Wednesday, September 9, 2009

Has the Spine Industry Rebounded?

Innovation and creativity are important when it comes to advancing medical technology. The objective is to make money. Yet, the goal of emerging technology is to enhance the quality of life for the patient, so that they can live a healthier and more productive life. Recently, the media has had a field day with the spine and general orthopedic industry questioning companies relationships with surgeons, surgeons fiduciary responsibilities to patients and employers, and companies "masking kickbacks" as consulting agreements (distributors are not that far behind the pack).

"Who is responsible for providing oversight, or, policing the industry? The Companies themselves? NASS? AdvaMed? The DOJ? It is apparent that the Spine Industry has come under the watchful eye of the government over the past few years due to our own inabilities to effectively play by an honorable set of rules (is there honor amongst thieves?). Unfortunately, this has resulted in large fines, compliance monitors receiving exorbitant contracts (cronyism witnessed by Chris Christie's actions), former CEO's (Stryker) testifying in front of Congress about our dirty little secrets, and NASS (a lame duck organization) issuing guidelines for more transparency between its members and the companies that its members align themselves with, and last but not least, AdvaMed. The bigger question that must be asked is; does anyone play by the rules anymore?

If you look at our industry, the make-up consists of start-ups (incubator-to-birth), early-growth stage companies, mid-size companies and the Spine Cartel. The last ten years led to a glut of new companies due to a bourgeoning economy and market forces allowing private investors and investment banks to sink their teeth and money into spine. Look at the deals that were transacted, Blackstone, Charite, ProDisc, Kyphon, SpineCore, Biomet, St. Francis Technologies, Cervitech and most recently Osteocel, to name a few. For all the great things that transpired, there were many bad things that began to surface. Promises that were once made to investors based on futures, were in reality much more difficult to achieve. This resulted in a handful of companies closing its doors due to poor management, unrealistic expectations, and a distressed economy. As the economy adjusted itself, sales became a major challenge for smaller hardware companies, de-leveraging became a mandate, and re-organization became tantamount for survival. Just look at the forecasts. Analysts now discuss 8-10% growth as being acceptable when as recently as two years ago 18-20% growth was the norm in the industry. Distributors and direct sales people have found it difficult to compete in this ever expanding zero-sum market. The evolution of sales in our industry has led to distributors and sales people to become"surgeon brokers!" Companies no longer have the patience to build something, they expect immediate results. If it was that easy, we would all succeed. But, why the rush? Is it because of all the promises made that cannot be delivered? Did everyone became addicted to entrepreneurial fever (not everyone can be Tony V)? What ever happened to building a viable and profitable company? Yet, even with the ability to broker one's surgeon, cost constraints are beginning to exhibit themselves in larger markets where hospitals are beginning to cap the cost of "me too" products. These include; lumbar fusions (pedicle screws), cervical fusions (cervical plates), all PEEK products (is there a "me too" product that stands out anymore than PEEK?), and biologics. As recently as five years ago JP Morgan analysts predicted a "boom" in the TDA market. Look at what has happened. Where are those analysts today? Has this market segment ever met their expectations? As the healthcare industry continues to be the centerpiece of our political lives, there will be many changes in store for those of us. The first change will come in major across the board mandates for cheaper pricing. Hospitals are already balking at paying premiums for pedicle screws, cervical plates and PEEK. As hospitals and buying groups share information and negotiating tactics regarding pricing, some members of the Spine Cartel will be willing to walk away from "capped" markets. Smaller companies will be willing to take less to survive but that will call for restructuring commissions. If you're selling pedicle screws for $2,500 - $5,000 per level depending on your region, does anyone believe that companies will compensate sales people at 30-40% commissions? Smaller companies are already re-structuring their commissions and business models by offering less in commissions and terminating large dollar volume distributors. Yes, the industry has rebounded, but by whose standards? The one that we lived by for the last five to ten years or by the new new thing? The Spine Blogger wants to know what its readers think?



  2. What do you know about Verticor, Ltd? I have an interview this afternoon. I am just learning about this industry, would you recommend it?