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.