One of the "seven giants" may be sold

Recently, Nevro, a manufacturer of neuromodulation devices, announced that its board of directors is exploring a variety of strategic options, including but not limited to partnerships, mergers and acquisitions, and the sale of the company, in response to the increasingly intense competitive pressure in the spinal cord stimulation (SCS) market.

It is understood that the Senza® spinal cord stimulation (SCS) system developed by Nevro features a unique 10 kHz high-frequency stimulation and is the first SCS system approved by the FDA for the treatment of painful diabetic neuropathy (PDN). In the field of neuromodulation devices, Nevro is also one of the "seven giants" and has been included in the Global Medical Device Top 100 list for several consecutive years.

Affected by the news, Nevro's stock price fell by more than 44% on August 7th, and has fallen by about 74% so far this year. It is currently at $6.01 per share, with a total market value of $224 million.

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After laying off 5% of its workforce, did cost reduction fail?It has been reported that Nevro initiated restructuring efforts early this year, and the company also reduced its workforce by 5% (approximately 63 people) to achieve cost reduction. The layoffs primarily involved employees in sales and marketing as well as operational positions, but were mainly concentrated on positions within the organization.

At that time, Nevro stated that the restructuring supported its own development strategy, enabling it to focus investments and further position Nevro's long-term growth and profitability. The future will continue to focus on bringing innovative products to the market, working closely with doctors treating chronic pain patients, and creating value for all stakeholders.

In addition, the company pointed out that the restructuring would have a positive impact of $14 million to $15 million on its adjusted EBITDA for the full year of 2024. However, looking at the latest quarterly financial report, this "positive impact" is fading.

On August 6, Nevro announced its financial performance for the second quarter of 2024. The company reported a loss of $19.6 million for the quarter ending June 30, with a loss of 53 cents per share, and revenue of $104.2 million. In comparison, the loss for the same period in 2023 was $24.6 million, with a loss of 69 cents per share, and revenue of $108.7 million.

Nevro's CEO, Kevin Thornal, noted that the decline in this quarter's performance is mainly attributed to the continued weakness in the U.S. spinal cord stimulation market and strong pressure from competitors. He also mentioned that recent market analysis shows that some emerging treatment methods are being adopted at an earlier stage in the patient care pathway, which to some extent delays the time for patients to choose SCS therapy, as SCS therapy is typically used in the final stage of treatment. However, he still believes that many patients will ultimately choose SCS therapy to address their pain issues.Due to a sluggish market performance, Nevro has revised its full-year revenue forecast for 2024 downward, from the previous range of $435 million to $445 million to a new range of $400 million to $405 million. Concurrently, it has adjusted its expectations for full-year adjusted EBITDA for 2024 from the prior range of negative $5 million to positive $2 million to a new range of negative $20 million to negative $18 million.

For the third quarter of 2024, Nevro anticipates global revenue to be between approximately $92 million and $94 million, with adjusted EBITDA expected to be between negative $10 million and negative $9 million.

Kevin Thornal stated during the earnings call: "The company will be more actively exploring various potential strategic alternatives in the coming months. We have not set a specific timetable for this process at this time, nor can we determine whether a transaction will ultimately be concluded, or whether new strategic alternatives will prove to be more advantageous than the current path of independent operations."

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From Research and Development to Market LaunchNevro's Journey Over the Mountains

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Data indicates that Nevro was established in the United States in March 2006. The company has always been dedicated to innovation in medical devices for pain treatment. Its earliest product, Senza, originated from the Mayo Clinic's roundtable discussion on high-frequency pain relief. Nevro completed its earliest animal experiments at Stanford University and carried out large-scale animal clinical trials at the University of California, Davis, in 2007.

From Research and Development to Market Launch

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In 2008, the prototype of Senza was successfully developed. In 2009, clinical trials on humans began in the United States; in 2010, Senza received the CE mark in Europe and started sales there; in 2011, Senza began sales in Australia; in 2012, Nevro initiated its large-scale clinical trial Senza-RCT in the United States; in June 2014, an application for market approval was submitted to the FDA.

On November 6, 2014, Nevro Corporation officially went public on the New York Stock Exchange with an IPO price of $18, and the stock price was around $25 on the day of listing.Received FDA Approval

In February 2015, significantly earlier than market expectations, the FDA indicated to Nevro that the Senza spinal cord stimulation system was approvable, and officially approved Senza in May 2015, granting it a superiority label. The label specified that Senza could be used for back pain and lower limb pain.

