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Shares of NuVasive Inc. (NUVA) plunged Friday after the company indicated it is suddenly feeling more pressure in a weakened market for spinal devices, which is being squeezed by health insurers.
Several analysts reduced their ratings on NuVasive, which lowered some forecasts for 2010 and 2011 late Thursday. That caught the market off guard because NuVasive cut projections only six weeks earlier at an analyst meeting. The company knew then the market had slowed, but said Thursday things have suddenly gotten worse.
As the third quarter ended "it became apparent that achieving the revenue guidance that we issued mid-September, which at that time we believed was reasonable, was actually a challenge," Alex Lukianov, the company's chairman and chief executive, said on a conference call Thursday.
A big issue is deceleration in procedural volumes, which in turn is mainly linked to "heightened pushback from insurers," Lukianov said. He said procedures were being cancelled at "an unprecedented rate."
NuVasive shares recently traded down 28% to $26.33, and have touched the lowest point since early last year.
Other, bigger companies such as Medtronic Inc. (MDT) and Stryker Corp. (SYK) reported some resistance from insurers this summer, and the issue isn't new. But Lukianov indicated NuVasive has seen more pressure very recently, with increased demands for preauthorization. Certain procedures--for cases where spinal fusion is used to treat lower back pain without pain radiating to other places--are getting outright denied, and there is a spillover effect on other procedures, he said.
"What is new is that NuVasive has begun to feel the pinch as more and more of its surgeons are starting to see procedure cancellations and deferrals," said Raj Denhoy, a Jefferies & Co. analyst.
He still has a buy rating on NuVasive shares, but several other analysts don't, following a rash of downgrades Friday. JPMorgan's Michael Weinstein went to underweight from overweight while noting that the spine market and NuVasive are "under attack." Among others, Cowen & Co.'s Dough Schenkel lowered his rating to neutral from outperform, saying the thesis behind a higher rating "is no longer defensible."
"While challenges in the spine market are widely understood, it is surprising that the outlook would have to be cut so materially given that management just lowered guidance at their September 14th investor meeting," Schenkel said.
-By Jon Kamp, Dow Jones Newswires; 617-654-6728; firstname.lastname@example.org