NASS Notes From Wall Street’s Top Analysts

Several spine companies held meetings for Wall Street’s analysts at the 2019 North American Spine Society (NASS) annual meeting. NuVasive unveiled its Pulse robotics platform, Globus featured a new integrated imaging platform, JNJ’s Synthes talked robotics and getting back to market growth rates, SeaSpine featured clinical studies and promised accelerating sales growth rates while Zimmer Biomet provided more ROSA details.

Did Wall Street like what they heard? They did.

Here are the details.

Overall Sentiment Is Positive for Spinal Implants, Instruments and, Yes, Robotics

Wells Fargo’s Larry Biegelsen and Shagun Singh told clients, “We came away from our NASS meetings with the view that the overall sentiment around spine is positive. The companies are now operating in a stable to modestly growing spine market with estimated y/y growth of 2-3% in 1H’19. There is a focus around innovation in enabling technologies (imaging, navigation, and robotics or INR), products offering procedural integration (e.g. Pulse), and those to target faster growth sub-segments within spine (e.g. complex spine).”

Cantor’s Craig Bijou came to the same conclusion saying: “Sentiment on the spine market is modestly positive. Spine market growth remains in the low single digits, but most of the industry is happy with the stability seen over the last few quarters, especially in the U.S. after the negative growth two years ago. Volumes appear to be growing and pricing pressure remains negative, but stable. MDT [Medtronic] called out adult deformity as one area of the market that is seeing healthy procedure growth.”

In terms of specific companies, here’s what these top analysts took away from 2019 NASS:

Globus Medical Inc.

Wells Fargo said that Globus (GMED) is extending its technological leadership with a new imaging platform that consolidates O-Arm and C-Arm capabilities.

Cantor’s Bijou noted, specifically, that Globus appears to be moving faster than its competitors in terms of enabling technologies like robotics and imaging. As he wrote to his clients, “GMED showcased the next evolution of its Excelsius, which included its Interbody Solutions platform. The Excelsius interface has a much-more modern look and faster software.” Indeed, said Bijou, “We think GMED took the biggest step forward among its peers, as it launched a software update and showcased a new imaging system that is to be fully integrated with its Excelsius robot.”

Wells Fargo wrote to clients, “The most notable new product featured at NASS 2019, thus far, has been the unveiling of a new imaging platform by GMED that it built in-house. The platform is being targeted for a U.S. launch in mid-2020 and aims to offer a fully integrated INR (imaging, navigation, and robotics) platform to its customers.”

“The new imaging platform will be fully integrated with GMED’s own robotic and navigation system offering a seamless experience to its users as the three systems will have better ability to communicate with each other.”

“The more notable benefit is that the system will consolidate the capabilities of three systems into one by offering CT scans, fluoroscopy and digital radiography. Our surgeon checks suggest that it could lead to material time savings as it takes 20 minutes to cart in an O-Arm for a CT scan that takes 90 seconds.

Wells Fargo did some initial calculations and pegged the incremental market opportunity for Globus at approximately $300MM in incremental sales. Those estimates were based on the following assumptions.

• 3,500 spine centers in the U.S.
• Most have an O-Arm
• Average selling prices (ASPs) of $600-700k
• Replacement every 5-7 years

Globus’s new interbody module for its ExcelsiusGPS was cleared by the FDA in late July and Wall Street took note. Said the Wells Fargo team, “The module seems intuitive to us and allows surgeons to easily switch between pedicle screw placements and cage placements during the procedure. The company has previously noted that they expect all of their customers to upgrade to the interbody module and that they expect to capture incremental value from the roll-out over time. It is worth highlighting that GMED is the leader in expandable cages and 60% of all lumbar cases utilize interbody cages.”

NuVasive, Inc.

NuVasive (NUVA) rolled out its long-awaited Pulse robotic system at NASS this year and Wall Street’s consensus appears to be that it’s a strong offering against the two market leaders, Globus Medical’s ExcelsiusGPS and Medtronic’s Mazor Stealth.

