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No (Small) Bones About It
Extremities market is emerging from the shadow of the large-joint sector.
Michael Barbella
Managing Editor
They are used virtually every minute of every day, and yet they often are taken for granted.
The hands and feet (the official medical term is “extremities”) comprise some of the most intricate and functional parts of the human body, housing a complex roadmap of bones, cartilage, blood vessels and nerves. Each foot alone contains 28 bones, 33 joints and more than 100 muscles, tendons and ligaments. The hand has a comparable framework: 29 bones, 29 joints, 34 muscles and more than 120 ligaments.Our hands and feet perform various duties, some so basic that we don’t even think about them—until they are no longer possible. Injuries and debilitating conditions such as osteoarthritis affect the upper (hand and wrist) and lower (foot and ankle) extremities just as much as the larger bones and joints such as the hip, knee or spine. In fact, nearly half of all orthopedic physician visits from 1998 to 2005 were for small bone and joint problems, according to surveys conducted by the American Academy of Orthopedic Surgeons and the National Center for Health Statistics.
Despite such a surge in orthopedic physician visits, however, the market for extremity products and services has been underserved for much of the last decade as companies focused on improving large joint (mostly hip and knee) implants and spinal devices to improve the quality of life for active baby boomers. Large joint replacements and resurfacings have grown into a nearly $7 billion business, making the extremities products market of $900 million (in 2008) pale by comparison.
While it will never generate the kind of revenue as hip, knee or spinal procedures, the extremities market is nonetheless a valuable one for companies in which to invest. As it steps from the shadows of its large joint counterpart, the extremities market is gaining recognition from device firms and orthopedic surgeons for both its growth potential and technological advances that keep patients mobile.
To better understand the extremities market and gain insight into some of the newest technologies available to patients, Orthopedic Design & Technology spoke to a number of industry professionals over the last several weeks. They included:
• Raj Denhoy, managing director at Jeffries & Company Inc., a global securities and investment banking group. His focus at Jeffries is the medical device sector.
• Brian G. Donley, M.D., director of the Center for Foot and Ankle Surgery within the Department of Orthopaedic Surgery, Orthopaedic and Rheumatologic Institute, Cleveland Clinic. Donley is a member of the American Orthopaedic Foot & Ankle Society and a consultant for Extremity Medical LLC, a startup orthopedic device firm based in Parsippany, N.J.
• Aaron Smith, senior director of foot and ankle marketing for Wright Medical Technology Inc., an Arlington, Tenn.-based company that designs, manufactures and markets reconstructive joint devices and biologics.
• Anthony G. Viscogliosi, founder, chairman and CEO of Small Bone Innovations Inc., a Morrisville, Pa.-based firm that makes devices for small bones and joints, particularly those that focus on trauma and arthroplasty. Viscogliosi also is a principal with Viscogliosi Bros LLC, a New York, N.Y.-based venture capital/private equity and merchant banking firm serving the musculoskeletal/orthopedics sector; and a member of the board of managers for Paradigm Spine LLC, a New York, N.Y.-based provider of non-fusion and fusion spinal implant solutions.
What makes the small-joint market one of the fastest-growing areas of orthopedics? Do you expect this growth to continue? If so, for how long?
Raj Denhoy: What makes it one of the fastest-growing areas is that it’s a new market. We haven’t seen any new markets emerge in orthopedics for some time, and it has a lot of the characteristics of an early market. You had a group of clinicians that were treating clinical conditions with what could be described as jury-rigged or less than ideal kinds of solutions. What companies are doing is they are bringing better clinical solutions to this group of clinicians. As an example, clinicians might have treated some foot problems with trauma plates and devices that were not explicitly designed for that particular indication. Some of these companies now recognize that this presents an opportunity so they’re crafting together clinical kits and products that are optimally designed for the particular clinical indication they are trying to treat. So you’re seeing a confluence of a lot of things. On one hand you’ve got a growing population of people with these extremity conditions – and I’m talking mostly about foot and ankle but also hand and wrist conditions – so you’ve got a growing body of patients for these [conditions] and then you have a lot of clinical conditions that have been treated with suboptimal products. You have more technology being brought to bear and it’s driving quite a bit of growth here.It should continue for the next several years. We’re not sure it’s going to be at the 20 percent rate which is where it’s been, but it should stay at least in the teens.
