TranS1 Posts In-Line Quarter; Management Trims Full Year Guidance

TranS1's TSON results were a touch ahead of Piper Jaffray's estimates and in-line with guidance, but management trimmed full-year guidance based on a late quarter increase in payor pressure and case cancellations, similar to the late-September and October trends described recently by NuVasive. The brunt of the payor pressure is focused around discogenic back pain patients who may or may not have enough additional documented symptoms to warrant fusion surgery, and the net result will delay TSON's return to sequential growth by another couple of quarters, by its estimates. However, as more patients are treated and more data are gathered on AxiaLIF, we see the system gaining wider acceptance as a safe and compelling alternative to traditional lumbar fusion systems. Piper reiterates its Overweight rating and continues to recommend the stock for investors with a longer investment horizon. Risks to achieving the target price include further misses or disappointments could damage management's credibility and cause investors to question the viability of AxiaLIF; Additional turnover in the company's sales force; an unexpected increase in adverse events or clinical problems related to the company's devices and surgical approach. Piper Jaffray has an Overweight rating and $4 PT on TSON TSON closed Tuesday at $2.25