Weekend Op-Ed Piece

It was an interesting week to say the least. In addition to being busy at work, our blog had a great response from our readers. TSB is referring to the posts on PEEK Wars, the Spine Technology Summit, all the follow-up commentary on Trans 1, and of course, the industry woke-up to the breaking news on Monday that Baxter had acquired Apatech. Contrary to a few "Dennis Miller" rants by our readers, many of our followers have learned that TSB does provide a forum where industry professionals can have a civil and intelligent discussion on the pro's and con's surrounding the launch of a potentially novel or emerging technology, the efficacy of a biologic, the strategic rationale behind an acquisition, and some of the real challenges start-up or early growth stage companies are faced with, while educating those that are not industry insiders. TSB doesn't claim to be the Executive Business Program at the Stanford Business School, but what we offer those that whine is an opportunity to listen to what is being said about their companies, their technology, their sales strategies, but most of all their management philosophies and how they treat their employees. Sometimes a little introspective due diligence can take you a long way, even TSB reads the comments that are directed at our posts. But you know what Alonzo said in Training Day, "Bone up Dawg!" With that said, one of our readers made a great observation about the Baxter acquisition and the potential ripple effect that it will have within the industry for other biologic companies.

To paraphrase our reader, since Stryker failed in its bid on Apatech, who will they direct their attention to? This reader felt that Orthovita was a likely candidate. Considering their portfolio, TSB thinks that there may be some synergy that would benefit the big "S". It may be time to take OP-1 and retire it to the Ponderosa with Ben, Little Joe, Hoss, Adam, Hop Sing, John Brown and Ned Lipes. In addition to their pending legal issues, how much more capital, man power, and commitment can this company continue to pour into a product that is classified as an HDE? This may be a classic example of an organization that jumped into the fray by placing the cart before the horse some fifteen years ago. It would be ironic if the Harvard Business School did a case study on Stryker. A side bar to the Stryker boys, please spare TSB the rant about NuVa, I don't work for them, but I do admire Alexis' moxie and panache, something more than a bunch of stiff suits have to offer.

Once again, this acquisition creates a shift in the industry's axis, where an outsider purchases a company that takes it out of its comfort zone. Some of the past acquisitions have proven to be miserable for industry outsiders, just look at Abbott Spine. As quickly as they got into the game, they got out. But let's look at that for a moment. That was hardware and there were many different synergies that needed to be fostered between the parent company and its child. TSB believes that this will be different. In all likelihood, the $90 million in milestone payments are a rider that will be paid out in multiple tranches so that Apatech assures its distribution network that during the interim nothing will change especially their two big distributors. These two distributors were generating roughly $18-$23 million in revenue, based on industry sources. It behooves Baxter to keep it transparent, something that Stryker's former employees said that they failed to do with the Howmedica integration. But how does this deal benefit the other biologic companies?

The first aspect to this deal is that it established a precedent as to what the potential multiplier is if you are looking to buy a biologic. Without knowing the details, let's say Apatech's sales were $45 million on the low end, and $60 million on the high end. That's 4X to 5.5X. And even if your sales are not that high, today, you're on every hardware or software companies radar screen, considering that biologics is being touted as "the new new thing in healthcare." Hardware is important but its become too cluttered and passe, it almost reminds TSB of the "5" and I'm not talking rush hour traffic. Yet, you need it to compliment your portfolio or ability to keep the competition out of the game. Stem Cells are the new buzz word, and if you have any upstream marketing in your organization, you know you're looking at the future. That's what visionaries get paid for.

So TSB wants to know what our readers think? Will the next company to go be ISTO? NovaBone? GeneX? You know what TSB says, "they got room for you (the other biologic companies) at the booty house. if you've never been to the booty house, the big boys make you grab your ankles." Have a great weekend.

