Tuesday, June 23, 2009

Extra, Extra read all about it!

The SpineBlogger would like to report that www.philly.com ran an article entitled, "Synthes relationship with Surgeons Questioned." The article focuses on the federal governments claim that training sessions held in San Diego and Charlotte were dangerous, illegal, and less expensive than performing an IDE. The indictment highlights the cozy and lucrative relationship between doctors, device manufacturers and pharmaceutical companies.

It is interesting to note that surgeons that utilized Norian XR have not been named in the criminal indictment considering that they used the product "off label." While surgeons can use their clinical discretion to use a product off label, the government claims that Synthes violated the law by promoting the use of this product off label. This is what the prosecution will have to prove. The bigger question will be, "Was Synthes attempting to do an end around?" Let's be honest, how much of INFUSE has been used off label? Up until the anterior cervical fusion went awry, Medtronic was flying under the radar with INFUSE. Is it really only used in conjunction with their cage? Not!

The bigger question that needs to be answered is "Were the patients informed of the risk involved injecting an exothermic material into a vertebral compression fracture?" If not, how culpable and liable does the surgeon become? Is he an accessory to marketing the product off label to his patients? The funniest part of the article is when the surgeon involved in one of the deaths stated that the rep pushed the product on him. In all the years that I have sold I have never had the ability to "push" a product on a surgeon. If so, the qualifications of this surgeon must be questioned by the prosecution if this case goes to trial. The SpineBlogger wants to know what you blokes think?

Friday, June 19, 2009

Money, Money, Money

Recently an orthopedic website had published an article on funding for residents. The article reported that the medical device industry and the federal government were tightening their wallets and that alternative sources of funding must be found for residents. There were 149 participants from various institutions. The study demonstrated that without "book funding," a generous word, the programs surveyed would not be able to provide their residents with educational resources. If the findings in this survey demonstrate a lack of federal funding, why is it that industry and academic programs have to work together? Is it our responsibility to provide subsidies to residents and academic institutions? As most of you know, in the old days (when men were men, meaning we actually sold for a living and the market wasn't bought by companies) the sales rep usually assumed the financial burden of buying books, assisting an occasional resident with course tuition, or paying for nursing education using personal discretionary funds. There was a value system. Contingent upon how much business you were doing with a program would result in how generous the rep was with an educational grant. Let's be honest, based on the cost of a medical education it's an expensive venture to want to become a physician, let alone be married and have children all on an average of a $42,ooo salary. Today, it's the opposite way around, you have to have something to offer before anyone will do business with you. Yet, the bigger question remains how do we establish transparency and implement ethical standards at a time when our industry is under fire?

The national press has had a field day with spine, and I suspect there will be more to follow. First there was the indictment and conviction of Patrick Chan, the former Arkansas Neurosurgeon who was taking "kickbacks" for using certain companies products. Then we had Jeff Yielding LPN, another Arkansan (there's something in the water down there) who was convicted of federal charges for "kickbacks." He will serve 80% of his federal conviction in prison. Then there were Dr. Zdeblick's and Dr. Wang's indiscretions. Zdeblick and Wang ERRONEOUSLY provided information regarding consulting compensation while employees at Wisconsin and UCLA. Now, the spine community has to deal with Dr. Kuklo's faux pas which is troubling in itself since he is respected for his service to our country and the industry. Today we await the governments involvement in the qui tam whistleblower lawsuit against the infamous "Three Amigos" aka the Lyons Brothers. As the Spine Blogger has stated in the past, surgeons should be paid for their intellectual and clinical expertise. The study of human nature provides us with plenty of insight into how money or endowments (I'll use a kindler and gentler word for the younger reader) play an integral role in skewing an individual's perception of what is right, what is wrong, and am I willing to evaluate a product or company objectively.

So how have we arrived at this flashpoint in our industry? Surgeons complain that they are not making enough of money, and do not have the ability to coalesce to challenge insurance and government reimbursements since that would constitute a violation of antitrust laws. Companies have incredible margins based on the cost of goods sold and utilize their profits to buy market share in a zero-sum market. Independent distributors have become broker/agents for surgeons, rather than sales representatives, a by product of no loyalty represented by the companies, and the companies condoning this type of behavior. Organic development is a thing of the past, it's all about immediate gratification. Acquisition and mergers! This is what happens when you spend your day answering to Wall Street rather than living by those ridiculous mission statements that hang in your corporate facilities.

So where do we go from here? Unfortunately, until the Department of Justice steps in and makes an example of those that abuse their privilege our industry we will continue to "shoot 'em up" and "duke it out." The only casualty will be the patient who doesn't know whether they really need surgery or are they being used to line someone else's pocket. The Spine Blogger wants to know what you working stiffs think?

