Tuesday, November 2, 2010

Are The Foxes Guarding the Henhouse?

This could be the classic story of someone entrusting the fox to guard the henhouse.  Yes fellow bloggers, many of us have learned that one should never assign a job to someone who will be in a position to exploit the job for his own end.  Name me one CEO that hasn't placed his personal portfolio before the interest of the company?  Birds of a feather flock together.  Unlike some of our bloggers who commented that listening to Alex Lukianov was painful, TSB found it insightful to say the least,  having been on previous calls where the bear would pump his chest with passion and verve, making Mel Kiper like predictions.  Yet,  unlike many of our commentators, TSB is not blowing taps for NuVasive.  Let's get serious, they are not going anywhere.  If anything the valuation of this company will align itself with the current state of the times.  Just like the real estate market, NuVasive's valuation at best was inflated.  I just find it hard to fathom that in this climate someone is going to call the note on its convertible debt.  Besides, now wouldn't be the time.

Yes fellow bloggers, the economics of healthcare has finally settled in on that beautiful and majestic coastline by the sea, LaJolla.  As painful and humbling as the call was, the bear and his team did their best to perform one of the best aztec-two steps that TSB has ever heard.   I must admit, Pat Williams is definitely a candidate for Dancing with the Stars, and one must commend the work that the Ruth Group did in prepping the purple people eaters for some crisis communication.  What a vision, Alex and Pat doing a combination of the samba, rhumba and tango on the call.  All the excuses were there.  "Unpredictable market, U.S. spine marketing bottoming out, visibility limited, volumes impacted by surgeons trying newer offerings, surgery cancellations, deceleration in procedures, push back from insurers, increase criteria for fusion surgery, etc, etc and so on."  Is there no pride amongst thieves?  As Sharon Angle would say, "man-up NuVasive."  TSB has heard of throwing the kitchen sink, but this was more like throwing the baby out with the bath water.  Is NuVasive going under?  Can we talk?  NuVasive is not going anywhere.  If anything, Alex and his band of men in purple tights may have learned a valuable lesson.   It is better to be humble, rather than exhibit bravado, especially at a time when no one truly knows what is driving this economy and healthcare landscape.  There something to be said about being low-key.

But the bigger question that must be asked is, where is Robin Young and John Englehardt with their concise analysis when these two self-anointed, and self-proclaimed industry experts have done nothing but sing the praise of NuVasive?  So in closing, NuVasive will probably finish the year at $450-$460 million, slightly off of their bold prediction of $500 million and they will probably still be here two years from now.  Just where does anyone think a $400 plus million dollar company is going?  Hopefully, there will be one less bottle of Antinori's Solaia at the table.  But you know what TSB says, you can't teach an old dog new tricks.

54 comments:

  1. TSB,

    you surprise me. I thought a tenured professional would be more pragmatic, more "in-tune". The issue with NUVA is about survival. It IS a public company...there ARE investors/speculators betting on asset appreciation or depreciation. Why wouldn't a debtor "call" the notes? If a bank knew a homeowner was going to be unable to finance debt...do you think they would not try and get the loan repaid beforehand? I'm amazed at your naivete.

    Your arguement is as if Lehman should have survived? or Ambac...or General Motors...or Texaco...or United Air...to name a few.

    The fact this company currently exists with a measly $400 mio in revenue means absolutely nothing. Doctors, payors, patients can switch in a heartbeat and even get alternative lateral procedures done.

    You "suggest" this stock is ok to buy with your rhetoric...it is NOT...and as a "tenured" professional investor...I wonder whether you, as a VC or PE would sink your dough here if Alex knocked on your door?

    Very disappointing your commentary.

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  2. im shorting nuva stock as i write

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  3. Never did I say, nor did I imply that one should buy NuVa stock. You missed the entire point of the post. Did you catch the sentence, "All the excuses were there?" I wouldn't buy one share of this company's stock, but that's just my opinion. Yet, I must ask, do you really think the company would fold? Remember, the title of the the post is "Are the Foxes Guarding the Henhouse?" Time will tell.

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  4. Short, Shorter, Shorting....Going, Going, Gone!

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  5. The suspense is terrible... I hope it'll last.

