wjsco

Go baby, go!

I think, at the least, excl working capital, theyre cash flow neutral. the asset's great though. they have like $10m or something of corporate costs that use cash flow, and they also pay about $30m in interest per year. So, at cash flow breakeven, at the trough of the cycle, those assets are still generating $40m unlevered FCF. I think spreads are going to expand, potentially rapidly. On the pricing side, that directionally follows LME, which is up alot and rising. On the cost of scrap side, steel prices are jumping. but used/scrap car values have still been on the decline (LKQ and FENX have the info on this). Eventually, high prices for finished steel will drive scrap steel prices higher, and you'll have more people scrapping their old cars. Now, each car has alot of scrap aluminum, too (just not nearly as much as steel). So as the supply of scrap steel increases, so does the supply for scrap aluminum, which means scrap aluminum prices decrease. And China's buying of scrap aluminum has declined alot. So spread outlook seems to be constructive. the other thing is that volumes have been declining forever. It's just a little bit every year, but it does add up, and these things have high fixed costs. I'm not sure what the catalyst for higher volumes will be, or if it will ever happen, but if it does, the contribution margin from additional volumes is high. i sold this when brouchard was forced out, because he was basically the thesis, and it seems like he was doing his job exceptionally well in that he wouldnt overpay for a target, even if that meant sitting on his laurels. so the board disagreed, which means what? they just want to make another acquisition? that was what frightened me. but also, assets can be sells at one price and buys at another, and this thing has declined from like $7 to $2.5...i'm fairly confident that's called an overshoot

I think the point here is recourse vs non-recourse obligations. Fulghum Fibers and NEWP were bought for $35m and $8m or so, and FF has $39m in debt and NEWP has $16m in debt. They probably wont see proceeds from selling the two FF mills, as the FF debt is probably secured by those mills. am i wrong here? But, both of those loans are to their subsidiaries, and are secured by their subsidiaries' assets. They aren't recourse to RTK. So, write them off - make them worth zero. For the Drax contract...they do have $30m in exposure at the corporate level. But also, the investment in Wawa didn't go to waste, they just dont have enough cash to finish the project. But an acquirer would have that cash. If you can sell the Wawa facility to someone who can finish it up, they would probably opt in to the take/pay contract if given the opportunity. Additionally, of the $30m exposure, $20m of that exposure expires in mid 2018. And, they only have to make payments if Draxx's new source of pellets is more expensive than Wawa was going to be. They basically have $42.5m cash ($39m + $3.5m from Kaidi in late 2016), $52m in GSO debt, the Wawa facility and it's take/pay contract, and 7.1 UAN units. Even if they sell the other subsidiaries instead of letting them fold, as mentioned, those subs have more debt than they bought them for. So I don't think much, if anything, will accrue to equity from the sales. maybe im wrong, but i just don't understand how there's any value for equity holders in either of those subs. $10m in net debt (42.5m cash, 52m debt). And then you have Wawa + take/pay. The equipment and machinery they've put into Wawa really is worth something. That's a real asset that someone would buy. Idk exactly how much they spent on it. But, let's lowball it and say they sell the plant for $10m. If they offload the take/pay exposure with the plant, you're left with zero net debt and zero liability under take or pay. You also have given up Wawa, FF, and NEWP. All you have left is 7.1m units of UAN. At $5, that's worth $35m, or 75% upside from here. But those units used to be worth $25-30. Not saying it's going back there. But could easily be $10-15, especially if Trump removes all the coal regulations, which would probably have a major impact on UAN's earnings. At $10, the UAN shares are worth $70m, or ~$3 per RTK share...250% upside or so? At $15, UAN shares are worth $105m, ~$4.5/sh, or 400% upside. It's basically a way to get UAN shares for 40-50% discount to market, which is great, esp if market is undervaluing the company. What if RTK has to pay the full $30m contract exposure to Draxx? Let's say we decide UAN shares are worth $7 each, or ~$50m. Even if they pay the full $30m to Drax, which i don't think will happen, the remaining proceeds = $20m, which is today's mkt cap. If an appropriate price for UAN is $10, so $10*7=$70m, and they pay the full exposure of $30m, the remaining proceeds are worth $40m, or double today's current price. So, basically no margin of safety if UAN's intrinsic value is $7/sh. If it's intrinsic value is $10, your RTK units would be worth $40m, which is a double (and provides a margin of safety). Interestingly, if UAN goes to $10 from $5, that's also a double. So, if RTK owes the full $30m to Draxx, there's no benefit of buying RTK instead of UAN if UAN is worth $10 or less. If UAN moved from $5 to $15, though, and you owned UAN, you'd make +200%. But if you own RTK, you'd get $15*7=$105m/, or a $425% return. So, in the scenario where RTK owes the full $30m to Draxx, UAN and RTK would both return 100% if UAN were to rise to $10. But after $10, the return trajectories differ dramatically. Now, if they only owe $15m to Draxx, or $0, the return trajectories will diverge at a lower price point. So, if RTK owes $15m instead of $30m, maybe the trajectories diverge when UAN is at $7.50. And lastly, if they don't owe anything to Draxx, then the return trajectories will diverge from the outset. To explain this, imagine they have $0 exposure to Draxx bc they sell the contract with Wawa to some buyer. Since they have no net debt (Wawa proceeds repay the $10m remaining net debt), you get $35m of UAN units for $20m. You basically get to buy UAN at a 45% discount to market price..let's say the UAN market price is $5, and you can buy it for $3.00 through RTK. If mkt price moves to $10, that's a 230% return for RTK and only 100% for UAN. And this effect becomes more pronounced the higher those unit prices go. To bring this full circle, if they do owe the $30m to Draxx, 130% of that 230% return (when UAN=$10) will go towards paying the $30m to Draxx, which is why RTK and UAN would both return 100% if UAN moved from $5 to $10. I think they key is to just come up with a normalized earnings power / valuation for UAN. If it's worth at least $10, then buy RTK (and not UAN), because 1) it doesn't matter if RTK owes the full exposure to Draxx if UAN shares are worth $10 each, because you can pay the $30m and still be left with $40m worth of UAN units and 2) returns from owning RTK will be higher when UAN is over $10. And there's upside embedded, in case they a) sell Wawa for more than $10m, or b) owe less than $30m to Draxx.

