It’s Official! LDR Files Papers to Go Public

Could LDR Spine be ringing the NASDAQ bell soon?

Austin, Texas-based LDR Holding Corporation, that reported $90 million in product sales for the year ending December, 2012, filed documents with the Securities and Exchange Commission (SEC) on August 26, 2013 to sell shares of its company to the general public.

The new stock issue is being underwritten by three regional brokerage firms; Piper, Jaffray & Hopwood; William Blair; and Bryan, Garnier & Co.

If successful, the underwriting would make LDR the 5th pure play spine company trading in the public markets after NuVasive, Inc., Baxano Surgical, Inc., Globus Medical, Inc. and Alphatec Holdings, Inc..

Spine Company Performance

Overall, LDR is the 11th largest spine company with approximately a 1% share of the worldwide market for spinal implants and instruments. The following table lists all public spinal implant suppliers and their respective sales levels.

While spinal implant and instrumentation sales industry-wide have been stuck in neutral since 2011, LDR has doubled in size between 2010 and 2012. To be sure, LDR’s sales growth came off a comparatively low base. In 2012, for instance, the company added $13 million of incremental sales (from $78 million in 2011 to $91 million in 2012). By comparison, Globus Medical and NuVasive, the two fastest growing spinal implant suppliers, added $54 million and $44 million respectively in the same 12-month period.

The key to Globus’ and NuVasive’s strong performances has been robust new product introductions as well as a steady investment in marketing and distribution.

LDR is off to good start in this regard with last month’s (August 2013) FDA premarket approval of the company’s Mobi-C cervical artificial disc, the first for two-level indications.

Stock Market’s Take

Investors, generally, seem reasonably well disposed to spinal implant manufacturers. Despite negative press and ever more restrictive payers, investors like this industry’s strong gross profit margins and the, still, strong underlying demographic pull. Globus Medical, in particular, is showing investors what might possible in terms of return on equity.

In the last three months, Globus Medical has been the best performing, pure play spinal implant stock in the stock market followed by NuVasive, then Alphatec and then by Baxano (see chart below). Globus’ shareholders are up about 18% since mid-June. NuVasive’s shareholders are up about 8% and Alphatec’s owners are bouncing around breakeven. And for reasons that are unique to Baxano, those shareholders are underwater by about 10%.

Since June, Globus and NuVasive delivered the best sales and earnings performance of the public spine companies and the market appears to be valuing both companies accordingly.

If the chart above has any lessons for LDR it is that the market will price their equity based on sales and earnings performance—not because they sell spinal implants. There was a time when spinal implant companies benefitted from a kind of investor halo effect. No longer. When it comes to spine, investors are asking for basic sales and earnings growth.

Compared to Other Pure Play Spine Companies

*Includes admin expenses
Source: Robin Young Consulting

Compared to other pure play public spine companies, LDR has the highest gross profit margin. There can be many reasons for this (pricing, lower cost of production, etc.) but the end result is that LDR has more money available for R&D, selling and marketing and administrative expenses.

LDR spends about 57% of its sales dollars on selling and marketing. While this may seem high, it actually reflects the state of the spine business these days. As Baxano’s numbers illustrate, in today’s hyper competitive spine market, the ante in amount for playing with the big boys is north of $30 million per year. So, for LDR, that spent $52 million in 2012 on sales and marketing, the percentages going forward will likely stay high.

LDR’s Key Product Platforms

LDR has two primary product platforms:

• VerteBRIDGE, which allows surgeons to fuse the spine without screws or external plates. It can be, therefore, a zero-profile construct. It also is designed to be implanted with a minimally invasive surgical technique. The VerteBRIDGE products are poly-ether-ether-ketone, or PEEK, polymers and fit for one- or two-level cervical and lumbar fusion with or without supplemental fixation. The VerteBRIDGE products are brand named ROI-C, ROI-A, ROI-A Oblique and Avenue L.
• Mobi non-fusion. The highlight of the platform is LDR’s recently approved Mobi-C cervical disc replacement. Mobi-C endplates have short, lateral, inclined teeth for stability and fixation. The endplates are titanium plasma sprayed and coated with hydroxyapatite. Mobi-C’s mobile bearing core moves within the prosthesis as the neck bends and twists and can minimize stresses in the implant-to-bone interface. One of Mobi-C’s key features is its ability to be adjusted, removed or repositioned intra-operatively. LDR will be selling Mobi-C for treatment of symptomatic cervical disc disease with radiculopathy or myelopathy at one or two contiguous levels.

Use of Proceeds

The LDR team plans to use any dollars raised as follows:

• $4-6 million to launch Mobi-C in the U.S. market
• $10-15 million to expand U.S. and international sales and marketing
• $10 million to repay outstanding debt

Management also disclosed in its SEC filings that it would like to use up to $17.5 million to pay holders of Series C preferred stock in exchange for agreeing to vote in favor of the conversion of their preferred stock to common stock. But, management said, it may try to pay the Series C holders from debt—not equity—proceeds.

LDR’s main lender is Escalate Capital Partners and they have about $10 million outstanding currently at a 13.2% rate of interest.

Finally, management reserved the right to use proceeds to acquire and invest in complimentary products although they have no particular transactions in mind.

The French Connection

With this IPO (initial public offering), LDR joins two other spinal implant companies with foreign born CEOs. Maybe its mere coincidence, but three-fifths of the CEOs of pure play public spine companies were born outside the U.S. Les Cross, CEO of Alphatec is Australian. David Paul, founder and CEO of Globus Medical is from India. And LDR’s Founder, CEO and President Christophe Lavigne is French.

In LDR’s case, the fact that Lavigne is French has a bearing on LDR’s product development culture. In fact, Lavigne has tapped into France’s long, long history of medical product engineering and innovation to give LDR a clear area of differentiation…and strength.

French scientists have contributed significantly to medical technology, generally, and to spine therapies specifically. Most motion preservation implants, PEEK polymer implants and the early dynamic stabilization implants originated in France

Christophe Lavigne, who graduated from IUT Dijon, France, ESARC Paris and the European Business School Federation in Zurich, comes from this tradition.

But France’s contributions go way beyond that.

Here’s a partial list:

A Public LDR

It’s kind of cool that this French transplant (to Austin, Texas!) has chosen to go public. With the FDA approval of Mobi-C and a clearly innovative line of implants, Christophe and his underwriters should be able to get this issue sold successfully (barring, of course, unforeseen market gyrations).

One final item. We have it on excellent authority that Founder and CEO Christophe Lavigne played a hot lead guitar professionally in France. He is, in fact, a French rock ‘n roller. We are hoping that Lavigne, instead of ringing in the NASDAQ bell, would play a lick or two on his well worn guitar.

Saisissez le jour!