Tuesday, June 16, 2009

Synthes Indicted over Norian

The SpineBlogger knew it was coming, it was only a matter of time. At 4:27 p.m. today, June 16th Reuters reported that the US Attorney Michael Levy for the Eastern District of Pennsylvania filed a 97 count (ouch!) indictment against Synthes and Norian for conducting unauthorized clinical trials using Norian SRS and Norian CRS between 2002 and 2004. Allegedly, the companies encouraged the use of Norian on patients with Vertebral Compression Fractures without approval by the Food and Drug Administration, aka "off label use."

If one knows the history of Norian, it was initially intended for General Orthopaedic Surgery. The initial sites included Mass General where Dr. Jesse Jupiter published a few "White Papers" on the efficacy of Norian in distal radius fractures. Over 200 patients were treated with Norian and after the third death, the company decided to withdraw the product from the market (exemplary judgement).

If the company had generated little revenue from the use of this product, how STUPID was the management team at Synthes? It's a wonder that some of those Harvard graduates continue to exhibit some poor judgement, what a waste of an education.

Norian which is based in West Chester, Pennsylvania faces a $26 million dollar fine, while Synthes faces an $8.8 million dollar fine. The fines themselves are a joke. Hansjoerg Wyss has endowed Harvard with more than what the potential penalties total. When is the government going to get serious about making an example out of the Wild Wild West environment that exists in the US Spine Market? Sounds to me like Mr. Levy and the Grand Jury are as soft on Synthes like the NJ Attorney General. Who knows maybe they are related? The Spineman wants to know what you think?

Sunday, June 14, 2009

The Insanity of the Spine Industry

The Spine Blogger recently heard that an early stage company was interested in splitting its stock. Obviously from a purely psychological position this company is hoping to make the price of a share more attractive to a potential investor. Considering that this company has already failed to raise capital or sell the company, the potential of a split is probably a therapeutic measure to make its CEO and President feel as though they have more stock to trade in the event that someone would want to invest into another “me too” company. By splitting the stock, they would increase the stock’s liquidity, the degree to which a stock can be bought or sold without affecting their assets or stocks price.

Usually companies split stock when the price of the stock becomes unaffordable. An example in our industry would be Stryker. They have split their stock on multiple occasions. Yet, who would want to buy into another “me too” company that has exhibited a lack of discipline and stability on part of its CEO? The Spine Blogger poses this question; is a stock split an advantage or disadvantage to a potential investor when the company has never been traded publicly? If the company’s stock were publicly traded the potential investor would at least have a historical reference to bid-ask spreads. The bid-ask spread would at least provide the market with a reference as to what buyers were willing to pay versus what the seller was willing to accept. But if there were no reference, the only indicator would be to look at the historical stability of the company, its market cap and its revenue stream. But if a stock split is supposed to be a good psychological indicator that the company is doing well, how is this company perceived for its financial and management stability if sales have “yo-yo’d” over a three to five year period what does it say about the leadership qualities of its CEO, the Board of Directors and its investors? What if the majority of the company’s sales are generated by surgeon investors? I would like to think that would influence potential investors because the company’s portfolio would have exhibited an inability to increase non-investor sales revenues. Critics have said that using a stock-split strategy is questionable at best, especially for a company that has a mediocre track record. The most important factor to consider is that there is no effect on the market cap of the company. In closing, the Spine Blogger always looks at the leadership of an early-stage spine company. Are the right people at the helm of the ship? There is a difference between driving an eighteen- wheeler versus an Aston Martin. Why has the company had the inability to raise capital? Is it greed or is it ego? Is there stability in the distribution network? Why has there been such high attrition? Maybe if management at these companies were more concerned with running a business rather than playing make belief entrepreneurs the energy that they expend would probably be better utilized in becoming a successful company.

Saturday, June 13, 2009

Is it Fact or Fiction?

Recently the Spine Blogger was reading some of the other spine and industry related web and blog sites when I stumbled upon an expose about an individual that was hired by an early growth stage company. Upon reading this expose, the Spine Blogger decided to perform a bit of due diligence on some of the comments that were made by this individual to the interviewer on the company and its management team.