Spine Blogger Alert

On March 3rd, 2010 TSB received a request from Amedica's legal counsel that we remove a comment by one of our readers that counsel claims is "patently false, misleading and defamatory," regarding the company's cages. This comment was made on our blog post on "PEEK Wars." In the spirit of our blog, we caution our readers not to make any inflammatory statements regarding the performance of this company's products unless it can be publicly substantiated.

Once again, thank you for your cooperation.

Spine Technology Summit

Like many of our readers, our investigative team of industry sources were surfing the internet and examining the many websites and portals that exist for the spine industry. No readers, we haven't found John Malkovich, yet, but I did see John Cusack yesterday. What struck our fancy was OTW's advertisement on their website for the 5th Annual Spine Technology Summt. As usual, we will give RY a plug, the meeting will be held April 26th, in the city named after Phillippe II, Duc d'Orleans. Registration is $750 dollars, and compared to an annual marketing report, this is well worth attending if you are looking to keep your hand on the pulse of the industry. TSB has attended this meeting since its inception, yet, this year's meeting is showing signs of a lagging economy. Regardless what some analysts are predicting, there is a lack of start-up or early growth-stage companies that always claim to have novel or emerging technologies. If there ever was a venue to exhibit your hardware and software this is the venue.

Outside of a few technologies, it has become apparent that innovation is being bred by the mid-to-large cap companies within the industry. This year we will miss Disc Dynamics, Innovative Surgical Technologies and Vertebron (thank heavens we won't have to sit through another presentation by Bruce Khalili on Total Joint Kinematics). Yes, readers there still are some stranglers. These include Disc Motion Technologies (How long has this been goin' on), X-Spine with the Capless Pedicle Screw (I thought they had problems with that screw), and Mazor (they've been around so long my children have grown up).

Oh where, oh where are those so-called "Others?" Where is Amedica, Atlas, Eminent, Lanx, Captiva Spine, Custom Spine, Vertiloc, Vertecor, Spine 360, Spineology TruFuse, etc., etc., and so on? Weren't these the companies that as recent as a few years ago claimed that they have something novel or emerging? Why isn't Robin doing a segment on Facet Fusion with dowels? If there ever was a controversial and debatable topic in spine, this would be the perfect forum to discuss, outcomes, selection criteria and retrospective data.

Do we have to sit through another Scott Blumenthal presentation? No offense Scott, but been there, done that. So in the spirit of debate, TSB wants to know what our readers think?

The PEEK Wars, It's Time to Get It On!

Recently one of our readers solicited TSB's opinion about the monopoly that exists in the spine industry regarding PEEK (Poly-Ether-Ether- Keytone) material for manufacturing of ACDF, PLIF, TLIF, and ALIF interbody devices. At this stage I would think it appropriate to include PEEK rods and artificial discs. Could this be the beginning of a rebellion by the industry, similar to the movie Chocolate Wars? Rather than a young man rebelling against the ingrained heirarchy of an elite Catholic school, is the industry getting tired of Invibio's antics? I mean where's the competition?

So the question posed to our readers is when will Zeniva Peek be available? Zeniva is one of the most chemically resistant plastics available with high strength and stiffness, plus excellent toughness and fatigue resistance. Yet, it seems that Solviva has been giving the industry the same old run around when it comes to getting their material approved along with the time lines for commercial release? It was also mentioned that Modern Plastics is another innovator, when as of this posting it seems to be nothing more than an imitator.

How long will we keep paying "Infibio" the $225,000 -$250,000 for their licensing agreement?

Looks like Brother Leon has stacked the deck and that we need the FDA's ability to review the quality of Solviva's and Modern Plastic's material, along with some good old Catholic school boy rebellion? TSB wants to know what our readers think?

So, What's the Rationale Behind This Acquisition?

Many of you are aware of the buzz that has been circulating throughout the industry since Baxter announced that it had acquired Apatech for $330 million. This consists of an upfront payment of $240 million with an additional payment of $90 million when certain milestones are met. Many of our readers, and those that TSB has spoken with are totally aghast that Baxter would pay this much for Apatech. But you know what TSB says, who cares what we think, all that matters is that Apatech accomplished its objective.