Following this, Nevro continued to innovate and develop based on the Senza spinal cord stimulation system, expanding its indications. This included the FDA's approval in November 2019 of its Senza Omnia spinal cord stimulation system, which has a lifespan of over 10 years, received conditional full-body MRI approval, and is upgradable for future waveforms and frequencies.

In April 2021, Nevro also announced the launch of the new HFX brand, a comprehensive solution for individualized relief of chronic pain to optimize the experience for physicians and patients. In July 2021, the Senza® system received FDA approval for the treatment of chronic pain associated with painful diabetic neuropathy (PDN), becoming the first spinal cord stimulation system approved by the FDA for the specific indication of treating PDN.

Currently, Nevro's Senza®, Senza II®, Senza Omnia™, and HFX iQ™ are the only SCS systems that provide Nevro's proprietary 10 kHz therapy for the treatment of chronic pain in the trunk and limbs, as well as painful diabetic neuropathy, affecting the lives of over 115,000 patients worldwide.On November 30, 2023, it was also announced that Vyrsa Technologies, a medical device company specializing in providing minimally invasive treatment options for patients suffering from chronic sacroiliac joint ("SI joint") pain, was acquired. Nervo paid $40 million upon closing of the transaction, and in addition, up to $35 million in cash or stock will be paid post-acquisition based on Vyrsa Technologies' performance and research and development achievements (with a total maximum payment of $75 million, approximately 530 million RMB).

The aim is to add a minimally invasive treatment option for patients with chronic sacroiliac joint ("SI joint") pain, offering the most comprehensive product portfolio in the field of SI joint fusion, meeting the preferences of physicians and the diverse needs of patients, thereby improving patient outcomes and quality of life.

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Broad SCS Market

Neuromodulation is an emerging technology used to treat or alleviate neurological disorders, with applications including deep brain stimulation (DBS), spinal cord stimulation (SCS), and vagus nerve stimulation (VNS). Among these, SCS works by stimulating the spinal nerves with pulsed electrical currents, blocking the transmission of pain signals from the spinal cord to the brain, thus alleviating intractable pain.In the past few decades, hundreds of thousands of patients have benefited from neuromodulation, a therapeutic technology, and new applications in neuromodulation are continually being discovered. According to relevant data statistics, in 2020, the global market size for neuromodulation had reached 5.8 billion US dollars, and it is projected that by 2025, the global neuromodulation market will grow to 8.8 billion US dollars, representing a 51.7% increase over five years.

Domestically, with the growth of the elderly population base and the increasing prevalence of chronic diseases, the market for neuromodulation products is also expanding. Data from the "China Pain Medicine Development Report (2020)" shows that the number of chronic pain patients in China has exceeded 300 million and is growing at a rate of 10 to 20 million per year.

In terms of market share, currently, seven international giants—Medtronic, Abbott, Boston Scientific, LivaNova, Nevro, Nuvectra, and NeuroPace—have almost monopolized the entire neuromodulation market due to their first-mover advantages in technology and customer base.

Looking at the sub-sectors, spinal cord stimulators (SCS) hold the largest share in the neuromodulation market, accounting for nearly 55% of the total market in 2018; deep brain stimulators account for 16%, vagus nerve stimulators account for 14%, and other categories make up about 15%. Among them, the SCS sector is dominated by Medtronic, Abbott, and Boston Scientific, with each company holding approximately one-third of the market share.It is worth noting that in recent years, a number of domestic companies have emerged in China's implantable spinal cord stimulator market, such as Jingyu Medical, Pince Medical, and so on. In January 2022, the implantable spinal cord stimulator produced by Pince Medical was approved for registration, marking the first domestically produced implantable spinal cord stimulator approved in China; in August of the same year, the implantable spinal cord stimulator developed by Ruishenan was approved for market launch.

The SCS market is vast, yet Nevro has suffered consecutive annual losses.

Data整理 from Futu Niuniu reveals that since its listing in 2014, the company has been in the red for eight consecutive years. Moreover, as the operating income has grown, the deficit has continued to widen. In 2014, the company's revenue was $32.573 million, with a net profit of -$30.68 million; by 2023, the revenue had reached $425 million, with a net profit of -$92.213 million.

It is noteworthy that the company briefly turned a profit of $3 million in 2022 through a litigation victory, but this was not enough to reverse the long-term deficit situation. The company is currently exploring strategic options in search of new directions for development. Whether it can turn the tide in the future by adjusting its strategy, optimizing its product line, or finding partners will be key to its ability to stand firm in the market.