Out Goes the Tiger, In Comes the Rabbit - 2010 The Year in Review

Fellow Bloggers,

It's time for TSB's second annual year in review. Time flies when you're having fun.  Based on the Chinese Calendar,  2010 was the Year of the Tiger.  Unfortunately for Tiger Woods and the spine industry, it's a year that couldn't come to an end any sooner.   Considering that the U.S. has mortgaged our future with our Asian brethren,  2011 will be the year of the Rabbit.  The Hsin Mao 2011 symbolizes sensitivity, prudence, and wealth earned with hard work.  Maybe we will realign our priorities and revitalize the importance of family.  The only drawback to the year of the Rabbit, is that you may not express your feelings in words, but make it up in deeds.  Therefore, TSB is already breaking with tradition.  Hopefully, we will all start off and complete the cycle on terra firma.

2010 was an unpredictable and divisive year in spine, a microcosm of a much larger story.  Many of our illustrious CEO's will be happy to close the books on 2010.  There is an old Chinese proverb that says, "men in the game are blind, to what men looking on see clearly."   If anything, much uncertainty still remains for spine.  A thriving industry, where 20% was the rule rather the exception,  spine is  in search of the holy grail.  The challenge of containing cost while providing quality care in a discerning manner is here to stay.  Meaning, the industry is under public scrutiny, more than ever before, and we are going to have to provide effective remedies.  Access to investment capital is making it much more difficult for start up companies to bring new ideas and technologies to the market, and it will become harder, as more and more layers of the onion are peeled back on healthcare.  Yes, fellow bloggers, there is much untapped capital sitting on the side line, but no one is interested in betting the house on more hardware.  Besides, banks in this country would rather play in the derivatives market and overseas, than help its own people.  Fiscal austerity is here to stay.  All will be held accountable.

The first quarter of '10 was a taste of things to come.  NuVasive began the year poised to move up the ladder, only to experience a slight derailment, having to defend XLiF with the insurance industry and the analysts' which included, enlisting NASS to address coding issues, and providing data to substantiate the clinical efficacy of XLiF.  Rumor was that Luiz Pimenta sent his pictures of Shakira (who was that blonde?) dancing up and down the steps to highlight how effective this procedure is.  In addition, the Bear made some formidable predictions that were based on KOL's that surgical volume was not slowing down,  even though the healthcare economy was readjusting itself to market conditions.  A 52 week high of $46.83, NUVA is now $26.01 attributed to surgeries being denied by the insurance companies. Welcome to the new decade in healthcare,  accounting for 25% of the GDP.  With much uncertainty in the market, it will be interesting to see how defiant the Bear is in his guidance for the upcoming year.  Stryker was another big story.  During the first quarter, TSB blogged that Stryker should retire OP-1 and stop the Kabuki Theater with Apatech by pulling the trigger on acquiring this biologic, only to be upstaged by Baxter.  Stryker's Ego will defend that selling OP-1 to Olympus was addition by subtraction, distancing oneself from a segment of the market that has led to a series of investigations and litigation.  As Stryker continues to look for the next new thing, maybe Olympus will be a future partner?  The industry has learned that Stryker is not very good at biologics.  The quarter also brought us the Trans 1 and Life Spine marriage,  a marriage made for divorce court.  One thing for sure, after a 52 week high of $4.11 per share TSON closed at a $1.98.  Like NUVA, TSON is dealing with chronic reimbursement issues, and it will become even more challenging for them as the scrutiny intensifies.   Zimmer made some perfunctory noise.  But when doesn't Zimmer make some noise?  If there ever was an organization that is out of its spinal element, it is the Big Z.  DD are you listening, TSB is giving you free advice, cut your losses and get rid of the spine division, you're completely out of your league.  Legacy companies continue to hire the same people over and over expecting different results.  If you want talent, you need to move spine out of Minnesota to a warmer climate.  What is it about this company, and spine?  Yet, TSB believes that the biggest story of the first quarter was the rise of the POD.  Surgeon distributors intend on saving the  U.S. healthcare market by driving down the cost of implants by eliminating the sales representative from the equation.  In addition to POD's, word on the street is that some insurance companies are considering passing on the direct cost of the implants to the patients.  We will be following this as it develops.   POD's need to be scrutinized, claiming that it's not about the profits, it's about cost containment.  If that isn't a bit of pretzel logic, what is?  We learned that the spine industry is no different than Wall Street.  As long as you can stretch the laws, anything is possible.  The legality of this model will eventual be challenged regardless of what has transpired on the Left Coast. Legacy companies are concerned about the deleterious effect that POD's will have on its business distribution models and profits.  The so-called "ankle biters" in the industry are elated, because everything is not global but local when it comes to their business, leveraging their geographical strengths and relationships.  The bottom line POD's are not going away, at least not in the very near future.  If anything, the states will have to challenge this model, before it ever becomes a federal issue.

