Alphatec Spine Experiences Significant Loss in Third Quarter

Carlsbad, Calif.-based Alphatec Spine Inc. released its third quarter financial results last week, revealing a $14.5 million loss. This represents a 487 percent decline from the $2.5 million loss during the same period last year. The loss is due mostly to the company’s decision to discontinue the PurGen Osteoprogenitor cell allograft from its product portfolio after a significant investment in clinical trials.

Highlights of Alphatec Spine’s third quarter and recent activities:

• Third quarter 2013 total revenue was $50.2 million; up 7.2 percent from the third quarter of 2012, or 10.7 percent on a constant currency basis, representing broad growth in all Alphatec’s markets.
• U.S. revenue was $33.7 million; up 8.8 percent from the third quarter of 2012; excluding the revenue contributions of PureGen realized in Q3 of 2012, U.S. revenue was up 15 percent. U.S. hospital implant revenue was up 23.3 percent. Positive performance in the U.S. was the result of continued solid unit volume gains in the company’s core hospital business and increased surgeon uptake across our various product lines.
• International revenue was $16.5 million; up 4 percent from the third quarter of 2012, or approximately 14.4 percent on a constant currency basis. Strong operational performance was again attributable to the company’s reportedly robust business in Japan, combined with thriving underlying demand in Latin America, Asia and Europe.
• Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) was $6.7 million, or 13.4 percent of revenues, compared to $6 million, or 12.8 percent of revenues reported for the third quarter of 2012, and $4.9 million, or 9.6 percent of revenues for the second quarter of 2013.
• The planned restructuring of Scient’x S.A.S’s and Surgiview S.A.S’s operations and the planned discontinuance of commercial activities in France is anticipated to improve the gross margins and overall profitability of Alphatec’s international businesses and is anticipated to increase EBITDA by $6 to $7 million on an annualized basis beginning in the second half of 2014.
• It was after ongoing dialog with the U.S. Food and Drug Administration that the company made the business decision to discontinue PureGen from its product portfolio. Investing in the significant clinical trial costs and timelines to support the future commercialization of PureGen is not a prudent use of Alphatec’s resources at this time, reported company officials.

“When I came onboard as CEO eighteen months ago, I set out a clear strategy for the company to strengthen the sales and profitability of the organization,” said Les Cross, chairman and CEO of Alphatec Spine. “This strategy was supported by key operational initiatives to enhance the productivity of our global sales organization, generate a continuous flow of new products, improve overall margin structure and scale our business through acquisitions of companies and key products. Today, I am pleased to report that Alphatec’s third quarter performance demonstrates the tremendous progress we have made on each of these initiatives.

“Our third quarter overall revenue performance continues to be strong,” continued Cross. “We are pleased to see the progress we are making in the United States on unit volume sales to hospitals as well as overall physician uptake of our products. Additionally, our international business saw growth across all major geographies in the third quarter. Japan continues to deliver outstanding results. Excluding the impact of foreign currency, our business in Japan grew 21 percent in the third quarter of 2013 as compared to third quarter of 2012.

“We are also excited about the positive uptake we are seeing with our newly launched products. Alphatec Solus, our latest innovative lumbar interbody fusion device, and NEXoss, the next-generation synthetic bone graft, have both gained traction with surgeons in the third quarter and we expect this to continue in 2013 and beyond.

“During the third quarter we also continued to deliver operational savings and to further improve bottom-line performance. In September we announced plans to restructure our French operations as well as discontinue commercial operations in France. This is a significant business decision for our future financial performance as we expect that it will deliver annualized adjusted EBITDA improvement of approximately $6 to $7 million beginning in the second half of 2014 once the restructuring is complete. We are grateful for the significant contributions of those employees who could be impacted by this plan and will do everything we can to assist all affected employees and their families. While these decisions are not always easy, we will continue to identify and implement strategic cost reductions that will drive overall improvement in gross margins and lower existing cost structures.”