Thursday, June 17, 2010

Thursday Morning Op-Ed

Recently, a" self proclaimed thought leader" spoke at an industry related trade show announcing that though 2009 was one of the worst in over fifteen years, there was a glimmer of hope on the horizon. Unfortunately, this hope did not pertain to the spine industry. This week, another web-based platform announced that there was a mega spinal implant fire sale going on. Meaning, pricing has, is, and, will be an integral component in selling product. By now, all of you know that the highly esteemed Captains of Industry on Wall Street, you know, the market-makers and their analysts', have downgraded the guidance forecasting single digit growth for spine. Oh where oh where have those 20-30% days gone?

Ever since TSB launched its website in February of 2009 our contributors and staff have highlighted some of the challenges that this industry was going to face coming off a near collapse of the U.S. economy. By the way, has anyone ever been held accountable for that, or was that an act of God? Some of our readers questioned our analysis of many of the early and mid growth stage companies that were now going to have to compete in a zero-sum market, while those with questionable emerging technologies, needed to realign their financial forecasts and expectations. We even poked fun at some of the clowns to the left of me, jokers to the right, that continue to run some companies within the industry. For many years, spine was the holy grail of the implant industry. How could anyone deny a patient in pain treatment? Not the insurance industry. Hospitals accepted any price for a product because we were partying like it was 1999.

Our industry glutted the market with more knock- offs and versions of pedicle screws, cervical plates, inter-body devices, cervical and lumbar discs, interspinous process devices, biologics that we behaved no different than the Nigerian street merchants one sees in Paris, New York, San Francisco, London, or Rome. At least those people are honorable admitting that they are selling knock-offs. Yet, we continue to strangle the industry by attempting to reinvent the wheel. Have some of these designs really made a difference based on retrospective clinical data? In some instances yes, but in most, not really. For an industry that is run by sales, marketing, and financial experts, it seems many have forgotten what it really takes to build a business. Building a business is quite different than brokering customers, buying consultants, and treating people like a commodity. But let's face it, what can one expect when the industry has commoditized itself? To some degree we are on the verge of euthanizing ourselves if we don't change our behavior. No fellow readers, some companies will not disappear, but what awaits many of the smaller companies is a rude awakening. It's called consolidation. Some of these companies will actually have to develop something truly emerging, or, they will perish, or be left with the alternative of merging with another company. This will not be an acquisition, this will be a survival merger. Yet, TSB does not see this happening because of the size of some egos.

Many of these smaller companies have had a tremendous amount of turnover. Unfortunately, the turnover should have occurred on the CEO level. Our industry is the poster child for greed and insanity. The legal system loves us, witnessed by the many lawsuits that are currently taking place. Today Synthes is suing Spinal Kinetics, NuVasive is suing Orthofix, all for the preservation of market share. Yet, what does it say about your product when one must litigate? So in closing, Machiavelli was correct when he said, " I'm not interested in preserving the status quo, I want to overthrow it." TSB wants to know what our readers think?


  1. If lemonade was selling for $10 a cup, you'd bet that the streets would be lined with lemonade stands real quick. It's not their fault. It's efficient economics. In fact, they wouldn't need to or want to spend the time to develop new and better lemonade - just get the basic product out the door as quickly as possible before the party is over.

    Pundits will criticise these upstarts as "me-too" lemonade stands and fault them for not improving lemonade technology but they are doing exactly what they are supposed to do. Their job isn't to improve technology, it's to exploit pricing inefficiency in the market.

    If the pricing for a good or service, due to inefficiency, monopolization, or government interference is above what the true market value is, then inexpensive upstarts are absolutely inevitable and indeed necessary to bring the market into equilibrium.

    It is naive to complain about me-too companies "glutting" this market. In an overprice situation, they will arise as certainly as the sun will arise in the morning.

    In time, prices will eventually align with value (that is steadily happening now). Companies positioned to profit in an efficient market will survive, while the opportunists will move on.