The second quarter brought us a run for the roses.  Questions arose regarding the industry's odds on favorite NuVasive, in achieving its guidance for the year, while the rest of the industry burned.  As summer approached, rumors swirled that US Spine had the proverbial "For Sale"sign up on the front lawn.  Cardo Medical and Amedica were the then leading contenders, the rest is history.   During the quarter, we heard rumblings on the Street that Applied Spine R.I.P., and Disc Motion were hanging on the ropes.  Was there a symbiotic relationship there?  Since then, Craig Corrance was hired as the new CEO at DMT.  TSB now believes that Corrance, aka Virgil Kint, is the real Kaiser Soze.  If Andy Greenburg could not raise capital, wouldn't invest his own money and couldn't sell the company, what does that tell you?   We reported about the continued lack of transparency at NASS, based on the fact that surgeons report stock, honorarium and consulting fees, but fail to report that they are actual investors in certain companies.  As a tribute to the ailing Queen of Soul, "Shame, Shame, Shame ......... Shame on You."

Lanx became everyone's darling in the third quarter.  Confusion arose as to whether they were hiring former Medtronic employee Michael DeMane as CEO.   Another company with a one-trick pony, and an aberrant BOD's,  Lanx is better known for getting rid of employees than making progress.  Talk about a company that flushed an entire year down the drain.  Today, they have hired Dan Gladney in hope that he will lead his flock to the promised land.   Hopefully he will have the vision to clean house using the "inside out" employed on DGI's technology.  In many respects,  Lanx was the 2010 poster child for incompetance.   The K2M story was bigger than anything else, selling majority ownership to Welsh, Anderson, Carson, and Stowe.  The company is now poised to be package and sold to a legacy company.  S&N's name keeps surfacing.   Just what the industry needs, more GE wonks trolling the aisles at NASS.   You know what the late Lowell George always sang, "Time Loves A Hero."  Biomet CEO, Jeff Binder made some noise during a earnings call, stating that Biomet was looking to place an emphasis on "highly differentiated products."  Ahem!  Based on their portfolio and track record in spine, the only differentiating story in 2011 will be whether they are closing Biomet Spine in Parsippany, NJ and relocating the division to the corn fields of Warsaw, Indiana.  It is inevitable that the moving van is not that far behind.  If anything,  this will allow Binder to get rid of the dead wood that exists in that division.

The fourth quarter brought the industry much legal angst.  Synthes was finally slapped with a nominal fine for their complicity in the Norian debacle. $23 million is mere pocket change for Mr. #7 aka Hansjoerg Wyss considering that he used $35 million of his own to prop up the environment in Montana.  The industry awaits word as to whether the Fantastic Four will serve some jail time.  Sometimes, one has to wonder how someone so smart, could be so dumb?  NuVasive and Globus are enriching the legal industry with their tete-a-tete, while AlphaTec is under tremendous scrutiny for potentially manipulating and misleading investors that purchased ATEC stock only to watch it collapse. This has resulted in a class acton law suit involving investors which probably are made up of pension funds that were silly enough to buy into Healthpoints BS.   The question still remains, how lame of an excuse can one use, by claiming that they had difficulties integrating Scient'x?   At best, Scient'x had revenue of $20-$25 million and a market cap of $60 million?    In addition to the aforementioned suits, once again Tom Errico and Stryker are at each others throats.  This has been, and is a love-hate relationship.  But what really jumped out at the industry during this quarter is the continued onslaught by the government and the press regarding surgeon royalties and consulting agreements which for one reason or another, always leads back to Medtronic.  With Hawkins departure, TSB sees the Evil Empire placing a CEO that will focus on rehabilitating its reputation with the Government. Once again, Drs.  Kuklo, Polly, and Rossner are now under investigation by the US Senate's Dynamic Duo of Grassley and Baucus for using Hydrosorb off label.  Hydrosorb is probably a biocompatible and biodegradable polymeric device that was a carrier for INFUSE.  Yet, one must wonder how much longer will this charade continue?  Whether or not Mssrs. Kuklo, Polly and Rossner used this product off label should not even be of concern to Batman and Robin, considering that the patients that have been contacted, and all seem to be doing fine.  One does have to wonder what is going on at Walter Reed in the name of medical progress?  The most recent article that was released on December 30th in Bloomberg exposing Twin Cities Spine as a "Fusion Factory," performing a weekly spinelalapalooza  should be cause for major concern.  If NASS, AANS, or CNS does not have the ability to police and question its own members regarding their outcomes, the government will definitely step in.  

So in closing, TSB wants to wish all our readers and their families a healthy and prosperous 2011.  We will continue to monitor and report on the industry in the most efficient and honest way possible, regardless whether our opinions differ. What we can tell our bloggers is that this year alone, we had over 800,000 viewers, with 500,000 unique visitors and send a special thanks to each and everyone of you that contributed your opinions and comments.