Wednesday, September 23, 2009

Sea Spine - California Dreamin'

On Wednesday, September 23rd, one of our readers asked our thoughts on which companies have done things right in the wake of the tsunami that destroyed some of the start-up/early growth stage companies. In retrospect, the last five years have led to an irrational exuberance, a by product of $1.3 billion dollars in artificial disc deals. Everyone wanted to become a millionaire! Unfortunately, the air has been let out of the balloon over the past twelve months, regardless what the analysts say. To quote the Gipper, "it's time to tighten up your belts boys!" Over investment and overvaluations have led to this prolonged insanity.

In retrospect, I had to think long and hard as I went down my list of the Usual Suspects. My criteria was companies generating $50 million or less. Here were the nominees: Allez-Spine, Atlas Spine, Choice Spine, Custom Spine, Eminent Spine, Hydrocision, LDR Spine, Life Spine, Medicrea, Pioneer, Sea Spine, Spine Wave, U.S. Spine, Ulrich, Vertiflex, Vertecor, and X-Spine. As our readers can tell most of these companies have hardware, and most are playing in a zero-sum market with the exception of Hydrocision (Hey Doug, after so many years can you figure out how to get a billing code on your product). Yet, one company does stand out. As Randy Jackson would say, "Dog, you are the bomb!"

In seven years, Sea Spine has developed a business model that should elevate them INXS of $50 million dollars in revenues. So how did they achieve this? The old fashioned way, HARD WORK and FOCUS! First they built a foundation, then framed the house before adding the roof. For those of you that have never worked in construction, that's how it's done. No outside investment capital, a solid core of managers (yes, I do know some of them, but I do not work for them), and a talented CEO who knows about leadership and developing a guiding coalition. I don't expect many of the above companies to agree with my assessment because of the envy that exists in our industry. But let's acknowledge that this company has sustained continuity during some of the most turbulent times in our industry.

As it stands many of the above companies either have incomplete product portfolios, weak management teams and boards, some so old they may not make it to the next board meeting, or they have surrounded themselves with industry insiders, people who cannot think out of the box.

So when you walk by the booth this November at NASS, take a good look at Sea Spine and you may see a reflection of what you can be when you grow up. PS: Always remember what the Spine Blogger says, "there's nothing about a beauty contest on the scorecard!" The Spine Blogger wants to know what its readers think?


  1. I tend to agree; SeaSpine has a solid reputation, and a well composed product portfolio. Do they have the capacity to make it to the next level? That's another issue. I wonder what their exit plan is. Their quiet on that too, which I think is good. No promises kept, none broken.

    I did not read anything about Lanx in the above posting. They are probably above $50 million though. I can't find any data on it though. Deserving of an honorable mention IMHO.

    Where's Scient'x?

    Be on the lookout for Spineart ( as they begin to march into the US with some nifty me-too products (seems like a contradiction, I know...does it make a difference? Slightly), and the promise of things to come. This company has quietly been developing products and picking up market share in Europe. I am told that their cervical disc has upwards of 25% of market share in France (based in Switzerland, I believe the owners are French), and just released their lumber disc replacement device. Watch out Spinal Kinetics? Meh. Doubt it.

    In any case, this company has worked to line their coffers--without VC backing--with significant enough capital from international markets to develop fairly innovative (or at least unique; but does it make a difference?) products for sales and marketing OUS, begin to establish S&M in the US, and work toward getting certain of their devices started along the regulatory road in the US.

    Jemo Spine 2k9!

  2. Jemo Spine, Thanks for the commentary, but, I must ask one question, who ever said they had to have an exit strategy?

  3. Point of clarification: I intended to mean liquidity event (buyout, ipo, etc) when I said exit strategy.

    I do not think anyone ever said that there needed to be an exit strategy or liquidity event of some sort as the end goal. However, I am sure that the executives at SeaSpine, and any other successful company with aspirations of being more than a "small business," created a business plan that included certain options--milestones at which they will evaluate their position/progress as it relates to that of the general market, and decide whether to go liquid, or stay the course. VC targeted business plans, as I'm sure you know, contain multiple options for exit. The difference is that the VC plans play to the profit/ROI motive. Seaspine abides a different model: they are not bound to strive toward a quick and sizable ROI; they are not obligated to anyone whose profession is the creation of new wealth. In other words, they do not have to FOLLOW an exit strategy. But I am sure they have a plan, an available option, should exit or liquidity become the order of the day. They can do what they want and, ultimately, I think that is what makes them the examplar for success in the industry--they have freedom, and ownership. What do you think? Where do you see SeaSpine going from here?

  4. Dynamo:

    I agree with your observation that Sea Spine must have an option for a strategic exit plan. IF this company is poised to generate revenues in advance of $50 million this year, they will increase the value of their company threefold. In addition, if they are not weighed down by consultant revenues or investment capital they exhibit unfettered growth. The short coming of most of the so called "OTHER" companies is that they are heavily backed by investor revenues with the exception of our friends at X-Spine. Potential investors or buyers are savvy when performing due diligence on these companies. One of the first questions that I always ask is; "How much of your revenue is generated by investors or consultants?" Then the next question that I need answered is; "What kind of IP do you have?" I always want to know how leveraged a company is and what is the rationale behind their vision.

    If Sea Spine continues to focus and refuses to get sucked into the Dynamic Stabilization, Total Disc and ISP markets until their is some clarity, they could be a $65-$70 million dollar company by 2012. That would be exceptional growth based on how the analysts have scaled back industry expectations. It's interesting how Sea Spine continues to fly under the radar when companies like LANX and K2M get all the press. Just look at K2M, they have more consultants and investing surgeons than one can shake a stick at. It's easy to grow quickly when you either buy the business or provide the surgeon with an investment incentive.

  5. I do not know if we can call it a "short-coming" for a company to be VC backed. It's just a different model. Every comapny produces a product or service. The product that VCs produce is wealth, NEW wealth--ideally with a quick turnaround. How do they create their product? With manufacturing centers in the form of innovative/innovating companies. Innovative, that is, in the sense that they are working on coming up some (oftentimes just one) newfangled product and, potentially, getting to market.

    Also, Pearldiver has Seaspine on track to be upwards of $85 million by 2011. Who knows though.

  6. Dynamo, I concur that VC's intent is to produce new wealth. Yet, I think we would agree that what they are looking for are emerging technologies, that shift the financial and clinical dynamics in the market. If Sea Spine was to be acquired, at this stage, I would think it would be for marketshare, since I am not privy to their IP. As far as PearlDiver is concerned, I have looked at their past and present forecasts and believe that they are projecting "snapshots" of the market. At times, one has to question their accuracy, yet, I also understand that there is more art than science when regurgitating the same reports each year. It makes you wonder why companies hire marketing people?

  7. At least 4 of those companies pay surgeons commissions based on their volume or the volume of one of their partners. This cannot be doubted as I was present when the "consulting" transactions occurred.

  8. Sea Spine is one of those companies. They are pushing the "doing things the right way" BS down the ladder. Any company that has surgeon owners is susceptible to questionable motives when the main users of the products are financially tied to the use of said products.