NVTR - Nuvectra

[Spekulatius]

When the rock star CEO departed after aggressively ramping up sales force, it was a tell tale red flag. I'm glad I immediately exited then around $12-13 levels. Medtech is a tough business with an oligopolistic structure at suppliers end (3-4 major players in many categories), a few hundred key hospitals, and maybe a few thousand influential key docs. Breaking into it while also trying to pay a salesforce that is used to earning substantially from commissions is very hard as NVTR found out (you are bleeding cash for years!). They had a few thousand installations but the innovations they took 10 years to develop were either copied easily or less important and they just didn't have clinical testing data (unlike some peers) to really ramp it up fast before they run out of cash.

I never bought this, but been involved in other medtech spinoffs , I can definitely state that this is a tough business for investors. From my experience, many startups manage do get some product in the market and some revenue trajectory, but often the costs outrun the revenues and the increased cash burn does them in.

[Ronchong]

Hello all! New CoBF member here, found this forum and decided to sign up. No brainer at 29.99 for the lifetime membership given all the insightful and quality comments that everyone selflessly share.

I disgressed but is anyone looking at Nuvectra at these prices? They are delisting on Thurs and will be auctioning their assets off over the next few weeks. As per the bankruptcy filing, they will still be left with a net debt of 2.5M after all the creditors have been paid. Q3 revenue was 9M as compared to 12M a year ago. (Afterall, sales force got restructed and they suspended sales of new equipment).

At the implied 3M market cap closing price of yesterday (0.17 cents), you theoretically can buy over assets that will generate conservatively 36M (annualised based on latest Q3 figures) in revenue yearly at a gross margin of 50% for an EV of only 5.5m. Granted they have a purchase commitment of 22M with integer (that would likely be re-negotiated as part of the C11) but is this not a strategic asset that a competitor (Stryker, one of their distributor, is rumoured to be interested) can buy over and put it's own sales force into place at relatively little cost?

There seems to be a large margin of safety here. Is it due to market fear or is there something that I'm missing??

[Gregmal]

I had some people look into this, kind of on that basis because the trade you described made sense to me on a certain level, and apparently there may be some liability issues with regard to the charging issues on their Algovita implants. There were also apparently pending issues involving their devices breaking apart inside the patient's body. Much of this was said to be known before Drees and Co went on their sales binge. So you've got several big layers of liability potentially tucked into this.

[Ronchong]

Thanks Gregmal! The off balance sheet liabilities seem to be what I was missing, knew there was more to it.

The charging issues and lead breakage seems to be common across SCS systems. It looks like a problem that companies would have to take on if they ever thought of entering this space. Not that it changes the strategic potential but it definitely changes the value of a deal. That said, Nuvectra do have insurances that cover some of their product liabilities. I'll have to admit though that I have not spent much time on this counter and have to do a little more digging.