NVTR - Nuvectra

[muscleman]

I see this is a device that has to be implanted.

And I think neurosurgeons are usually trained to be able to operate on just one type of such devices. Therefore device companies have a wide moat.

Given the complexity of the implantation, how likely is it for this new device to be acceptable to surgeons?

[muscleman]

I think there is a misunderstanding about "trading below net cash".

What really matters is "trading below net excess cash". NVTR requires all the existing cash to expand the market by getting hospital approvals and doctor acceptance.

[hswoon]

Anyone have the conference calls saved? Can't seem to find the transcripts anywhere. TIA

[muscleman]

I want to get a better understanding as to whether nvtr innovations differentiate it enough from competitors to overcome their competitor's sales relationships before I invest. 

 

My understanding of Nuvectra's advantages are:

1. more effective lead placement

2. more effective in targeting 3 dermotomes instead of just 2

3. reduction in lead breakage and migration

4. more flexibility in programming different power settings to different areas

 

It would be great to get some feedback from doctors to confirm whether these are the important pain points and whether Nuvectra can address these pain points better than their competitors. Also, are there other pain points that trump the ones listed?  Anyone know any neurosurgeons who specialize in this sort of thing?

 

Below is a link to an article about another new technology in SCS that is wireless which would likely negate the lead breakage and migration issue much more effectively than nvtr

 

http://www.businesswire.com/news/home/20141202005347/en/Stimwave-Receives-FDA-Clearance-World%E2%80%99s-Injectable-Wireless

 

Also, it looks like Nevro is suing Boston Scientific for infringing on its hf patent. 

 

wjsco, thanks for doing the leg work on the patents.  Also, thanks to stockspinoff for bringing the idea to the board.

 

 

One year after FDA approval, Stimwave started commercialization of Freedom-8A.

wjsco, what's your thought on this one vs NVTR's device?

 

 

 

[muscleman]

As  I understand, this is just a little device that connects to a few lead heads and the lead heads periodically discharge electricity to relief pain, right?

 

Why is it so complicated?

 

I could imagine several 0.5 mm by 0.5 mm wireless micro chip injected by a needle, and a bluetooth control device in the patient's pocket instead of being implanted through a painful surgery, and all of these micro chips get charged wirelessly like the Nokia Lumia wireless charger each day.

[rukawa]

How did you arrive at your probability estimates?

 

Their subjective, I made them up. Its a basis for discussion. Feel free to make up your own. The key fact to me is that for all this to work this company has to go through multiple gatekeepers and if it fails with any of them, its product won't succeed. It it has never done this before. Given that I think a 50% probability is generous.

[wjsco]

I want to get a better understanding as to whether nvtr innovations differentiate it enough from competitors to overcome their competitor's sales relationships before I invest. 

 

My understanding of Nuvectra's advantages are:

1. more effective lead placement

2. more effective in targeting 3 dermotomes instead of just 2

3. reduction in lead breakage and migration

4. more flexibility in programming different power settings to different areas

 

It would be great to get some feedback from doctors to confirm whether these are the important pain points and whether Nuvectra can address these pain points better than their competitors. Also, are there other pain points that trump the ones listed?  Anyone know any neurosurgeons who specialize in this sort of thing?

 

Below is a link to an article about another new technology in SCS that is wireless which would likely negate the lead breakage and migration issue much more effectively than nvtr

 

http://www.businesswire.com/news/home/20141202005347/en/Stimwave-Receives-FDA-Clearance-World%E2%80%99s-Injectable-Wireless

 

Also, it looks like Nevro is suing Boston Scientific for infringing on its hf patent. 

 

wjsco, thanks for doing the leg work on the patents.  Also, thanks to stockspinoff for bringing the idea to the board.

 

 

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...

[wjsco]

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/

[RichardGibbons]

Reading up on Frost & Sullivan, I think what it probably means is Nuvectra paid money to F&S, and so got an award (i.e. it probably deserves about the same significance in your mind as an advertisement paid for by a company.)

