Personalized Spine Surgery Will Reshape A US$13b Market Over The Long Term

Catalysts

About Carlsmed

Carlsmed provides a digital surgery platform and patient specific 3D printed spine implants for lumbar and cervical fusion procedures.

What are the underlying business or industry changes driving this perspective?

• The move toward personalized medicine in spine care, supported by Carlsmed's aprevo patient specific implants and digital preoperative planning, aligns the business with hospitals and surgeons who are looking for better outcomes and fewer revisions. This can support long term procedure driven revenue.
• Growing recognition of the clinical and economic burden of revision spine surgery, with reoperation rates and costs for traditional approaches highlighted on the call, positions Carlsmed's reported 75% to 83% reductions in revisions as a potential driver of hospital adoption. This can influence revenue growth and support gross margin resilience as volumes scale.
• The large addressable market of roughly 0.5 million annual lumbar fusion patients and an estimated US$13b opportunity at current pricing provides a long runway for surgeon and account penetration. If realized, this would primarily impact top line revenue and help spread fixed operating costs over a broader base.
• Regulatory and reimbursement support, including the CMS NTAP for aprevo cervical that provides up to US$21,125 per inpatient procedure and the anticipated outpatient transitional pass through payment, create financial incentives for hospital use. This can support cervical revenue contribution and help offset selling and marketing expense intensity over time.
• Operational gains in the capital light, make on demand model, such as the reduction in lead times from 20 to 8 business days and the removal of most production expedite fees, indicate potential for further supply chain efficiency. This can support gross margin near the mid 70% level and gradually narrow the current GAAP net loss and EBITDA loss as scale builds.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Carlsmed's revenue will grow by 43.1% annually over the next 3 years.
• Analysts are not forecasting that Carlsmed will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Carlsmed's profit margin will increase from -58.8% to the average US Medical Equipment industry of 13.6% in 3 years.
• If Carlsmed's profit margin were to converge on the industry average, you could expect earnings to reach $17.8 million (and earnings per share of $0.55) by about February 2029, up from $-26.3 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 44.4x on those 2029 earnings, up from -11.8x today. This future PE is greater than the current PE for the US Medical Equipment industry at 32.8x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.77%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Carlsmed is still running GAAP net losses and used US$23.7 million of cash in operating activities in the first 9 months of 2025, so if procedure growth slows or hospital adoption of aprevo levels off, the path to positive cash flow could be pushed out, which would weigh on earnings and potentially require more external funding.
• The long term thesis leans heavily on lower revision rates and favorable health economics, yet current clinical evidence is based on a few hundred patients with 1 to 2 year follow up, so if larger or longer term studies show smaller benefits than the early 75% to 83% reoperation reductions, hospitals may be less willing to pay for personalized implants, putting pressure on revenue and gross margins.
• The US$13b lumbar fusion opportunity and the upcoming cervical launch both depend on stable or improving reimbursement, including the CMS NTAP and anticipated outpatient transitional pass through payment, so any change in Medicare or commercial payer policies that reduces or removes these add on payments could weaken the economic case for hospitals, affecting procedure volumes and net margins.
• Operating expenses reached US$19 million in Q3 2025, with sales and marketing, R&D and G&A all rising to support growth and public company requirements, so if this cost base keeps expanding faster than revenue, the business may struggle to reach operating leverage, keeping net losses elevated and delaying any improvement in earnings.
• The model is concentrated in a single category of highly specialized spine implants and a digital surgery platform, so if competing technologies, alternative surgical approaches or new entrants gain traction with surgeons over time, Carlsmed could face share pressure within its own niche market, which would cap long term revenue potential and limit scale benefits to gross margin and earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $19.4 for Carlsmed based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $24.0, and the most bearish reporting a price target of just $17.0.
  
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be $131.2 million, earnings will come to $17.8 million, and it would be trading on a PE ratio of 44.4x, assuming you use a discount rate of 7.8%.
  
• Given the current share price of $11.67, the analyst price target of $19.4 is 39.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.