Spine The Year in Review: Winners and Losers

February 7th, 2009 was the official launch date of TSB. Our staff felt it appropriate to provide our readers with a snap shot of the year in review. Our objective was to highlight the winners and losers of '09.

During the first quarter of '09 various rumors began circulating within the industry regarding companies that were beginning to exhibit financial and managerial cracks in their organizations. Word on the street was that Vertebron, Inion, Innovative Spine Technologies and Pegasus were taking on water faster than they could bail themselves out. Vertebron was considered the industries first casualty because rumor had been circulating over the past year that they were in trouble. They were offered $10 million by Cardo Med and thumbed their nose at the offer, only to be sold in a bankruptcy auction to Cardo Med for $1.3 million. Cardo Med was the winner by saving themselves $8.7 million, and Vertebron a loser for being so arrogant. Now the question remains, what will Cardo Med do for an encore with this portfolio in 2010? The question must be asked, is there a business model? Innovative Spine Technologies figured out how to burn through $70 plus million, Stephen Hochshuler pointed the finger at Scott Schorer, Schorer refused to comment, not only was IST a loser, so were the investors. Inion couldn't raise capital fast enough to resuscitate itself, and Pegasus went south only to be sold for pennies on the dollar. Chris Lee (Inion) and Michael Will (Pegasus) are the losers. The biggest surprise was Archus which burned through $63 million and eventually failed to raise additional capital via bridge financing only to sell its technology and IP to Facet Solutions. Archus the loser, Facet Solutions....... let's wait and see.

TSB published various blogs about distributors getting stiffed on their commissions by various companies, the art of selling, the future of sales distribution models, ending the year with a blog about surgeon owned distributorships raising the question whether this was a new trend or passing phase? Based on the majority of comments by our readers, it was evident that you questioned the legality, ethics and potential conflict of interest of surgeon owned distributorships, and even wondered whether a new generation of physicians exist, those that are in it purely for the money rather than the art of medicine. Another interesting aspect surfaced, it became evident that physicians and investors believe that sales people make too much money. Could we be on the verge of industry related class warfare?

In February a Boston District Court unsealed a formal whistleblower complaint against Blackstone Medical by two former employees. Much to the readers chagrin, the DOJ has yet to act on the potential criminal charges against former principals and employees of Blackstone. Many of our readers question whether the government will ever bring this to trial, or will the DOJ behave like the paper lion that they are perceived to be, where its bark is bigger than its bite? If anything good has come out of this complaint, it has put many early growth stage and surgeon owned companies on the defensive. Stryker had its own legal issues with former employees convicted or indicted from Stryker Biotech for advocating off-label use of OP-1. Some of the veneer was knocked off of Synthes with the Norian debacle, and as we move into the New Year the industry awaits sentencing of one former and three current Synthes employees for their complicity in this case. In addition, Synthes will have to defend itself in 2010 as the government attempts to prosecute Synthes.

TSB wrote about the value of attending trade shows, these consist of NASS, AAOS, CNS, ISASS (you gotta love that one, couldn't they just left it SAS?) CNS, CSRS, ISSLS, Motion Preservation, Spine Technology Summit, Stem Cell Summit, The Spine Study Group, and various regional meetings. The consensus from our readers was that these meetings were getting stale, can you hear us NASS? The lack of new science and clinical data was knocking the luster off of these meetings. Readers even questioned the integrity and financial interests of some of these platforms. In light of the economy, many of you felt that attending these meetings was becoming an inefficient use of capital.

Speaking of NASS, they had a rough year with some of its respected members in the spotlight. Tim Kuklo, David Polly, and Jeff Wang were in the limelight at various times having to defend their fiduciary responsibilities as employees of the military and educational institutions in relationship to their consulting and employment agreements. The only saving grace for these surgeons was that the spotlight was taken off their conflicts when Mark Kabins was convicted for his conspiratorial role in the Medical Mafia Case that is ongoing in the City of Lost Wages awaiting the trial of Howard Awand and Noel Gage, Esquire. Doctors and Lawyer conspiring, you gotta love it.

TSB published various blogs on Einstein's definition of insanity, "doing the same thing over and over while expecting different results." This was in response to many of our loyal followers e-mails about why does the industry and investors have the propensity to keep hiring the same individuals that have exhibited a track record for mediocrity to run their companies? Could it be that the industry lacks talent, or is this a barometer of what an old boys club this industry has turned into? These individuals have come to be branded as the emperors with no clothes. PT Barnum once said, "there's a sucker born every minute."

As we approached year end the hot topic became NuVasive's XLIF and potential reimbursement issues based on reports that Cigna, AETNA and United Healthcare were questioning the coding on this procedure. Some of our readers expressed their dismay as to why so much ink was dedicated to this story. With a market cap of $1.1 billion, TSB felt that this story warranted attention especially after the stock fell to an all time seven month low. The Analysts felt that NuVasive deserved to be carefully scrutinized. Some of our readers commented that there were no reimbursement issues while others, including Alex Lukianov stated that this was a local not a national issue. Let's wait and see. In all likelihood, NuVa and NASS will work together to find a solution to a potential problem.

In closing, 2010 will probably be a year of challenges for everyone considering that Healthcare Reform is on the horizon, pricing will become the industries main challenge, and though there is investment capital sitting on the sidelines in a holding pattern until investors get a clearer picture as to how this all shakes out.