If I point to the drivers of growth here, on the demographics side you’ve got an aging population and you’ve also got obesity and diabetes, which are enormous risk factors for lower extremity conditions. On top of that, you’ve got a whole confluence of new technologies and more expensive technologies being brought to bear for these problems. The analogy which is often used is it’s kind of like the spine industry was maybe 15 or 20 years ago. Spine fusion 15 years ago was performed by packing demineralized bone into the spine - there wasn’t a lot of hardware used. Over the last 15 or 20 years, you’ve seen a host of technologies being brought to bear – screws, rods, plates, different types of biologics. The revenues per case has gone up dramatically. And the extremities market is following a similar trajectory.
Brian G. Donley: The small-joint market is the fastest growing area because it’s often been ignored by the orthopedic industry over the years. It’s only in recent times that the orthopedic industry has realized that this is a very strong market that has many, many unmet needs. There’s a lot of research and development to be done to improve the outcomes of people with extremity problems, whether it be foot and ankle or hand and wrist. Since it’s an area that has been underdeveloped in orthopedic technology, it’s allowed a tremendous growth to occur, more so than in other areas where there already has been a tremendous devotion of resources to them. I expect the growth to continue because there’s still many unmet needs in the foot and ankle community. In addition to industry putting a major focus into it, there’s a big focus as far as orthopedic surgeons.
 The S.T.A.R. ankle from Small Bone Innovations Inc. has been implanted in more than 16,000 patients worldwide. Photo courtesy of Small Bone Innovations. |
Anthony G. Viscogliosi: The small-bone and joint market we define as being from the fingertip to the shoulder and below the knee joint to the tip of the toe. I think this market will grow significantly for the next 20 years. Based on my experience in founding and developing multiple spine implant technologies from 1993 through today, and the recognition that the small bone and joint dynamics are very similar to the spine market dynamics of 1993, it is clear to me that the small-bone and joint marketplace will have a 15- to 20-year period of double-digit growth. This growth will be based on unit volume, on cannibalization of procedures that do not use an implant and procedures that will be using implants in the future. Reimbursement is not a problem in this field as these procedures are well reimbursed today both by Medicare and Medicaid and by private payers throughout the United States. This is the best market to be in in all of orthopedics. When we look at the market—large bone and joint, spine, small bone and joint, and craniomaxillofacial [CMF]—we see that 71 percent of the worldwide device revenues are in the large bone and joint segment; spine is 19 percent; CMF is 5 percent and small bone and joint is 5 percent. I believe that we will see small bone and joint become a much larger section of the orthopedic marketplace of the future than it is today.
What are the challenges facing companies serving the small-joint sector, and how are these challenges different than those faced by companies that primarily make hip and knee implants? How can companies (in the small-joint sector) overcome some of these obstacles?
Viscogliosi: The challenges facing companies in the small-bone and joint sector include getting doctors to clinically use technologies that are proving to be successful and long-lasting; and teaching old dogs new tricks, meaning teaching very experienced surgeons about the success of the implants that have been developed over the last several years. I think the biggest challenge that companies face in this industry when you look at the volume of clinical research that is published, is that the industry—unlike hip, knee and spine—has not gotten behind the implants by developing substantial long-term clinical studies. The industry is just now starting to do that. We have done that in the case of total ankle joint replacement. We’re doing that in total wrist joint replacement and partial wrist replacement. When you read the clinical articles in journals, you read a lot of case reports or small theories with a short follow up. It’s very different in hip, knee and spine. As the industry becomes more active in supporting clinical research you will see the evolution of technology and innovation come to cause increased use of the technologies.
Smith: For companies that are playing in the extremities market, clear market identification is a major challenge and it’s of critical importance to a business trying to make its way in there. If you look at your typical hip or knee surgeon, they’ll do three or four different operations. There’s a lot of subtleties and nuances to what they do. But fundamentally, they’re doing a few things very often and very well. If look at hand surgeons and foot surgeons—either orthopedic or podiatrists—in the course of a month, those surgeons may do 50 different operations. Each one has its own complexities, a different set of goals, and its own product requirements. Without an immersion in that market to understand the needs of the customer, the prevalence of different disorders and the mode of treatment for each of those things, it can be easy to fumble around in this market and spend a lot of energy that turns out to be unproductive. You have to address a lot of different things simultaneously to make it a sizable market to be in. That also plays out as opportunity though, because each company has its own set of different strengths and weaknesses. There’s a lot of room to be in this business and operate free and clear of some of the other companies because the greatest opportunities that you identify as a company may be entirely different from what the guys down the street are doing. Yet you can still be in the same market category.
