Tuesday, September 15, 2009

The Spine Industry - One Year Later

Today marks the one year anniversary of one of the greatest financial events in recent history, the monumental collapse of Lehman Brothers. As the aftershock of Credit Default Swaps and Collateralized Debt Obligations nearly brought our economy to the precipice of another Great Depression, the Spine Blogger thought a postmortem on the past year would benefit our industry. How do we benefit from this procedure?

Within a one year period, the industry eulogized five companies ( IST, Inion, Vertebron, Pegasus, and Archus). Archus and IST combined, raised over $140 million in investment capital. Where did that money go? Vertebron, Pegasus and Inion were on a course for failure regardless of the economy because of greed, stupidity, and the quality of management teams. The death of these companies is attributed to their short-term vision without considering long-term viability, a characteristic bred by Wall Street. Investors became reckless, because they believed that at any given moment the Spine Cartel would swoop in and buy anyone of these start-up/early-growth stage companies. Acquisitions of Charite, ProDisc, and Spine Core created entrepreneurial fever. Anyone with a new idea started to believe that they would become rich overnight. But even though these technologies were suppose to establish a new paradigm in the treatment of degenerative disc disease, it really hasn't panned out to be the windfall that the analysts believed it would be. What does that say about the analysts? Everyone believed that their companies were worth 5X the revenue. Today, many early-growth stage companies are finding out that a valuation is only a formal assessment of what their company is potentially worth. But without a foundation and continuity, your company is only worth what someone is willing to pay for it.
Based on the declining or flat revenues of the so-called "Others" there will be more collateral damage. Up until a few years ago, it was accepted that any company that grew 18%-20% was having a great year. Today, the "wonder kid" analysts talk about 8%-10%.

No one wants to build a company anymore. Everyone wants to be Tony Viscogliosi. As adept as Tony is, he is experiencing difficulties in developing his own portfolio of companies based on the amount of capital that he has "burned" through and the tremendous human attrition rate that exists in his organizations. The art of raising money is quite different than the art of managing people! Can some of these so called "OTHER" companies withstand a category 5 hurricane? In all likelihood, no! Investors are no longer willing to pump more capital into "me-too" products, especially hardware, when the majority of their revenues are being generated by investing surgeons. Who are these companies? Allez-Spine, Choice Spine, Custom Spine, X-Spine, U.S. Spine, and the list goes on! If you were going to invest into any of these entities would you be willing to roll the dice on an organization that generates 70%-99% of their revenues from investing surgeons? Then look at the organization at these companies and you begin to see why some of them are doomed for failure.

So as we reflect upon the past year, let's take a moment of silence for the many hard working people that lost their jobs, and the many investors that lost their money, all because the people running these companies were foot loose and fancy free when it came to managing their money and business. The Spine Blogger wants to know what its readers think?

1 comment:

  1. As a matter of clarification, zero percent of X-spine's revenues come from investors of any sort. If you have any questions about this, please email us at info@x-spine.com

    By the way, we enjoy your blog a lot - keep up the good work!