Copy to clipboard 
Alphatec Spine, Globus Medical and NuVasive announced updates to their manufacturing strategies earlier this year. The companies have taken different approaches to outsourcing in order to strengthen their strategic positions, as outlined below.
Outsource All
In 4Q14, Alphatec Spine announced its plans to outsource 100 percent of its manufacturing by the end of 2015 to yield a more lean and cost-competitive company from an operations standpoint.
In the company’s 2Q15 earnings call, Jim Corbett, Alphatec President and CEO, noted that costs to make and physically distribute products were too high and not sustainable. The company operated on a fixed asset and inventory requirement of $100 million, with revenue just over $200 million in 2013 and 2014.
The operational restructuring is intended to reduce Alphatec’s CapEx and fixed cost burden, allowing it to increase its focus on design and commercialization, which the company views as core competencies. Management stopped short of specifics, but expects that the initiative will reduce expenses by “tens of millions of dollars” in the next few years.
Historically, Alphatec outsourced the manufacturing of its instruments. Moving implants to this model will result in a reduction of nearly 100 employees.
Upon reporting 3Q15 financials, Alphatec is expected to have a sales decrease of -9.9 percent sales for the first nine months of 2015 vs. 2014. Corbett, who has helmed the company since April 2014, established the operational initiative as one of three strategic pillars, alongside expansions to R&D, the product pipeline and U.S./global expansion.
Acquire Manufacturing Expertise
Globus Medical acquired Branch Medical Group (BMG) for a final purchase price of $68.4 million earlier this year. The acquisition was made to strengthen the spine company’s operations and financials.
Neighbors in southeast Pennsylvania, Globus started using Branch as a supplier in 2005. The close nature of their relationship is apparent:
- Globus management and insiders owned 49 percent of Branch prior to the acquisition.
- Globus uses Branch to manufacture about 25 percent of its products—a number that management expects to double within the next three to four years.
- Branch, which achieved $23.3 million in revenue and $9.1 million in adjusted EBITDA in 2014, booked 94 percent of its sales from Globus.
- Analysts noted that the acquisition favorably positions Globus to realize gross profit leverage.
“Bearish investors have historically pointed to the BMG related-party relationship as one of the main reasons for Globus’ best-in-class margin profile, i.e. investors speculated that Globus used its relationship with BMG to secure very attractive manufacturing terms (low inventory costs),” Canaccord Genuity wrote in its analysis of the merger. “That said, $9.1M in EBITDA for 2014 equates to a margin profile of 39 percent, which is very high in the contract manufacturing industry, and therefore should put an end to investor speculation.”
Globus posted sales of $265.2 for 1H15, a strong 16.4 percent sales growth over 1H14. Company leadership voiced 2H15 and early 2016 plans to increase investments in in-house manufacturing, robotics and biologics.
Management changes, including Dave Demski’s move from President and COO to Group President, Emerging Technologies and Anthony Williams move from Senior Vice President of Business Development to President, were made to assist in meeting these objectives.
Build Facility to Insource
In August, NuVasive announced that it pushed its insourcing goal to nearly 100 percent. NuVasive leadership set a goal of 20 percent operating margins as it drives to $1 billion in revenue. New CEO Greg Lucier said that vertical integration of its manufacturing is the greatest opportunity to hit that 20 percent target.
The company manufactures about 30 percent of its products, a number that can be increased to 60 percent with current resources. To reach the 100 percent target, NuVasive proposed a 130,000-square-foot facility that is expected to create more than 300 jobs and house 100 CNC machine tools, inspection equipment and clean room operations.
The company expects to begin manufacturing at the facility, at an as-yet-undetermined location, by the end of 2016. NuVasive took first insourcing steps in 2013 with its purchase of ANC for $4.5 million. The two companies started their relationship in 2010, and ANC quickly became one of NuVasive’s significant implant suppliers.
Leadership has not cited the amount of investment that the insourcing initiative will require, though it will run alongside the company’s goal to expand globally, primarily through M&A.
In October, Nexxt Spine announced that it had achieved manufacturing of 100 percent of its spinal implants and 97 percent of its instruments in-house. The strategic move brought all operations under one roof in Noblesville, Indiana and is expected to decrease the company’s production time exponentially.
It’s rare for companies the size of NuVasive and Alphatec to take extreme positions on manufacturing. What and when to outsource are complex decisions that can take years to implement and measure return. The strategic benefits of these approaches will be interesting to watch in the coming years as the companies roll out new products in new markets.
Alphatec Spine, Globus Medical and NuVasive announced updates to their manufacturing strategies earlier this year. The companies have taken different approaches to outsourcing in order to strengthen their strategic positions, as outlined below.
Outsource All
In 4Q14, Alphatec Spine announced its plans to outsource 100 percent of its...
