Backing In

No segment of the orthopedics sector has generated more company, investor, patient and physician interest over the past decade or so than spine. And that’s little wonder, given that the world is full of people with serious back problems with few choices for alleviating their conditions. And many of those precious few choices have involved highly invasive, downright dangerous forms of surgery.

As is made abundantly clear at each year’s meeting of the North American Spine Society, physician interest in lateral access spine procedures, motion preservation and minimally invasive surgery procedures continues to increase.

It stands to reason, then, that companies such as NuVasive, with a variety of distinctly less-intensive approaches to alleviating painful back conditions, have earned a following. San Diego, Calif.-based NuVasive pioneered the technique known as lateral access, and physician interest has grown apace.

NuVasive’s primary focus is the $5.1 billion U.S. spine implant market. The company also is expanding its participation in the global biologics market and is developing products for the emerging motion preservation market.

During a steady stream of investor conference appearances, Chairman and CEOAlex Lukianov, CFO and Executive Vice President Michael Lambert and other company officials maintain that NuVasive’s goal is to be “cutting edge and innovative” in every aspect of the spinal business, from access to neuro monitoring and biologics to motion preservation.

With more than 55 products in its portfolio at present, NuVasive spans the lumbar, thoracic and cervical segments of the spine sector. Its principal product offering is based on the Maximum Access Surgery, or MAS platform. The MAS platform combines four categories of products that the company says collectively minimize soft tissue disruption during spine surgery with maximum visualization and easy reproducibility for the surgeon:NeuroVision, a software-driven nerve avoidance system; MaXcess, a unique split-blade retractor system; a wide variety of specialized implants; and several biologic fusion enhancers.

The MAS platform’s lateral approach is known as eXtreme Lateral Interbody Fusion, or XLIF, with which NuVasive has pretty much revolutionized spine surgery. Lateral access is undergoing rapid adoption by U.S. physicians, and in response, companies including Medtronic, Johnson & Johnson, Synthes, Alphatec and Globus either are offering or plan to offer lateral access approaches that compete with NuVasive’s, which is far and away the leading lateral access procedure.

Going hand in glove with lateral surgical access is neurological monitoring.The ease of neuro monitoring, which offers safety to the procedure and confidence for the physician, is an important driver for surgeon adoption. Integration of the neuro-monitoring equipment into the procedure differs by
company, but NuVasive’s NeuroVision system is a clear leader there as well.

NuVasive is adding to its platform technology at a steady pace, launching 10 or so new products a year in a bid to capture even more market share in a sector where share shifts occur with the regularity of desert sands. The lateral approach is increasingly being used for multi-level cases, and NuVasive also
ismoving into the thoracic spine with product introductions for more complex cases such as corpectomy and scoliosis.

NuVasive also has a growing offering of biologics products, boosted by its initial $15 million investment last year in Progentix Orthobiology, a Dutch company that is developing a synthetic bone substitute that is designed to accelerate bone healing through a novel micro-structure created by a proprietary
manufacturing process. The investment was NuVasive’s third strategic transaction in the biologics arena.

Lukianov said Progentix’s “impressive preclinical data attracted us to this unique technology.We believe there is a large product gap in the $1 billion orthobiologics market between BMP and commodity synthetic and allograft bone graft extenders. The Progentix material, along with Osteocel Plus, will
allow NuVasive to offer its surgeon customers superior products, both synthetic and human-derived, that fill an important market need, command premium pricing to commodity bone graft products, and build on our FormaGraft Collagen Bone Graft Matrix product line.”

As for motion preservation, spine surgeons and neurosurgeons—and certainly patients as well—are excited about artificial discs for such purposes. A lack of insurance coverage for motion preservation has been a major impediment to physician adoption, but insurers are beginning to cover the procedure
for more patients, and companies are optimistic the trend will continue.

The domestic cervical motion preservation market is estimated at about 3,000 procedures and the lumbar motion preservation market at some 2,000 procedures,with more than 30 percent annual growth anticipated in cervical and single-digit growth in lumbar. J&J,Medtronic and Synthes have discs
approved in the United States, while NuVasive and several other companies, including SpinalMotion, Spinal Kinetics and Globus, have discs in U.S. trials and development.

On the financial side, NuVasive has had six consecutive years of growth that has met or exceeded analyst expectations. For 2009 as a whole, revenues totaled $370.3million, a 48.1 percent increase over the $250.1 million reported for 2008. The company reported 1Q10 revenue of $109.1 million, 36.3 percent up from the prior year.