The Spine Industry: Point, Counterpoint

As the economy begins to exhibit signs of a recovery, at least in the stock market, the question must be asked, will this raise investor confidence to invest in the spine industry, as well as, increase the potential for some companies to go public? Considering that Wall Streets shenanigans of a couple of years ago not only effected the US economy, but had a reverberating afffect abroad, one must speculate whether we are on the road to recover, or will it take more time? Where's Crazy Cramer when you need him? TSB usually leaves those questions to be answered by our mentor Nouriel Roubini.

The aftershocks of what transpired has not only hurt Main Street, it has also hurt many start-up and early-growth stage companies on Spine Street. The end result has been that investors have been discrete at investing capital in many of these companies due to the end of a climate of irrational exuberance. Yes, there is plenty of capital sitting on the sidelines. But the reality is that if you want to continue building a baby that isn't perceived to be quite as beautiful as you think it is, you are going to have to do it by leveraging or risking your own assets rather than someone else's. There are many people in our industry that are know-it-all's especially when they are not accountable for their own capital.

With healthcare continually on the government's radar, it will take investor confidence and access to credit to help many of these fledgling companies. At this juncture, TSB does not see that happening as easily as some believe. But let's be honest, this is not a bad situation to be in because the market forces will weed out the weak, and allow those that have legitimate technology to survive. No this isn't an assault on all those half-assed companies that exist within the industry, this is reality. Maybe its time they start tightening their belts and stop paying themselves salaries as if they were still employed at MSD, DePuy, Stryker, or Synthes. The rules of engagement change when you lack capital as ammunition. Spare us the rationale that if compensation is not in line, you will not be able to retain talented people. If talent is defined by the usual suspects that continue to be offered leadership positions after failing or leaving legacy organizations, no wonder these companies are in trouble. It boggles the mind that investors and board members continue to offer leadership positions to people that managed at large companies. These people do not have the skills to work in an environment that needs speed and agility when it comes to raising capital, developing product and executing strategy and tactics. Many of these individuals have come from the proverbial elephant that needs months if not years to execute a decision.

Not only are some of these early growth stage companies bound to go under because of the unavailability of capital, they will primarily go under because of poor money management and the looming device excise tax that is awaiting them if legislation is enacted. Contrary to what some analysts' say, isn't it absurd that a company can generate hundreds of millions of dollars and not be profitable? It can also be argued that outside of a handful of companies there is truly nothing emerging coming out of the spine sector, that's why there's been a surge in the biologic arena. To state that new jobs come out of these companies is debatable at best. The modus operandi at most of these companies is to hire, fire, hire and fire. If that constitutes creating jobs, then they are creating jobs. To argue that market forces are driving product development, capital and jobs outside the US is another excuse. Stop worrying about the shareholders and let them make some sacrifices and you won't be complaining. Using these early growth stage companies as an example is just an excuse by those that are looking to maximize their profitability.

Recently one of our colleagues stated that he was dumbfounded as to why his organization could not raise capital with the potential that existed with their IP. Maybe the challenge is understanding that if you are generating $7 million in revenue and asking for $10 to develop your portfolio, you are going to have to give up a large equity position to your investor. If you are not willing to, the end result is a stalemate. Unfortunately some of these device entrepreneurs don't understand that investors didn't become wealthy because they were giving their money away. Remember, they didn't get their by buying your snake oil. Sometimes reality is a bitch.

Yes fellow readers, its going to take innovation. But that innovation is not going to come from the development of newer and improved technology, its going to take innovation in how you lead your organization, how you managed your capital, and whether you are willing to change your revenue expectations. 8% growth for a company like Medtronic is excellent growth when you generate hundreds of millions of dollars in spine sales, 8% growth for a $7 million dollar company is mediocre at best. TSB wants to know what our readers think?

Summer of 2010

Recently, TSB was speaking to one of our sources only to be notified that Medtronic Sofamor Danek is planning a year end assault on the spine industry. Usually the Taliban hibernate for the winter. Their research and development team along with marketing are supposedly preparing for an autumn/winter offensive. Hopefully, they will not be received the same way that Battle Company was received in the Korengal Valley in Afghanistan. The Evil Empire has been pretty quiet. Up until recently, they were probably still licking their wounds from the ass-kicking that they took from Michelson. In fairness to the Darth Vader of the industry, their legal department probably has been evaluating all that IP, considering that they haven't done anything innovative unless you consider cosmetic surgery on the TSRH3D innovation.