Alphatec Spine, Globus Medical and NuVasive announced updates to their manufacturing strategies earlier this year. The companies have taken different approaches to outsourcing in order to strengthen their strategic positions, as outlined below.
Outsource All
In 4Q14, Alphatec Spine announced its plans to outsource 100 percent of its manufacturing by the end of 2015 to yield a more lean and cost-competitive company from an operations standpoint.
In the company’s 2Q15 earnings call, Jim Corbett, Alphatec President and CEO, noted that costs to make and physically distribute products were too high and not sustainable. The company operated on a fixed asset and inventory requirement of $100 million, with revenue just over $200 million in 2013 and 2014.
The operational restructuring is intended to reduce Alphatec’s CapEx and fixed cost burden, allowing it to increase its focus on design and commercialization, which the company views as core competencies. Management stopped short of specifics, but expects that the initiative will reduce expenses by “tens of millions of dollars” in the next few years.
Historically, Alphatec outsourced the manufacturing of its instruments. Moving implants to this model will result in a reduction of nearly 100 employees.
Upon reporting 3Q15 financials, Alphatec is expected to have a sales decrease of -9.9 percent sales for the first nine months of 2015 vs. 2014. Corbett, who has helmed the company since April 2014, established the operational initiative as one of three strategic pillars, alongside expansions to R&D, the product pipeline and U.S./global expansion.
Acquire Manufacturing Expertise
Globus Medical acquired Branch Medical Group (BMG) for a final purchase price of $68.4 million earlier this year. The acquisition was made to strengthen the spine company’s operations and financials.
Neighbors in southeast Pennsylvania, Globus started using Branch as a supplier in 2005. The close nature of their relationship is apparent:
- Globus management and insiders owned 49 percent of Branch prior to the acquisition.
- Globus uses Branch to manufacture about 25 percent of its products—a number that management expects to double within the next three to four years.
- Branch, which achieved $23.3 million in revenue and $9.1 million in adjusted EBITDA in 2014, booked 94 percent of its sales from Globus.
- Analysts noted that the acquisition favorably positions Globus to realize gross profit leverage.
“Bearish investors have historically pointed to the BMG related-party relationship as one of the main reasons for Globus’ best-in-class margin profile, i.e. investors speculated that Globus used its relationship with BMG to secure very attractive manufacturing terms (low inventory costs),” Canaccord Genuity wrote in its analysis of the merger. “That said, $9.1M in EBITDA for 2014 equates to a margin profile of 39 percent, which is very high in the contract manufacturing industry, and therefore should put an end to investor speculation.”
Globus posted sales of $265.2 for 1H15, a strong 16.4 percent sales growth over 1H14. Company leadership voiced 2H15 and early 2016 plans to increase investments in in-house manufacturing, robotics and biologics.
Management changes, including Dave Demski’s move from President and COO to Group President, Emerging Technologies and Anthony Williams move from Senior Vice President of Business Development to President, were made to assist in meeting these objectives.
Build Facility to Insource
In August, NuVasive announced that it pushed its insourcing goal to nearly 100 percent. NuVasive leadership set a goal of 20 percent operating margins as it drives to $1 billion in revenue. New CEO Greg Lucier said that vertical integration of its manufacturing is the greatest opportunity to hit that 20 percent target.
The company manufactures about 30 percent of its products, a number that can be increased to 60 percent with current resources. To reach the 100 percent target, NuVasive proposed a 130,000-square-foot facility that is expected to create more than 300 jobs and house 100 CNC machine tools, inspection equipment and clean room operations.
The company expects to begin manufacturing at the facility, at an as-yet-undetermined location, by the end of 2016. NuVasive took first insourcing steps in 2013 with its purchase of ANC for $4.5 million. The two companies started their relationship in 2010, and ANC quickly became one of NuVasive’s significant implant suppliers.
Leadership has not cited the amount of investment that the insourcing initiative will require, though it will run alongside the company’s goal to expand globally, primarily through M&A.
In October, Nexxt Spine announced that it had achieved manufacturing of 100 percent of its spinal implants and 97 percent of its instruments in-house. The strategic move brought all operations under one roof in Noblesville, Indiana and is expected to decrease the company’s production time exponentially.
It’s rare for companies the size of NuVasive and Alphatec to take extreme positions on manufacturing. What and when to outsource are complex decisions that can take years to implement and measure return. The strategic benefits of these approaches will be interesting to watch in the coming years as the companies roll out new products in new markets.
You’ve reached your limit.
We’re glad you’re finding value in our content — and we’d love for you to keep going.
Subscribe now for unlimited access to orthopedic business intelligence.
CL
Carolyn LaWell is ORTHOWORLD's Chief Content Officer. She joined ORTHOWORLD in 2012 to oversee its editorial and industry education. She previously served in editor roles at B2B magazines and newspapers.
