Things Get Ugly Between NuVasive and Alphatec

NuVasive says former exec Patrick Miles schemed for more than a year to disparage the company before jumping ship. Alphatec calls the lawsuit a "frivolous PR stunt."

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The gloves are off between spine device rivals NuVasive and Alphatec.

NuVasive filed a lawsuit this week against its ex-vice chairman, Patrick Miles, who is now executive chairman at Alphatec. The lawsuit claims that Miles schemed for more than a year to take business from NuVasive, but Alphatec denounced the complaint as a "frivolous PR stunt" and an attempt to damage the reputations of both it and Miles.

According to NuVasive, the company was contacted in January 2016 by UBS Financial Services to explore a potential acquisition of Alphatec. Miles was NuVasive's president and COO at the time, and he advised the company that pursuing the acquisition was "a waste of time," and that Alphatec had an "aged, undifferentiated portfolio." The company decided to pass on the opportunity.

Then, on March 22, 2017, Miles reportedly executed a securities purchase agreement for $500,000 of Alphatec stock in a private placement and concealed the investment by purchasing them through an entity called "MOM" and failing to disclose that he was the beneficial owner of the shares, NuVasive said in the complaint.

Miles abruptly resigned from NuVasive on Oct. 1, at which time he told the company he planned to begin working for Alphatec the following day. NuVasive said that this, along with his subsequent actions to solicit NuVasive customers and recruit its employees, violated a contract he had previously signed. Also, the company noted, as part of his employment agreement with Alphatec, he received 1,000,000 restricted stock units valued at $3.22 million as of Oct. 2, and he agreed to another share purchase that amounted to a $2,938,000 investment and will be granted warrants to buy up to 1.3 million additional shares at closing. This means he could potentially own up to 23% of Alphatec's outstanding stock.

"This step was not taken lightly, particularly given Mr. Miles' history with NuVasive," the company said in a statement. "Yet it is this history and Mr. Miles' intimate knowledge of the company and our proprietary information that makes his breach of fiduciary duties and contractual obligations so egregious and this litigation necessary."

Alphatec fired back at NuVasive with a statement calling the lawsuit baseless and a "frivolous PR stunt," and said it was filed without priory inquiry or notice to Alphatec.

"NuVasive then issued a press release to broadcast the complaint, not to 'protect corporate assets' as stated but in an attempt to inflict maximum damage to the public reputations of both Mr. Miles and Alphatec," according to Alphatec's statement. "The complaint is fictional and includes disclosures by NuVasive that breach its contractual confidentiality obligations owed to Alphatec."

Alphatec also noted that NuVasive's lawsuit was filed by a law firm that is currently representing Alphatec in related matters.

Included in Alphatec's statement on the matter is a quote from Miles in which he says he "was fortunate to be a part of NuVasive's growth from zero dollars in sales to close to a billion dollars in revenue," and that he is "exceptionally proud" of his contribution there, and has friends who remain affiliated with the organization.

"I did not leave NuVasive to damage the company. In fact, I remain a significant shareholder," Miles said. "I chose to pursue a new opportunity at Alphatec because I want to align my talents and influence with a company that is focused on serving spine surgeons and their patients."

He denied the allegations made against him and said that such allegations are typical of a management team reacting to mass departures of key, spine-experienced executives. Indeed there have been a string of recent C-level resignations at NuVasive, and several of Alphatec's current management team are former NuVasive employees. In fact, that's how Miles knew Alphatec CEO Terry Rich prior to leaving NuVasive.

Rich personally defended Miles, noting that he is "well known in the spine industry worldwide and is highly respected for his integrity." Rich said NuVasive's lawsuit has been "orchestrated to detract from a decaying, toxic culture that has contributed to the resignations of three C-Suite officers since July 2017 and caused dozens of NuVasive employees and countless surgeon customers to reach out to Alphatec, seeking more attractive opportunities."

The accusation is consistent with a recent 42-page report from short-seller GlassHouse Research that claimed NuVasive has been fooling investors with accounting tricks. According to GlassHouse, the mass turnover will "turn out badly for all involved at NuVasive."

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