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.

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