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NuVasive Moves From Being Target of Acquisitions to Acquirer

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NuVasive Moves From Being Target of Acquisitions to Acquirer
Under a new CEO, NuVasive sheds its profile as a target for a take-out by larger medtech players and becomes an acquirer instead. 

Last April after the abrupt departure of Alex Lukianov, the then CEO of NuVasive following his violation of expense reimbursement and personnel policies, analysts speculated that the pure-play spine company would be viewed even more as a target of acquisition.

Nearly nine months later, and under life sciences veteran Greg Lucier who took over the helm after Lukianov left, the San Diego company has turned acquirer instead.

Making use of its millions at hand, the third-largest pure play spine company announced Tuesday that is is buying Ellipse Technologies, a California complex skeletal deformity treatment company for $380 million in cash upfront with another $30 million payable in 2017 if Ellipse hits certain revenue targets.

Analysts viewed the acquisition positively, saying that the acquisition gives NuVasive heft in a market that it didn't have much presence in while also expanding geographic footprint since 37% of Ellipse's 2015 revenue came from overseas.

Ellipse has two main products - the Magec and Precice. Magec is a magnetic, adjustable and expandable rod used to brace the spine during growth to minimize the progression of scoliosis. The adjustable nature of the rod means that as a child's body is growing repeat surgeries are not required to insert new, longer rods. Precice is an adjustable intramedullary nail used for limb lengthening of the femur and tibia.

NuVasive's Integrated Global Alignment product addresses the adult deformity market, but the Ellipse acquisition means it  can
move "down the spectrum into 
early onset and idiopathic adolescent scoliosis, and expanding into niche orthopedic markets," according to Joanne Wuensch, an analyst with BMO Capital Markets. She characterized the acquisition as expensive, but one that makes strategic sense.

Another analyst - Richard Newitter with Leerink Partners - said that that the early onset scoliosis (EOS)/idiopathic deformity space represents a $570 million market in which NuVasive did not have much of a presence until now.

In a research note Tuesday, Newitter speculated that he expects another deal will occur that will build out NuVasive's presence in overseas markets in the next 12 to 18 months.

Another analyst was expecting a different kind of transaction, echoing Newitter's sentiment that NuVasive needs to beef up its international presence.

"While we are not surprised that [NuVasive] has kicked off 2016 with a meaningful acquisition, we would have expected the target to be either more synergistic with [the company's] call point and/or international (China)," wrote Glenn Novarro, an analyst with RBC Capital Markets. "Nonetheless, Ellipse will add a new growth driver for the company and should help accelerate revenue and [earnings per share] growth."

Arundhati Parmar is senior editor at MD+DI. Reach her at arundhati.parmar@ubm.com and on Twitter @aparmarbb

Learn more about the medtech industry trends at MD&M West, Feb. 9-11, at the Anahein Convention Center, Anaheim, California.
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