So the Spine Blogger decided to make a series of phone calls to perform some due diligence on this organization and its management team. The question that we asked was, what is so special about this company and its management team? What perplexed the Spine Blogger was the comment that something special was about to happen at this company. First we asked questions about this companies longevity. Supposedly it has been around for five years. In addition, the Spine Blogger was told that this company has been attempting to raise capital for at least a minimum of three to four years . The word within the industry was that this company was supposed to be sold last year. Unfortunately these Captains of Industry failed to raise the necessary capital, eventually disrupting the company's overall operations. In addition we were told that 95% of the company's revenue stream is coming from its surgeon investors. What perplexed the SpineBlogger the most was the comment made by the interviewee that the executives at this company were portrayed as innovators even making comparisons to sports legends. Upon looking at the website, most innovators do not design more "me too" products. How innovative can a companies portfolio be when they failed to raise capital during a time when most private equity firms and investors were willing to pump capital into the industry? Maybe it's time that some of these platforms do their homework rather than write more propaganda about individuals and their companies. Remember there is a fine line between fact and fiction. The Spine Blogger wants to know what it's readers think?

Friday, June 12, 2009

Where is Spine Going?

Recently, the Spine Blogger had an opportunity to discuss the state of spine with a select group of industry professionals. The panel did not have a vested interest in facet arthroplasty, total disc arthroplasty, dynamic stabilization or stem cells. The participants have carried a bag, have exceptional clinical backgrounds, are in management positions, and are not CEO's. The Spine Blogger believes that just because you do not run a company, does not mean you don't possess leadership or have vision. Unlike other platforms, this Blog does not use the people's site to generate income or laude the industry, the Blogger is an untainted forum. We attempt to be honest. Most of all we try not to live by the Golden Oracle Theory, "I said it, therefore, it must be true!"

So what's wrong with Spine? We have too many "me too" companies! No need to mention their names since most of you already know who they are. Hopefully, with the downturn in the economy, investors will be more conservative and wiser in choosing their next investment, witnessed by the recent extinction of some of the so-called early growth stage or pre-revenue companies. As one of the industry's "Golden Oracles" Tony Viscogliosi stated at a 2008 emerging technology meeting, "there are over 500 pedicle screws, 250 cervical plates and there will be one rep selling and servicing one doctor." Hard to fathom that surgeons are performing that many procedures. Everyone agreed that we work in a zero-sum market, competing for each others market share, a by product of a commodity market. Based on the economy of scale the legacy companies in our industry have gotten too big to fail. These companies have become an oligopoly or cartel controlling the spine market witnessed by their positioning at major trade shows by the various spine societies dependency on their revenue. They have access to a greater range of financial instruments, specialized management teams, and achieve critical mass in marketing media. It's the "me too" companies that must be concerned. With major cracks in our banking system, the access to capital will hurt these smaller companies. If these companies are working on a line of credit and do not meet their banking covenants the ripple effect could be catastrophic. Their alternative would be to repair their breach of a debt covenant by an equity cure injecting equity funding back into their companies. This will only improve balance sheet ratios and avoid breaches of the covenants. The capital then raised via an equity cure would be used to make up a shortfall in revenues, cash flow or profits. Unfortunately the Spine Blogger does not see that happening since this is contingent on the terms of the debt covenants, in addition people at these "me too" companies exhibit too much greed. The reason many of these companies surfaced was because there was an excess of capital leveraged by using others paper. In addition, many of these companies have surgeon investors or inventors whom either have been duped or believed that they could make a windfall return. (Yes some have!) But let's face it, these companies either have inexperienced board members, or members whose time has come and gone. Yes, the world does change! As has been stated, the days of wine and roses are over for these early-growth stage companies

Second, the genie was let out of the bottle a long time ago (and it wasn't Barbara Eden). Surgeons, Hospital Administrators and Distributors know our margins. Hospitals and their purchasing groups know that general orthopaedics, trauma and spine places a major onus on the fiscal health of their facilities, witnessed by the surge of purchasing groups that are mandating capped pricing in order to compete in their markets. This alone is placing tremendous strain and effort on the "me too" companies. How does a "me too" player with an incomplete product line compete with the "one-stop" shopping concept? If the members of the spine cartel are willing to sign contracts to compete in these markets, how does this affect the smaller companies ability to generate revenue and maximize their operating income? The industry will continue to grow because of demographics, but let's face it, some type of change is inevitable. The "big boys" are having trouble getting reimbursement for their discs, companies and surgeons are being investigated, if not eventually prosecuted (when will the DOJ act), and commissions are going to be scaled back for distributors. Someone has to pay our beloved executives and their friends.

Eventually, there will be some type of government option for Americans that just cannot afford health-care insurance. Inevitably, Medicare reimbursements will be cut. Considering that we live longer, are more active, and want to preserve our longevity, how many of these surgeries could be avoided if Americans were better educated on taking better care of themselves (eat less, exercise more, spend quality time with their families). How many of these surgeries would be needed? Eventually we will see some type of regenerative therapy for degenerative disc disease only because of technological evolution.

