TranS1 Lowers Expectations

TranS1 Inc. (TSON) announced that it expects revenue to be roughly in the range of $7.9 million to $8.0 million in the second quarter of this year, lower than its previous guidance of $8.7 million to $9.0 million but approximately 33% higher than the revenue in the year-ago quarter.
 
TranS1 believes that its revenue is likely to be affected by the reimbursement uncertainty surrounding its AxiaLIF procedure. The company expects to release its second quarter results on July 30, 2009, after the close.
 
TranS1 is engaged in designing, developing and marketing minimally invasive products that utilize its proprietary TranS1 surgical approach to treat degenerative disc disease affecting the lower lumbar region of the spine.
 
TranS1 is badly hurt by a reimbursement uncertainty surrounding its AxiaLIF procedure. We believe expected near-term reimbursement changes would make the pre-certification and administration process time-consuming and could create some revenue pressure. The company has addressed this issue and hired a Director of Reimbursement and added two reimbursement specialists to minimize the administrative burden.
 
TranS1 addresses a vast and expanding lower lumbar spine fusion market, which was valued at over $1.4 billion in the U.S. in 2006 and is expected to grow in the mid-single digits to over $1.8 billion by 2011 (Source: Millennium Research Group). In the U.S., over 6 million people annually are affected by lower back pain but only about 4% seek surgical treatment (Source: Millennium Research Group).
 
TranS1 faces significant competition from much larger companies in the spine market including Medtronic (MDT), Johnson & Johnson (JNJ), Stryker (SYK) and Zimmer Holdings (ZMH). Based on the company’s performance in the last quarter, we have reiterated our Hold rating for TranS1.

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