[wjsco]

Reading up on Frost & Sullivan, I think what it probably means is Nuvectra paid money to F&S, and so got an award (i.e. it probably deserves about the same significance in your mind as an advertisement paid for by a company.)

 

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

[wjsco]

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.

[wjsco]

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.

 

 

[wjsco]

January 17 presentation on their website is pretty good

[wjsco]

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

 

 

[wjsco]

Go baby, go!

[wachtwoord]

Any updates on your thesis? I originally bought this because it was trading below net cash and the research on the product showed this had an above average chance of succeeding (so a relatively easy  bet) but now it doubled in price I'm re-evaluating.

[Gregmal]

https://globenewswire.com/news-release/2017/08/08/1081799/0/en/Nuvectra-Reports-Second-Quarter-2017-Financial-Results.html

 

This one looks to be moving along nicely. Sales roll out is so far happening fairly smoothly. Still have 2-3 quarters of cash to burn before a capital raise, and by then I wouldn't be shocked if the stock is north of $20.

[701 LV]

Agreed with all the above. I also purchased NVTR when it was trading below cash value and have held on for the ride after seeing their continued momentum with rolling out the Algovita system. With full body MRI capability hopefully being FDA approved by year-end, recent buying by the CEO at the $10 range, and continued sales progress being helped by reps hitting their 6-9 monthly tenure where production begins to ramp and a number of reps having their 1 year non-compete's fall off in the coming quarters, I think the future is very bright.

[wachtwoord]

Thanks for the replies. I have decided against selling (for now) as well. Everything seems to have gone as well as could be expected it seems.

 

Thanks to spinoffinvesting and wjsco for pitching this initially! Are you guys still in this too? (I'm expecting at least wjsco is).

[701 LV]

CEO with another open market purchase of 10K shares yesterday at $11.72.

[RichardGibbons]

Yeah, I'm still in this too, other than a third I ditched in the low 14s to recycle my capital and to play psychological games with myself.

 

I like this report, but am nervous about the cash burn.  Originally, my thesis was that Nuvectra was a reasonable bet. If the rollout succeeds, the returns would be high.  The rollout fails, the net cash could cushion things--maybe the stock only falls from $5 to $2 before I exit.  Heads, we lose $X, tails we win $6X.

 

But at these prices, that thesis isn't valid any more because the price has gone up and the cash has gone down and continues to decline.  In fact, to me, it looks like Nuvectra is going to have to raise capital.  That's not a big deal, except if there's a hiccup in the rollout, in which case it becomes a really big deal, and would likely cause the stock to plummet.

 

So, my thinking is that the risk of failed execution in the first 8 months of the year has disappeared, and but, because of the stock price increase/cash decrease, the risk of loss in the current position is much higher than it was in originally.  (First world problem--our stock more than doubled without fundamentals improving to the same degree, so the risk of decline has increased and the amount of capital we have at risk has increased too.  Boo hoo!)

 

That said, I plan to keep the rest of the position until it either becomes really expensive, or there's some evidence of the business faltering. As far as I can see, this report has no evidence of  the business faltering.  On the contrary, in fact.

 

 

[RichardGibbons]

Nuvectra's Q3 results weren't that great, but the Q4 preannouncement looked good to me, with over 50% Q/Q revenue growth (and 64% growth for Algovita).

 

My main fear was that the new sales team would be ineffective in convincing doctors to use the device. I think these numbers diminish that concern.

 

 

[701 LV]

I was glad to see the pre-announcement too. I think the market still is discounting NVTR due to potential dilution coming. But they have to be able to fund their growth, so I see it as a necessary evil.

[701 LV]

Announced pricing of 2.825M shares at $8.00. Shares up 5% to $8.50 after the news.

[701 LV]

New all-time high at $15.15. Another solid quarter, and continue to ramp up sales and gain market share. Still trading cheap compared to comps. 2.5x EV/2019E Sales, versus Nevro at 5.4 EV/2019E Sales.

 

$58M cash on hand, and they burned through about $9M last quarter. I'm guessing they raise again around this time next year, but if they continue the revenue growth, should be at a higher price than we are at today.