So what's the alternative? The Spine Blogger and the Panel believe that rather than have additional "me too" companies and products, the industry needs more incubators and innovators rather than commodity products. Can someone provide better guidance for the investors?Hopefully the Stem Cell Industry will exhibit some sanity. In addition, we are starting to see a trend where companies are cutting back commissions that are paid to independent distributors. Maybe this will be a good thing since everyone on the panel agreed that sales has become a dying art in our industry. The day of brokering your surgeon as a consultant will eventually come to an end. The bottom line is all those companies that claim that they have emerging technologies are on the clock. Until then, Party on! The Spine Blogger wants to know what the people think?

Friday, June 5, 2009

Has the Spine Bubble Burst?

Poof! As these dinosaurs line up for extinction; Innovative Spine Technologies, Vertebron, Pegasus Biologics, Inion, Archus (on life support) who can be next? Disc Motion Technologies? Impliant? Hydrocision? Applied Spine? According to Venture Sources, Venture Capital funds invested $29.7 billion into start-up companies in 2008 that produced $24.9 billion from IPO's and the sale of start-up firms last year. As the Spine Blogger keeps reporting, just because Wall Street has exhibited signs of stability does not mean that the economy is stabilizing. It has been heard on the street that NuVasive (the King of meeting its numbers) is pressuring their sales management team into focusing on a strong close to QII since the company is lagging behind the Street's expectations. So what can we expect as we move into the second half of 2009?

Too few of the investments made into many of the aforementioned companies have led to big paydays, if any. Are investors going to be willing to pump more capital into hardware that is doing nothing more than commoditizing the market? By revaluing assets no one really knows what some of these companies are really worth. Let's get serious the day of 3-5X is over. No more delusions and hallucinations. If you want to sell your technology or company you are going to have to prove that you have the ability to generate revenue beyond a certain threshold. Just look at the retrospective data. There were 30 mergers and acquisitions in 2007, roughly 50 in 2008, and only 1 in 2009. Legacy companies believe that they are undervalued in the current economic climate, yet the Spine Blogger thinks that many companies are overvalued. The overvalued companies include Life Spine, X-Spine, Custom Spine, Vertecor, Spine Source and Spinal Elements. Why? Because these companies really do not have anything that would be considered emerging technology and at best mediocre management teams. Poor management has led to poor results. Just because one has the ability to generate revenue does not mean that you will sell your company. Most of these smaller companies will be scrutinized for their relationships with surgeons, the great potential of healthcare reform, and how they manage their own capital will effect their longevity. Yet, the dream still lives on! You know what PT Barnum said; "There's a sucker born every minute!" The Spine Blogger wants to know what you think.

Tuesday, June 2, 2009

Is it real or is it Memorex?

Today, Globus Medical announced that it had received commercial approval to launch the Coalition Anterior Cervical Discectomy Spacer System (CACDSS). Pronounced Cactus, I'll take the licensing fee for that name. I thought I would make the Globus Product Director happy with that acronym. Globus claims that it reduces procedural steps, minimizes retraction, and lags the spacer to the endplates to compressively load the fusion area. Have we ever lacked compression when considering the weight of the average human head? The Spine Blogger is not one to argue with success, nor, can we criticize David considering that without knowing the aspects of the sealed documents in the Synthes litigation, he slew Goliath (aka; Hansjoerg Wyss). Shame on you Hansjoerg, we never thought you would roll over that easy. Yet, how much more dirt can an organization kick at another company when Globus has one of its CONSULTING SURGEONS quoted as stating this implant provides the surgeon's patients with a" Zero-Profile" offering. Yeah, Yeah, Yeah, I know, this is an interesting implant, yet, the Spine Blogger must ask, with roughly a 90-96% fusion rate in Anterior Cervical Discectomies are these devices enhancing fusion? Is this device making the surgery any simpler? The biggest complaint that we have heard from most surgeons that have used the lumbar and cervical versions of this device is that so far the instruments and the angles for screw placement do not make these implants that simple to insert. Like any other product, the Spine Blogger would argue that there is a learning curve. In addition, dysphagia is a by product of many factors. One of them may be that doctors are now trying to drive an Aircraft Carrier through the Lincoln Tunnel.

But here is the bigger question, has Globus really designed anything different? Before Synthes and Globus there was a German company by the name of Bricon that had come up with this concept. We have always argued that beauty is in the eye of the beholder. The Spine Blogger wants to know what its readers believe. Is this really making a difference or are we just re-inventing the wheel so that we could charge hospitals more money?