Word on the street has been that Cardo Medical has performed due diligence on US Spine and

issued a letter of intent to acquire US Spine. Does anyone wonder if there is some connection between Paul Sendro and the powers to be at Cardo? Could this be another femme fatale, hypnotizing a company and its executives who have no spine experience whatsoever? At best Cardo is a "cherry" in the spine industry, meaning they need some real battle scars. Wouldn't it be better for Cardo to focus on its core business, than risk another acquisition? But what is their core business? Knees? One has to wonder if Cardo is truly interested in building a multi-dimensional company, or influencing its stock price? This is another company that cannot get out of its own way. Even if Vertebron was a steal, at best, they acquired a cervical plate because the Vertebron pedicle screw was and is a horse hobbling on three legs (hopefully they took it out to pasture and put it out of its misery), along with some mediocre IP. Whether they would know what to do with another spine acquisition is questionable at best. Hobnobbing in Beverly Hills is a lot different than running a company. Are we potentially witnessing a merger and acquisition boom in the industry? If I am US Spine, remember what Steve Miller said, "Take the money and run!!!!!!!"

Supposedly, the other rumor is that Amedica was evaluating its options for an acquisition. Yet, upon performing due diligence on multiple early growth stage companies, supposedly they decided to take a pass. With Bobby Buttrell's former ties to Feel Like a Million Lew , in all likelihood they evaluated the potential of a Custom Spine acquisition only to walk away shaking their heads. It's not a question that they weren't interested, it was probably the delusional valuation that made them laugh. You know what they say, if you drink enough of your own kool-aid or is it smoke enough of your own hookah, you start to behave like Timothy Leary. Besides, wasn't the Big A looking to utilize its silicon nitride for recon applications? If their product is that good, why waste your time in the spine sector where the market opportunities are much smaller than in general ortho?

To quote Sly Stone, "End of the Spring and here she comes back, Hi, Hi, Hi there, them Summer days, those Summer days, That's when I had most of my fun, back high, high, high high there, them summer days, those summer days." So as we approach the beginning of another summer let's see what transpires with some of these companies, help may be on its way. TSB wants to know what our readers have heard.

Hey Medtronic.....It's Time to Move......Over

With the controversy surrounding vertebroplasty/kyphoplasty procedures for VCFx, TSB thought it would be interesting to ask our readers, which company has the best system and why, what has transpired since the infamous paper subsidized by a government agency critiquing vertebroplasty, and, have their been additional issues surrounding reimbursement.

It seems that Medtronic/Kyphon is taking on an assault in the marketing place from companies like Osseon, DFine, and Orthovita regardless of the subtle differences in technologies. In addition much has been said about AlphaTec's Osseo Fix which is currently being used in Europe. Will this product make its way across the pond? So in the spirit of debate, we want to know what our readers have heard and know. Who know's, maybe we will influence some poor soul's decision to opt for the best delivery system the industry has to offer.

Public Outcry!!!!!

Last night TSB received an e-mail from a hiring recruiter regarding job opportunities for sales professionals at a specific company. The message stated, "As you know Company X is hiring sales professionals, therefore, is it possible to place a message regarding our job opportunities." A pretty innocent request by any standard, considering that TSB has offered our platform as a way to advertise jobs. TSB even went out of the way to give this company a reluctant plug. Much to our surprise, the head of HR fired off a letter this morning requesting that we delete this immediately since we did not have their permission to post this. What was stated was that this "company was uncomfortable with the post," and, TSB published it without their permission. So, we must ask the question, why was the e-mail sent? In addition, there was never a mention of blind post? So what's the big deal? Are you looking for sales people or not?

TSB must suspect that the backlash from our readers must have made the HR director weak in the knees, along with the management team at this company. God forbid we post on TSB, ooooh, it must be the boogeyman. But this reaction brings us to a much bigger question. Do any of these companies or managers ever look at our readers response as constructive criticism, or, does everyone have an axe to grind? I mean everyone cannot have an axe to grind. To paraphrase the Dali Lama, "it takes less energy to be nice, than it does to be a prick." Hopefully, the people and investors at this company will learn a valuable lesson of how they are perceived within the industry. By the way, if you're looking for a sales opportunity, just e-mail us at spineblogger@me.com and we will pass it on to a credible search firm.

Peace, Love and Understanding!