It doesn't look interesting @ $28 because you only valued it based on a understated NAV. Consider these two points: Management's bonus is setup to incentivized a fast liquidation but at the highest price possible. Flowerfield is being rezoned. There is a optionality in this stock with little downside. If anyone knows a better stock with such characteristics please let me know b/c right now i'm hard pressed on good ideas. So basically, when Stony Brook took the property for $25m, they valued it according to it's "light industrial" zoning designation. But, commercial real estate can be valued on "highest possible use," and GYRO argued that the property could and would be re-zoned, which would make it worth much more. To me, it looks like the courts watched Stony Brook try to rip off this little company, and they were not impressed. the courts imposed what, a 9.5% interest rate as a penalty? Just a bloodbath. But it's interesting because it was the optionality of re-zoning the property from light industrial to this other, better zoning designation that led the courts to agree that $125m was the correct valuation, not $25m like Stony Brook paid. And then GYRO got interest on top of that difference. But the point is, the property's valuation increased by a factor of 5 under the different zoning regime. Currently, the NAV of the flowerfields property is recorded as its value under it's historical zoning designation, e.g., because they haven't gotten the new zoning yet. The implication being, if they re-zone the property, it will be worth orders of magniture higher than its current carrying value. I don't know if it will go up by 5x, but in order for the courts to agree on a $125m valuation as opposed to an appraised $25m valuation...it's pretty clear that re-zoning is going to have a substantial impact on valuation of that real estate. Second, on Cortlandt Manor - the town of Cortlandt just approved a Medical-oriented District (MOD) designation for GYRO's properties. And, a rehab facility company filed a lawsuit bc the town council put a temporary injunction on it's development of a site while the council evaluated this MOD concept. I think the rehab co was able to build the facility where it wanted to, but the implication was that future medical buildings would be forced to purchase from this particular area, or would be incentivized to, etc. And I've also been reading about an insane HC infrastructure build in Westchester Country over the past few years. So that would seem to be really well positioned. The asset value of these properties are also pre-MOD approval and pre-re-zoning (again, don't think they've actually re-zoned them yet). And finally, the Grove is going to be a giant development. And Minto or whatever started breaking ground on the big road in sept of 2016. And they're going to start developing and selling houses in 2017, and as a 10% owner of the Grove LP, you'll participate in whatever the earnings are from selling plots of land. and this is carried at $0 on their balance sheet. and they're going to complete their liquidation by YE2018, which probably includes selling this interest back to the other Grove LPs or GP, etc. There are restrictions on how they can dispose of the asset, but I think it does have value and that they will monetize it...they even mention that distribution would start in 2017 - disclaimed with "if they happen," of course. So basically all 3 of their major investments are recorded at discounts to their ultimate realizable value, and for each one i can point you to the reason why they're discounted and where that extra value is going to come from. if there's $10-15m upside btwn the 3 assets, and there could be more for sure, that's 17%-26% CAGR, if it takes until the end of 2018 to play out (1.75 yrs from now). If there's more upside in the asset values, or if theyre able to liquidate before YE 2018, that CAGR goes up. And, importantly, those returns should largely be totally uncorrelated to today's pretty whacky market, and are also tax efficient.

