NuVasive Takes a Different Angle, Shakes Up Spinal Surgery Business

4/27/10Follow @xconomy

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it allows the doctor to slide in a disk that provides better support than a smaller disk that’s made to fit through the avenues surgeons are used to navigating through the front or the back.

I asked these guys to show me hard data from a randomized clinical trial that says patients have better outcomes after surgeons use NuVasive products through this technique, compared to standard methods. The data that spinal surgeons have collected says that patients can leave the hospital in one or two days after an XLIF procedure, start walking the same day, and return to normal activities in four to six weeks.

Back in July 2006, NuVasive thought it had done what it needed to do by winning the blessing of the North American Spine Society, which declared this procedure should be reimbursed under existing codes that insurers use to keep track of reimbursable techniques. But as NuVasive’s technique started to catch on in popularity—alarm bells started going off at insurers. Cigna was the first to declare that NuVasive’s procedure was “investigational—” meaning unproven, and therefore not automatically subject to reimbursement. Humana followed suit, as did Aetna and UnitedHealth. Part of it was because the term for the procedure, XLIF, is a marketing term coined by NuVasive, not something in the medical literature, so insurers wondered why they were paying so much for this new thing, Williams says. They wanted to see evidence that the procedure was working, he says.

“The insurance company business model is to collect cash, sit on it, and get paid interest. If they don’t have to pay out money, that’s a good thing for them. Spine fusion is an expensive procedure, there’s no doubt about it,” Williams says. “As they start seeing a higher volume, and couple that a high payout per procedure, it starts to get their attention pretty quickly.”

With the help of spine surgeons and patient advocates, NuVasive was able to win over the people at Aetna and UnitedHealth to drop the “investigational” black mark from the XLIF procedure and return to business as usual. Those insurers are vital to NuVasive’s business, since most back surgery patients are between ages 45 and 60, and an estimated 60 percent get their procedures paid for by private insurance (another 20 percent are Medicare patients, and the rest are covered by worker’s compensation). So the news of Aetna and UnitedHealth’s reversal just two months ago on Feb. 26 sent NuVasive stock booming more than 34 percent, to $40 a share.

That might be good news for the company’s 800 employees and its shareholders in the short-term. But before I wanted to know what kind of long-term trajectory NuVasive faces. About 80 percent of that $5.1 billion U.S. spinal fusion market is still generated by more invasive surgeries that go through the front or the back, with just 20 percent of the market going to procedures through the side.

But side-entry procedures could make up 80 percent of the market in another five years, as more surgeons get trained on side-entry techniques. NuVasive is well-positioned as the dominant provider in that market segment, Williams says. The market as a whole is growing 10 percent annually, partly because of the aging baby boomer population. Even as competitors are racing to offer their own alternatives, to surgeons who the company has said its mission is to reach $1 billion in sales, Williams says.

“While Medtronic has had a lateral system for several years and Synthes has had a lateral system

for over a year, neither have seemed to slow NuVasive’s growth,” said Michael Matson, an analyst with Wells Fargo, in a note to clients March 18. “And we don’t see any reason that (Johnson & Johnson’s) DePuy will have more success against NuVasive than its peers.” He has a $45 to $50 price target range for the company.

With only about 6 to 7 percent of the current share of the market, NuVasive sees plenty of room for growth. Lambert notes that since we’re talking about something as risky as surgery, and surgeons need to learn a new way of doing things to adopt its product, it can take months for the company’s sales reps to win over a new doctor or advance into a new territory. But once a sales person has two years under their belt, they can reach full productivity, he says. Right now, about half of NuVasive’s sales force has less than two years of experience.

“We are still early in the game,” Lambert says. “It’s one of the exciting things. To be sitting here in the recession and for this company to have driven 40 percent growth, it’s astounding. It’s fun to be a part of.”

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