TSB

Hospitals Settle for Inpatient Rather Than Outpatient Surgery

"Whistle while you work, and cheerfully together we can tidy up the place, so hum a merry tune it won't take long when there's a song to help you set the pace."

On May 17th, 2010 it was reported that a whistleblower lawsuit that sparked a DOJ investigation into the Medicare billing of hospitals for kyphoplasty has resulted in the government recouping $20 million from eighteen hospitals.

The hospitals that recently settled the whistleblowers complaint included;

St. Francis Hospital, Beech Grove, Indiana $3.16 million

Deaconess Hospital, Evansville, Indiana $2.1 million

St. Vincent's East, Birmingham, Alabama $1.46 million

St. John's Hospital System, Anderson, Indian $826,256

St. Vincent's Birmingham Hospital, Birmingham, Alabama $422,748

Providence Hospital, Mobile, Alabama $381,713

In April three Health East Hospitals in the St. Paul, Minnesota area paid the federal government a total of $2.28 million to settle the whistleblower allegations. Medtronic Spine LLC paid $75 million in 2008 to settle a qui tam lawsuit brought by the same whistleblowers. Medtronic had acquired Kyphon which developed and sold the equipment and materials used to perform kyphoplasty and promoted the procedure as a money maker for the hospitals if they billed Medicare for inpatient rather than outpatient surgery.

The "Relators" aka Whistleblowers are entitled to 15-25% of what is recovered. Hopefully, Mssrs. Patrick and Bates can eventually ride off into the sunset hopefully to relieve themselves of the stench that is left over from their affiliation with the Evil Empire.

IPod, IPhone, ITouch, IFuse, IPad

Recently, one of our readers expressed interest in a company by the name of IFuse, asking the question, is this a viable procedure? In the interest of developing some dialogue amongst our readers, and providing this company some visibility, TSB must ask our readers, is there a place for this device in the surgeon's armamentarium, or, is this another product that is looking to expand on an already limited but existing market?

From a historical perspective, orthopaedic surgeons have been performing percutaneous iliosacral screw fixation for years, especially in trauma. Because of the potential for soft tissue complications with open posterior exposures, the concept of limiting the amount of surgical dissection for fusion and fixation has become popular. Since this procedure (IFuse) is performed percutaneously a thorough understanding of the sacral radiographic anatomy is demanded. Why? Because there is no chance to guide or confirm implant placement by direct palpation or direct visualization. Three major structures are at risk of injury whenever using a guide wire, drill bit or implant, these include the iliac artery, the superior artery and the S1 root canals and their foramina.

Based on the biomechanical testing, this implant provides the surgeon with an implant that can withstand greater bending and shear loads than traditional cannulated screws. So in the spirit of debate, is there a place for this product or is this another one of those one-trick pony's looking for a procedure, or, is this another one of those implants that can be used to stage a patient to ultimate posterior fusion?

Maybe, SI Bone can hook up with Apple and make the IFuse Surgical Technique an application on the IPhone? It would save the company the headache of developing a distribution network and the cost of sales? Could this be the future? I think I will call Steve Jobs.

Spine Blogger Survey

Recently, TSB was speaking to an industry source when the topic turned to some of the early-growth stage companies that seem to be floundering. Our intent is to turn this topic over to our readers and let their expertise and analysis be heard by the tens of thousands of readers that visit this site and contribute to its success on a monthly basis. So in the spirit of debate, we ask our readers, who will be the next company to fall, or, be bought? Who is a dog? And, who is a thoroughbred? Why?

Considering that this site is frequented by many investors. This is a golden opportunity for them to hear from the "real people" that have a clinical understanding of technology and outcomes, versus the "spinsters" that either analyze or have a vested interest in a company, or a technology in succeeding. So let your voices be heard! Is it a Vertiflex? Is it a Trans 1? Is it an Applied Spine? Is it a Disc Motion?

Let Your Voices Be Heard

Everyone Wants to be like Mike

Our last post focused on the rise and fall of Trans 1. Ironically, on the day that TSB posted skepticism surrounding the future of this venture, OTW shot off a report that Mike Matson, Senior Analyst of Wells Fargo, raised his projections for this fledgling company from $24.9 million to $26.7 million For a stock that had a 52 week high of $8.74 and closed at $3.45, blue skies are not yet visible on the horizon. So let's go to the video replay.

