NuVasive Inc. NUVA said it’s aggressively moving to replenish a diminished salesforce that led to flat third quarter sales growth in its spinal division.The company also lowered its full-year 2012 earnings guidance Wednesday. For the full-year 2012, NuVasive now expects revenues between $601 million and $606 million, compared to its earlier estimate of $625 million. The company now expects earnings of between 11 cents and 13 cents for the year, down from 97 cents previously.The company struggled in the third quarter as smaller competitors poached more than a dozen of its sales representatives, taking some large customer accounts with them to their new employers. In addition, the company also lost market share to surgeons buying and selling their own medical device equipment, a growing trend that threatens to put more pricing pressure on the company.
“Revenue fell short of our expectations due to a heightened level of account churn,” said Chief Executive Alexis Lukianov. “This was a result of both aggressive competitive tactics, targeting our sales force and surgeon customers and continued surgeon adoption of the physician-owned distributorship or POD model.”NuVasive’s minimally invasive approach to spinal surgery helped it gain market share and more than double revenues since 2009. But the company’s growth potential may be hurt as it looks to ward off smaller upstarts.The company lowered its full-year 2012 guidance estimates, saying that it would take some time to rejuvenate its salesforce and add new customer accounts.Earlier in October, the company reduced its third quarter guidance, sending shares plunging 44%, to $12.65 through Tuesday’s close.
NuVasive lost 15 salespeople in the quarter, some of whom had “substantial accounts” that they took with them to competitors, Mr. Lukianov said. The salespeople were lured away by smaller companies offering large cash incentives of as much as $800,000, he said. NuVasive has hired six new sales reps since the end of the quarter ending September 30, and plans to hire an additional 35 to help add new customers. Many of the new sales reps NuVasive has hired were themselves poached away from NuVasive’s larger competitors. The company is also “increasing its legal efforts” to enforce non-compete contracts, Mr. Lukianov said.In addition, the company has also tweaked its sales commission formula–which is typically 10%–to incentivize gaining new customer accounts.
Sales in the company’s U.S. spinal surgery and bone graft divisions were flat from a year earlier, while revenues jumped 12% in its cervical surgery business. International growth also did well, with sales jumping 45% from a year earlier.In the latest quarter, revenues jumped 11.7%, to $148.4 million from a year earlier, but was below the $154.4 million the company had forecast before adjusting its guidance.The rise of physician-owned distributorships, known as PODs, also hurt sales as key customers in the Southern and Mid-Atlantic regions of the U.S. defected to the lower-priced device providers. PODs now account for 15% of the spinal market, Mr. Lukianov estimated, and have been criticized by legislators for selling products to hospitals that are used in surgeries they perform.
While PODs may not have harmed the broader spinal industry, Mr. Lukianov acknowledged, “the impact of PODs did abruptly affect our business.”
“Without intervention from hospitals, surgeon societies and government legislation, the impact of PODs could become greater,” Mr. Lukianov said. However, “the likelihood of legislative guidelines in the near term is uncertain.”NuVasive posted a profit of $2.35 million, or 5 cents per share, compared to a loss of $67.55 million, or $1.69 a share, a year earlier. Excluding stock compensation, litigation and acquisition costs, and other items, per share earnings fell 11.5% from a year earlier to 23 cents.While customer account losses were the cause of this quarter’s disappointing results, NuVasive also warned of increased insurer pushback from insurers reluctant to pay for spinal surgeries.Some medical professionals have argued in recent years that spinal implant procedures are overused and that methods like exercise and dieting might be just as beneficial as surgery for some back pain sufferers.
“We believe insurer pushback continues to hurt U.S. growth and does not appear to be easing,” Mr. Lukianov said.
Source: Joseph Walker.WSJ: http://online.wsj.com