NuVasive’s $380m Magec trick

It is a sign of how much the medtech merger scene has cooled that, at just $380m, NuVasive’s purchase of its fellow orthopaedics group Ellipse Technologies is the largest deal for more than two months.

Taken on its own terms, though, the deal is interesting. As a synergistic match that allows NuVasive to sell Ellipse’s innovative Magec scoliosis device and Precice limb lengthening system, it should boost NuVasive’s activities both in terms of product range and global sales footprint. NuVasive says it expects double-figure growth within five years as a result, and with the number of players in ortho shrinking it could come to be a significant company if it attains this goal.

Ellipse posted revenues of $40m in 2015, up from $26m the year earlier, so is growing nicely. NuVasive’s greater marketing heft ought to mean that sales of the devices could expand fast from the $60m forecast for Ellipse in 2016.

Magnetic

The systems are certainly unusual. Magec, short for Magnetic Expansion Control, is an adjustable rod used to straighten a child’s spine as they grow to minimise the progression of scoliosis.

The rod is implanted surgically and screwed to the spine, after which it can be noninvasively lengthened in a doctor’s office using a remote controller. Current standard of care requires repeat surgeries to lengthen implanted rods; a child may need up to ten reoperations as they grow.

NuVasive already sells a product for adult scoliosis called Integrated Global Alignment, but will now be able to address early onset disease.

Ellipse’s other marketed technology is a system to lengthen the femur or tibia that works in a similar way. The Precice system is approved as a way to correct mismatched legs. Magec is thought to bring in about twice as much revenue as Precice, but Morgan Stanley analysts wrote that Precise has the greater market opportunity, at $700m to Magec’s $570m.

The private company sells its devices in 30 countries, with non-US sales making up 37% of its revenues last year. The acquisition will allow NuVasive to strengthen its presence in Europe and beyond.

It filed for a $75m IPO in October, perhaps as a signal that management was looking for an exit and as a way of drumming up bids from buyers.

More to come

NuVasive paid for the company entirely in cash, and will follow in 2017 with a $30m milestone if revenue targets are hit. And it will not stop there: its chief executive Gregory Lucier has been quite open about the company’s determination to conduct more acquisitions in future.

Morgan Stanley analysts agree that more deals are likely. The Ellipse buy used the majority of NuVasive’s cash and marketable securities, they wrote, but only brought NuVasive to around 1.5 times net debt to Ebitda, meaning it still has the capacity for future deals.

NuVasive is the sixth-largest orthopaedics company but the third largest by sales of spinal products, behind Medtronic and Johnson & Johnson. The Ellipse deal moves it into another area of orthopaedics and signals its interest in expansion.

If it does conduct further acquisitions within or outside its spinal specialism, and if more megamergers between orthopaedics companies transpire, it could move up the rankings.

Top 10 orthopaedics companies
Global sales ($m) Market share
Company 2015e 2020e CAGR 2015 2020
Johnson & Johnson 8,796 10,294 +3% 25.4% 24.6%
Zimmer Biomet 5,638 8,072 +7% 16.3% 19.3%
Stryker 5,619 7,116 +5% 16.2% 17.0%
Medtronic 2,964 3,090 +1% 8.6% 7.4%
Smith & Nephew 1,985 2,424 +4% 5.7% 5.8%
Arthrex 1,592 1,932 +4% 4.6% 4.6%
NuVasive 771 1,050 +6% 2.2% 2.5%
Wright Medical Group 642 1,046 +10% 1.9% 2.5%
Globus Medical 532 789 +8% 1.5% 1.9%
Sanofi 468 567 +4% 1.4% 1.4%

To contact the writer of this story email Elizabeth Cairns in London at elizabethc@epvantage.com or follow @LizEPVantage on Twitter

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