Alrighty, learned alot more but won't waste your guys' time with everything...4 somewhat quick things: 1) Go to the March 2013 investor presentation from GreatBatch - I think there's two, go to the first one (accompanied by a transcript). The presentation is mostly about Algovita, and lays out basically all of the information. Also, the transcript posted there is very very good - it's a transcript of Scott Drees explaining the stuff. To get to presentations, go to the "News" section, and "Presentations" is a tab at the top. 2) Their webcast for the Leerink investor conference, which happened yesterday. Watch it. Minute 9:30 to minute 11 is key. Okay guys, ready for this? "Our trial success rate is 85%." this is insane, everybody. He mentioned that at ANS, they never got close to 85% conversion. Also, I've found sources that say the conversion rate from trials to perm on an industry wide basis is only 60%. So, they've just managed to expand the market by 40%. If I could communicate one thing from all of my posts, it would be that in their clinical trial, the conversion rate from trial implant to permanent implant is 85%. After they talk about the 85% success rate, he talks about pain mitigation effectiveness scores in permanent implants. He says that they were "spectacular," to the point where they are surprised themselves. The guys who made it are surprised. 3) The literature based PMA approval is normal. There's alot of history to this going back to ANS in the years 2000-2001. But basically, NVTR got a literature based approval - so did ANS (now st jude) and so did Advanced bionics (now boston scientific). Because the target population, the mechanism of action, how the device works, and the stim output characteristics for ANS/advanced bionics/NVTR are similar or the same as Medtronic's device, they were able to use a meta analysis of prior clinical trials to satisfy the clinical trial requirements for PMA. But, before they could take this approach, they had to satisfy one other criteria, i think. i haven't confirmed the info that follows, but i basically put different pieces of the puzzle together to figure this out. First, and i found this in one of GB's 10ks, GB has a "master file" with the FDA that contains all of the safety and effectiveness information on all of thier components that are used in implantable devices. Having the master file for the components wasnt enough, though - you need a master file for whole devices. So, in the year 2000, to satisfy that requirement, ANS bought HDI. HDI was a low volume mfr of implantable med devices with self-contained batteries (e.g., not the RF kind), exactly like CCC. So, HDI had the device master file at the FDA. Using HDI's master file for the safety of the device, and bc ANS's device was substantially similar to MDTs, they were able to get PMA approval without doing clinical trials. Greatbatch/NVTR did the same thing in 2014. They needed a company who had a master file for devices at the FDA. So, they bought CCC. Advanced Bionics was a similar situation, except they didn't have to buy a company with a master file. Advanced Bionics made cochlear implants, which are similar to SCS devices and pacemakers. So Advanced Bionics was able to use the master file for their cochlear implant, along with the clinical trial meta analysis, to also get PMA approval without clinical trials. Nevro had to do clinical trials because the stim output charactertistics weren't the same as existing devices - they went up to 10000 hz. 4) I looked into what the next gen of Algovita could look like. Go to CCC's website, and look through their product section. their IPG has ports for an accelerometer, and also have the ability to go up to 5000 hz (per the website). They have the ability to go to 10k hz, bc they manufacture IPGs for Nevro, but that might be patent protected. So, accelerometer means that the device will change programming settings automatically depending on whether the pt is standing, siting, or lying down (b/c, when you switch postures, the strength of the stim increases/decreases). currently, if a pt lies down, theyll manually switch to the "lie down" setting, which is a lower power setting. With accelerometer, the device will do this itself. HF, idk if they'll be able to go up to 10kz in generation 2, but they should be able to go up to at least 5k hz. and definitely 10khz once patent expires (if the patent is indeed limiting them from implementing this). And then, as previously indicated, mgmt said that theyre going for MRI compatibility asap. And this should be relatively easy for them - I think their device already is MRI compatible, or very close to it, and they just need to go through the approval process. They designed the device to be MRI compatible, but didn;t request that approval. The reason they didn't include accelerometer, MRI compatibility, or HF in their original PMA application was bc, in order to do literature-based approval, the function and output charactertistics of the device have to be similar to what's already out there and similar to the devices used in the clinical trials meta analysis. So they basically just did the basic features for generation 1 to get the approval, and generation 2 should have some of these other bells and whistles. Remember: 85% conversion rate

