Synthes and Employees Indicted

On July 14th a Federal Grand Jury charged Synthes and four company executives for allegedly scheming to conduct clinical trials using a bone cement in vertebral compression fractures without the approval of the FDA.

The indictment charges that before the marketing program began the company knew from pilot studies that the bone cement (Norian XR) reacted chemically with human blood causing blood clots. Despite this, the company continued to market Norian XR for VCFx's and didn't stop until three patients died. Even after the third patient died, Synthes and Norian did not recall the product which would have resulted in an MDR.

Michael Huggins, Tom Higgins, Richard Bohner and John Walsh (not of America's Most Wanted Fame until now) were each charged with one misdemeanor count. So now we know why Mike Huggins was sent packing to Scient'x, who probably requested that he bow out gracefully after a brief cup of coffee with the Healthpoint Capital owned company. Higgins whom is a Wyss protege, use to run Boathouse (another Wyss owned company) before being given a promotion to Synthes, probably because of his Harvard background.

The most disturbing aspect of the indictment is that person No. 7 was Hansjoerg Wyss. As the Spine Blogger stated in earlier blogs, das Fuhrer is losing his faculties. Too much money, too much wine, too many women and high altitudes is causing this once respected man to be viewed as a renegade with no conscience when it comes to making money.

Do you want to be a Doctor or a Consultant?

The conversation goes something like this. "Mom and Dad, I have decided that I want to go to medical school and become a doctor." The parents replied; "Why do you want to go into medicine?" "Because I love helping people, and believe that this would be an honorable profession." The parents replied;" but with the state of healthcare in the US (some type of government sponsored healthcare program), are you willing to work in a system that could potentially limit your earning capacity? The child states: "don't worry, not only will I practice medicine, I intend on becoming a consultant for some company in my chosen specialty, and make millions of dollars while I attempt to become the best doctor that I can be." With that the parents gave their blessing.

Somehow, somewhere, something has gone afoul in our industry. As the NY Times reported early this morning (7/15) more information is coming to light regarding the Kuklo/Medtronic affair. (It's starting to sound like the old movie The Thomas Crown Affair). He was a young, talented, and successful millionaire who tried to pull off the perfect crime (that's the story line for those of my younger readers). The question that must be asked is; " How does someone so smart and intelligent get himself caught up in a scenario that could turn out to be, as they like to call it in the US Army, FUBAR? Maybe we are starting to understand why the DOJ is shining a light on our industry, and it's not a flash light.

Accusations of falsified data, Medtronic stating that they had no knowledge of the study at Walter Reed (wink! wink! obviously someone had to know something) and bouts of amnesia during the disclosure process does not bode well for Dr. Kuklo. And now, it seems that both parties are attempting to perform damage control by distancing themselves. At least Dr. Kuklo gets to use his legal education in how he manages himself as this investigation moves forward (that law degree does come in handy). The question that is being asked by many is, "why would someone so intelligent forget to disclose that he had any financial tie to the evil empire." Why would he forge other surgeons names to a study?

In light of the Kuklo article, the question that needs to be asked is, why does every spine surgeon have a calling to be a consultant? Does it start during residency, when they are catered to by every company in the industry? Do they really believe that they have something to contribute? Not every idea is worth its weight in gold! Granted, there are surgeons that are truly innovators and inventors, but what percentage? 5%? 15%? 50%? 80%? It seems like every surgeon that you meet nowadays has a new idea and is looking for a consulting or royalty agreement? (Yes, there are those that deserve to be compensated) Do surgeons believe that one's ability to choose the right product for their patient is not skewed by a consulting agreement or an investment into a start-up or early stage company? Does a surgeon's relationship with a company affect a hospitals ability to negotiate a fair and equitable price if the surgeon demands access to that company's products? Could it be that consulting agreements became in vogue so that legacy companies could protect their marketshare or start-ups could be sold for a greater multiple than what they were really worth? The SpineBlogger's platform is not some "wishy-washy" website that aligns itself with surgeons and industry related companies to generate revenue. Those websites tell you the reader that everything is wonderful, and if you pay for your subscription you have an opportunity to be heard.

