Saturday, October 9, 2010

Weekend Op-Ed Piece

Cardo Medical Incorporated, a Beverly Hills (that always makes me laugh) based orthopedic and medical device company, regretfully announced on Friday that it terminated 15 of its 30 employees in varying functions, and that its CEO Andrew Brooks, M.D., and President and COO Michael Kvinitsky have agreed to forgo their salaries for the foreseeable future.   As most of you know, dedicating any time to writing a blog about a company that doesn't come up as a blip on the radar screen, or, as a fly on someone else's ass,  isn't worth the time.  Yet, TSB is compelled to eulogize another company that attempted to get into the spine industry.  Over the last few months, there have been numerous attacks by surgeons complaining about sales people,  justifying their expansion into POD's, and waxing poetically about what smart business people they really are.  In many respects, they think of themselves as Captains of Industry that walk the canyons of the spine world.

Cardo, as you many of you know, is the company that acquired the troubled balance sheet, and me-too products that our friends the Three Stooges at Vertebron had developed.  Word on the Street was that Vertebron was offered an estimated $10 million, and some sources claim that there also had been an offer for $30 million.  If true, why were those offers rejected?   Simple: the Three Stooges as they have become affectionately known, graduated from the PT Barnum school of business.  Only to find out that the joke was on them  The bankruptcy courts auctioned off the company and its assets to Cardo.  Old news is old news.  So why is TSB dedicated time to rehashing history?  Because there are lessons to be learned.

The first mistake that they made was not bringing in an experienced industry veteran,  qualified to assess the existing portfolio,  the value of the intellectual property,  the business distribution model, the surgeons that were committed to this product (LOL) and address the issues that this company had, and would face if they were to successfully integrate a spine portfolio (not even mediocre) into a reconstruction company.   Remember, you can't make Beef Wellington out of Bull Shit.

If there was any truth to the rumor that commissions were owed to distributors that were contracted to Vertebron prior to the sale, they should have been paid, even if Cardo found that a bitter pill to swallow.  Why?   It's bad enough when Moe, Larry and Curley were willing to perform their infamous now you see it, now you don't, it's a double whammy when the new owners reject their responsibility in acquiring the company.  That's right fellow bloggers, when Cardo acquired Vertebron, they just didn't buy the portfolio, they bought a company. 

Maybe there are lessons to be learned, and hopefully, some people will look in the mirror and understand that being a surgeon doesn't qualify you to run a company.  That being an engineer with a background in recon doesn't make you a great spine engineer.  There is a difference between driving a train and being the conductor.  Why does this continue to happen in our industry?  Fool's Gold?  Ego?  Stupidity? Whenever you use someone else's money, you lack discipline and accountability.  How many of these fly by night companies have come and gone?   How many companies exist where the CEO has asked its management team, or employees, to forego their salaries until they raise more capital?  How many spend money without being held accountable by its investors?   How ridiculous do the banksters and private investors feel that they continue to piss money into the wind?  The future is in front of you, open your eyes.  Attempting to execute a reverse merger vis-a-vis a PIPE in this economy was and is insanity.  Not when you have absolutely nothing to offer.

So in closing, our heartfelt condolences go out to those fifteen people that lost their jobs this week.  It sucks to be out of work in this economy, hopefully, someone will see your value and offer you a job.  As for Abbott and Costello, the show goes on.


  1. I am far from an economist, but given the number of implant companies that exist and reductions in payments to those companies, the industry must shrink---through mergers, acquisitions or bankruptcies. Not a big surprise about Cardo. The question in my head is: how many companies will the industry be able to support?

  2. MSM:

    Really? A company declares bankruptcy and the people who buy the assets have to pay old salaries? Do you not understand how these things work? If you bought a house on a short sale, is the buyer ethically required to send the bank additional money to cover the loss on the mortgage? Out of the goodness of their hearts? Please.

    In the last few posts it has occurred to me that if you know so much and are so unhappy about how companies are run, why don't you start your own company? You could then charm us with you scientific breakthroughs and showcase how your investors are only firemen and woman, teachers, cops, etc. No nonsense getting that tainted investment banker and surgeon investor money. That just spells "bought".

    How about it?