But you know what they say, when one door closes, another one opens. So how long will it be before all those Stryker distributors and reps are calling NovaBone (the closest competitor), or for that matter someone else? Having been involved in numerous acquisitions and integrations, TSB can report, that as we write this post, salespeople are brainstorming about the potential scenarios that will develop over the next few weeks and months.

As with any acquisition, Baxter has evaluated the business distribution model and has not rendered any decision as to what will happen until their game plan is in place. This will leave distributors and salespeople apprehensive as to how long they will continue to sell this product. Of course, the cost of sales with their current distributors will be evaluated, along with those contracts. With that in mind, Baxter bought this portfolio to enhance their ortho-biologic portfolio, especially since their reps have been attacked by Orthovita over the past four years with the introduction of Vitagel to their armamentarium.

But does this mean that Baxter is finished with anymore acquisitions? Knowing that this company has a direct sales force, it is a matter of time before they start eliminating some of the current distributors. Why would you pay high commissions when you can get your direct sales people to distribute this product? Is it a matter of time before we hear of Baxter buying a hardware company to compliment this acquisition? TSB wants to know what our readers think?

PS: Companies in Orthobiologics should build a shrine and pay homage to the CEO of Baxter, he couldn't of set a better precedent than what he paid for Apatech. Put your hand under the radio, can you feel Jesus?

Baxter Announces Acquisition of Apatech

Earlier today, it was reported through one of TSB's sources that Baxter announced the acquisition of Apatech. The tentative numbers are that the acquisition cost Baxter an estimated $240 million dollars up front with an additional $90 million if certain milestones are met. I guess this confirms an e-mail that TSB received over the weekend from one of our readers who thought that this deal was imminent.

If the deal rings true, it looks like Baxter is positioning itself in the industry as a potential foe of Orthovita. This will compliment their hemostasis line and potentially allow them to start evaluating other options. TSB wants to know what our readers have heard? Looks like any company that has a nice synthetic stands to cash out as the economy continues to rebound at a slow pace.

Monday Mornings Scratch Sheet on NuVasive

This past weekend figured to be a relatively quiet one, when all of a sudden on Friday TSB felt like I was at the first race at Santa Anita, and "the race for first place" was back on. Of course "The Race for First Place" is this years spine industry version of the of the run for the roses. Back in November and December there was angst and skepticism amongst the investment community when word circulated that NUVA had some reimbursement issues for its thoroughbred, XLIF.

Within days, there were analysts conference calls by NuVasive to quell rumors that the race for first place had not suffered a setback. Within days of Lukianov's calls, analysts held there own conference calls, and also conferred with a reimbursement specialist. Though the track had gotten a bit muddy, there is no doubt that through it all, NuVasive exhibited that it can be considered a mudder. The Judge for this race against time was the insurance companies that were questioning XLIF. Hedging their bet on their thoroughbred, NuVa was able to cover by having NASS, the spine industry's version of the Racing Commission, step in and clarify what XLIF is, or is not. By enlisting NASS' help, Lukianov was betting that his horse would not be out of the money. Considering that he pulled out all stops, Lukianov is parlaying his bet that he will finish 2010 at no worse than fourth place. The morning line for this money rider is $40 per share.

Now that the inquiry is over, its post time for NuVa. The question must be asked of our readers, will NuVa be able to step up to the gate and run with the other thoroughbreds in our industry? The track conditions have been firmed up by Friday's news, the question is whether the jockey can continue to spin his magic on XLIF, or, is he wishing for a race that he can't win? Besides, Lukianov would look cute in purple and silver silks. We'll find out by Wednesday if there was any truth to a rumor that something's happening at Apatech. TSB wants to know what our readers think?