January 17 presentation on their website is pretty good

ritchie brothers generates float - used equipment auctioneer. it's not a ton, but they collect cash from auction winners well before they pay it out to auction sellers, so working capital is a cash source instead of cash drain.

Last post - one additional nifty thing about Algovita, and then addressing some recent issues. In essence, the device information and programming settings, etc for other products are stored on the clinician programmer. So, the patient basically has to see that same clinician in order to have any settings changed, b/c they aren't stored on their implanted device. Algovita, though, does store that information on the device. So if youre traveling or something and can't get back to your normal physician, but need something done, you can go to any doctor's office that has the algovita programmer and, with the information stored on your device, they can help you. it wouldn't make sense for me to not address a couple of recent snags. First, as mentioned, the hospital and GPO approvals. Second, they've had two minor "recalls" to-date. It kinda sounds alarming on the face of it, but the fact that the company is still so early in the commercialization phase, combined with the nature of the recalls, has me thinking that they just might be a couple of kinks, rather than a trend. First, they had to recall the external programmer. In a couple of cases, when the IPG was given programming instructions, it would disable the recharge ability of the battery (software bug, I think). This has been fixed. Second, there were two instances where a wire was emerging from the outer tube of the lead body (where the body connects to the lead tip), and this was noticed before surgery when the doctor took the body out of its packaging. I don't think this issue would have ever been able to cause a patient harm or anything like that - i dont think the doctor would have even been able to attach the lead tip to the body in those two cases (because the wire was emerging at the connection point between the two). And once the connection is made between the body and tip, that wouldn't be an issue. Still, you don't want that, and it was probably outside of their manufacturing parameters, so they recalled the lead bodies. But I believe Scott Drees indicated that they'd identified and fixed this problem, too...I'll double check.