    The easiest thing to be is a critic. You do nothing but your feel entitled to call people crooks, dishonest, incompetent, etc.

    Oh yeah, and you also sell spine products! Can't wait until you start sending checks to hospitals because having them pay $800 for a screw that costs $80 yet only has a 63 percent chance of working is unethical. No sense in gouging people unless it benefits you, right?

  3. Obviously you're an intelligent person equating short selling a house to a failing spine company's ability to sustain revenue. There are always two options, cut your losses up front, or attempt to salvage the existing revenue stream, and build upon it with a new management team, implementing a new culture. Obviously, Cardo chose the former, rather than the latter.

    I clearly understand how things work in this industry, because I have seen both the best and worst of times. And contrary to your short-sighted view, experience and time do bring wisdom, the same way that a surgeon with twenty years experience makes better decisions than one three years out of residency.

    As for starting my own company, I have one. As for charming you with my scientific breakthroughs, I leave that to the people that have the education and talent to invent. You know my theory, just because you make millions of dollars doesn't make you the smartest man in the room, it only makes you the richest man in the room.

    Criticism is good, hopefully it teaches you that the world is different and that everyone doesn't abide and live by your code of ethics. You know what I say, it's a blog, if you don't like what is written, don't read it. Go to or www. I'm sure they could use the readership.

  4. Anonymous 5:18

    Were you at NASS, and did you notice that Amedica did its best to meet and greet US Spine customers and distributors? I bet dollars to donuts that the amount of commissions owed to distributors by Vertebron was nominal. Without knowing all the details, it would have been in Cardo's best interest to evaluate the business, keep a line of communication open, and potentially work something out with the distributors. You don't have to agree. Maybe they tried, but based on the final outcome, they probably didn't. If you were an investor in Vertebron, wouldn't you want your money? Do you work for charity? Why would you help Cardo distribute Vertebron product if you never received compensation for that same product that you sold under a different regime? This industry is incestuous, screwing a distributor is the kiss of death. The same way screwing an investor or surgeon would be the end of you. You don't have to agree with everything TSB says, and you don't have to like his point of view, but many times TSB makes sense. Why did Cardo waste its time and money in acquiring Vertebron? That's the real mystery considering there were better companies out there. Vertebron's rod reducer was a piece of shit and it's pedicle screw was mediocre at best. In the end, their own consulting surgeons didn't want to use the product. There are more lessons to be learned in failure than there are in success, it just depends what you believe in.

  5. Hmmm....No. I am equating selling assets at auction for their new market value to selling a personal asset (a house) at its market value. Both depressed assets. Both worth less than was either raised or paid. That is Bankruptcy, my friend.

    Problem is that there may be unethical people in our business. At the same time, without people risking or trying new things that may or may not work we would never advance. Just because it didn't work doesn't make them dishonest. Henry Ford ran two companies into the ground before the Model T. Is he a crook too?

    So if I don't agree with you I should go elsewhere? I see. You love to opine but when someone does not agree, they are stupid and should go elsewhere. Do you follow your own advice and jump on another industry? Vacuum Cleaners are a good business. Home owners are generally not bought and paid for to use your appliances. Let us all know how it goes, The Vacuum Blogger.

  6. Class warfare at its best. Us against Them. Can't live with them, can't live without them. It's a two way street. Somewhere we have to find balance, until then the war goes on.

  7. Hey Anonymous 8:46 wait until the litigation against the former owners of Vertebron is over, then you can comment on unethical and criminal behavior.

  8. Try to be realistic when using Henry Ford as an example. That man was a visionary, a true pioneer. He also cared for workers considering that he paid them well and had stable employment. Name me one product that has been a technological breakthrough in the last five years? Your comment makes it sound that people are finding a cure for cancer. Now there's a real clinical break through, unfortunately its not going to come from a spine company.

  9. 8:46 is sofakingweetodddid

  10. Greedy surgeons and a greedy industry = a platform for well, ......greed and al the dynamics it brings with it.

  11. "Can't wait until you start sending checks to hospitals because having them pay $800 for a screw that costs $80 yet only has a 63 percent chance of working is unethical. No sense in gouging people unless it benefits you, right?"