Donley: The challenges for the companies are that none of the procedures have highly-profitable implants. They don’t have big ticket items per say. In foot and ankle, it’s a fact that you can develop an implant that will be used a lot to improve patient outcomes but the implants cost a lot less. Companies need to focus on a high volume of lower-priced devices, whereas hip and knee implants are high-priced implants and generate lots of money. In the medical device market, a couple of years ago, worldwide there was approximately $32 billion spent. Of that $32 billion, over $11 billion was spent on hip and knee prostheses. That tells you where the focus of the money has been. The foot and ankle market will never make that kind of money but there’s a lot of growth to be done. For companies to be successful, they need to refocus their goals on the potential for growth in solving these unmet needs on tremendously common operations that are done.
Denhoy: It’s a new market, so it’s a new sales channel and you’re designing new products for these indications. The clinical users are a little bit less concentrated, you have orthopedic surgeons focusing on foot and ankle or hand and wrist procedures, and you’ve also got surgical podiatrists working on these things. It’s a little bit less defined of a call point and the technologies are less well defined but that also creates a lot of the opportunities that these companies are exploiting. Up to this point it has been a much smaller market than those other ones which I think is why you’ve seen smaller companies for the most part trying to exploit these markets as opposed to some of the larger ones. As the market continues to develop and the larger companies start to appreciate the opportunities here, you’ll see more of them moving into this [market] as well.
What new technologies are on the horizon? What kinds of implants hold the most potential for patients? For market growth?
Donley: One new thing is intramedullary fixation for the foot and ankle. It’s a brand new treatment system. Traditionally what happens is however we treat hip and leg fractures or arm fractures, we just take those same plates and make them smaller and put them in the foot and ankle. Intramedullary fixation is a whole new concept for the foot and ankle. You put the implants inside the bone, so they’re not on top of the bone and there are not plates and screws on top of the bone. They are specially designed to fit inside the smaller bones of the foot and ankle. The other big thing going on in foot and ankle is ankle replacement.
Smith: What I find interesting is that a lot of the technologies that have had a major impact in other parts of orthopedics are just as applicable in the extremities space, mostly on a smaller scale in terms of physical size. Things you see with biologics, with different arthroplasty, articulating surfaces, porous metals—all of those have a place in extremities. I think the companies that have been good at applying those technologies in other areas are seeing that there’s some opportunity to do the same thing in the extremities space as well.
Viscogliosi: The biggest market opportunity today in the small-bone and joint sector is total ankle joint replacement. Number two is total wrist and number three is total finger joint replacement. The reason that these three categories hold so much potential for patients is they have demonstrated in clinical study that they’re safe and effective and they last a long time. In total ankle joint replacement, there has come to market a device which has more than 30 years of clinical history, four generations of technology development, a Level Two clinical study of nearly 1,000 patients that have demonstrated through the PMA [pre-market approval] label by the FDA as being safe and effective and superior to ankle fusion. This is the first time in history that an ankle replacement device has demonstrated superiority, efficacy, comparability and safety to ankle fusion. The device is the S.T.A.R. ankle, marketed by Small Bone Innovations. This ankle has demonstrated in published articles to last 95 percent of the time 12 years. More than 16,000 patients worldwide have had this implant and it has more than 19 years of clinical experience with the current technology. This technology has also been developed with a set of co-functioning instruments that allow for an ankle joint replacement to be done in about one hour, as opposed to the other 510(k) market-cleared ankles which take several hours to implant.
Denhoy: One of the things about this market that makes it somewhat difficult for analysts and investors to appreciate is that there’s a lot of smaller types of procedures being done here. It’s not as defined as a hip or a knee replacement. There’s forefoot conditions, hind foot conditions, ankles, feet, hands and wrists. There’s a lot of clinical indications here which are very broad, so to define one or two areas is difficult. Broadly speaking I think there are biologics now being developed for these areas, ankle joint replacements is a fast-growing market, but I think it’s the overall market that is so attractive as opposed to just one or two particular niches within it.