In QI of '09 TSON finished with revenue of $8.7 million, QII '09 revenue was $7.9 million, QIII revenue was $6.9 million, QIV revenue was $6.3 million, QI '10 revenue was $6.7 million. I'll save our readers the fancy charts, we believe everyone can get the picture. Regardless of the growth in '09 in comparison to '08, it seems this company has taken three steps back to attempt to go one step forward. The potential investor must ask why? To quote every NBA player that is interviewed, "no doubt about it" reimbursement is the major issue. Yet, when one looks at the history of this company, something seems amiss. There doesn't seem to be continuity in the management team. 2010 has been a year of wholesale changes. TSON actually hired someone from Smith and Nephew to run sales. As Bart Simpson would say, Wazz up with dat? Then TSON hires a new President and COO, then a new CFO. If things are going so well, why the change? But the bigger question must be asked, "Why from SNN?" At best SNN has been a mediocre player that dabbles in spine with mediocre management.

Yet, Matson's job is to spin, sell, and make sound suggestions to the investment community on what to buy. I mean has anyone heard an industry's "go to guy" ever say that this stock or company is a dog at best, until some real revenue issues are resolved? That's not the nature of the Street, and maybe Mad Money Cramer would be the only one to comment, but when it comes to spine he doesn't know jack. TSB is sure that the smoke and mirrors behind Mike's (you don't mind if I call you Mike) call is to convince potential investors that this is a great technology to invest in, a stock worth buying, and a company with a stable management team.

TSB does not believe that QII sales will grow exponentially to offset the last three quarters. This pony isn't NuVasive. Unless there is an act of God (let me spell that with a capital G) don't expect sales to jump drastically in QII, with the summer on the horizon, TSB sees a summer slump due to the nature of the season. $26.7 will be a stretch but it can be achieved if the stars align themselves. So let's keep our eyes and ears on this company, and assess whether a remodeled management team can actually sustain, execute, and generate more revenue while it attempts to address a daunting task of resolving their reimbursement issue. One must wonder whether the infamous partnership between TSON and Life Spine is really going to pay off. At best Life Spine is just another "me too" company.

Wilmington, is a nice place to visit, especially in the summer. TSB must ask our readers will this company succeed or will TSON hobble along?

Will Trans 1 End Up Being This Industry's Version of the Trans Am?

A few weeks ago. OTW published an article celebrating the expansion of Trans 1 into a new building. The pomp and circumstance of this ceremony was a ribbon cutting ceremony with political and local dignitaries. Yet, on May 4th, 2010 TSON released in QI operating results with continued concern that rather than going in the right direction, it seems they could be showing signs that financially they are moving in the wrong direction. QI revenues of $6.7 million saw a 23% decrease over revenues of $8.7 in QI '09. With an estimated burn rate of $5 million per month TSON is probably looking for an infusion of capital to continue its quest for the holy grail.

It seems that the major concern that this company has had is "navigating the current reimbursement landscape." In other words, the company is still having issues with reimbursement on their product. A few months ago TSB wrote a post about Life Spine and TSON collaborating in the hope of propping up TSON's sales bag. Has this helped the company? Or, was this an error in judgement? Tick Tock, Tick, Tock. Is TSON on the clock? Could this be another Hydrocision in the making? TSB wants to know what our readers think?

One final question: Why are these small companies compelled to expand their operational facilities at a time when they need to conserve as much capital in an uncertain market with concerns regarding reimbursement. You know the old Chinese proverb: "No money, no funny."

Let's Get Ready to Rummmmm...ble!!!!!

Michael Buffer would be honored to let his popular boxing voice resonate in this battle of the heavyweights. TSB could hear his popular "Let's get ready to rummmmmmm...ble!" In this corner weighing in at nearly three hundred pounds, give or take a few pounds, and wearing the purple and silver trunks, formerly of New York and now residing in Rancho Sante Fe hopefully he isn't smoking his favorite cigars while he prepares for this bout is Alex "The Beast From the East" Lukianov. In the opposing corner, wearing the blue and white trunks representing the Big O and TSB doesn't mean Oscar Robertson, attempting to float like a butterfly and avoid a beating is Alan "Rocky" Milanazzo.

Some judge will have the distinct honor of refereeing this fight for the rights to a controversial stem cell product. Who cares how many viable mesenchymal cells there are, its all about the benjamins. Will Orthofix be able to defend itself in a court of law to retain its right to sell Trinity, or will the Russian Bear look to take down another opponent? You know in some respects a leopard never changes his spots. Remember what TSB says, payback is a bitch. But when you make predictions to the street you must do anything to ascertain your objectives. The Street loves a confident and brash leader, yet still waters run deep. In all likelihood the chalk eaters will be betting NuVasive. Yet, as this case develops TSB can see someone hedging their bet based on the probability of a trial, but this could be a pick em. Lukianov could have fired off a teaser hoping to improve the point spread when he announced his intent to litigate with Orthofix.

