Dive Brief:

• Nevro has pulled its full-year guidance amid uncertainty created by the sluggish recovery of its spinal cord stimulator business from the pandemic.
• Sales are now forecast to fall around 10% sequentially in the third quarter, putting Nevro on track to post its weakest sales figures for the three-month window since 2017. Sales typically rise sequentially in the fourth quarter but Nevro shied away from forecasting a figure.
• The update triggered a more than 25% drop in Nevro's stock when the U.S. market opened Thursday and sparked questions about whether it is losing share to rivals such as Abbott Laboratories, Boston Scientific and Medtronic. Nevro refuted the idea that its troubles reflect a loss of market share.

Dive Insight:

Nevro braced investors for a weak second quarter in June, shared preliminary results in July and still managed to disappoint analysts with its full financial figures. The dismay is a product of the revelation that Nevro expects its difficulties to extend beyond the second quarter.

Trial implants in the second quarter were 8% lower than in the comparable period of 2019. With trial implants driving later sales of permanent devices, the consequences of the low level of activity in the quarter will drag on Nevro in the coming months. Those factors, coupled to a belief July and August will be affected by vacations, led Nevro to forecast third-quarter sales of $90 million to $93 million. 

Execs spent its conference call with analysts making the case that its difficulties reflect the impact of ongoing concerns about COVID-19 and finances on the willingness of patients to seek care. According to Nevro, new patient visits to pain doctors are about 83% of pre-pandemic levels and the pace of recovery is lagging behind the bounceback in demand for other elective procedures.

"Chronic pain treatments have proven to be among the more deferrable elective care areas by patients in this COVID recovery to an extent that I think has probably surprised many observers," Nevro CEO Keith Grossman said on a quarterly results conference call with investors.

Grossman said permanent implant procedures for the entire SCS market fell 6% in the first half of the year compared to the comparable period of 2019, based on third-party claims data. With Nevro's implant procedures growing 8% over the same period, Grossman sought to show that the troubles are not a reflection of the loss of market share. 

Some analysts pushed back against the argument. Bob Hopkins, an analyst at BofA Securities, said that with Nevro's outlook "so far below what we were thinking" and rivals not making similar comments about a sluggish recovery, "it seems to me that this kind of has to be market share."

Citing the claims data, Grossman contended the problems are not related to market share loss and pointed to factors that could distort the sales figures of Nevro's rivals.

"One of our competitors introduced a new product in the second quarter and we saw a lot of product going on their customer shelves in the last month. Another competitor in the first quarter did probably the most forward inventory stocking and we've seen that competitor do, at least in my time in this segment," Grossman said.

Another analyst questioned the comparison of procedure volumes to the first half of 2019, a time that preceded a period of sustained share gains for Nevro.

The CEO admitted that in the second half of 2020 "there was probably more aggressive and effective competitive activity" and the pace of Nevro's share gains "probably slowed," but again stated no share was lost.

What happens next is unclear. Grossman said the pain doctors consulted by Nevro are equally split between those who expect the recovery to accelerate in the next few months, later in the year, or in 2022.

Analysts at Baird are modeling a 10% sequential improvement in fourth-quarter sales, versus the 15% jump Nevro saw in the pre-pandemic years. The model predicts full-year sales of $390 million, down on the $440 million to $450 million Nevro forecast going into 2021.