There's a couple of random things that i just wanted to add, not really any rhyme or reason, but i think it helps to keep painting the picture. 1) Their electrodes have triphase capability instead of biphase, which means neutral is a setting in addition to positive and negative. Allows them to deactivate un-needed electrodes, which can be switched on by the patient as their pain migrates (e.g., patient can change which of the 12 electrodes are activated at any one time by switching between pre-set programs). 2) I believe they're getting their FDA approval for MRI compatibility in the next 6 months. I think it was an earnings call, Drees mentioned that their Neuronexus thinfilm leads don't use ferrous metals, which made the path to MRI compatibility alot easier. 3) Greatbatch just signed an agreement with witricity (sp?). I've been reading about them in barron's for the last couple of days - basically, they're one of two or three companies that are doing real wireless charging (another one is publicly traded WATT - witricity and WATT are taking different approaches, but both are going for the same thing). Traditionally, you sit there and place a charger paddle on the skin covering your IPG, have to remain very still in order for it to charge through your skin (watch tv and don't change positions while charging). with the wireless charging tech, you wouldn't be nearly as constrained - you could basically charge your device while working at your desk, driving, etc. Ultimately, it would just make the devices more convenient, if it works. 4) I think on VIC I read (or maybe on an earnings call), that they're going to 50 reps for 2016, 100 for 2017, and 200 for 2018. And, you can do an analysis with sales per salesperson after an initial ramp up period, then apply gross margins and other opex, to get to a runrate sales and earnings number for each of those. just thought this was a helpful way to get a grasp on modeling their business / revenue drivers. 5) While they're building up the salesforce, they're going to run clinical trials - algovita was approved using a literature-based review. it seemed like a trade journal was indicating that it was out of the ordinary for the FDA to go ahead with a literature-based approval...but I think it was a Greatbatch investor day from 2013 (transcript online) where they mentioned that the fda had been very involved in the process and really liked what they saw. i wouldn't expect them to say anything else, but that coupled with what seems to be an unconventional approval path, makes me wonder if there isn't something good going on(?). Anyways, I digressed - they're doing the clinical trials while they build out sales force, and once those are complete and the sales force is bigger, they'll start marketing the clinical trial results. And I think that will be the major inflection point. 6) I had previously pointed you to the Spine Health forums. Here's another one, I mentioned it briefly in my earlier write ups - this is where i found the offhand comment that doctors like nuvectra/algovita (last comment on page) - https://www.medtechy.com/boards/companies/nevro/4869. 7) the #1 risk in Boston Scientific and St. Jude's 10-ks is vulnerability to new competition, especially competition that has an advanced/improved technology. Both cite their exposure to rapid technological change. And, randomly, 8, don't forget that Nuvectra is (or already has) filed for FDA approval for its second indication, SNS (sacral nerve syndrome). so i think they have that approval by 2018 (based on investor presentation), which coincides nicely with the release of clinical trial results as well as a more mature salesforce. So, R&D and product development - MDT, BSX, and SJT are just not very good. And they acknowledge this, it's well known - an executive from one of those was quoted in a ttrade journal as saying something along the lines of "we're not good at that because we've never had to be." Basically, the big 3 purchase new technologies rather than develop in house. SJT just did it recently a couple of years ago. BSX did it a couple of years before that, i think. Heck, both BSX and SJT entered the space in '03/'04 by acquiring two SCS frontrunners (one of which was ANS, and that became SJT's main SCS offering). So again, not good at R&D, because they haven't needed to be - with the exception of MDT's pacemaker spawn, this entire industry is built on M&A. Just two things here. First, Post Obamacare, with the medical device surcharge tax, etc., there has been a massive drop in medical device VC. Which means that the acquisition pipelines are drying up. Second, because they enter new markets via acquisition, the big threes' portfolios of stimulation devices are basically hodgepodges of totally different devices. This means that they have to upgrade each device in their portfolio individually, and go through a separate approval process for each one, whenever they want to incorporate a new feature(s). As the neuromod industry expands into more and more indications, and assuming the big 3 continue to consolidate the industry, their product portfolios are going to become more and more unwieldly. i think the platform approach provides nvtr with a potentially incredible competitive advantage in the form of product development efficiency. based on the really long time frames involved, as well as the expertise and resources that were put into this project, i don't think it will be easy to replicate. i've also read that the big 3's device upgrades are thought up by engineers, not clinicians or patients. It's not a very collaborative process. So, the big three are always releasing an upgraded product, but most of the time the upgrade is gimmicky - the price increase isn't justified by the increase in clinical effectiveness. on the other hand, algovita was the result of 8-9 years of collaboration between clinicians, patients, industry experts, and a dedicated manufacturer. Product development is a major competitive advantage in the space. If you have a leaner product development operation that results in quicker time-to-market, you have a cost advantage and you're a lot more agile and responsive. Not only does it let you secure a first mover advantage, but it also lets you respond to competitive threats more quickly. The time-to-market advantage isn't just important for upgrading your portfolio. It also makes you a much more attractive partner to OEMs. When Alevo signed the agreement with GB/NVTR, one of the things they mentioned in the press release was that Greatbatch/NVTR would significantly accelerate time to market for their DBS solution. Basically, GB/NVTR can commercialize new variants of their platform, for new indications, faster. And, as mentioned, start-ups are the name of the game here (even though venture funding has dropped, this is still basically the only source of innovation in the industry), and they're all targeting different indications. Besides increasing market penetration for existing approved indications, a major major growth driver for the industry is going to be expanding the number of approved indications. it seems like algovita has a good chance of driving penetration in existing approved indications, which is one way to (effectively) grow the market size. But they're also an extremely attractive partner to these OEMs who are developing new tech for new indications, which is the other way to grow market size. So they kind of have both of these opportunities. they (+GB) have the platform, they have the design and mfring facilities, they know the FDA approval process - the only thing they need is to connect this machine to emerging OEMs...they need deep industry connections. Well, GB bought CCC back in 2014, before Nevro took off, and that seems pretty smart - Nevro seems to be doing well (despite the knocks I put on it). It also gave them HF stim technology, which they've incororated into algovita (although to a lesser extent than Nevro). They have Neuronexus, whose PHD employees are at the cutting edge of DBS technology (and specifically, lead technology). Note that Alevo, with whom they signed a license agreement, is a DBS company with a novel lead technology - i don't think it's a coincidence. And finally, Drees is also on the board of Neuros Medical, which is developing electrodes for PNS (peripheral nerve syndrome) - i think the first indication this is meant to target is residual limb pain. So, amputees basically get these little benign growths on the end of their severed nerves, and it really hurts, and this is what Neuros is targeting initially (note, this is residual limb pain, not phantom limb pain). I don't know if Neuros is going to do a licensing agreement with nuvectra, but i was mostly trying to hit home the fact that these guys have their fingers in every neuromod cookie jar on the planet. that's all i have basically for nvtr. the last thing that i'd say is that the CEO of greatbatch started this a long time ago, and that same guy is still the ceo. they just did a major buyout after spinning off nuvectra, and the stock is under pressure. but if i'm right about nuvectra and algovita - i don't know how i'd characterize it, but i personally haven't witnessed many CEOs do anything, anything even remotely close to this in ambition, scope, and complexity. He has, quite literally, taken a ten year view. that's how much time will have passed between their initial efforts and their first material sales. and then after all of that effort, he spins it off with no fanfare to the tune of $50m. Wasn't even a matter of fanfare...they basically stonewalled any inquiries for information. i could be wrong about all of this, but if i'm right about nvtr and algovita, i think there's something to be said for the CEO, too (who, remember, has LT supply agreements now with nevro, nuvectra, alevo...and every single future OEM that opts to license the Algovita SCS platform). and GB is one of the only med device outsourcers (at least publicly traded in US), and i've been reading some interesting stuff about how the industry will develop...the gist of it is, trend to outsourcing. And GB + it's new giant acquisition is a big gorilla in this market...it's called integer now. haven't done alot of research on it, but i think itgr could be really, really interesting in it's own right.

