NuVasive (NUVA) Up on Rumors of Takeover by Globus Medical

NuVasive, Inc. NUVA shares gained nearly 5% to reach $58.90 yesterday, after a takeover rumor of this minimally invasive spine implant major by prominent musculoskeletal solutions provider Globus Medical, Inc. GMED surfaced. Shares of Globus Medical dropped 4.4%, as largely expected.

The takeover rumor first surfaced in a Bloomberg report, which stated that per an insider source, Globus Medical had made a preliminary takeover offer to its smaller competitor, NuVasive. The source also stated that the acquisition offer price was $3 billion.

Although the insider source claimed that the concerned companies are in early talks about a possible consolidation, there is no guarantee that NuVasive and Globus Medical will finally reach a deal. Neither NuVasive nor Globus Medical’s representatives shed any light on the matter.

How is the Market Responding?

The majority of the analysts across the market are optimistic about the prospects of this probable takeover.

According to the Bloomberg report, if the consolidation occurs, both the companies will gain in terms of scale and negotiating power against hospitals, which purchase their products. During the pandemic, spinal solution makers had a tough time due to the mass deferral of elective procedures.

Reuters, on the other hand, noted that the potential combination would accelerate consolidation in the spine surgery market, where smaller players are turning to dealmaking to compete against the stalwarts.

Our Take: A Strategic Fit for NuVasive

We note that NuVasive has been witnessing declining prices for its products due to increasing competition in the spine market; pricing pressure experienced by hospital customers from managed care organizations, insurance providers and other third-party payers; and increased market power of hospital customers due to the consolidation of the medical device industry.

The situation worsened with the spread of the coronavirus in the past one and a half years. As stated earlier, hospitals are going into significant pricing negotiation with orthopedic companies and deferring the elective musculoskeletal procedures on a mass scale. In such a situation, smaller companies like NuVasive are incurring persistent losses and finding it hard to survive.

NuVasive, Inc. Price

NuVasive, Inc. Price

NuVasive, Inc. price | NuVasive, Inc. Quote

In the just-reported Q3 earnings, NuVasive came out with lower-than-expected results. Both its Surgical Support and Spinal Hardware segments delivered dull sales in the United States. The company noted that the resurgence of the COVID-19 Delta variant was one of the factors leading to the slowdown in elective surgical procedures in the reported quarter.

Globus Medical’s spine business however is in a more balanced position amid the ongoing health crisis. The company’s U.S. Spine business accelerated considerably in the third quarter, maintaining the uptrend of the past few quarters. U.S. Spine continues to gain significant market share, growing by 2% as reported and 10% after factoring in the impact of COVID-related shutdowns.

The segment is gaining from product launches, competitive recruiting and pull-through from robotics. Globus Medical has also been witnessing strong adoption of single-position lateral and prone lateral procedures, which are enhanced by the capabilities of the ExcelsiusGPS robotic navigation platform. Internationally, its Spine business varied by region, demonstrating strong year-over-year growth in countries, including the U.K., Spain, and Belgium.

In such a situation, the consolidation, if it takes place, will give NuVasive a competitive niche and will place it in a better position for price negotiation with third parties.

Zacks Rank and Key Picks

NuVasive currently has a Zacks Rank #5 (Strong Sell) while Globus Medical carries a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A few better-ranked stocks from the broader medical space are Thermo Fisher Scientific Inc. TMO and Medpace Holdings, Inc. MEDP.

Thermo Fisher Scientific, carrying a Zacks Rank #2 (Buy), reported third-quarter 2021 adjusted earnings per share of $5.76, which surpassed the Zacks Consensus Estimate by 23.3%. Revenues of $9.33 billion outpaced the Zacks Consensus Estimate by 12%.

Thermo Fisher has an estimated long-term growth rate of 14%. TMO surpassed estimates in the trailing four quarters, the average surprise being 9.02%.

Medpace reported third-quarter 2021 adjusted EPS of $1.29, surpassing the Zacks Consensus Estimate by 20.6%. Revenues of $295.57 million beat the Zacks Consensus Estimate by 1.2%. Medpace currently sports a Zacks Rank #1.

Medpace has an estimated long-term growth rate of 16.4%. MEDP surpassed estimates in the trailing four quarters, the average surprise being 11.9%.

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