According to the Wells Fargo team, NuVasive’s Pulse platform appears to have been brought in-house from KUKA Robotics—the German manufacturer of industrial robots which is owned at least in part by the Chinese company Midea Group.

Management told Wall Street that the surgeon response and feedback had exceeded their expectations. First-in-man for Pulse is targeted for the second half of 2020 which puts likely commercialization in 2021. Pedicle screw placement will be Pulse’s job #1 and it will integrate with NuVasive’s award winner X360 platform. Bone cutting and retractor management come next.

For the Wells Fargo team, the most differentiating feature of Pulse appeared to be its robotic arm. “We believe that the most differentiated feature of the platform is the robotic arm. It has a broad range of motion featuring 7 axis points versus 6 for ZBH’s [Zimmer Biomet] ROSA and 5 for GMED’s Excelsius.”

“This allows the robot to approach the patients from different angles—posterior, anterior and lateral without having to reposition. We believe this is a differentiated feature even though some of the competitors we spoke with noted that 5-6 axis points are more than sufficient to perform nearly all spine procedures.”

Cantor’s Bijou’s first impressions were positive. He noted that Pulse “appears to be on par with the current systems on the market and may have some incremental improvements, such as its seven-axis arm, which may allow for smoother, faster movement, but could sacrifice some stability and rigidity.”

Bijou also highlighted that Pulse’s set up time is five minutes, which, he said, “is likely faster than other systems on the market.”

Finally, Bijou wrote to his clients that “The Pulse robot may have some incremental improvements over the current systems on the market, but we do not believe that NUVA’s robot has significant differentiation that would cause a hospital to delay a purchase of currently available system. NUVA is currently selling the Pulse system without the robot and the robot could be added on once approved.”

Johnson & Johnson (DePuy Synthes)

JNJ’s entry into the spine robotics assist market is still a year or so away, meantime management emphasized robotics partnerships with Brainlab and TINAVI Medical in China.

Noted the Wells Fargo team, “JNJ is furthering its robotic strategy with partnerships, while working on its own internal solution. Specifically, JNJ has a non-exclusive partnership with Brainlab through which it aims to offer its customer a robotic solution for use with its implants.”

Brainlab’s Cirq has been available in Europe for about a year and should begin shipping in the U.S. later in 2019. Wells Fargo wrote that Cirq “has no footprint on the OR floor, weighs 22lbs and is designed to be clinically versatile with use in cranial, spine and other indications as the end-effector can be swapped out at the wrist.”

Notably, said Wells Fargo, it comes with an ASP of just $200k. “Cirq is being launched with a passive arm and the internal project for the active arm is expected to wrap in the next few months. Brainlab expects the ASP on the active arm to be less than double of the ASP of the passive arm.”

“Cirq is an open platform and could be used with any company’s spinal implants. That said, it will be better integrated with JNJ’s implants and instruments for which commercialization is 16-24 months away.”

Wells Fargo also noted that JNJ had partnered with China’s leading spinal robotic company, TINAVI Medical. JNJ, said Wells Fargo, is the #1 player in China, which is the second largest spine market in the world behind the U.S.

The Wells Fargo analysts estimated that TINAVI’s installed base was about 100 systems in China.

Outside of robotics, JNJ is hoping to get back to a market growth rate on the strength of spine’s faster growing segments like minimally invasive surgery (MIS), complex cervical, deformity and the aging spine. Specifically, SYMPHONY for complex spine should be a key factor in 2020.

SeaSpine Holdings Corporation

Keith Valentine, SeaSpine’s CEO, former president of NuVasive and a thought leader in spine, chose to emphasize an attribute, potentially even a super-power, that he is building into the fabric of SeaSpine (SPNE)—data generally and biologics human data specifically.

As the team from Wells Fargo highlighted in their note to clients, Valentine et al., “highlighted clinical evidence that could drive product adoption and/or premium pricing. In spinal implants, an early sheep study demonstrated statistically significant fusion rates and strength at 6 weeks for NanoMetalene Reef versus standalone NanoMetalene. In orthobiologics, animal studies demonstrated better fusion outcomes with DBMs (demineralized bone matrix) versus DBMs with cells.”

