NuVasive Beats Expectations but Subpoena Gets Attention

NuVasive, Inc. reported higher than expected second quarter revenue on July 30, 2013. But a disclosure that the Office of Inspector General (OIG) of the Department of Health and Human Services issued a subpoena in connection with a probe of false Medicare and Medicaid claims put a temporary halt to the company’s “Onward and Upward” mantra as the company’s stock dropped around 15% the next day.

Revenue Up 7%

It didn’t matter that total revenue for the quarter was up over 7% to $165.7 million, $ 3.8 million above Piper Jaffray analyst Matt Miksic’s estimate.

U.S. core fusion revenue of $118.1 million was $6.3 million above his estimate. Sales outside the U.S. (OUS) of approximately $16.5 million and U.S. biologics sales of $21.9 million came in slightly below estimates.

Company Chairman and CEO Alex Lukianov,   said, “Results in the first half of 2013 demonstrate solid execution against a multi-year plan, and give us increased confidence in our ability to execute to the full year guidance we have outlined.”

Miksic said he viewed second quarter operating performance as encouraging and slightly ahead of his expectations. “Importantly, management also came through on its commitment to drive improving margins on an apples-to-apples basis, coming in around 15.7% on an adjusted basis compared to expectations of around 14%. While the near-term market reaction to the subpoena is likely to be abrupt, we believe the long-term impact will be less severe.”

Subpoena and Device Tax

But analysts wanted to talk about the subpoena.

“As you know, Lukianov told analysts, “OIG subpoenas have been fairly common in med tech and in our industry. Audits and investigations have been increasingly common, as demonstrated by recent press related to investigations of physician-owned distributorships, potential off-label marketing of devices and many other topics. We have an exceptionally strong internal compliance team who have built, managed and overseen all of our compliance programs. We expect to work through this process over the coming quarters.”

Lukianov was asked if there are any particular parts of the business being investigated, asking about monitoring in particular. Lukianov added that the subpoena is a very broad document request, “focused on interbody with regard to Quadrant and biologics, both Osteocel and FormaGraft, but it’s very broad.”

The company also reported that it only expects to pay rough $5 million for the medical device tax, down from the previously expected $9.5 million. The company also booked approximately $840, 000 in tax credits the first half of the year.

Spine Market and Reimbursement

Then analysts got around to talking about Lukianov’s favorite subject—the spine market.

“The market just feels stable. I wouldn’t say that the market is dramatically improving. It feels stable. For us, it’s really market share gains, I think as a result of all the segments that we’ve done well in. Obviously, especially lumbar and cervical. I wouldn’t really say that there’s a huge difference in the marketplace. As we’ve talked with regard to reimbursement, there is less negative buzz on reimbursement. I think that it’s been appropriately consumed by the surgeons. Not to say that there isn’t ongoing pressure, there is, but it seems to be less a topic of conversation with the surgeons of late.”