The real reason that this insanity exists is because there are a percentage of surgeons that no longer want to be surgeons, they want to be entrepreneurs, angel investors, venture capitalist, and portfolio managers. They want a piece of the action! It's like a drug. As Gordon Gecko once said, "Greed is Good!" They are no longer just doctors, they are now master marketeers, selling themselves to the highest bidder regardless whether they believe in the technology or not. But the blame cannot solely be placed on the surgeon. The real reason is that the industry perpetuates and condones this type of behavior. How many of you have been overheard expressing your disdain or disgust about our industry?

The SpineBlogger knows that between the whistleblower suit against Blackstone, aka The Three Amigos, and the Kuklo Affair it is inevitable that some surgeons and corporate managers will be wearing orange jumpsuits. Until then, its business as usual!

The Future is Still Bright! But..........

Recently an article was penned by Tony (aka Mr. T., even though I like calling him the Golden Oracle) Viscogliosi in Medical Device Link. In this article he discussed a number of scenarios that could potentially affect the future of the Orthopaedic/Spine Industry. He cautioned that the future is still bright, but, that there could be black clouds on the horizon. Despite the recessions of the 1981, 2002, and the recent economic meltdown, our industry has been able to sustain itself and weather the storm. Mr. T (he would look funny in bling) bases his analysis on favorable pricing versus the future of pricing and reimbursements, along with an aging population debilitated by arthritis and diabetes but still yearning for youth (if only we could find that fountain), and the unknown of a national healthcare program (if only Congress could stop pandering to special interests and do their job).

But does the future look bright for our industry? Yes and No! Considering that the median drop in orthopaedic stock was 33%, could it be that our industry like the real estate and stock markets was over-valued and inflated? In 2008, one of the top five orthopaedic practices in the US reported record earnings based on more than 17,000 surgeries. 13,000 or 76% of these surgeries were elective. I would argue that unemployment rates had still not peaked (are they still going up), and the threat of losing one's job and healthcare coverage had not become a reality (do I need my job or surgery), retrospective data does not compare to what the current state of affairs are in our economy. That was then and this is now. In addition, one cannot base an analysis on the findings of one of the busiest practices in the country. But I'm not here to split hairs with "The Analyst", besides when you raise $144 million (kudos during this downturn), $25 million coming from a Malaysian investor with a commitment to develop and manufacture in Asia, how do I stand a chance?

Unless Mr. T. is dialed into the Obama Administrations healthcare plan, it is quite evident that it still is the objective of this President to rein in Medicare and general healthcare cost. Yes, the future is still sunny, but pricing and margins are about to experience a major decline witnessed by the surge of capitated contracts, the increase cost of manufacturing in the States, (oh yes, you can go to Malaysia, India, Ireland, Mexico and China you loyal US Corporations, you Freidman disciples), and the increase in competition. Those smaller companies do tend to be a pain in the derriere for the Spine Cartel, constantly gnawing at there feet.

Considering that it takes 5-7 years at a minimum to bring an emerging technology to the market (IDE), not only does this hurt the patient (if the technology is legit) it could ring a death knell for some of these pre-revenue companies as we have already witnessed. Investors are becoming much more judicious in their due diligence, meaning that they are not throwing capital at anything that breathes. The start-ups and early-stage companies will have to weather a weakening economy that could potentially go on for a year to a year and a half., along with a DOJ watchdog that truly does need to throw some people into jail. The Spine Blogger sees an economic rebound around the time of the next elections. The question remains do these entities have the financial reserves, revenue and fortitude to weather the storm?

As for Mr. T., not only do you have to admire his analytical acumen, but you have to laud his salesmanship. The article starts out as a snap-shot or the industry and turns into the promotion of the S.T.A.R. System. Polo anyone?

Gee! GE

So what's going on at Synthes? Since David Paul left to start Globus Medical, the Arbeitsgemeinschaft fur Osteosynthesfragen, has never been the same (excuse my German or is it Swiss Deutsch). What happened to this once stoic guardian of the orthopaedic trauma and spine world? The recent Norian indictment raises tremendous questions regarding the current management team and the climate in our industry. Even though Synthes has an estimated market cap of $8 billion (I hope I am not being too generous Hansjoerg) the "old girl" is starting to show some wear and tear.

