Sunday, March 20, 2011

Sunday Op-Ed Piece

Since most of our readers acknowledge that they follow TSB not only for the content, but primarily for the passionate discourse exhibited by many of our bloggers, we thought it would be interesting to get your take on what has made some spine companies successful and why have some companies floundered in what now seems to be eternal misery?  We all know that IP is one of the most important ingredients in developing a successful start-up. Without innovation and a targeted market, raising capital in today's economy is a moot point.  In addition to the aforementioned, assembling an "empowered" and knowledgeable management team may be the most important ingredient in defining ones success or failures.  Ever work for someone that had what TSB calls the "ADD Spine Business Plan?"  Ritalin and Lovaza would probably not help.  Getting a group of people to understand a plan/objective and remaining focused maybe the most underrated aspect of any business.  Yet, without acknowledging the market and competitive realities, any new venture may be doomed for failure.  So again, TSB asks the question, why have some companies failed while others succeed, sometimes in spite of themselves.

How do ventures that have raised millions have gone on to fail in our market?   Whether our readers agree or not, "process" may be the most important element rather than results.  Unfortunately, for the better part, many investors along with the people that steer a start-up fail to grasp that concept.  Most successful ventures, and by successful TSB means those that actually effected their strategy, reveal two important patterns.  Useful change tends to be a multistep process that creates power and motivation to overwhelm all sources of inertia, and the process is never employed effectively unless it is driven by "high quality" leadership, not just a great management team.

Regardless whether costs are high, products are mediocre, or customers are exhibiting shifting requirements, progress and process may be paralyzed by egotistical leaders, bureaucracy, parochial politics (an all-time favorite), a low-level of trust (ever work for one of these people), lack of teamwork, a lack of focus.  In our haste for the Holy Grail, many CEO's and their boards have derailed many a companies by their petty insecurities.  Do companies like Vertebron, IST or Applied Spine bring back memories?  And what does it say about the leadership and business acumen of many a CEO when one looks at the attrition rate within the industry.  Some will obviously argue that market forces are things that companies and its management team cannot control, yet, TSB differs with that opinion.  It is precisely for this reason that many of these companies have failed,  a leader is like a great conductor of a symphony being able to guide his or her orchestra through the process which usually ends in a great result.  By paying attention to the details, the whole is greater than the sum of its parts.

How many of you have worked for a company that has developed a decent product only to fail for its own inadequacies?  Their inability to respond in a timely manner, their inability to address system short-comings?  Could you think of a few?  Today's business environment demands more large-scale change whether it be vis-a-vis a new strategy, restructuring, mergers or acquisitions, and new product development.  Some of these decisions need to be made quicker in a less than economic environment requiring sacrifice.  Unfortunately, many of these companies have failed to take a conciliatory approach, nor are we a very sacrificing society, but that's what awaits many of us including the companies, hospitals, surgeons, and sales reps.  

Reality has brought many companies back down to earth.  The days of 40% commissions are over,  the days of 20% growth will be far less, unless you are buying products from one of the many companies that have been started by former distributors and/or their physician colleagues.  Realistically, TSB sees a trend in the field, whereas more and more of these small companies are surviving by utilizing every legal resource available to them.  Namely POD's, for the obvious reasons.  And if the big boys are predicting below average expectations, how do some of these smaller ventures continue to show growth, considering that we do play in a zero-sum marketplace?   How many of these ventures were originally positioned to be flipped, only to hear their CEO's now claim that their objective all along was to grow a company and organization, while they move along at a snails pace?   The people that run these companies will argue that their organizations can succeed with incremental change.  A 2% improvement here, a 3% reduction somewhere else and you are growing.  In the short-term that may be true, but how long will it take to get where some of these people claim they are going?

What we are witnessing today is change in the internal structure in many of these companies, surviving on fewer rules and employees.  So in closing TSB wants to know what our bloggers think, have many of these companies failed because of their inability to be risk tolerant, transparent, too slow to make decisions, a failure to empower and trust their employees or as TSB likes to say, were the market conditions bigger than the both of us?  

27 comments:

  1. Alphatec! Keep cleaning house and get new blood in there top to bottom. Hit the reset button on Marketing, the department is a complete joke!

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  2. It's a combination of both. Spine was in a bubble along with most of the rest of the U.S. economy that brought an influx of people looking for quick returns.

    The industry will not return to normal until all of those looking for fast money are flushed out and those who are truly dedicated to the field remain.


    As long as the Federal Reserve keeps pumping cheap money into the system most companies with revenue will have access to loans to keep them afloat though many of them need to fold and cleanse the industry.

