The biotechnology industry has almost limitless growth potential. With rapid technological advancements, many biotech companies are diving into previously unexplored areas of medical science. Now, artificial intelligence (AI) is the cherry on top, allowing businesses to use its capabilities to accelerate drug discovery, optimize clinical trials, personalize medicine, and streamline operations.
One biotech company with tremendous long-term potential is Alphatec Holdings (ATEC), a key player in the spine surgery market. The company’s innovative solutions for spine surgery have caught analysts' attention.
Despite a strong quarter, Alphatec stock is down 30.8% year to date, compared to the S&P 500 Index's ($SPX) roughly 14.5% gain. Nonetheless, Wall Street believes the stock is a "strong buy," expecting ATEC to rise 114% over the next year. Let's find out why.
A Look at Alphatec Holdings
Founded in 1990, Alphatec Holdings (ATEC) focuses on developing and commercializing surgical solutions for patients with spinal disorders. The company prides itself on its advanced spine technology, which aims to improve surgical outcomes, shorten hospital stays, and speed up patient recovery.
Alphatec has an innovative portfolio of spine surgery solutions. These include implants, biologics, surgical navigation tools, and technologies designed to address a wide range of spinal disorders. Some of these technologies include a type of neck surgery called Anterior Cervical Discectomyand Fusion (ACDF), Lateral Transpsoas (LTP), Posterior Cervical Fusion (PCF), and a spine stabilization procedure, among many others.
These advanced procedures have led to robust revenue growth from $113.4 million in 2019 to $482.3 million in 2023. In the recently reported first quarter, revenue grew 27% to $138 million, thanks to increased surgical revenue.
Alphatec is committed to providing comprehensive training and support to surgeons so that they can effectively use its advanced technologies. The company held 150 surgeon training sessions during the quarter.
In 2023, Alphatec advanced its portfolio with the introduction of 15 new products and line extensions. This is likely why management now expects revenue to reach $601 million in 2024, a 25% increase over 2023, compared to their previous estimate of $595 million.
Navigating Growth in The Spinal Surgery Market
The global spine surgery market is expected to grow at a compounded rate of 4.5% between 2024 and 2029, driven higher by an aging population, the rise of spinal disorders resulting from obesity and various other reasons, and advancements in minimally invasive surgery (MIS) techniques.
Alphatec makes significant investments in research and development (R&D) to continually innovate and introduce new products that meet the changing needs of surgeons and patients. In Q1, R&D expenses totaled $18 million, up 36.4% year on year.
Because the company is still growing, regular investments in advancing its pipeline, as well as strategic acquisitions, have slowed its path to profitability. However, ATEC's net loss per share narrowed to $0.34 in Q1, compared to $0.40 in the year-ago quarter. Management anticipates a positive adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of around $23 million in 2024. Alphatec reported $144 million in cash and cash equivalents at the end of the quarter.
While Alphatec's aggressive strategic acquisitions and expenses may be hurting its bottom line for the time being, they will most likely pay off in the long run. Its acquisition of REMI Robotic Navigation System and the launch of Calibrate LTX lateral expandable implant system to advance its portfolio show its commitment to innovation.
Ongoing advancements in medical technology, such as robotics and MIS provide opportunities for Alphatec to innovate and differentiate itself in the market. However, competition in this field is fierce, with established players such as Medtronic (MDT) and Stryker (SYK), as well as new entrants, vying for market share. However, Alphatec's exclusive focus and expertise in spinal surgery give it a competitive advantage over its rivals.
Analysts have also raised their revenue estimate for 2024 to $601 million from $595.5 million, which is consistent with management's guidance. Revenue is expected to rise by 20.4%, reaching $724.4 million. If the company continues to grow its revenue at this rate, profitability is not out of reach.
Is ATEC Stock a Buy On Wall Street?
Recently, Wells Fargo analyst Vik Chopra reiterated his “buy” rating for ATEC and set a price target of $26, citing the company's positive financial projections. Chopra believes that Alphatec's financial discipline and strong cash balance will enable it to become free cash flow positive by 2025. He added that the company's long-term revenue target of $1 billion by 2027, as well as product portfolio development, make it an attractive investment opportunity right now.
Overall, Alphatec stock is a “strong buy” on Wall Street. Among the 11 analysts that cover the stock, 10 of them rate it a “strong buy,” with just one suggesting a “moderate buy.”
The average price target for ATEC is $22.35, which implies a potential upside of 113.8% from current levels. The high target price of $26 implies the stock could climb 148.8% over the next 12 months.
Trading at 2.4x forward 2024 sales estimates, ATEC stock is a cheap buy right now, given its growth potential in the spine surgery market.
The Bottom Line on ATEC Stock
Alphatec is well-positioned to capitalize on the growing spine surgery market, thanks to a strong product portfolio, strategic acquisitions, and a commitment to improving surgical outcomes. Nonetheless, differentiating its products and maintaining pricing power will be crucial for Alphatec's long-term growth.
That said, investors should also be aware that biotech stocks are highly volatile, despite the prospects. It could take years for the company to generate consistent profits. As a result, this hypergrowth stock could prove rewarding for investors with a high risk appetite and a long-term investment horizon.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
