Friday, May 28, 2010

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?


  1. Hey, MM...
    When '...innovation is not going to come from the development of newer and improved technology...' comes from someone who goes on and on complaining that '...true innovation in the spinal industry is nowhere to be seen for ages...' isn't that a bit schizophrenic???

  2. I don't know who you are, I don't know what you want, but I must ask Anonymous 9:43 a question, are you reading the same thing I read

  3. The Spine and Orthopedic industries are fantastic industries to be associated with and give individuals an opportunity to make an excellent wage. This blog never has any positive comments or information that is worthy or reliable. Let’s start a blog on the positives associated with our industry. But I know the next comments will be, there is not anything positive about spine, the product innovations and executive management all SUCK!!!.

  4. Yes this business gives people the opportunity to make a great wage, but that doesn't mean its a fantastic industry. Im sure the real estate people in California were thinking the same thing 4 years ago.

    I think it used to be a pretty noble business, but imo the business has never been sleazier, and i feel like some are going to ruin the whole thing for everyone. That's my fear. What will i do then?

  5. excellent post...early stage companies must be building sustainable businesses with unique/platform technologies...the cash management of all device startups is paramount...The "my IP is worth $x" is a fruitless statement for raising capital..IP is only valuable if you can block entry into a segment of the market, or once in court (which you have to successfully launch a product(s) in order to get there...). All in all, it comes down to 'blocking and tackling'. When fundraising and building the business the assumption should always be that the business will never be sold. Then see how much money you will need to survive and act accordingly....

  6. Hey Anonymous 6:05, it"s TSB here you should start your own blog. What you will learn is that people like yourself read what they want to read into what you post. Therefore, when you do, remember what I always say, IT"S A BLOG! IF YOU DON"T LIKE WHAT IS WRITTEN, DON"T READ IT. Otherwise, thanks for expressing your first amendment rights.

  7. Profitability coupled with secure, sustainable, and ethical revenues is the only sure path to security. Innovation that is protectable, clinically relevant, and economically sound within this crazy reimbursement system is the only decent value creator on a non-multiple of revenue basis. In the end, we have to build a better mouse trap and create a distribution channel that is well compensated and treated with integrity and loyalty.

  8. Amen Anonymous 8:00 am, The problem is there is no loyalty, it died many years ago when everyone became greedy. Humanity as we once knew it no longer exists. The warlords of the industry have turned our industry into a mercenary business model. Incredible considering some of these people were once sales people.

  9. Anonymous 11:12AM is absolutely correct. When I worked as a regional, the marching orders were to secure a relationship with the surgeons "in case something happened to the distributor/rep". As a distributor, I have to watch my surgeon friends, just in case a female rep bats her eyes....Never realized just how fragile this world is. Surgeons that think they're "ladies men" because a female rep flirts...Not far off from a topless bar environment. Guys thinking they "got" something because a stripper "wants to dance for them...for a price"....Companies trying to fanagle a relationship to cut out the middle man..EYES OPEN!

  10. This comment has been removed by the author.

  11. I'm sure most small company founders and CEO's are feeling the risk of raising capital in the next 6-12 months. The reality is that its difficult- it may not happen. We need to manage the cash we have, reconsider our business strategies and be honest with ourselves about whether our technologies can make a difference in terms of improving patient care or reducing the cost of care (while making a worthwhile profit of course). If a company (big or small) can't do either of those things, then what's the point.

    Realistic valuations and deals are a function of many things. In my view, the supply is low on both sides. There aren't many good ideas- and there isn't much capital willing to come to the table. Companies and investors that can make deals to keep these 'innovative' ideas moving forward will win in the years to come. Compromise fairly and make the deals. At the end of the day its not so much about percentages as it is the size of the pie. Watch.

  12. The amount of money spine reps/companies make compared to their actual value is ridiculous. Ha, and people think lawyers are bottom feeders! Excellent job bankrupting blue collar families when they are at their most vulnerable. Congratulations hardware reps, you ARE what’s wrong with healthcare in America.

  13. Bankrupting blue collar families? What the hell?

    How about all the "blue collar families" I am helping to support at GM. The combination of poor management and unions has destroyed that company. When I think of bottom feeders I think of the thousands of GM workers who were paid handsome salaries to sit idle in the "jobs bank." Learn all about it:

    You say, "The amount of money spine reps/companies make compared to their actual value is ridiculous."

    Well how do you define value? How valuable is a high school drop out who installs bumpers on cars?

    What is ridiculous is the number of people in this county who refuse to invest in and better themselves. What is ridiculous is the number of people who eat McDonalds, smoke cigarettes and avoid even the tiniest amount of exercise. What is ridiculous is that these people expect top wages and top health care without any personal effort or sacrifice.

    Here is a solution.

    Fire all the union workers, hire them back as independent contractors. Let them see how easy it is to fight everyday for your income. Let them see how easy it is pay for their own health insurance.

    Want to know what is wrong with healthcare in America? That's easy, it's Americans just like you...Anonymous June 2, 2010 7:17 PM

  14. $100 says 6/4 12:55 is:

    A. - a shitty surgeon getting no referrals
    B. - A pharma rep

  15. $1000 6/4 12:55 is a D-bag.

  16. 6/4 is ignorant. What does he offer? He/she must be a missionary ...... a regular mother theresa.

  17. a- Not a surgeon
    b -Not a rep of any kind
    c-I am, correctly labeled a d-bag
    d- Not at all ignorant, infact would consider myself enlightened to the corrupt and dirty underbelly of what you all refer to as "a business". Business placed in parenthesis as to not insult actual businesses who practice with ethics and morals.
    e-glad this angered some of you, remember this post the next time you are placing new iphones in surgeons trunks after getting it washed, or dropping off new dirt bikes for the surgeons kids, or cashing that big check for standing in the OR while the surgeon who already knows how to use your simple system operates and talking about the football THATS value! You are really EARNING that commission!
    f-What’s the margin on a reusable instrument set that’s being used for the 300th time?
    g- Really guys, its not like this is the first time you all have heard these arguments…..and if it is then you aught to get rid of the yes men that you surround yourself with!