Medical Device Daily Executive Editor

While futurists are fond of predicting that biologics are bound to supplant metals and plastics in the device sector, the orthopedics arena — at least for now — is more often looking to combine these two types of materials.

That at least is the strategy, going forward, for NuVasive (San Diego), which yesterday unveiled its agreement to acquire Radius Medical (Newport Beach, California), thereby acquiring exclusive license and marketing rights to Formagraft Bone Graft Strips, Formagraft Bone Graft Granules, and the underlying collagen technology.

NuVasive made a closing payment of $16 million, consisting of $10.2 million in stock and $5.8 million in cash, and placed an additional $2 million in cash in escrow for an 18-month period.

NuVasive said it also plans to make a separate $2 million equity investment in Maxigen Biotech (Taipei, Taiwan), the company that manufactures Formagraft and owns a portion of the core technology.

Thus far, NuVasive has focused on providing the instrumentation used in spinal surgeries, but Alexis Lukianov, CEO and chairman of the company told Medical Device Daily, that the deal for Formagraft gives it broader reach in the spinal repair sector.

“We’re focused on being able to do the entire surgical procedure, more than trying to come up with implant side or biological side,” Lukianov said.

Thus, he said the company is putting together a “comprehensive scope of products and platforms on which we can build on the biologic arena.” And he called Formagraft a “terrific platform that you can add stem cells to, for example, or other growth factors, and puts us into a very good position in the biological space without spending a great deal of money to get in.”

The Formagraft products — granted FDA 510(k) clearance in 2005 — are generally referred to as biologics. In use, Formagraft provides a scaffold upon which bone will grow, and it “can be easily hydrated with bone marrow during surgery,” according to a company statement.

Its constituents are a combination of highly purified type 1 collagen, hydroxyapatite and tricalcium phosphate, that mixture providing, it says, “an ideal matrix to deliver robust bone growth and improved fusion results in both lumbar and cervical spinal fusion procedures.

During spinal fusion procedures, a biologic product is often used as a bone void filler to facilitate fusion, specifically promoting the growth of bone at the operative site. Formagraft “comes in strips,” Lukianov said, and has “handling characteristics that are very straightforward. You don’t have to mix with others materials, such as the patient’s blood; it’s not in powder form. It’s ideally suited for fusion surgery of the lumbar, cervical, thoracic, entire spinal.

Especially important, Lukianov said, is that NuVasive’s sales people will be able to create a package of instrumentation and biologic, thus adding significantly to each sale. And the addition of the biologic comes without a heavy R&D cost.

“I think the point is that we’re not starting from zero. It took us about 12 months to find this deal. We scoured the market and all the companies to give us an immediate opportunity,” Lukianov told MDD.

“I think it’s an excellent pull-through product for us,” he added. “Right now we don’t offer any kind of material in the biologics arena that helps to facilitate bone growth, fusion. It’s an opportunity to obtain an additional $1,500 per case in new revenue.”

He said that the current per-case revenue is $10,000 to $12,000, so adding Formagraft provides “impact of [an added] 10%.”

Immediately before talking to MDD, Lukianov said he had been meeting with sales representatives to discuss “roll-out logistics,” and building on the product’s $3 million in sales in 2006.

“We plan to start [selling] immediately and scaling up over the next several months, driven by the availability of additional inventory,” he said. He projected sales of $4 million to $5 million this year with a short-term plan of reaching $10 million in sales.

“The opportunity in the U.S. is huge, potentially a billion-dollar market,” he said. “We’re starting off focused on $300 [million] to $400 million of that $1 billion today. It’s all upside in U.S. numbers.”

While Lukianov said there are now no specific plans for moving to international markets, he said a general goal is to seek CE-marking in 2008 and follow that with clearances in the Far East and Australia.

Radius will continue to serve as a consultant to NuVasive on product and business transition.

NuVasive said it expects that for the full year 2007, the acquired product portfolio will be neutral to GAAP earnings-per-share and accretive to non-GAAP earnings per share. It said it expects that for the full year 2008, the acquired product portfolio will be accretive to both GAAP and non-GAAP earnings-per-share.

Additionally, it said that this acquisition will not materially impact its guidance regarding expenses for this year, and therefore reconfirmed its full-year 2007 guidance of non-GAAP sales, general and administrative expenses to be in the range of 67% to 70% of total revenue.

The company’s current principal product offering includes a minimally disruptive surgical platform called Maximum Access Surgery (MAS), as well as classic fusion implants.

The MAS platform, NuVasive said, offers the benefits of reduced surgery and hospitalization time and faster recovery. MAS combines three categories of current product offerings — NeuroVision, a proprietary software-driven nerve avoidance system; MaXcess, split-blade design retraction system; and specialized implants, like SpheRx and CoRoent — collectively designed to minimize soft tissue disruption during spine surgery while allowing maximum visualization and surgical reproducibility.

NuVasive’s fusion portfolio is primarily made up of saline packaged bone allografts and internal fixation products. NuVasive says it is developing a pipeline emphasizing both MAS and motion-preservation products.

NuVasive was incorporated in 1997 and went public in 2004 with an initial public offering pulling in $70.4 million (MDD, May 14, 2004).

Since then it has added to its offerings with four acquisitions, among them the purchase of the NeoDisc, a nucleus-like replacement device, via its purchase of Pearsalls (Taunton, UK) late last year (MDD, Sept. 28, 2006).