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  3. Did I tell you about the new intervertebral spinal device I am designing? Titanium Plasma Sprayed NASA Memory Foam. I am using recycled memory foam from the recently graveyarded shuttles.

    Start up costs: $25,000,000.00
    Looking for long term partnership. If you provide the VC - I'll put up the intervertebral disc shaped Memory Foam and Ti plasma spray.

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  4. The question no one seems to be asking, or doesn't want to ask: if the core technology isn't changing over the next 5 years, what is the real value of a rep in the room? I know there are complex cases where a rep adds real value, but that is likely 10% of cases. Additionally, I've known doctors and OR staff that have performed long deformity (complex) cases without a rep in the room; but that requires a dedication on the part of the hospital and a flexible doc, neither is commonly found. We've spoiled them.

    With a tightening pool of healthcare dollars, and stricter rules on what reps can promote, what's keeping us from becoming pharma reps?

    With tightening rules on what reps can promote, and a tightening pool

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  5. Keep the rep they will never survive on their own in the OR.

    Cut drug prices and unnecessary diagnostic testing and save on headaches on cash!

    DUH!

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  6. I keep hearing the Mantra about ditching the rep. It is true that many cases, if not most, with the right hospital staff can be done without a rep.

    One of the things people are forgetting is the first word in that rep title, "sales". Do you think the big boys will just sit back and "hope" the doc will use their stuff? Without a sales force, the doc's decision will come down to either price or IP ( IP only if it's a serious improvement and reimburses well)

    And by price, I mean how much the doc makes from using that product through their hospital ownership or POD. That's exactly how it should be, right?

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  7. If it goes to $600 per Poly, $100 per set screw, $150 per rod, $1500 per cage, is there room for the rep cost of yesterday? Self-fulfilling prophecy...pharma reps...you name it. Hospital will figure out how to make it work. Any comments?

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  8. Have any of you POD members asked your malpractice insurers if they will cover you if you're in a POD? I smell a serious premium adjustment! Btw, "everyone else was doing it" is not a great excuse in court. I will bet any one of you that you regret joining a pod in 2-5 years. Could be a court case, your insurance dropping you, or just you not being able to sleep because you put greed over patient care. I get it, your reimbursements are down, less cases, increased costs, etc. Don't kid yourself though, PODs are immoral, and are (or at a minimum will be soon) illegal. Look at the AAOS guidelines for a legal business relationship, your POD does not fit it, even if you finally found an attorney to tell you it's ok. See if he'll take your case without a retainer.

    - bitter rep, but I'm right

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  9. So in a few years PODs are crushed.....I would think next evolution would be hospitals hire their own salaried inventory managers, limit Med device companies to one or two vendors via competitive bidding every few years, companies change sales force and regional reps maintain existing contract relationships, bid on new contracts and only show up for complex cases at Dr request and get paid via a separate "service " contract.
    Thoughts???

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  10. Could work if the hospital was obligated to use each company 50%.

    But any scheme to limit vendors, or eliminate reps only works in today's environment. Once we new ip starts to come out, and we are not all selling a commodity, those won't cut it. You can't get all the inventory managers working for $50k a year to become trained on every new, highly technical and/or complicated technology that comes out. Nor can companies effect a change in surgeon choice with a hospital employee.

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  11. 1:55 PM, PODS are perfectly legal. They save hospitals money. What's the problem?

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  12. Didn't Closet Spine get rid of there top distributors and hire some bogus scrub techs (fool for their money)? Great business model.

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  13. 3:36, you must be joking. You really bought the PODs save hospitals money line? Let's say the POD approaches a hospital with a 15% discount in year one. (FYI, this only saves a hospital money if your a Robin Young funded attorney or his ilk). But let's just say it did find a way to save money even though the pod increased implant usage 30%.

    What happens in year two? In the current environment, the hospital goes to all the competitors and demands a discount, and we acquiesce because, well because we have to or someone else will.

    What happens when the hospital comes a calin' to the POD for their annual discount? The POD says "not no, but he'll no". And if the hospital pushes, the surgeons threaten to leave. The result is no discount, higher usage, and significantly increased liability to the hospital.

    But at least their using the best implants, right!

    http://www.fda.gov/ICECI/EnforcementActions/WarningLetters/ucm223696.htm

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  14. Alphatec is a sinking ship.

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  15. Did'nt Alphatec correct these issues? I work as an Alphatec rep and my distributor says it was all BS. He said everybody gets letters like this.

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  16. 5:21pm- yes. It was a joke. 7:15: no. Everyone does not get letters like that.