To err on the side of caution, I agree with you...could be argued that F&S really does do an independent analysis and then charge license fee to award winners (which lets them announce publicly), but that could fairly quickly turn into pay-to-play. I did get one good sentence out of the press release, though: "Moreover, Algovita®’s upgradable and expandable platform is designed to be responsive to market changes, potentially providing non-invasive updates to implement the latest therapies for optimal care." So, I hadn't really realized that algovita was upgradeable while it was implanted - like, a new software update with different stim characteristics (e.g., new algorithm, or burst mode, or w/e). Initially I had thought it was, but then I thought St Jude came out with a device and advertised it as the only device with software upgrade capabilities. Guess I misunderstood. One other thing - on the spine-health forum, some guy who's name starts with j has mentioned that a) he's used algovita's non-paresthesia settings to great effect, and b) I had mentioned earlier that chronic pain was dynamic (it moves), but I thought that was only over med/long term - J from spine-health made it seem like the pain moves around on a daily basis. And he mentioned that, with his pocket programmer, he can select different pre-programmed settings that target the various sources. So as the pain moves around intra-day, the patient has the ability to respond - this comes back to the whole 3 dermatome coverage, 12 electrode lead w/ indp power sources. I knew that folks would change which program/setting they were using based on whether they were standing or prone, but didn't realize that the pain itself would move on a short term basis. Being able to switch between different settings that are tailored for the different areas is big plus. if anyone else is able to find good info, don't be afraid to post... :D

Just an FYI, Frost and Sullivan's 2017 North America New Product Innovation award for chronic pain management. Don't know how much that means, but I'm sure it means something...this came out four days or so ago http://ww2.frost.com/news/press-releases/frost-sullivan-recognizes-nuvectras-pioneering-spinal-cord-stimulation-product-chronic-pain-management/

