It didn't take long forGlobus Medical (
GMED
) to make some noise on Wall Street.
Less than two months after the designer and marketer of spinal
devices had its initial public offering, its stock price spiked,
thanks to good news on the regulatory front.
The good news came Sept. 28 when the Food and Drug
Administration granted Globus premarket approval for the
company's Secure-C Cervical Artificial Disc.
The Secure-C is a motion-preserving alternative treatment of
neck and arm pain conditions involving disc abnormalities.
According to a company press release, clinical data from a
380-patient study showed that Secure-C is statistically superior
to certain other treatments in terms of overall success,
subsequent surgery at the index level, device-related adverse
events and patient satisfaction at 24 months.
Globus' stock price shot up 7% on the news. It continued to
rise the next two sessions, peaking at 19.93 on Oct. 2, before
falling back the next couple of days. Shares are still up more
than 40% since they debuted at 12 on Aug. 3.
Earlier Than Expected
In a note, analyst William Plovanic of Canaccord Genuity said
the FDA approval came "on the early side" of his original
expectation.
He says the Secure-C is one of four cervical discs in the FDA
review process. The others are made by LDR,NuVasive (
NUVA
) and Spinal Motion.
"The (Globus) approval is a welcome event considering the
application has been in the FDA review process for over two years
and now includes data out to more than five years," Plovanic
noted. "We expect to gain additional clarity into the product,
and Globus' strategy, on Globus' third-quarter conference call,
as well as at upcoming industry trade shows."
Globus is expected to report Q3 earnings during the second or
third week of November.
Meanwhile, the Secure-C will be showcased at two upcoming
spine industry conferences: the Congress of Neurological Surgeons
in Chicago, scheduled for Oct. 6-10; and the North American Spine
Society meeting in Dallas on Oct. 24-27.
The Secure-C's impact on Globus' financial results won't be
known until the company offers more clarity on commercialization
timelines, experts say.
For now, Globus has fared pretty well with its current lineup.
The company has launched more than 100 products since it was
founded in 2003. It operates in two main categories: traditional
spinal fusion and disruptive technology.
Globus recorded its first sales in 2007, ending the year with
$123 million in revenue. The company logged 40%-or-better sales
growth each of the next two years. It grew the top line 13% in
2010 and 15% in 2011.
"Globus has done a credible job of penetrating this market and
stealing share from much larger, established competitors,"
Morningstar analyst Debbie Wang noted in a report prior to
Globus' IPO.
"This has translated into 28% compound annual revenue growth
since 2007," she added, "though we note that top-line growth has
slowed considerably -- albeit to the midteens -- over the last
couple of years, which is related to the pullback in the entire
spine market."
The global spine market is estimated at about $10 billion a
year. It is particularly lucrative in the U.S., where as many as
80% of Americans are said to suffer from some kind of back pain.
The U.S. accounts for more than 90% of overall sales, though the
percentage from international markets is slowly growing.
The traditional fusion market is growing in the mid- to
high-single-digit range, Wang says. In contrast, more advanced
disruptive technologies are growing in the 30% to 50% range.
Wang calls Globus "a small fish in a large spinal pond" that
includes a number of much bigger players.
The two biggest players areMedtronic (
MDT
), which holds an estimated 33% share of the market; andJohnson
& Johnson (
JNJ
), which controls about 24% of the market thanks to its recent
purchase of Synthes.
The rest of the market is carved up amongStryker (
SYK
), NuVasive andZimmer (ZMH), Wang says.
Market Share
"We peg Globus' share at about 4% of the spinal market," she
noted. "We think there is plenty of room for the firm to steal
share from Medtronic and J&J, primarily driven by Globus'
experienced sales force and its robust pipeline of improved
devices."
Canaccord's Plovanic calls Globus "the most profitable public
pure-play spine company," with GAAP operating margins in the 30%
vicinity and EBITDA margins of approximately 35%.
He also gives the company high marks for its product
development strategy.
"Continuous new product flow and distribution expansion are
the hallmarks of successful medtech companies, and Globus has
continued to execute on this strategy since inception," he
noted.
Globus' rapid product development strategy has also helped the
company counter industry head winds such as pricing pressure,
Plovanic added. "(And) distribution expansion has offset payer
push-back impact on volume growth rates, allowing Globus to keep
growing while others have stalled."
Analysts polled by Thomson Reuters expect Globus to post 2012
earnings of 81 cents a share. They see profit ticking up only 4%
to 84 cents in 2013, then rising in double digits each of the
next two years.