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  17. 7:15 Take a look at the FDA site and see how many letters you find for other companies. Your distributor is drinking the Alphatec kool aid. Did he tell you the stock is going to $15 as well? There are several companies in the 70 to 150 million range but will they last? I would look for companies coming out of europe and Asia. If they can make money in socialized healthcare, they are better positioned for the declining margins in the U.S.

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  18. 3:01 - It's already happening.

    Multiple hospitals have contracted directly with the vendor. The hospital then hires scrubs or former reps as hospital staff to assist in all spine cases. They are salaried and not incentivized to sell, so the doctors determine exactly what they need.

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  19. @6:57, in other words we go back to where we were 20 years ago. Reps sell and truly support, and hospitals do case prep and inventory management. And the reason this makes sense is that what the hospital has to pay for the latter services is much less than the implant companies have been charging for them. It was never a problem when implants were charged (with markup) to insurers. But with the hospital increasingly receiving set fees for procedures, regardless of the costs incurred to perform them, their incentives have been inverted and cheaper is suddenly better, even if you have to manage your own inventory to get a discount.

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  20. Having been in the Spine world and OR for the past 20 years...I would hate to be the patient without a qualified rep in the room. Surgeons do so many different procedures, it helps to have another eye in the field to work with both the scrub techs and the surgeon. Scrub techs do not go through the company training and POD's are going to end up in court. Let the reps be reps, the techs be techs, and surgeons stick to operating.

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  21. I have been in too many cases in the last 5 years where the surgeon was not as comfortable with the technique as any of us would like and the back table was a nightmare. I can't say that those were my hands implanting product "x", but I know damn well that if I wasn't there, there would have been a much poorer outcome.

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  22. So, am I the only one to see the question posed un-answered? Why do some companies make it, others don't? It's commitment folks, belief in the mission, players aligned, all on the same team, playing to reach a common goal, trust in those who provide the products the sales force is charged with promotion. Everyone looks to NuVasive of late. What makes them stand out? One, they don't try to emulate anyone. Two, they pay less attention to the competition and focus on what they do best. And though a percentage does not agree with their tactics (I am one of them), they have found a formula that works. Finally, for the most part, the successful are rewarded, those that make a serious effort are not automatically thrown under the bus, but they also don't waist time with poor results. For the most part, there is a team effort, support when needed and appropriate, not a lot of waisted effort. They embrace different.

    Sofamor Danek was similar not that many years ago, creative, innovative and complete. They have lost their way in many respects and are loosing market share as a result. Globus was on their way, again, changed their approach, altered the mission and didn't have the team behind them when changes were made.

    As far as new technology goes and IP development, that's tough as the IP landscape is so crowded. And though the world is screaming for outcomes data, no one is paying attention. If you can't find new stuff to develop, at least prove what you have is good, appropriate. It would be difficult to not agree products have been developed and marketed on hype, not outcomes. There are hundreds of PEEK products on the market, if you think yours is best, prove it. It also allows companies to utilize their consultants in an honest, legal method of engagement.

    Food for thought anyway.

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  23. 1:43 - what do mean 'If it goes to $600/poly'? Aren't we there already in many places?

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  24. 7:46pm....You're RIGHT. Unbelieveable. I got 100% hosp. compliance by giving them $465/screw, and equally good on other stuff and $995 for PEEK. 750 cases. This made my year! BABY!

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  25. @6:23 Good food. The time is ripe for the next player to step up with a clear mission, purpose, good team, innovative technology or just an innovative service idea and succeed where others are flailing. The one thing everyone knew about NUVA and Globus when they started is that their core team wasn't likely to fail at whatever direction they pursued. Too much talent and experience represented there. Curious to see where the next "dream team" comes from and the direction they head.

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  26. As far as the warning letters, if you take a quick peek at the FDA site, there are hundreds issued every year. Of course not all in spine, but you will see all of the big players and a bunch of little guys. Medtronic just resolved the deficiencies that resulted in a warning letter that was issued in November of 09. I don't have the time or interest to read the infractions, but they were both long and looked similar. Seemed to be related to labeling, documentation, adulteration of design, etc. I think it proves the FDA is a little too involved in the stuff that doesn't effect patient care (those issues could, but probably don't) and not involved enough with issues that do effect patient care like off label use, 510K submissions on products that are not meant to be used as the predicate device (cement restrictors, lateral mass screws, etc).

    If Alphatec is sinking, it is not because of an FDA warning letter.

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  27. I don't believe ATEC is a sinking ship and regading their warning letter, it was that; based on processes not product recalls. Many companies have had similar and worse. Don't get me wrong I'm not drinking their koolaide nor due I know enough about them; just been around about 20yrs first focused in ortho now spine. In my area they're playing and gaining ground. I'll keep my eyes open on them.

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