Alphatec Spine Reports 2Q17 Revenue

Alphatec Spine (ATEC) posted 2Q17 revenue of US $24.4MM, -24.4% vs. 2Q16, and 1H17 revenue of $52.4MM, -21.2% vs. 1H16. Though revenues are affected today by a variety of headwinds, leadership sees substantial opportunities for turnaround.

ORTHOWORLD estimates segment revenue and as-reported growth as follows.

Factors Leading to Revenue Decline

Decreases in year-over-year revenue for 2Q and 1H17 were attributed to a blend of volume drop, product mix and pricing due to lost distributors and customers, as well as an overall change in revenue mix associated with challenges faced in 2016— that ultimately led to the late-3Q16 sale of ex-U.S. operations to Globus Medical, in an effort to bolster ATEC’s operations.

Further, revenue was affected by the termination of sales relationships that don’t jibe with the company’s long-term and rebranding strategies, and a transition away from stocking distributors and toward dedicated reps/distributors.

What Will Support Growth Improvement?

Leadership sees substantial opportunity to grow ATEC’s distribution power. The company is “incredibly underrepresented and even completely lacking representation in many of the largest population centers in the U.S.,” as noted by Mr. Terry Rich, Chief Executive Officer. Industry consolidation is providing a large pool of talent that’s now in search of jobs—particularly in areas of ATEC’s underrepresentation.

Also, that aforementioned transition to a dedicated sales staff is bolstered by leadership that has experience in exactly this sort of conversion.

These moves are yielding results. In 2Q17, sales from dedicated reps/distributors grew to >18% of sales, as opposed to <15% of sales in 1Q17. By year-end, ATEC expects that ratio to be 40% of sales.

Product launches are also key; 2017 is ATEC’s year for fusion devices like the 2Q full launch of Arsenal Deformity and late-year full launch of Battalion Lateral that includes the Squadron Lateral Retractor. U.S. patents were recently awarded that protect unique, differentiating features of these technologies in the crowded fusion field. ATEC’s biologics platform is undergoing a relaunch to capture that additional piece of procedure revenues, too.

What’s that backed up with?

A desire to transform. Leadership is making bold statements as Alphatec drives to rebuild its reputation.

“The maturation of the largest players in the spine market is creating excellent new opportunities for innovative players like Alphatec, with portfolio depth, resources and talent to compete.”

“The spine market is increasingly experiencing hospital and contractor consolidation. …Our well-established access to hospitals creates a competitive advantage that we will continue to exploit.”

“We’re completely transforming the culture at Alphatec, assuming in most cases that what was done at this company before we arrived was wrong. We’re overhauling every process, creating a relentless focus on fiscal responsibility, performance, integrity and accountability.”The new leadership, including the Board and Board advisors, is majority-weighted with significant spine experience and includes several team members who have worked together in the past, chiefly at DePuy Synthes, NuVasive and Wright Medical. Throughout 1H17, ATEC added three Area VPs each with over 20 years of spine sales leadership experience. The entire leadership team, per Mr. Rich, has invested personal assets to show their commitment to Alphatec.

Sources: Alphatec Spine; ORTHOWORLD estimates