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Nuvectra: An Attractive Spinoff Trading Near Liquidation Value


Medical device manufacturer Greatbatch, Inc. has recently spun off its neuromodulation segment under the new name "Nuvectra Corp".

Nuvectra presents limited downside risk as it is trading just above its net current asset value and is subject to uneconomic selling pressure.

Nuvectra presents potentially significant upside due to FDA approval of "Algovita".


On March 14, 2016, medical device manufacturer Greatbatch, Inc. (NYSE:GB) spun off its neuromodulation division under the new name "Nuvectra Corp." (NASDAQ:NVTR). On the day of the spinoff, Greatbatch shareholders received one share of Nuvectra for every three shares of Greatbatch. The decision to spin off Nuvectra was made when Greatbatch's Algovita Spinal Cord Stimulation system received FDA approval. Algovita is a spinal cord stimulation system designed to help alleviate chronic pain in the back, arms, and legs. The system uses electrical impulses to prevent pain signals from being received by the brain. It is implanted through a minimally-invasive surgical procedure which sets the system in place. This video explains spinal cord stimulation in more detail.

The Upside

The approval of this technology for distribution was the green-light for Greatbatch to move on with the spinoff of their neuromodulation division. According to the company's 10-12B, "Nuvectra will be focused on the development and commercialization of its neurostimulation technology platform and, in particular, its Algovita spinal cord stimulation system." This filing also identified a number of competitive advantages which distinguish Algovita from its competition.

  1. The implantable pulse generator, or IPG, delivers a broader spectrum of pulse delivery ranges. The chipset in the IPG will also allow new waveforms and stimulation outputs to be activated in the future.
  2. Algovita will provide a diverse portfolio of leads (the piece which runs along the spinal cord and delivers the electrical pulses) capable of tailoring therapy to a wider spectrum of patients.
  3. Algovita will also utilize an innovative wireless interface and algorithmic programming system capable of targeting pain more precisely.

Predicting future revenues derived from Algovita is difficult, but investors have some clues at what they could look like in the coming years. On March 18th, the company secured a $40 million term loan, $15 million of which was funded in full at the initial closing of the loan agreement. An additional $12.5 million in debt will be available for withdrawal in the first half of 2017 if Nuvectra can achieve consolidated trailing six-month revenues of at least $13.5 million. The final $12.5 million in debt will be available for withdrawal in the second half of 2017 if Nuvectra can achieve consolidated trailing six-month revenues of at least $20 million. This gives us an idea of the company's revenue targets:

Withdrawal period Trailing six-month revenues needed to receive additional funding
Dec. 31, 2016 - Jun.30, 2017 $13,500,000
Jun. 30, 2017 - Dec. 31, 2017 $20,000,000

Revenue projections beyond these periods are not well known, but Piper Jaffray Companies (NYSE:PJC), the company acting as Nuvectra's financial advisor, projects that Algovita could generate...