As Mr. Wyss begins to approach his golden years, one has to wonder whom has the fire power to buy this company? Someone once commented that a monkey could run Synthes and it still would be profitable. Based on this company's marketshare in Trauma, Spine, Maxillofacial, Biologics, and Power Tools that assessment was probably correct. In addition, just look at the "monkeys" that are currently running this company.

Hansjoerg Wyss has to be in his mid 70's, and regardless of someone's education, money or power, those of you that know the Spine Blogger know how I feel about Septuagenarians in politics or running a company. The mind starts to go and life begins to pass you by. Hansjoerg has turned the overall management of the company to his nephew ( a big mistake, but what can you say about nepotism). At this point in his life, he should enjoy playing tennis, flying his Lear Jet, drinking wine at the Halter Ranch and occasionally pinching a young woman's derriere (not necessarily in that order).

So who can buy Synthes? There is only one company that has the capital and leverage; GE Healthcare. A $17 billion dollar unit of General Electric with products in the following clinical specialties, Cardiology, ENT, Oncology, General Surgery, Urology and Orthopaedics this would compliment their portfolio. In addition, this company needs to stimulate its image. Ever since Neutron Jack left, the company has floundered.

The question then becomes, what would the multiple be? In all likelihood somewhere in the area of 3-5X. This would allow Wyss to endow his beloved Harvard, the Sierra Club, and take care of his immediate family.

GE Trauma? GE Spine? GE Maxillofacial? Sounds nice! Let's wait and see, time loves a hero!

Going Once! Going Twice! Sold to the Highest Bidder

Recently the SpineBlogger was at a meeting and happend to run into a few of his colleagues when the topic of discussion turned to early-growth stage companies. As we went through a list of the "who's who" of the group called "OTHERS" by industry related marketing reports, Vertebron came up.

Without knowing all the specifics, there will be an auction held in the late summer or early fall to sell off the product portfolio to the highest bidder (sound familiar IST). It is safe to say that the bankruptcy court appointed a trustee to oversee the sale of the product portfolio and IP if there is any perceived value to the buyer. If there ever was a fire sale, now would be the time to buy some product. But before you jump off the Santa Monica Pier, remember what the Bee Gees once sang, "How could love so right turn out to be so wrong?" What happened to Vertebron? This company once had the potential to set a precedent for start-up companies.

A quick snap-shot of the management team is probably the leading factor in the demise of the company. I'll spare the "Three Kings" any embarrassment by naming the co-conspirators. Then you have the human element in the company's demise GREED. On numerous occasions they had the opportunity to raise capital or even sell the company. Unfortunately, they didn't learn that your company is only worth what a potential buyer is willing to pay. So now they will find out how much money they will have lost because of this selfish and aberrant behavior.

If Cardo-Medical is still interested in buying this product line, they may have saved themselves $10-15 million. Now that's a bargain if you really believe the industry needs another Pedicle Screw, Cervical Plate and Interbody Devices. Going Once! Going Twice! Sold!!!!!!!

Orthovita no longer a Paddlepuss!

Recently the Spine Blogger was surfing the web (it is summer and I feel like hanging ten) and stumbled upon Orthovita's website. The new look, which has been around for at least a year, was probably re-designed in anticipation of its newest addition to its product portfolio. Finally, after all the hoopla CORTOSS has arrived? I must admit, I say this with great envy, this is a cool product. And yes readers, I do not work for Orthovita, but I do own stock in this company. Of all the products that have been recently released, I believe that this will put "La VITA Loca" (can you hear Ricky Martin) over the hump. Watch this stock over the next few months. (I'm putting tremendous pressure on Chris Smith and his sales management team) If you did not buy VITA when it was at its all time low, now is the time to invest in a stock that is on the verge of shooting up to $7-8 per share.

Kyphoplasty and Vertebroplasty laid the foundation for an incredible market in treating vertebral compression fractures (VCFx) in spine. The key to Kyphon's revenue was the cost of the balloon to expand or reduce a collapsed fracture so that PMMA could be injected into the space restoring the integrity of the affected vertebra. The average cost for "da balloon" has been reported at $4,000-$5,000 per case. Even though there had been some challenges regarding adjacent vertebral fractures associated with using PMMA, CORTOSS is on the verge of setting a new standard.

