NuVasive surprises analysts with sooner-than-expected spine surgery sales rebound

Dive Brief:

NuVasive looks set to outperform analyst expectations in the second quarter, adding to evidence of a faster-than-predicted recovery in the medtech sector from COVID-19. In preliminary results shared Monday, spine technology company NuVasive estimated second quarter sales totaled between $202 million and $205 million, following analyst expectations of around $152 million.
The results are better than a mid-quarter update from NuVasive predicted, leading analysts at Needham to calculate that the company may have achieved double-digit growth in June.
Still, the pandemic has done damage. In addition to a 30% year-over-year sales drop, NuVasive reported $20 million to $25 million in charges related to the impact of the outbreak on its inventory and accounts receivable. The company expects the combination of falling sales and the charges to result in an operating loss of $35 million to $40 million.

Dive Insight:

As a spine surgery specialist, NuVasive is highly vulnerable to the deferral of elective procedures. A slowdown in spine surgeries began in March, causing NuVasive's sales to fall 5% in the first quarter and prompting the company to brace investors for further declines in the second and third quarters. At that time, NuVasive CFO Matt Harbaugh said it would be “dangerous” to extrapolate early signs of a recovery seen in April out to May and June.

Nonetheless, NuVasive shared an update early last month revealing that case volumes fell 70% in April but began to rebound in early May and accelerated throughout the rest of the month. The turnaround led the company to predict second quarter sales would fall less than 45%, provided performance in June was stable.

On Monday, NuVasive shared preliminary quarterly results that suggest June may have been better than stable. Sales for the second quarter as a whole were down around 30%, based on the preliminary figures.

In an analysis that takes in NuVasive’s comment about a 70% decline in April and targeted 45% drop for the quarter if June was stable, the Needham analysts calculate that sales actually increased 13% last month. If accurate, the analysts think the finding shows “the procedural backlog is now driving above-normal revenue growth.” However, SVB Leerink analysts calculate sales were down around 10% in June.

Regardless, the cadence of the recovery is in keeping with comments from other medtech companies including Johnson & Johnson and Philips that have shared second quarter results. There is also evidence that NuVasive could be slightly outperforming rivals; sales at J&J’s spine unit fell 36% in the second quarter, compared to a 30% decline at NuVasive.

The company will release a fuller look at how it performed in the second quarter, and potentially share an assessment of third quarter trends, when it posts its final results after market close on Aug. 4.

Based on what NuVasive said Monday, some analysts expect the company to report continued momentum. “For a management team that is known to be very careful in their language/word choice, we think the positive tenor of this commentary could suggest at least some of the improving momentum seen throughout 2Q may be carrying over into July,” analysts at SVB Leerink wrote in a note to investors following the pre-release Monday.