“In fact, their analysis highlighted no benefit of cells.”

This is highly significant, not the least for the fact that Valentine (and yours truly) helped to pioneer the cell plus DBM market at NuVasive. NuVasive, Orthofix and Synthes (the major players in the cell +DBM market) have built it to, say Wells Fargo’s analysts, a $400MM market.

As Wells Fargo wrote in their note to clients, “The [cell + DBM] market has come under scrutiny of late due to its lack of data, cost and rising reimbursement challenges. SeaSpine believes it is uniquely positioned to capture share from CBMs given the market dynamics, its differentiated portfolio, and its ability to leverage in-house manufacturing capabilities.”

After meeting with Valentine and his team, Cantor’s Bijou wrote “SeaSpine’s 2H guidance suggests a modest acceleration in 2H compared to 1H, despite tougher comps. Management feels comfortable with its guidance and believes that as the company moves into 2020 it will be pivoting to become a double-digit top-line growth company.”

Wells Fargo agrees saying, “It is worth noting that consensus estimates are for 8% revenue growth next year, which could prove conservative. This growth should be driven by new product introductions and continued strengthening of the distributor network. SPNE is launching three products in Q4’19 and plans to launch 8 in 1H’2020.”

Zimmer Biomet Holdings, Inc.

Zimmer’s robotics platform, ROSA, is currently available for knee surgery only but, say both management and Wall Street analysts, will be ready for spine surgeons in the first quarter of 2020.

How do Wall Street’s analysts think it stacks up against market leaders Globus and Medtronic?

Wells Fargo’s Biegelsen and Singh, wrote that timelines for ROSA in spine had been pushed back “due to instrument integration and the company’s focus on manufacturing of ROSA TKA (total knee arthroplasty), which is built on the same line as ROSA spine and brain. The instrument integration required software changes to improve workflow and is complete.”

ROSA is made in in Montpellier, France, although Zimmer will eventually be manufacturing the systems, at least in part, in Memphis.

Finally, according to Wells Fargo, Zimmer’s bionic arm offering, WalterLorenz® Surgical Assist Arm, is being well received and, at an ASP of under $100k, a very affordable alternative to other robotic arms.

Other Trends at NASS

Aside from the public company meetings, Cantor’s Bijou picked up on three important trends:

First, the rising importance of spine surgery in the ambulatory surgery (ASC) setting. According to Bijou, “The number of spine procedures performed in the ASC setting continues to increase. We expect the emergence of the new wave of enabling technologies to facilitate more minimally-invasive surgeries, lowering the risk of complications and allowing for those procedures to be done outside of the hospital.”

Second, 3D-printed implants. Bijou certainly noted the hype, but as he wrote to clients, “3D implants have become somewhat ubiquitous across spine, as most of the larger spine companies now have their own implants. The companies are talking up the implants’ unique characteristics, such as porosity or shape, which drives better bony ingrowth, but we are not sure there is a meaningful difference.”

Lastly, Bijou raised the prospect of a renaissance in cervical disc replacement implants. In his view, “The cervical disc market has largely been out of favor since its pinnacle when LDR Spine, maker of the Mobi-C disc, was acquired for $1B by Zimmer Biomet.” But may be ready to come roaring back on the basis of a number of factors specifically:

• “Centinel Spine and Simplify Medical, are both investing or will soon invest in clinical trials.”
• “Centinel Spine acquired the full Pro Disc portfolio from JNJ (NC) in 2017 and expects to start clinical trials with new discs soon.”
• “Simplify Medical has completed four of its six PMA modules and next steps would be to submit for approval for one-level and two-level, likely in 2020.”
• “Additionally, OFIX received approval for its M6 cervical disc (acquired from Spinal Kinetics [private] in 2018) and has recently expanded its launch. MDT has also called out the success of its Prestige LP cervical disc.

As a result, said Bijou, the cervical disc market may be accelerating in 2020 and beyond. For the record, Bijou pegged the U.S. cervical disc market at $200+MM, growing mid to high teens.