So where are the advantages? Cortoss' non-toxic chemical make-up reduces the exothermic quality of this material in comparison to PMMA. In addition, with an excellent modulus of elasticity, it should minimize adjacent vertebral compression fractures. When PMMA is injected into a VCFx the axial loading affect on the adjacent bodies is like bouncing off of concrete, and we all remember those articles in the NY Times regarding the efficacy of Kypo/Vertebroplasty a few years ago. This material will provide the surgeon with a product that has versatility, exceptional viscosity and handling characteristics.

So if you're ready to get "amped" because a "tube" is in site and you want a "bitchin" investment that can turn "epic" now is the time to catch the wave.

Is it a Pharmaceutical or Device?

With the rash of recent newspaper articles by the Wall Street Journal and the NY Times, it's time Medtronic and Stryker stop at the pharmacy and buy some calamine lotion (zinc oxide and ferric oxide help inflammatory conditions). Why has the media placed the spotlight on the efficacy and cost of bone morphogenic proteins? In order to fully appreciate this publicity, the reader has to understand the history of the product. INFUSE was original discovered, developed and manufactured by Wyeth (a major pharma company) with a licensing agreement executed between both parties in 1995. Medtronic originally received FDA approval for INFUSE to be used in conjunction with the LT-Cage, a titanium lumbar cage rarely used in today's spinal fusions. With the advent of PEEK (Poly-Ether-Ether-Keytone) a biomaterial with better modulus of elasticity, the LT-Cage went the way of the Rogazinski Spinal System. (Bye-Bye!) So why all the publicity? OFF LABEL USE!

The cost attributed to the intra-operative use of INFUSE, retrospective data and clinical results when the product is used "off-label" in the cervical spine has led to a maelstrom in the media. It has been reported that on average the cost of INFUSE is $5,000 per level. This means that in capitated markets the minimum implant charge ( lumbar hardware and BMP) for a one-level fusion is anywhere from $10,000-$12,000. In markets where the hospital does not capitate implant cost, the estimates are as high as $15,000. So, why the big fuss?

As recent as last year, July 2, 2008, the FDA was made aware of 38 adverse events following anterior cervical discectomies. There had been reports of swelling, and patients having to be intubated 2-14 days post-op as a result of breathing difficulties. With the Brigham and Women's study, some light is now being shed on the complications of using INFUSE "off-label" in cervical discectomy procedures. But is this only a concern that we should have if the product is used in the cervical spine? For all the good things that have been reported about INFUSE, it is interesting to note that not much has ever been reported about some of the issues related to using INFUSE in the lumbar spine. How many of us have heard stories of bony in-growth into the canal during its early years? The major challenge with any pharmaceutical product is dosing. Yes, readers INFUSE is a pharmaceutical product regardless of how Medtronic got this product past the FDA. Since dosing is important, how does a surgeon determine intra-operative concentration levels needed to effect fusion without excessive bone growth? Retrospective data? Company dosing recommendations? What happens if the surgeon uses more than is needed? We know how some surgeons minds work, if "x cc's" is good, add a little more and you have a better cocktail. What happens if INFUSE is not contained in its delivery system, i.e. a PEEK Cage or Collagen Sponge?

It is interesting to note that the Medtronic spokesperson (she is learning how to perform a great soft-shoe) stated that the company is close to completing a trial to show how to manage use of the product to minimize complications. I guess it's always better to find out the handling characteristics and side effects after the fact. Just what the patient wants to hear, minimizing complications! Maybe the FDA really needs to take a closer look at this product along with its cousin, OP-1 (originally developed by Creative Biomolecules). For as good as these product may be for certain patients with associated medical problems, its not for everyone. Unfortunately, we all know the joke in our industry, "give a doctor a hammer and everything becomes a nail." If I had my druthers I would opt for some of the synthetics that have been offered by other companies in the market place. They are as efficacious and cost a lot cheaper.

In closing, in all the years that I have had the opportunity to be in the operating room with a Medtronic or Stryker rep, I have never heard them state that the product was not approved for "off label" use. The Spine Blogger wants to know what you think?

PS: Maybe it's time the industry stop its practice of teaching surgeons how to use a new product and start educating them on how not to use a product.