NuVasive, Orthofix End Legal Tiff

In a move bound to spread some holiday cheer, NuVasive Inc. has settled an 8-month-old patent dispute with both Orthofix International N.V. and The Musculoskeletal Transplant Foundation.

Though terms of the deal were not disclosed, Orthofix has agreed to record a $2 million charge to cover the settlement. Industry analysts believe the settlement involves royalty/licensing payments, which could potentially boost NuVasive’s future earnings. “Any future royalties could mean upside to our current NuVasive sales and EPS [earnings per share] estimates,” Leerink Swann analyst Rick Wise wrote in a two-paragraph commentary of the agreement. “We estimate every $3 million in Trinity-related royalties would translate very roughly into $0.04 of incremental EPS annually.”

San Diego, Calif.-based NuVasive sued Orthofix and the Musculoskeletal Transplant Foundation in April, claiming the Trinity Evolution allograft infringed upon intellectual property owned by NuVasive and Osiris Therapeutics Inc. The companies have entered a licensing deal covering the Trinity Evolution device, Orthofix executives said. Some analysts, including Wise, were surprised how quickly the companies resolved the legal dispute. “We are surprised by how quickly NuVasive was able to secure a settlement given that this patent litigation was initiated just seven months ago,” Wise wrote in his analysis.

Orthofix’s Trinity product is an allograft of cancellous bone comprised of viable adult stem cells and osteoprogenitor cells within the matrix and a demineralized bone component. It provides orthopedic surgeons an alternative to autograft and other bone grafting procedures, according to Orthofix executives.

Orthofix announced the resolution of the patent dispute on the same day it released details of a company-wide restructuring of its three business units (Spine, Orthopedics and Sports Medicine). The restructuring will cost an unspecified number of employees their jobs, forcing the Lewisville, Texas-based firm to record a $4 million charge for employee severance payments this quarter. Company executives expect the restructuring to save the firm about $6 million to $7 annually starting next year.

As a result of the double hit on its finances, Orthofix lowered its fourth quarter earnings expectations from $0.59 to $0.62 per share to $0.39 to $0.42 per share. In addition, the company revised its fourth quarter and full year 2010 revenue expectations to a new range of $142 million to $144 million, and $562.6 million to $564.6 million, respectively. The revision was primarily due to a slower growth rate in the company’s spine stimulation business.

“The global reorganization is another key step toward the achievement of our plan to improve our operating profit margin, and was facilitated in part by the recent consolidation of operations into our new facility in Lewisville, TX. This initiative will result in substantial annual savings after the initial fourth quarter charge,” President and CEO Alan Milinazzo said. “Additionally, we are very pleased to have come to what we believe is a mutually beneficial resolution to the patent matter related to Trinity Evolution.”