TSB wants to know who do our readers believe is the "pup" in this event? Is it Orthofix? And if so, what are the potential scenarios that will develop. Will there be a KO? Will it be a TKO resulting in a revised licensing agreement? Or, will it be a draw? Never in a court of law. So does the "Beast from the East" have the stamina to float like a butterfly and sting like a bee, or, will it be the Primo Carnera of the spine world that throws the best punch? TSB wants to know what our readers think?

Naughty by Nature

On April 23rd, 2010 the Agency for Research and Quality released an assessment that found no evidence of improved health outcomes for most off-label use of BMP's to promote healing following a fracture. Off course, this research was conducted by BCBS Association Evidence Based Practice Center. This report assessed on-label and off-label use of INFUSE and OP-1.

Both Medtronic and Stryker have come under scrutiny in recent years for their off label use of these products. Medtronic has been subject to inquiries by the DOJ and the US Senate over off label use of INFUSE, while Stryker Biotech was charged by a federal grand jury with wire fraud, device misbranding and making false statements related to off-label use of OP-1. Last spring an FDA advisory panel recommended against approving a spinal fusion indication for OP-1 Putty.

So TSB must ask our readers, are you down with OPP, yeah you and me, who's down with OPP Stryker and me, You down with OPP, yeah you and me, Who's down with OPP, all my spine homies.

To Be or Not To Be, That is the Question?

Recently, two of our readers responded to a post entitled, "Are These Products Truly Dynamic?" It was evident that one respondent was critical, accusing surgeons of being unethical and criminal in their behavior indicative of the climate that exists in our industry. To generalize is to convict the entire profession. Yet, one can understand our reader's frustrations. In fairness to surgeons, not every surgeon that is involved in a study or development of an emerging technology is on the take. This point counterpoint tete-a-tete is interesting in that some physician respondent's argument was did you go to medical school, residency, or fellowship and do you perform the state of the art? For many of us the answer is simply, NO. But unlike the current business model that exists in our industry, for those of us that are tenured, our experience and mentoring by your own peers has provided us with an intelligent level of knowledge about medicine. And contrary to those beliefs, many of us pride ourselves on the fact that we can have a conversation with a surgeon and provide an intelligent answer, or listen to a presentation on a specific products efficacy and evaluate its usefulness. Unfortunately, many surgeons opinions have been jaded because of the quality and dilution of talent in the industry. With that said, how do surgeons think we view them when it comes to running their own business or attempting to be a business person?

Just like physicians argue about our academic background and training to opine about their professional decisions, those of us in the business have every right to question their integrity

and commitment to their patients well being, as well as their business acumen. Just because you were smart enough to go to med school doesn't qualify you to be a race car driver. Some cannot execute their own state of the art and like to tell us how to run our business. Let's face it, just because you graduated from med school doesn't make you a great surgeon. Even the Major League Baseball has a place for .240 hitters. All one has to do is attend a motion preservation meeting, or, a spine arthroplasty meeting and look around the room as many of your own peers shake their heads in disbelief to some of the procedures that are presented. The difference between us is that we attempt to honestly critique a protocol, whereas your peers dare not question the professor. It is your professions omerta or code of silence. Ever wonder what would compell someone to perform a three or four level total disc arthroplasty? Would you even allow someone to implant some of these systems into your own mother, father, sister, brother or spouse? How cynical can we be when we look at some of the same names that would endorse any piece of shit concept or device. Just because some fool and his money believed in the potential of a financial windfall, doesn't mean that the product will succeed, nor, does it mean that some of these products will find an indication to substantiate its place in a spine surgeons armamentarium. Let's be honest, when an observer looks at the dais, its an old boys club that seeks to perpetuate its own existence within the industry, mentoring younger surgeons on the nuances of how to contribute yet manipulate the industry. These aren't TSB's views, these are the views of your own peers.

So in closing, just like Goldman Sachs, SAS and NASS need an image make-over. Before any surgeon goes on to cry foul when one of our readers expresses their first amendment right, maybe it would behoove you to monitor your own profession before you criticize ours. TSB wants to know what our readers think?