Downgrading The Spine Market

To say that it has been a tumultuous and uncertain time in spine would be an understatement.  Since the beginning of the year, the industry has been making adjustments to a rapidly changing U.S. healthcare landscape.  In anticipation, downsizing began with Zimmer and Medtronic announcing layoffs, only to be followed by other key players such as Biomet and Alphatec. Granted, not all layoffs pertain to spine, but the industry has had its testosterone levels dropped a notch, and there is no need for a blood or saliva test. We are the enemy.  Outside of Nuvasive, many companies are experiencing a dose of reality playing in a market where surgical procedures are down, insurance denials are up, patients are afraid to have surgery because they are worried about losing their jobs, and declining ASP's are making many of the larger companies reassess their financial objectives and distribution models.  In addition we have POD's threatening the existence of thousands of  salespeople, blaming sales people for the high cost of delivering implants to the industry, bickering among surgeons on ethical practices, and two parallel U.S. Senate investigations.  Whether you like it or not, there have been more negatives than positives when it comes to reporting growth for many of the publicly traded companies, granted some changes in accounting rules have helped certain companies save face for another day of judgement.  Either you have something new, or you don't. And if you don't, sustaining market share may be more important than real growth to some of these organizations.  What is killing this industry and this country is that too many companies can only think short-term because of they have been hypnotized by their drug, Wall Street.  Some will argue that TSB is attacking the Street, yet even those of us that report what's been heard on the Street know that forecasts are an important metric to evaluate one's accomplishments and failure, unfortunately, we no longer think long-term. Everything is short-term.  Short-term thinking is providing the industry a rude awakening.   This week, the markets brought some companies back down to earth, taking some of that luster off their magic lamps.  You can blame the Europeans for this week's fall from grace, but the Market's performance has been on steroids to begin with.  In one fell swoop, valuations tumbled faster than you can say, "we continue to have laser like focus."

Outside of NuVasisve success, single digit growth has become the norm, unless you are one of the mid-level players in the industry.  Alex we must admit, you are one hell of a salesman.  Even though some analysts rave about some of the bigger companies, questions abound whether the industry is finally making the necessary adjustments as it moves into the second half of the year.  The most recent quarterly earning reports are not painting a pretty picture for spine.  Zimmer (3%), Biomet (10%), Orthofix (3%), Medtronic (1%), granted some of these numbers combine hardware and biologics, but spine is spine whether its hardware or software. So how does this shake out for the industry? Consolidation and annihilation continues to hover over the industry like an alien space craft.  Companies that have been surviving on a revolver line are close to being placed on a ventilator, while other companies are hoping to weather the storm.  Free markets are working their magic.  The strong may not necessarily be left standing on two feet, but the weak will definitely perish, especially if the economy continues to flounder and your company doesn't have innovation in the pipeline.  All this speculation about not investing into newer ideas and products because of the economy is short sighted.  This is a marathon not a race.

So rather than dwell on all the bad things that have happened since the New Depression occurred three years ago, TSB wants to know from our readers who are some of the up and coming companies?  Let's have a poll, you be the judge.  Does anyone have innovation that could potentially disrupt spine as we now know it?  Is there a game changer?  Who will come out of the pack in the second half of the year as someone willing to go long rather than short?  If there is one company that intrigues us, it is K2M. With all of this insanity, they seem to fly under the radar, not looking to bring public scrutiny to their attention.  Of course before your comments come to rest, our maniacal friend will ask when will Globus go public?  Get a grip on yourself, even if  that company had the ability to go public, it is so diluted that you'll probably make pennies on the dollar. So in closing, just like the U.S. Government, spine has been downgraded as an industry.  Until we fix our own house, it might get worse before it gets better.  You know what Jackson Browne once sang.

"these days I'll sit on cornerstones and count the time in quarter tones to ten, my friend don't confront me with my failures, I have not forgotten them."