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The Hell With NuVasive Stock: Get Hired by One of its Competitors at $1M
10/5/2012 4:39:00 PM
Who knew you could make a $1 million guaranteed salary selling spinal surgery products? Apparently not medical device company NuVasive ( NUVA ), which told investors yesterday that it has lost 14 sales representatives since July to competitors that guaranteed salaries between $600,000 and $1 million. That's one of the reasons NuVasive shares are down some 35% in less than 48 hours.
The dive started when NuVasive's cut third-quarter revenue forecasts by about 4.5% to $147 million and listed some alarming reasons for the miss. The company sells devices used in a type of spinal surgery aimed at getting patients out of bed very quickly, and competitors are selling similar products more cheaply. And several big accounts walked out the door recently along with those sales reps.
Rep stealing is common practice in any industry, but it's particularly fierce in the low growth world of medical devices. As MarketWatch points out, it grew by poaching reps from larger companies.
For the record, NuVasive has no intention of matching those salary guarantees, which CEO Alex Lukianov calls "absurd and ludicrous." (His total pay was $6.1 million last year, so he knows of what he speaks.)
"We're not going to play that game," he said, although he said he couldn't "give confidence" that reps won't continue to defect. He just expects it all to end soon. "There's only so many $800,000 checks one can write."
That's a nice stance for profit margins but not necessarily a good one for market share, which NuVasive is in the midst of a concerted effort to build. Still, several analysts that follow NuVasive have been unexpectedly sanguine about the rather incredible share price decline. Noting international expansion plans and limits to the poaching problem, analysts at both William Blair & Co. and Canaccord Genuity reiterated buy or overweight ratings on the shares.
Still, if investing in a small cap in a competitive business makes you nervous, you might want to look into a job in the industry instead.