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  6. 5:07/5:32 nice to see that you take time off from banging NUVA on the yahoo board as 'shoredaddy'..

    there is no way the note gets called, the company is more valuable alive than dead..take for example ARTC who while under investigation for fraud, restatement financials, DOJ investigations, shareholder lawsuits and Senior management dismissals, their notes were never called...

    and yes I am buying calls as we speak

    a dead man pays no bills whereas a live, albeit not healthy one, can.

    besides as TSB said, it isn't like the $450M is all going away next week..even if you clipped their revenue by $100M for 2011, their current valuation at $1B is under 3x revenue....

    is there an exit or someone to acquire this company? In a market that is growing in single digits and this one is growing at double digits with in excess of $400M revenue and a mostly dedicated sales force....helloooooo Stryker..

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  7. Im shorting NUVA as a way to make some $. I believe they will survive but why not make some $ on the ignorance of the masses. After all isnt that what Wall Street does? Create panic and watch the public run for the exits then swoop in and buy the share and sell them for a profit when the panic has died down? I was a broker for 8 yrs before I got into spine. Why do you think I troll this blog? for the witty report? Not exactly.

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  8. Nuvasive is going to get bought by Depuy or Stryker. XLIF/Neurovision and Osteocel are two high growth platforms a legacy spine company needs. I believe the stock is a bargain right now. I'm buying.

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  9. Osteocel is a dog, complete with fleas. All the reps know that the sh*t doesn't work and no matter what spin is put on it from corporate the truth is leaking out.

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  10. 7:35 i think your short strategy is a bit late by about two days...probably why you didn't make it as a broker and now you schlep sets....

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  11. I agree with 7:56, osteocel doesnt work, mine as well use cancellous chips, it works just as good and a lot less expensive. I have seen the results and they suck with osteocel. Infuse is a different story, it really does work.

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  12. A $42-$48 stock price doesnt make sense. I relize Globus has a much bigger float out there if they were to go public, but they have the same revenue ( or very close to NUVA) and Globus would be lucky to IPO at 10-12 dollars a share. Probably closer to $8 to $10 a share. Nuvasive is good at what? Marketing! That only last so long

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  13. 10:19

    not only good at marketing, but sounds like good at cozying-up to the docs. This entire "game" seems to be over now. the insurance companies are not going to play it anymore. if i were a stryker, depuy or anyone else thinking of buying nuvasive, i would have to discount the risk in a very, very dramatic way. I cannot believe people on this blog suggest a buy-out at anything close to where nuvasive is today. the asset discounting would include IP infringement risk, $200 mio debt risk, market share erosion risk, comparative effectiveness risk, insurance push-back risk and probably HUGE asset write-down risk on the acquisition junk they bought over the last several years. The posters on this blog are living in a different world than I. It's not about bashing, or criticizing, or defacing. this outfit is in deep trouble. Any so-called buy-out ain't gonna be anywhere near this $20/share price.
    PS. I am shoredaddy!...annonymous 6:15 is about to get fleeced...yet again.

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  14. 10:19 you may wish to consult a finance handbook before posting your last comments...the actual price of the stock doesn't matter as much as the valuation also Globus sales are HALF of NUVA's. Globus will have to go to IPO market at a valuation of at least $800M- to keep investors and debt holders happy...so if an acquirer looks at the options between Globus and NUVA for relatively similar costs, and NUVA has a dedicated sales force with twice the revenue, there is no contest and NUVA will win out...

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  15. good morning shoredaddy, I do give you credit for consistency. You are a NUVA hater through and through, when the company rockets up, there you are saying the sky is falling( see previous posts from reimbursement misguidance) .so when they do stumble you get to say "See, I told ya so"...well as the saying goes a broken clock is right twice a day..enjoy this now but don't break your arm patting yourself on the back...if you were truly the smart investor you claim to be, you wouldn't be emotional and play both sides of the run up and down...

    I am a a non emotional investor in this company and i have played both the downside at times and the upside...let your anger go and the purple inside....

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  16. I agree that one of the large orthopaedic companies will buy Nuvasive within the next year. Zimmer? Stryker? Biomet?

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  17. If I was betting on who would benefit from buying NuVasive, I would say Zimmer and Biomet are the frontrunners. Both have cash, both have never made any real headway in spine with their existing portfolios. Stryker has the cash, but I just don't see Alex and MacMillan melding in a negotiation. But whom am I to say, I'm just TSB.