I haven't, but I think I figured out the situation. when IP spun it out, basically they said that they had explored all strategic alternatives to dump veritiv's business, but nothing had worked. So, basically, they merged their paper distribution business with one of their competitors. but, both companies were not doing great financially, and you can't spin an insolvent company. So they included a packaging distribution business to support the paper dist business - they're currently consolidating all the paper distribution stuff, those are the restructuring charges, and the packaging business is generating the cash flow to support the restructuring. So, once they finish restructuring, you'll have a leaner paper distribution business, and that's a declining industry. But you'll also have a packaging distribution business, which isn't declining. KapStone Paper is a corrugate products/packaging manufacturer, and the CEO has been ranked as #1 in paper and packaging a number of times, I think in Inst Investor magazine or something. Anyways, in 2015, Kapstone acquired a packaging distributor for 10x ebitda (pre synergies). So we know the CEO of Kapstone is sophisticated, and we know he's a strategic buyer, and he paid 10x for the packaging dis business - so, 10x ebitda might not be a bad number for comparable analysis. If you dig into veritiv's numbers, I think that their packaging dist business does like $250m ebitda on its own. So once the paper dist ops are consolidated, you'll have paper dist and packaging dist, and packaging dist is worth 9-10x ebitda? So packaging alone is worth >$2b, maybe $2.5b, and you get paper distribution for free. simple sum of the parts...Klarman likes this for liquidation value. even assuming the paper dist operations are worth ZERO, you can liquidate their inventory, which is a huge number - even though it's a declining business, they have so much $ tied up in working capital, and my guess is that they'll work down their inventory to generate cash as the business declines. And then, the packaging dist business could be sold for like $2-2.5b, maybe. So, liquidation value / sum of parts. I think that, once the paper distribution consolidation is complete, there will be another corporate action to highlight the value of the packaging business - either another spinoff, or an asset sale.

One year after FDA approval, Stimwave started commercialization of Freedom-8A. wjsco, what's your thought on this one vs NVTR's device? I don't think Stimwave is really a competitor product. It probably is effective for some niche applications/indications...isn't it for peripheral stim, not spinal cord stim? Didn't look into it too much, but it seemed a little gimmicky - very very much doubt it has the same capabilities of even the existing SCS treatment options from BSX, SJT, and MDT. Not sure, but that would be my guess. Probably similar to what someone said earlier about Nevro (or, their relative who's a doc said it) - it's not appropriate for most patients. but again, I'm not sure, and something to look into...

1) Yep, this is true. I believe they've already discovered the difficulties with hospital approvals. So, that's true, but it's also good that they've identified this as an impediment relatively quickly - it sounds like they had underestimated it, maybe. But, again, they've identified it, and I believe they just made an executive hire who's entire job is hospital approvals. Also, that makes sense about MDT. I guess I'd say two things:a) i think there's only single digit thousands of pain specialists in the US. I read in ANS's 10k from 2004 that there were 3000 back then, and it mightve grown a bit, but single digit thousands. And Scott Drees has been in this space for 25 years, and i would guess that after this long, including time as head of sales at ANS, he also has a very robust physician network. In fact, GreatBatch refers to Scott Drees as their "commercialization partner." And he brought on a few people who had been at ANS and moved to St Jude, etc. He actually mentioned in an earnings call that some of their competitors had hired more sales reps to boost sales, but all that accomplished was to effectively decrease the existing sales reps' territory (more people in same amount of space means less space per person). So I don't think they've had trouble poaching an experienced sales management team. And b) Morningstar touches on their physician network, and mentions that Medtronic does have a bit of leeway with docs bc of its relationships, but it also mentions that this isn't exactly a super sticky relationship. If doctors see a significantly better technology for a certain indication, they're not going to stick with MDT. If the competitor product is only marginally better, maybe the docs stick with MDT bc they're used to it, the relationship, etc - but not if there's new tech that's a significant, material improvement over what mdt has. 2) What have you heard about the trial results? If you're just referencing the stock price, i would say that's probably not a good indicator for their clinical study results. Secondly, I also saw the same info on clinicaltrials.gov or whatever, but didn't NVTR just create a MAB that was going to help them design their clinical studies? But clinicaltrials.gov says that the trial started in 2015? So not really sure what's going on here. But, I did fine one interesting review on a random forum - some guy posted a comment in a nuvectra/algovita forum, and said "doctors love it, nevro better watch out" or something like that. Not saying that's the truth, but it makes sense with what we know about the leads, and it was so random that it gave it an air of credibility. 3) They didn't switch suppliers. Previously, Greatbatch bought the external peripheral devices from Minnetronix, and then re-sold them to Nuvectra. So Nuvectra just started buying these external devices directly from Minnetronix. I don't think there's any implication here - the only thing it does is tighten up the supply chain. NVTR said it was terminating its obligation to purchase the external peripheral devices from GB under the supply agreement. Which is true, because now its buying them directly from the source. But this is good for GB - i doubt that their compensation under the supply agreement is a function of reselling a third party peripheral device to NVTR, and it was an unnecessary inventory investment - ties up capital and doesnt contribute to returns. who knows. but point is, dont think this is material.

