NuVasive's Honeymoon Continues
BY ROBIN R. YOUNG CFA, JUNE 21, 2004
The IPO was oversubscribed. Demand for the Company's 6.5 million share offering was so strong at $11 per share, that the company (at the underwriter's urging) was compelled to issue another 382,991 shares. This brought the total amount of money raised to $70.4 million, net of expenses. Market capitalization for NuVasive is $306 million.
We note that the oversubscription announcement comes the same week as Biomet announces that its purchase of Interpore is complete. One leaves the arena while another one enters. Interpore warranted a buy-out valuation of 3.8x trailing sales and 56x earnings. NuVasive, which has no earnings, is holding firm at 13.5 trailing sales. Unquestionably, NuVasive is benefiting from a wealth of investor expectations.
Investors first look at how their expectations stack up against reality comes in late July when the June quarter is reported. Miss the quarter and the knives come out. Beat the quarter and maybe nothing - after all, that's what you're supposed to do.
What are the street's expectations? The market cap being afforded NuVasive gives a strong clue. In 2003 NuVasive reported $22.6 million in revenues and a loss of $10.1 million. Other companies with comparable revenue levels include Orthovita, Tutogen, Langer, Isotis, Anika, Abiomed, ATS Medical and Micro Therapeutics. Their market caps range from $27 million to $269 million. Average: $134 million. The average of the orthopedic companies: $109 million. NuVasive is at $300 million. Expectations are high. But, looking at the market being addressed (fastest growing sector in orthopedics with excellent rates of return for manufacturers) and the types of products NuVasive is bringing to market, we understand why Wall Street is optimistic.
NuVasive brings their MAS platform, NeuroVision and MaXcess products to surgeons and, in the process, offers a truly unique approach to spine surgery. The Company maintains that this combination will deliver safe and reproducible minimally 'disruptive' spine surgeries. Specifically, NeuroVision is an innovative nerve avoidance system that uses proprietary software algorithms to keep surgeons from damaging critical nerves during spine surgery. Then MaXcess, which was introduced seven months ago, uses a unique split blade design to provide better surgical access to the spine.
So, taking the matrix of information available in the public domain, it looks like Wall Street is expecting NuVasive to seriously accelerate revenue growth this year and next. The average price to sales in orthopedics is 6.0x. At $300 million market cap, Wall Street is expecting NuVasive to generate $50 million in sales soon. The question is, how long will it take?