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  18. There is too much debt on Biomet's books to consider another $1B+, Zimmer certainly has the cash but has no mgt to speak of with the exception of Jeff Paulsen; the spine operational management team is still being formed...besides, they still haven't picked a horse in the spinal concepts/Zimmer deal, they are running two separate plants currently..if they did buy NUVA, the best thing would be to relo everything to San Diego and shut down MN and TX...i still think SYK gets it done...cash is always a great negotiator between two parties...

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  19. Call me crazy, but could Globus do a "reverse" merger and go public via "buying" NUVA?

    PS. I am now long. This board has convinced me I am wrong.

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  20. shoredaddy, I am shocked, nay amazed at your reversal...but good to see that you are no longer investing emotionally...a reverse merger for Globus I don't think would make sense nor would be feasible. No one on Globus' side has that type of skill set and the financials are way out of alignment...Globus would be better off allocating the $3-5M to go public than try to maneuver something like a reverse...besides, NUVA mgt who instigated a lawsuit against Globus would never be compliant in such a process

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  21. The vultures are circling but that’s about it. Beta on Nuva is < 1. Atec is more volatile having a beta >1.

    Numbers don’t lie - only humans.

    TSB, Thanks for placing the dialog on a tee.

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  22. Agree that Zimmer makes sense. All the more reason to close up shop in Minneapolis and Austin and send everything to San Diego. That would make the Z a powerhouse and solidify their spot in spine, something the Abbott deal certainly didn't achieve.

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  23. GLOBUS IS NOT GOING PUBLIC. BANKERS HAVE RETREATED BECAUSE OF TOO MANY DISCLOSURE ISSUES IS WHAT I HEAR

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  24. Question:

    Why are there 9 companies, that I know of, offering lateral systems?

    Answer:

    It's a great procedure that benefits patient, surgeon, company, and hospital!

    Who are the experts? Nuvasive!!!

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  25. 9:24, no argument it benefits the surgeon and the company. I think the argument increasingly is whether the patient benefits, and the answer is murky at best.

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  26. Zimmer never did a deal that worked out in spine. They are incapable of becoming a powerhouse in our industry because they suffer from bigCo paralysis. Let's face it, Zimmer and Biomet never achieved the bundling consolidation dream.

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  27. Anon 10:19.....Please leave the valuation analysis to those who know how companies are valued. You're throwing stupid comments around mixing apples and oranges. Globus' float? It's not a public company and so there is no "float". There are shares issued by their board and it doesn't matter how many there are, because the value of the company will therefore determine the price per share. It could very well have 500 Million shares privately so if someone were to buy it for $500M, the private shareholders will get $1/ share. If they went public then the bankers would recapitalize the company so that the # of shares sold to the public, and share price, would be palatable to public investors. Public investors don't want to own a stock at $1, not to mention the NASDAQ/AMTEC rules for the lower limit of a share price. $8, $10...it doesn't matter, it's the total value of the company that matters and they would adjust things accordingly before going public, ie- reverse split to get the total # shares where they want, which then brings up the price per share.

    Price / share multiplied by # shares outstanding = company valuation or "Market Cap". Look at Market Cap on a public company on Yahoo, divide that by the stock price and you'll see how many shares there are outstanding.

    You're making statements about what Globus would go out at, $10-12 or $8-$10....but you obviously don't know how many shares there are as a private company...unless you're on the Board or in senior management, which you're not. Feel free to make a total valuation assumption based upon their supposed sales (NUVA's market cap is about $1B, so that's around 2x revenue) and THEN you can back into a price per share.....IF you knew the # of shares outstanding.

    This of course doesn't take into account what the VC/PE investors have in their contracts, such as 2x preferred preference, additional excerisable warrants that convert to common, but that shouldn't come into play here, I would guess.

    I don't charge for my services.

    Mr. #1 MBA school in the U.S.

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  28. if you had to get an MBA to spout that off, you might want to call the University of Phoenix back and see about a refund...that is entry level finance you blowhard....

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  29. There is a Business Model common to All Spine Companies:

    "Dead Presidents"

    MBA from the Streets

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  30. Alex should just stick to investing in broadway musicals as that will allow him to continue to tap dance on stage all he wants,, clearly his dancing skills need work as witnessed during last week's earnings call.

    The bottom line is that the forecasts & guidance were troubled long ago as Nuvasive does not have the horses in the field to continue to grow the traditional fusion business at the rate it needs to in order to deliver those #s,,, with many of the best reps & managers leaving, it leaves a very, very green sales force in many markets,, one that is clearly not prepared to sell against the likes of Medtronic, DePuy, Synthes, etc. XLIF continues to be the fuel that drives this company and with it's growth slowed significantly over the last few qtrs. for a variety of reasons, the impact was clearly felt last week.