1) Regarding why aren't insiders buying. I'm not sure, but I do know that 1m shares are reserved for equity comp (10% CSO), and 400k get authorized each year (4% CSO). And base salary isn't too big, so most of their comp is tied up in equity awards i think. Scott did make get money from his minority interests, and i know he made a few million from the ANS sale. but i don't think he's exactly loaded. Also, as he's issued equity and the share price appreciates, his nvtr holdings will become a much larger portion of his net worth, and the whole diversification thing. but in reality i dont know - i always wish that mgmt is buying stock when i think it's cheap, but if it doesn't happen, it doesn't mean it's not cheap. 2) For patient reviews / feedback, this was the best one I could find. It just has the most people on it..: http://www.spine-health.com/forum/categories/spinal-cord-stimulation 3) The end game has always been to spin it off. It wasn't a decision that they made in 2015. From the very start, the idea was to incubate Algostim/Pelvistim, and then spin them off once they got the approvals and could start selling. if you look at greatbatch's results in past few years, they provide GAAP and nonGAAP, and nonGAAP excluded the investment they were pouring into Algostim and Pelvistim. the idea was to create a platform that could address any indication. and greatbatch would supply the platform device under long term agreements - basically they were very incentivized to make this platform idea work, because if it does work, and they supply the platform device under long term supply agreements to all of these different OEMs that are coming out with new electrode technologies to address new indications, you can see how that would be a windfall. One of the keys is that the IPG and lead bodies can be adapted for any indication, and already has a pMA - you just need new lead tips (electrode arrays) and stim settings (programming). So if they want to apply for approval for a new indication, like DBS for example, and the DBS system uses the same device but just uses different lead tips and programming settings, they get to use the Panel Track supplement route instead of having to do the entire PMA process. Which significantly improves time and cost to get to market. Which is a huge competitive advantage in this space. So one of the big benefits of doing Algostim and Pelvistim was that they now had the processes and procedures in place to do device design, development, validation, and all the way through FDA approval. And with their platform, the process is faster, b/c they only have to apply for approval for a new indication, which requires a PMA supplement, which is alot faster than the full PMA thing. So recently, Alevo partnered with Nuvectra and GReatbatch. Alevo has a DBS system that's supposedly alot better than existing products (basically, the electrode in DBS LCPs is ring-shaped...the lead tip is cyclindrical, and the electrodes are shaped as rings around the cylinder, and stimulation is applied to the entire ring. Alevo developed an electrode thats also ring-shaped, but it has 3 individual electrodes spaced evenly along the ring, and using Nuvectra's independent power sources, they can direct the stimulation to only one electrode (e.g. in only one direction), which is better than the full ring bc the full ring applies stim to areas of the brain that you don't want it to, which obviously, being the brain, has negative implications - note, medtronic can't do this because it doesn't have independent power sources). Nuvectra licensed the neuromod technology to Alevo (because nVTR has exclusive right to use the technology in the neuromod space), and Alevo also signed a development and supply contract with nvtr/greatbatch - so now, greatbatch will be designing/developing/getting approval for Alevo's device, and i think the majority of GB's compensation is the fact that it gets the exclusive supply agreement to provide the iPG, lead bodies, etc. So basically, Algostim and Pelvistim was a demo run that they used to show OEMs (like Alevo - OEMs in this context means folks who develop electrodes for new indications - the only thing that changes for each indication is the type of lead tip used and the programmed stimulation parameters) that they could do the entire design/validation/FDA approval lifecycle. Greatbatch helps the oEMS in the design/development/approval phases, using it's extensive engineering/manufacturing/regulatory approval expertise, and in return, basically gets to place the vast majority of the content in these devices. Also, interestingly, Nuvectra effectively has shares in Alevo - in addition to the royalty, upon a liquidity event, Nuvectra receives the difference between 20% and whatever Greatbatch's stake in (or something like that - it goes down from 20% to 15% to 10%, but i dont know what triggers movement down the scale, and I don't know GB's ownership %, and i don't know how much alevo would be worth anyways - but the point is, this is a little hidden asset that nvtr has) Not sure what you meant by the liability thing - Greatbatch already produces components for something like 95% of neuromod devices. And they're also doing the manufacturing for Nuvectra...so they would definitely retain that risk. just not sure where you're going with this...