    "A premium price is always a subsidy to a competitor" -Peter Drucker

  2. "Many of these smaller companies have had a tremendous amount of turnover. Unfortunately, the turnover should have occurred on the CEO level" Amen to that. The majority of "worker bees" within smaller companies, be it the engineers, quality personnel, or product managers are doing a decent job, but are unfortunately being led by idiots that don't know there own limitations. Too many CEOs at the small company level think they know it all and are unwilling to get out of their own way and let people better skilled in certain areas (i.e. product development, marketing, finance, regulatory/quality, etc.)do a job. Does Vertebron, IST, Archus and US Spine ring a bell?

  3. Anonymous 9:53: Completely agree with you. A lot of companies fold and too many good, hard-working people are brushed aside or stepped on because CEO,CFO,COO and other C-Os don't know what the hell they're doing.

    MM: Glad you brought up Machiavelli. Very applicable here but not in the sense that you described. Too often we think of him as advocating hostile takeovers, violence and his advice in The Prince and how it smacks of the Corleones. More useful is when he likened groups and government to parts of the body: functioning properly in unison the organs, bone, muscle and the rest ensure our survival. With the onset of corruption and greed, analogous to disease or a festering wound turned gangrenous, we must make the conscious decision to amputate for the sake of saving the rest of the body.

    Merge, acquire, close or rise to the challenge. Just do the right thing. Our greed and unethical actions will eventually catch up to all of us. Keep up with the whistle-blowing, MM. Your critics can stop reading your blog if it upsets their sensitive stomachs and egos. I doubt they will though.

  4. Given time, the market will correct itself on pricing.

    I am curious to see if Obamacare actually opens up the spine market. Many more people will be covered. Could lead to surgeons intervening earlier in a declining reimbursement era to capture volume.

    Just a thought.

  5. Great post@ 7:53. Author should start their own blog and bring some equilibrium to the spine-blogging market!

  6. This isn't the first time this has been discussed here and it likely won't be the last until we get down to reasonable numbers of companies in the industry.

    As 7:53 said, there is clearly an inefficient marketplace. How else could the, say, top 4-5 companies have ~90% of the market, leaving the remaining chunk to be split among the other 75+ companies in the spine biz? How many other markets do you know of that have that many companies playing the game? That's not to say that many of the 75+ are actually profitable. Doubtful. Many are surely in it to get to a liquidation event with whatever 'unique' technology they're shilling.

    As I've said before, you can't have an industry with 75%+ gross and 20%+ net margins and not think that pricing isn't going to come to bear at some point. It's the easiest thing for hospitals to push on - few companies would not compete on price at the risk of losing all their business at an account. The goal is to make up the lost revenue in increased volume as their reps are one of the 2-3 companies on contract.

    Should be interesting to continue to watch the acquisitions/mergers/shutdowns as the recession and pricing pressure continue to take their toll.

  7. 75+ companies left out there?? there's got to be at least 200 more out there... i think their here to stay too. down goes the goliaths.


  8. Great posts. Actual thought going into some too. There is an issue that isn't discussed as to Chiefs and Indians in the form of how much does it take to make one satisfied.
    If I am operating a large corporation, 2-300 or more employees with $1 billion in sales - what do I expect as CEO for ME? $1 million? $2 million? And if I am running a $10 million 10 man company between 3 or four solid surgeons who run through $3-4 million in my products a much can I make? If I pay my Indians well - what is left over for me? How much work do I have to do compared to the guy running the billion dollar company nationwide with hundreds of reps, dozens of engineers and distribution people, legal counsel...and the difference? This market, uniquely allows this kind of opportunity. It will UNTIL Obamacare comes forward killing the golden egg layers as we are already seeing capitation and standardization on procedures. When the "evaluation" police determine someone cannot have needed surgery because it costs too much - these numbers won't matter. You won't be able to drop the cost of the procedure to make it work without dropping it across the board. No, JC, the evaluators will simply not allow the work and push more pills into our patients.