The Cheetah Snags Medtronic’s Chris Barry

A need for speed, as epitomized by the Cheetah, has been in NuVasive, Inc.’s DNA since the days of Lukianov, Valentine and Miles.

NuVasive is still moving fast. After a short three and a half years on the job CEO Greg Lucier is stepping down as CEO but staying on as the company’s Board Chair, a post he’s held since 2013.

His replacement will be one of Medtronic plc’s star executives, Chris Barry. More on Barry later.

Period of Change

Some Wall Street analysts were surprised at Lucier’s relatively short tenure. Others, however, noted that executive suite changes have been fairly consistent since former CEO Alex Lukianov left the building in May 2015.

Lucier had a good run as CEO. During his 3½ year CEO tenure, NuVasive’s sales rose more than $300 million annualized and the value of the company jumped 41%.

Wall Street, however, recently described the company’s execution as “uneven” (BMO Capital Market analyst Joanne Wuensch). Lucier, however, said he felt the company was now on even footing and the time was right to look for a successor. The company said it had been searching for Lucier’s successor for several months.

This isn’t the first time the Cheetah (NuVasive) has raided Medtronic’s bench.

In 1999, two years after it was founded, NuVasive recruited Medtronic Sofamor Danek vet Lukianov, along with former Medtronic colleagues Keith Valentine and Pat Miles, to take charge of NuVasive, a sleepy little spine company in a San Diego suburb. It was a transformative decision. The three former Medtronic Sofamor Danek executives turned NuVasive into a $2.7 billion (market value) spine company.

When the trio first arrived at NuVasive 19 years ago, the company had no sales and was losing about $6 million a year. The next year NuVasive sold $52,000 of classic spine fusion products—and lost $14 million.

When Lukianov left in 2015, we reported that the culture that the original team fostered and built was characterized both internally and externally by such catch phrases as “Speed of Innovation,” “Performance Culture” and the image of the Cheetah. It resulted in a remarkable string of truly innovative products and a sales growth trajectory that placed NuVasive well on the way to $1 billion in sales.

Then in 2015, leadership transitions happened at Cheetah speed. Following Lukianov’s departure, Valentine left, also in 2015, to take over Integra LifeSciences Holdings Corporation spin-off, SeaSpine Holdings, Inc.

Approximately two years later, Pat Miles abruptly left NuVasive to join another Carlsbad, California, spinal implant manufacturer and NuVasive competitor, Alphatec Holdings, Inc. That departure is still being litigated between Miles and NuVasive.

The company went through more significant management changes last year when former chief operating officer Jason Hannon left the company after 12 years to “pursue other interests.” Hannon’s departure was announced the same day as that of former CFO Quentin Blackford, who left to pursue an opportunity outside of the spine industry.

Also, in conjunction with Hannon’s departure, NuVasive reorganized its operating structure in an effort to improve product development and commercialization, integrate its U.S. and international sales, and drive operational efficiencies.

In addition to announcing Barry’s move to NuVasive, the company also announced that Matt Link, currently executive vice president, Strategy, Technology and Corporate Development, is being promoted to president. Link joined NuVasive in 2006. There was also the announcement of the resignation of Skip Kiil, Executive Vice President, Global Commercial.

Whew.

The State of NuVasive

Last year, NuVasive posted sales of $1.03 billion, up 7% from the prior year and its profit more than doubled to $83 million.

With those revenues and a presence in more than 40 countries, NuVasive is one of the largest spine companies not attached to one of the five orthopedic giants (Medtronic, Zimmer Biomet, DePuy Synthes, Stryker or Smith & Nephew.) While there has been a lot of consolidation among spine companies, speculation has never abated over who will try to acquire or merge with NuVasive.

“While the announcement likely reduces the likelihood that the company is an acquisition target in the near term,” wrote Wuensch on the day of the announcement, she added that it is “beneficial for NuVasive to bring in an outsider to improve its execution.”

Barry and Robots

Specifically, Wuensch noted that Barry led the development of Medtronic’s minimally invasive surgical robot, which is expected to be launched sometime in the next year. She said his work in surgical robotics should be valuable to the spine market, where surgical intelligence, navigation, and spine robotics are becoming increasingly popular.

She also pointed out that NuVasive launched its own surgical intelligence platform Pulse in September at North American Spine Society’s (NASS) 2018 annual meeting, and is developing internally its own robotic arm.

