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?