Value Line recently initiated coverage of Globus Medical, Inc. (GMED), in its flagship product, The Value Line Investment Survey. The company is a medical device firm focused on the design, development, and commercialization of products that promote healing in patients with spine disorders. Its products are used in cervical, thoracolumbar, sacral, and interbody fusion procedures to treat degenerative, deformative, or traumatic conditions and tumors, and allow surgeons to effectively treat their patients. Globus was formed in 2003 and was incorporated in Delaware. It has launched over 110 products since that time. As of December 31, 2012 it had roughly 810 employees. The firm’s headquarters are located in Audubon, Pennsylvania. Also, its common stock began trading on the NYSE on August 3, 2012.
While Globus has only one reportable segment, its products fall into one of two categories: Innovative Fusion and Disruptive Technologies. The former group addresses a diverse range of spinal fusion surgical procedures. These procedures are performed to correct problems with the individual vertebrae by preventing movement of the affected bones.
The Disruptive Technologies segment provides items that represent a significant shift in the treatment of spine disorders by allowing for innovative surgical procedures, improvements to existing procedures, the treatment by new physician specialties, and surgical intervention earlier in the process. Management expects increased use of this group’s applications because they can lead to improved patient outcomes, reduced costs, and shorter patient recovery times and hospital stays.
For 2012, the Innovative Fusion group represented 62% of total sales, with the remainder coming from Disruptive Technology. The company sells its products through its exclusive global sales force. Its primary customers are hospitals. To date, most sales have been to U.S. customers, with only 8% to international clients. GMED currently has a direct or distributor sales presence in the United States and 24 other countries. Globus’ products are typically manufactured through a network of over 100 international and domestic third-party suppliers.
The market in which Globus participates is very competitive. The company’s primary competitors include Medtronic (MDT), the DePuy Synthes Companies (a division of Johnson & Johnson (JNJ – Free J&J Stock Report)), Stryker (SYK), and Zimmer Holdings (ZMH). Its smaller competitors include Alphatec Spine and Orthofix International.
Moreover, Globus faces several unique risks. Changes in third-party coverage or reimbursement rates could hurt sales. Furthermore, if hospital customers are unable to obtain adequate coverage and reimbursement for products purchased, this could lead to a drop in demand for Globus’ goods. Also, increased price competition could hurt margins. What’s more, the ongoing proliferation of physician-owned distributorships may put a damper on business.
The company has a strong balance sheet, with no debt and over $212 million in cash as of December 31, 2012. While Globus generates strong cash flows it does not intend to pay dividends. Rather, the firm chooses to invest in research and development, while expanding operations throughout the world.
The company has recently been benefiting from significant growth in its Disruptive Technology group. Sales in this division rose 38% last year, thanks to recent product launches. The Innovative Fusion segment has also been posting stellar results, with sales rising 6% last year, driven by robust demand for pedicle screw and interbody systems.
Management expects the Disruptive Technologies segment to fuel results in the coming quarters, thanks to both existing products offered, and several new products in various stages of development. Too, the company plans to increase the number of sales representatives in the U.S. and wants to expand into new geographic territories. These moves ought to allow Globus to expand sales, margins, and profits in the coming quarters.
At the time of this article’s writing, the author did not have any positions in any of the companies mentioned.