Wednesday, October 28, 2009

Spine Market Capitalization - Winners and Losers!

As a follow up to our latest blog entitled; "Are Investors Hanging on to Their Cash?" TSB performed some additional due diligence on IPO's and acquisitions from 2004 thru 2008. During that time 62 medical device companies went public. Thirty-nine of these publicly traded companies are worth less than at the time of the IPO. Orthopaedic and Cardiovascular companies have exhibited the most resilience.

The device industry has fallen from grace over the last year. 49 of the medical device companies that went public during this time have lost 5% of their aggregate value dropping from $15 billion to $14.2 billion with an average declining market cap of $306 million to $291 million. Yet, Orthopaedics has exhibited resilience due to a single deal, that being NuVasive. Their market capitalization went from $260 million at the time of their IPO to $1.5 billion. Without getting into the specifics, cardiovascular companies still command value. The fact remains that none of the Orthopaedic companies that went public from 2004 thru 2008 have been acquired as expected.

This may be an indication, as has been written before, that the spine industry has hit a level of pure saturation that has been predicted over the last few years, given the amount of spine start-ups. Some sources estimate that there have been anywhere between 120-200 new companies. Let's look at Trans1 and AlphaTec, a few companies that have recently gone public.

Trans1 was valued at $305 million in January 2008 and is now worth $150 million which is roughly half its value. AlphaTec's market value fell from $243 million in January to $135 million. Both of these companies are primed to be sold. In all likelihood, TSB sees AlphaTec capping out at around $200 million dollars in revenue over the next 5-7 years, especially if they are on a run rate to hit $100 million this year, and we all know the challenges that Trans1 is facing with reimbursement issues.

Since there has been a decreasing interest in dealmaking, this has opened the door for companies like NuVasive which have taken an aggressive position acquiring Cervitech and Osteocel in deals costing them $17o million dollars. Outside of NuVasive, Zimmer has made more deals than any other company during this period. The Big Z acquire Abbott Spine, ORTHOsoft and Endius for a total of $486 million. It will be interesting to see how the industry rebounds over the next year considering that we are facing many unknown challenges. Rumor has been bandied about that Globus is looking at a potential IPO next year. If so, TSB envisions someone of the caliber of a Goldman Sachs underwriting that IPO. TSB wants to know what our readers think?

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