    They can launch all the new products they want into the thoracic spine, corpectomy, deformity, TDRs, etc,, but if your folks can't sell them,, who really cares??

    Bottom line, $1B in revenue is a long, LONG way off for this company.

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  31. Anon 12:19 you summed it up right. NUVA is not dead, but reaching earlier forecasts seems challenging now.

    But I did love the blow hard stock market lesson. I better get my cash out of jars buried in the backyard and do some market research.

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  32. I was shocked to hear that 80% of NUVA's revenues come from XLIF/Neurovision. They let that slip in the conference call. Wow! Talk about putting all your eggs in one basket. Now you can see how exposed they really are.

    They should use their cash hoard to buy some diversifying technologies before the Neurovision/MAS party's over.

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  33. 2:27

    Are you retarded? They didn't let that "slip". Patrick Williams has acknowledged that 80% figure for years. You just exposed yourself as a total n00b in the industry.

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  34. Zimmer Spine is a trainwreck . . . I can't imagine Warsaw pulling the trigger on a $1B+ acquisition when EVERYTHING Zimmer has done in Spine has turned to crap or is fast approaching crap status.

    They wrote down the Abbott purchase $70M earlier this year (maybe one of our MBAs can explain that in more detail), sales continue to decline each quarter (this means their already small marketshare is quickly declining), and you could hear the disgust in the analyst call last week.

    I wouldn't be surprised if Dvorak unloads this boat anchor franchise and shift Z's focus to pure play Orthopedics. Dvorak may have to do this to save his job.

    BTW . . . not only does Spine have offices in Minneapolis and Austin (why did they keep both open?) ... but throw one each in Switzerland and France. That's a lot of real estate for a sub $225M Spine Company.

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  35. Can we get back on target? What is the real future of NUVA? I was, as some have posted, an unabashed BEAR...but now, have softened my scorched-earth policy in favor of a buy-out OR (and admittedly a long shot) does the fact that the GOP control the House and Governorship's mean something more "stabilizing"? Could the purse-strings of the insurance companies be loosened by popular rhetoric? What if Alex gets some sort of temporary-injunction against Globus? What if he releases a PR with the proverbial "exploring alternatives" bait?

    I realize I now sound hypocritical...but, we must consider the "what ifs"...and for sure, the selling has nearly exhausted itself. Is it just dead money now? I am long, but got my finger on the ripcord...the one thing I was always "leary of" was the bravado and nads of NUVA's fearless leader...I personally don't care for him and I'm guessing neither do many in the industry...but, money is money...and Alex could be looking for that "bullet" which trips-up all the shorts to a rip snorting bull blast-off from $24 to $32-$33...burn baby burn.

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  36. people keep saying all the talent in sales has or is leaving NUVA. Where are they going?

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  37. My sources say that NuVa is alive and well. I don't know where the rumor started that people are leaving, but to my knowledge NuVa has rid itself of some field management people that were dead wood. In all likelihood, just hearsay, or some unhappy former employees

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  38. looking for insight, based on product lines how would you rank. NUVA/Globus/K2M/Atec/SeaSpine

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  39. anon 11-3 6PM,

    K2M/Atec/SeaSpine aren't in the same league as Globus and NUVA. All three are sub $150M players lumped in with OFIX and, from all accounts, Zimmer Spine.

    I would have to give NUVA the nod over Globus considering they are public and produce a bigger top line number.

    Seriously ... almost all companies in this space would cut off their left nut for NUVA's top line number. Even if they missed, you can't argue with their growth record or make a case they will not eclipse $500M next year.

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  40. 7:14
    Do you sub for Mr. #1 MBA school in the US when he's busy providing guidance for Tim Geithner? Pay attention!

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  41. "Mr. #1 MBA school in the U.S." - who is this douche?

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  42. Do you people actually think Stryker would even think of spending the money it takes to purchase NUVA with their lateral soon to hit market?

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  43. 7:14 thanks for the response. I meant more in terms of their overall product line not sales numbers. If you had to carry one of their bags based soley on products who would it be?

