An Analyst's Point of View

Recently, Mike Matson of Wachovia Fargo Securities sent his 2009 NASS highlights to his readers. As good of a job as Mike does, one has to wonder about his analysis. There is no doubt that double digit growth awaits the legacy companies, yet, the question must be asked will many early growth stage companies offset this forecast? Ironically, the Street has re-aligned its guidance for the industry at 8-10%. I guess it comes down to the old saying that as the economy changes, the rules change by which you gauge success or failure. If early-growth stage companies are being forced to tighten their belts, how does this affect their ability for growth and new product development? How does one evaluate a company's efficiency when it takes three years to bring an articulating TLIF to the market or two years to bring a cervical plate to commercialization? This year's failures have resulted in tremendous losses for investors, especially when those investments were into multiple "me too" companies. While the margins for these youthful players remain high, so do the salaries for many of these companies that carry much "dead weight." Though there was an 18% increase in new firms at NASS, the question is who were these firms? Were they emerging technologies?

As healthcare reform continues to evolve, capped pricing and greater scrutiny on commodity spine products is becoming the rule and not the exception. Considering that our industry has become a waste land of "me too" products pedicle screws, cervical plates, interbody devices, including zero-profile products, and biologics (just look at all the announcements last week) how can the industry not expect for things to change in the not so distant future? Let's look at XLIF. As exceptional of a job as NuVasive does in educating surgeons on the benefits of an eXtreme Lateral approach, and utilizing champion surgeons, there are many companies that are going to make competitive inroads to NuVasive's market. There are other neuro-monitoring platforms, yet, to argue that yours is faster than the competitor's is a moot point considering that operating room time is budgeted as a fixed cost. Does Matson really believe that companies like Medtronic, Synthes, DePuy, and AlphaTec lack the intellectual, educational and financial firepower to arrive at an alternative modality of treatment?

It will be interesting to see how things change over the next year. As TSB has stated, many distributors are already feeling the effects of smaller companies cutting back on commissions. Obviously, those that do not agree keep singing the same old song, that this is a "relationship" business. Unfortunately, that song will only play so long, and survival will come down to pricing. Yes, readers, even companies like NuVasive will not be able to charge $5,000 for a piece of PEEK, especially when XLIF is an approach. TSB wants to know what our readers think is going to happen over the next few years.