With all the excitement over the new future for embryonic stem cell, it seems investors have forgotten about adult stem cell product. NuVasive (NUVA) in fact has stem cell products either already on the market or in late clinical trials.
Stem cells can grow into any type of organ or tissue and the promise is that damaged organs may be repaired or even replaced with spare parts grown from stem cells. This amazing potential could revolutionize the life sciences. NuVasive is a rapidly growing company with unique technology for minimally-invasive back surgery, named Osteocel, it is a stem cell-based product used to help with bone grafts done as a part of spinal surgery.
This is one of the first permitted regular commercial applications of a product based on human stem cells.
We note that this product is based on adult stem cells from bone marrow, not embryonic stem cells. Osteocel, was sold to NuVasive by Osiris in exchange for a stream of payments based on specific milestones. NUVA expects Osteocel to provide $28 million of new revenue for NUVA in 2009, up from $10 million in 2008, so this is a serious product.
The spinal fusion market, NUVA's main focus is about
$4.2 billion per year. They are a small player, with about 6% of the market, but that is up from 4% last year, for a 50% increase in market share. NUVA’s products support a type of minimally-invasive back surgery in which small incisions are made in the side rather than large ones in the back. It provides surgeons with a combination of technology, software, and consumables that bring in about $12,000 per operation.
Many of their products are based on proprietary patent-protected technology. They have 52 U.S. patents issued and 189 pending. Overall, their approach results in less time in the operating room, shorter hospital stays, and faster recovery. That is probably why they are growing so rapidly. For the last eight quarters, revenue has grown between 50% and 70% per quarter.
While profits have not grown as rapidly, both 2007 and 2008 were profitable years. In addition, they have no debt. A long term chart shows that they had a super 450% gain after their IPO in 2004, but were brought down by the recent bad market. There does not seem to be any fundamental reason behind the drop. It appears that NUVA is now moving in the right direction again.
NUVA has formed a nice up trending trading channel and is trading above its 20 day EMA but just below the 50 day EMA. NUVA is currently trading at $31.66, it is an attractive buy between $31-32 range. Stock has 5 to 6 points of upside in it over the next 3-6 months. My target would be $37.25 which would be a 38.2% Fibonacci retracement from the March low of $24.17 to the September 2009 high of $58.88. Once target is hit I would trail a 4-5% stop. And I would use a protective stop of $29.35 which is about 1 point below the 20 day EMA.
Note: I do not own NUVA
