loss for the third quarter, significantly higher than the $9.6 million over the same time period last year. The loss from operations is intangible amortization of $5 million and $7.5 million for the third quarter.
 
34. Net loss attributable to common stockholders for the third quarter was $16.1 million, or $0.43 per diluted share. Last year, the net loss attributable to common stockholders was $6.3 million. These numbers include the impact of primarily non-realized foreign currency transaction losses of around $3.1 million.
 
35. Operating expense was $44.4 million for the third quarter, up 18.2 percent compared to the same period last year. The company expanded its sales team, which primarily drove the operating expense increase. The investment fueled a sales commission increase with higher sales volumes and increased employee compensation due to incremental direct sales employees compared to the same period last year.
 
36. Cash and cash equivalents were $23.2 million, compared to $7.4 million as of December 2013. Working capital reached $82 million, up from $32.5 million last year.
 
37. The company reported no outstanding indebtedness as of the quarter's end. K2M's borrowing capacity is $28.3 million.
 
38. For the full year, K2M raised revenue guidance to $184.5 million to $186 million. This is a 17 percent to 18 percent increase over the same period last year. In the third quarter, the company received FDA clearance for the MESA Hooks and expanded minimally invasive technologies for the EVEREST Minimally Invasive Spinal System.

 

LDR

 

39. Total revenue was up 32 percent year-over-year, reaching $35.9 million for the quarter. Exclusive technology products revenue was up 41.8 percent to $32.1 million.
 
40. United States revenue represented 78.2 percent of overall company revenue, and also grew significantly in the quarter. The U.S. revenue jumped 40 percent to $28 million while the international revenue was up 9.6 percent reaching $7.8 million.
 
41. The company's Avenue L lateral lumbar fusion interbody device growth drove the quarter. Nonfusion products were led by the Mobi-C and the VerteBRIDGE fusion products for the lumbar and cervical spine grew because surgeons trained in the Mobi-C are being introduced to the company's fusion line for appropriate procedures.
 
42. LDR's Mobi-C disc replacement is growing fast and the company has the only FDA-cleared disc for two-level procedures. "Our PMA approval provides us with a strong competitive advantage and serves as a high barrier to entry for any potential competitors due to the lengthy multi-year PMA process for both clinical trials and FDA review," said LDR President and CEO Christophe Lavigne. "We are capitalizing on our 'first mover' advantage by investing in sales and marketing, physician education and training, and the establishment of a reimbursement group via our Horizon 2016 initiative."
 
43. Gross profit was $29.4 million for the quarter, up from $23.1 million in the same period last year.
 
44. Gross margin decreased from 84.9 percent last year in the third quarter to 82 percent this year. The decrease is primarily due to increased inventory reserves assosciated with inventory build-up for product launches and enhancements.
 
45. LDR had a $2 million net loss, equaling $0.08 per share. This is significantly lower than the net loss last year in the third quarter, which was $8 million.
 
46. The adjusted EBITDA for the third quarter was $200,000, compared to $500,000 for the third quarter last year.
 
47. Cash for the quarter was $83 million, and cash equivalents is $104 million in working capital. The company has $23 million in debt.

 

48. LDR increased its revenue growth guidance for the full year to 23 percent to 24 percent growth over last year, placing them in the $137 million to $138 million range. The previous guidance was 20 percent to 21 percent growth.

 

Mazor Robotics

 

49. Revenue reached $6.1 million, a jump from the $3.1 million reported over the same period of time last year. Revenue generated in the United States was up to $5.4 million, compared to $2.3 million last year, primarily due to higher system sales.
 
50. Mazor sold five Renaissance systems in the third quarter.
 
51. System kit sales, service and other revenue sources increased to $2.5 million in the third quarter, a 67 percent increase over the same period last year.
 
52. Gross margin was up 80.6 percent, compared to 73.2 percent last year due to higher system sales.
 
53. Total operating expenses were $8.4 million, up from $5.8 million over the same period last year.
 
54. Mazor reported operating loss at $3.5 million, similar to the third quarter last year.
 
55. The company's net loss was $3.9 million, $0.09 per share. This is higher than the $3.5 million in net loss last year.
 