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  44. Lots to digest here...Mr. #1 MBA and the rest of you blowhards are obviously intelligent about the market and how to value a company, but you are over-complicating things. I am a spine rep so while I may not have the financial grasp or aptitude to match wits with most of you, I do have a feel for exactly what's going on in the field. Fact: Every one of my surgeons is not as busy as they used to be. Couple that with increased competition and whatever impact the economy has on patients' decision to opt for elective surgery... it's going to negatively affect every Spine company out there, including Nuvasive. Furthermore, it has been estimated that somewhere between 10-20% of the US Spine market was comprised from surgeries to treat BACK pain. Those surgeries are not getting approved any longer.

    So with more scrutiny and stricter guidelines from insurance companies, less volume of surgeries overall, more competitive lateral techniques than ever before, more Monitoring companies (often overlooked but NeuroVision is a huge profit driver for Nuvasive, like Printers for HP) it doesn't surprise me they had to scale back their Q4 forecast.

    However, as TSB pointed out, Nuvasive isn't going anywhere, they simply had some inflated numbers and an overzeaolous executive board. Remember, most of these guys built Danek to what it is today. Nuva had a Nice run, but they have finally come back down to earth. To 11/4 7:00 AM - Forget about all the M&A talk and short selling crap above - as a Spine rep, I would choose Nuvasive or Globus, simply because of the innovative products and where they are positioned in the spine market as Minimally invasive industry leaders.

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  45. Enough about Globus on this post & the others,, Globus will never purchase Nuvasive nor vice versa,,
    I've grown tired of hearing how "Globus is preparing to go public",, Oh really? They've ONLY been saying that for 3+ years!!!
    Bottom line is that there are too many surgeon investors & WAY too many surgeons w/ stock in that company via "consultancy arrangements" for it to survive an IPO in this market.

    Can anyone say Alphatec???

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  46. 4:16 - just a word on NUVA lawsuit with Globus. Any injunction against Globus wouldn't help NUVA. Everyone knows that most (if not virtually all) of Globus' surgeon customers have financial ties to Globus (i.e. kickbacks or ownership). If Globus were to lose its lateral system, the Globus surgeons would just revert to Globus TLIFs.

    This same analysis could be used when comparing all the other companies' lateral systems. Every surgeon knows that NUVA is the clear leader in lateral approaches. The honest docs who want to try lateral will use NUVA. The others will use the one from the company which is currently paying them. It's really as simple as that.

    - J. Spamtin

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  47. By the way... all you finance guys... don't get too excited about the market potential for all these lateral approaches. XLIF can't be used for L5-S1 and it is very, very difficult for L4-L5 (probably only a small number of their surgeons can perform it). What's the highest volume fusion level? L5-S1. What's the second highest? L4-L5. Lateral has its place, but don't expect 200,000 procedures per year... Funny how analysts miss this point. Also funny how NUVA management doesn't ever say this...

    -J. Spamtin

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  48. J Spam,, all very valid points, but NUVA has L5-S1 covered w/ their MAS TLIF product which is pretty slick. As for XLIF, don't underestimate its indications & L4-5 isn't that hard to approach,,
    The bigger issue for Nuvasive is that while XLIF was unique and being sold at a premium for quite some time, the competition has brought that to every hospital's attention and they have very quickly responded demanding 20, 30, perhaps even 40% off list as lateral implants from Nuvasive are no longer "unique".

    THAT is where Nuavsive took the biggest hit in its numbers,, not in case volume.

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  49. Alex is behind the back in the "institutional woodshed" right now getting a good ol' over-the-knee spanking. Let's hope (while his trousers are wrapped around his ankles) that "spanking" is all the occurs.

    Ouch!

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  50. Has anyone seen a lateral L5/S1 fusion? Is this a target market for companies as lateral approach spine surgery progresses?

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  51. Lateral surgery is next to impossible at 5-1 due to the Iliac crest. I have seen some preliminary designs and 1-2 surgeon concept ideas of retractors that will allow access to 5-1 laterally, however nothing approved yet.

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  52. Of course the crest is a barrier, but an even bigger issue is the plexus. This is the problem, people posting on lateral surgery that haven't the foggiest idea of what's entailed.

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  53. All you guts are full of it. ATEC is taking over the world!!!

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  54. 10:44, how did you get that impression from the Q3 results? ATEC showed no real growth, and lowered guidance. In case you haven't noticed, spine is experiencing serious headwinds. The belief that a pool of patients is forming who will one day still need surgery, as expressed by Lucky Lukianov, is at least 80% false.

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