    This is a strange statement, and makes me wonder if another POD surgeon isn't the author here. If the screw is so terrible, then the docot should use something else. But does he have a better option? No. Do I, as a sales rep, wish he did? Absolutely! Just because I sell the product doesn't mean I have no interest in how the patient does.

    Not only do I want them to do well just because it's right, I also want them to do well because that's good for business too.
    Additionally, why does everyone think they know the "true cost" of everything in spine? Manufacturing costs might be low, but what about FDA and R&D costs, all of which are recouped on the back end of the sale?

    Are the margins high? Yes. But not nearly as high as most self-proclaimed MBA docs think.

  12. Cost $100 an hour for each member of staff (product managers, R and D, marketing people etc.) in a medical device company. Thats what we factor into any business plan when developing a product. True cost of a product has nothing to do with the production cost. That excludes, studies etc.

  13. To add further to what 5:40am says. What about the insanely high costs of booths at shows like NASS, where the ROI is awful? Or the cost of marketing materials and other means of promoting or supporting the product? All not cheap! There is a lot more that goes into a product other than the COGS.

  14. If you want to knock on someone, knock on Amedica. They are not even paying the accrued vacation time for the US Spine employees they are laying off.

  15. You guys are so right-on about the "actual" costs of the products we sell! I have a surgeon that, 9 times out of 10, will make a last-minute request for a product not originally requested when the surgery was scheduled, and my company is forced to eat the OUTRAGEOUS cost of having these huge plastic crates couriered-in over night. A screw may cost $80 to manufacture, but that's nowhere near the actual cost of getting that screw to market.

  16. Don't forget that every instrument must be provided at no cost - diskectomy tools, retractors, and a pile of sizes of implants that will never get used.

    Hospitals charge 200%-300% above cost and never lay-out a dime for the tools to do surgery or the implants.

  17. Are we talking about the problems, or the symptoms of the problems? The system is BROKEN

    Just like manufacturers have a "cost of doing business", so to do hospitals. Hospitals only get paid for what is implanted. At Academic Hospitals, it's not unrealistic to say 5-10% of the implant costs are a wasted expense, something that cannot be billed for. Industry sponsored studies by Stryker have evidenced this. Suture, anes gas, drapes, gauze, towels, gowns, masks, headlights; hospitals get reimbursed zippo for that (RVU's are not a good measure of cost for spine surgery). Also, the disparitybetween what hospitals charge and actually get paid is absurd. 200-300% is likely for workers comp cases and self pay. Medicare/Medicaid actually reimburses less than 100% of the cost; and look at the typical case mix

    Furthermore, the complexity of products that differentiates one company's screws from another is the reason for all these trays. It's the manufacturers arms race that has largely created the paradox.

    Who funds NASS anywas?

  18. ^^^ purchasing agent? LOL
    You should go to sir......

  19. Perhaps someone could give some input on the future of vertebroplasty (without being too dommsday about it, but rather realistic)

  20. Vertebron owed distributors about 7 million

  21. If that is a real number, how ridiculous were the distributors? I find that number to be a bit of a stretch.

  22. 1:12:

    # 1: vertebroplasty works
    # 2: payors will get rid of it, if given the chance
    # 3: AAOS' positioning statement is a political move that will blow up in their face
    # 4: NASS as usual is too busy with back room dealings, so no time to respond..... if they even knew how.
    # 5: there's some good editorials in the non-NASS journal: Spine

  23. Would you mind elaborating on #3? Thanks

  24. 6:37

    They think they are showcasing themselves as responsible citizens by publicly declaring a procedure ineffective on incomplete evidence, and hope that no one notices that only a very small percentage of their membership performs these. They left kypho alive, because those few members that do treat fractures tend to work (closely) with Kyphon. If many people are sufficiently uninformed and follow their guidelines, the average cost per fracture treated will dramatically increase. Most significantly, they have opened the door for outsiders to ask them to scrutinize other procedures that they actually do tons of. Given the fact that AAOS apparently only looks at what at least on paper are prospective randomized controlled studies -they did stop short of double blind (sic!)- there will be many indications/procedures that would not pass muster. THA rings a bell?

  25. Henry Ford was indeed a crook.