Wall Street’s Analysis

Wuensch was not surprised by the announcement because while the company’s stock price grew quickly, the company’s execution, “was uneven, as the company went through stages of commercial and manufacturing issues while struggling at times to portray its message to the Street. Bringing in an outsider should provide fresh eyes on the company’s development.”

But the news came as a surprise to Cantor Fitzgerald analyst, Craig Bijou. He wrote that the company was beginning to execute on Lucier’s strategic plan, following a strong 2018 second quarter and the showcasing of the company’s surgical intelligence platform at NASS.

In a report to institutional investors, Bijou wrote that he sees long-term benefit of “new blood” but thinks the timing of the change “raises questions” about the company’s business in the short-term.

Larry Biegelsen and the analysts at Well Fargo Securities, said the news was not a surprise to his team as they thought Lucier, “may have been looking for an exit himself.”

They spoke to Medtronic executives on the morning of NuVasive’s announcement. Those execs told them that Barry’s departure from the company was not related to the state of Medtronic’s Surgical Innovations business, but rather an opportunity that was presented to him to serve as a public company CEO. They also told Biegelsen that Bob White will take over Barry’s role in the interim. Medtronic will look for a permanent replacement.

Another analyst reportedly noted that that the CEO transition comes after a thorough and lengthy sale process that didn’t result in a buyer, which Biegelsen believes was the case.

In addition to the stock performance, the Wells Fargo analysts said Lucier had made “notable progress” in the company’s transition from an “implant-only company to a systems-based implant company with Pulse and manufacturing transition with West Carrollton.”

But the analysts warn of possible “near-term” disruption because of “numerous” leadership changes at NuVasive over the past few years. “It is likely that these leadership transitions, especially on the sales side could lead to near-term disruption as spine is a very relationship focused business.”

Needham & Company analyst Mike Matson said he was “surprised” by the announcement because of Lucier’s relatively short tenure. He observed that given Barry’s and Link’s experiences in M&A there could be “an increased focus on larger M&A opportunities (NuVasive completed two small tuck-ins in 2017 but nothing in 2018).”

Chris Barry

Barry is leaving his current job as Medtronic plc’s senior vice president and president of Surgical Innovations, the second-largest business unit of the company with $5.5 billion in annual revenue. Before joining Medtronic in 2015 he spent 15 years at Covidien plc, which Medtronic acquired in 2015.

At Covidien, Barry had various sales and leadership roles, most recently as president, Advanced Surgical Technologies, from October 2013 to January 2015. He received a Bachelor of Science in Environmental Science from Texas Tech University.

Lucier highlighted Barry’s, “stellar reputation for driving employee engagement and operational excellence” and said his leadership will benefit NuVasive’s surgeon partners, employees, and shareholders.

“As a board member and shareholder, I have every confidence in Chris’s ability to take NuVasive to its next level of growth,” Lucier said.

Matt Link

Link was NuVasive’s executive vice president, Strategy, Technology and Corporate Development, since August 2017. Before that he was president, U.S. Commercial, from July 2015 to August 2017, president, U.S. Sales and Service, from January 2015 to July 2015, executive vice president of U.S. Sales, from January 2013 to January 2015, and senior vice president of Sales for the U.S. Eastern region, from January 2012 to December 2012.

He joined NuVasive in 2006 with more than 15 years of experience in the healthcare industry, including holding several regional sales positions with DePuy Orthopedics and DePuy Spine. Link received a BSEd in Physical Education and Sports Medicine from the University of Virginia.

Employment Agreements

According to the SEC filing, Barry will be paid an initial base salary of $800,000 per year and receive a long-term incentive award of $4.5 million to replace the incentives he’s leaving behind at Medtronic.

Link will have a base salary of $500,000 per year and receive a $2.5 million incentive award.

Lucier will provide consulting services to the company from December 1, 2018 through May 31, 2020 and receive compensation of $600,000 for 2019 and $125,000 for 2020.

There have been a lot of changes since Lukianov, Valentine and Miles left the company. But the company has continued to grow sales and expand its armamentarium for spine surgeons and hospital administrators. A new leader with Barry’s experience in robotics and advanced surgical technologies continues a swift culture shift at the company which might even impress a Cheetah.