|MAGEC spinal bracing and distraction system--Courtesy of Ellipse Technologies|
Spinal surgery specialist NuVasive ($NUVA) announced it will add to its suite of offerings by acquiring Aliso Viejo, CA's Ellipse Technologies for $380 million and $30 million in 2016 revenue-based milestone payments.
It's the first deal under new CEO Greg Lucier. Expect more soon.
"I think it's an exemplary transaction in terms of, in technology focus, in terms of a very attractive financial fit to the company, and one where the integration process, we believe, will be fairly straightforward. And because of those elements, you'll see further acquisitions from NuVasive in the coming months. But I'm not going to talk about which ones you'll be hearing about," he said in a conference call with Wall Street detailing the impending transaction.
Lucier has previously expressed interest in entering the robotic surgery arena.
The initial move will enable the San Diego-based company to treat early onset and idiopathic scoliosis via Ellipse's FDA-cleared MAGnetic External Control (MAGEC) Spinal Bracing and Distraction System.
NuVasive said the technology enables noninvasive postoperative adjustments to the implants, reduces repeat procedures, while providing strong clinical outcomes.
Ellipse had revenues of $40 million in in 2015, compared to $26 million in 2014. It sells its products in the U.S. and 29 other countries, with ex-U.S. sales accounting for 37% of revenues in 2015, down from 45% in 2014. NuVasive anticipates continued growth, and aims for $60 million in revenues by in 2016. The milestone payment will be triggered by an unspecified pro forma revenue goal for 2016, that's "north" of the $60 million goal CFO Quentin Blackford said during the call.
One growth driver will be an indication expansion. In the U.S. MAGEC is cleared for patients under the age of 10, and "the company believes expansion of the indications in the US (to include older patients) is not an onerous task," wrote Jefferies equity analyst Raj Denhoy.
The company said MAGEC has an addressable market of 690,000 annual procedures, worth up to $570 million in global annual revenue.
Meanwhile, Ellipse' slower growing Precice limb lengthening system was responsible for 37% of the company's 2015 revenues. In a conference call following the announcement, NuVasive said Precice represents a $700 million global market opportunity. Leerink equity analyst Richard Newitter wrote in an analyst report that Ellipse's penetration rate in the market currently stands 2%.
Together, both devices have been used to treat more than 5,000 patients worldwide, according to NuVasive. They are used by a narrow group of specialized surgeons, with 250 U.S. surgeons using Precice and 175 using MAGEC, according to Denhoy.
"Ellipse's revolutionary technology, which has been enthusiastically received by surgeons, has the potential to become the standard of care for spine and orthopedic patients. It is in NuVasive's sweet-spot of game-changing innovation, bolstering our leadership in spine and providing new growth opportunities in the U.S. and around the world," said NuVasive CEO Gregory Lucier, in a statement.
"Additionally, this investment expands NuVasive's footprint into new niche markets with highly differentiated technology that--when coupled with our market-making expertise--will be strategically applied in other spine and orthopedic applications, including degenerative spine disease, trauma and knee osteoarthritis procedures," he added.
MAGEC compliments NuVasive's Integrated Global Alignment platform for adult deformity, the company said in a release. Both MAGEC and Precice consist of magnetic rods that can be adjusted during routine outpatient visits via an external remote controller.
NuVasive said it is aiming for a 5-year double-digit return on its investment capital and $5 million in operating cost synergies. It will maintain Ellipse' Design Center of Excellence in Aliso Viejo.
The deal is expected to close by the end of February.
At about $54, NuVasive's share price is up less than $1 since the announcement of the deal to acquire Ellipse.
Ellipse was a planning an IPO on the Nasdaq, reports Renaissance Capital.
- read the release
Special Report: Top 10 med tech market movers in 2014 - NuVasive
Editor's Note: This article has been updated with more information from equity analysts at Leerink and Jefferies, as well as a NuVasive conference call with Wall Street analysts.