56. Cash used in operating activities reached $4 million, compared to $2 million in the third quarter of last year. Cash, cash equivalents, marketable securities and long-term investments were $54.2 million.
 
57. The China CFDA clearance for the Renaissance system in the third quarter and are working with a distribution partner to penetrate the market — among the largest opportunities in Asia for the company.
 
58. The company now has 77 systems installed globally.

 

NuVasive

 

59. Revenue increased 12.3 percent to $189.9 million for the quarter.
 
60. NuVasive generated a record quarterly free cash flow at $35 million.
 
61. GAAP gross profit for the third quarter was $142.2 million and the gross margin was 74.9 percent. In 2013, the third quarter GAAP gross profit was $125.9 million and gross margin was 74.4 percent.
 
62. Total GAAP operating expenses for the third quarter was $125.9 million, up significantly from $114.3 million over the same period last year. The increase was primarily due to an investment to support international expansion.
 
63. The GAAP net loss for the third quarter was $1.8 million or $0.04 per share. This includes a tax rate of 128 percent, which was higher than anticipated primarily due to the earnings mix. The company expects to recover in the fourth quarter of this year and has revised guidance accordingly.
 
64. Net income for the company was $9.6 million on a non-GAAP basis.
 
65. Cash, cash equivalents and short and long-term marketable securities was approximately $384.2 million. The company generated $48.2 million in cash flows from operations and invested $13.1 million in capital expenditures, yielding $35.1 million for the third quarter in free cash flow.
 
66. For the full year, the company expects $755 million in revenue, which includes an incremental headwind from currency in the fourth quarter. This would be a 10 percent growth over 2013.
 
67. NuVasive is still on course as a leader in the spine device field, especially with the flagship XLIF procedures and in the minimally invasive market.
 
"As the spine market continues to shift to less invasive solutions and as better patient outcomes and clinical and economical evidence are driving surgeon adoption, we remain committed to spending our leadership in this market," said Alex Lukiav, NuVasive CEO. "We fully believe that our procedural offerings will allow us to further penetrate with this estimated to become a $5 billion MIS market opportunity over the next decade. Increasingly, we have invested in procedural offerings to enter the traditional spine market and convert it to less invasive solutions with improved surgical outcomes."
 
68. The company plans to expand its international footprint in the future. "Several years ago we made the decision to expand our geographical footprint by strategically and methodologically entering the $2.2 billion international spine market," said Mr. Lukiav. "Today we have commercial operations across EMEA, Asia Pacific and Latin America. During the third quarter, we continue to benefit from investments with strong results in Australia, Japan, UK and Italy driving 45 percent growth."

 

Stryker

 

69. Stryker reported consolidated net sales at $2.4 billion, which is 11.1 percent growth over the same period last year. Net sales grew 10.2 percent due to the increased unit volume and changes in product mix. There was also 2.4 percent growth attributable to acquisitions.
 
70. Net sales were unfavorably impacted 2.3 percent due to price changes and 0.2 percent for foreign currency exchange rates.
 
71. Neurotechnology and spine net sales reached $432 million, a 6.5 percent increase as reported and 6.9 percent increase in constant currency. Spine sales exclusively were $186 million, only slightly higher than the $183 million reported in the same period last year.
 
72. In the third quarter, the company launched European headquarters, which Mr. Lobo expects to strengthen Stryker's business in the region and provide strong financial benefits, including a $2 billion cash repatriation planned in the second half of 2015.
 
73. Net earnings decreased 44.7 percent in the third quarter, only reaching $57 million. The reported net earnings include charges from the Rejuvenate, ABG II and Neptune recalls as well as tax impacts related to the European regional headquarters establishment. The company also reported a planned cash repatriation, acquisition and integration- related charges.
 
74. Full year organic sales growth is expected to be 5 percent to 6 percent. However, the company expects full-year adjusted diluted net earnings per share to be at the lower end of the previously disclosed $4.75 to $4.80 range.
 
75. The company reported $1.15 EPS, beating expectations by $0.01, according to a Sleek Monkey report.
 
76. On the day Stryker's financial report was released, the company traded down 0.20 percent with a trading volume of 2.2 million shares. Stryker has a market cap of $30 billion.

 

 

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