I think it’s probably worth defining what we’re talking about. When we talk about small joints, typically we’re seeing most of the growth in foot and ankle, hand and wrist. Some companies include elbows and shoulders in there as well and those are certainly fast-growing markets, but I think where I’m focusing mostly is the small joints which are feet and ankles, hands and wrists.
The definition of extremities varies dramatically as to whether you want to include shoulders and elbows in there. A majority of the large joint companies – the big five joint companies – sell shoulders. I don’t think very many of them focus on the feet and ankle. You can include anything you want in the category of small extremities but the [large joint] market is more defined and more developed at this point than the lower extremities.
Where does innovation come from in the small-joint market? How does your company
stay innovative?
Smith: You’ll see it happen in both directions. In extremities like you’d see in spine or in hips ands knees, there’s the clinical challenges and the clinical viewpoint coming inward, to say ‘okay we need a different mode of treatment for this particular disorder or that particular surgery’ and then there’s also the inside out approach to that which is you have a novel technology or a unique solution that you can then apply to a problem. I think where Wright Medical has really focused and has been successful has been in connecting those two viewpoints—trying to work with very insightful and creative clinicians, trying to improve the state of care and applying some of the technologies we’ve become pretty adept with through other product developments sometimes and other parts of orthopedics or things that we’ve done uniquely for this market space. It’s really just connecting the clinical need with the technology to fix some of these issues.
Viscogliosi: Innovation comes from the surgeons in the marketplace, not the engineers. Engineers take great ideas and put those ideas to paper and through a machining process to bring them to market. Our experience with innovation has come through the acquisition of doctors’ ideas and bringing those ideas to market. We have executed 35 acquisition and licensing transactions which is an unprecedented volume, and we did those from 2004 through 2009. Furthermore, as a result of those acquisitions and innovation that we developed with surgeons and clinicians we have developed more than 50 products—more than any other competitor for the period 2004 through 2009. Over the years a lot of our revenue growth has come from new product introductions. The growth drivers for this industry is innovation that is clinically supported to be safe and effective. This innovation then comes in the form of product introductions and the use of these introductions through a wider surgeon base.
Donley: It comes where it usually comes from in medicine—which is collaboration with smart engineers and smart surgeons working together to develop better products to help patients. In order to be successful and make a better product, there has to be a collaboration of physicians and industry.
Denhoy: Much like in most orthopedics and medical devices, it's a combination of companies working with clinicians to find better solutions to these problems.
Aside from the implants, how does the small joint market differ from large joint, or spine?What makes small joint implants a design challenge?
Donley: Since everything is smaller, the designs need to be smaller. The other challenge is that there is not as much soft tissue so you have to make implants in a lower profile so they are not as painful and they don't rub on the skin too much. The anatomy is different, too. In the foot and ankle, there's over 27 different bones. In the leg, there's one femur bone. It's a very complex, very intricate and very small anatomy. The hand has a similar number of bones and you have the exact same issues with the hand. Both the hand and foot have the same issues - the bones are smaller, there is less soft tissue and they both have very complex anatomies.
Viscogliosi: The small bone and joint market is very different from the large bone and joint market and the spine market in one key category – the volume of procedures that are done without implants. This is the single greatest opportunity and why this market will grow for so long. Nearly 100 percent of hip and knee surgeries today are done using an implant, nearly 100 percent of spine surgeries (with the exception of dischectomy) are done using an implant. That’s why each of those markets are multi-billion-dollar segments and have more than 1 million procedures each. In the case of the small bone and joint market, there is a lot of learning and clinical study that has to be done to support the broader use of joint replacement implants in clinical procedures. And the use of internal and external fixation technologies to speed up the repair of traumatic injury. The market couldn’t be more different.
Smith: It’s interesting in orthopedics and almost any subspeciality within orthopedics, a lot of the goals of surgery are similar. There’s only so many things that orthopedic surgeons do. They either fix things that are broken, they replace things that are worn out, or they align and fuse things to address certain pathologies. It really is the same set of considerations you would see in larger joints. The challenges are greater simply because of size. Some of the loads that are transmitted through those parts of the body are equal to or sometimes exceed the loads that you would see in hips or knees. Because of the small size you have less surfaces for offloading stresses, you have a lot less margin for error, a millimeter misplacement of an [spinal] implant has a greater net effect than a millimeter misplacement of an implant for a knee. In general it’s a much more exacting kind of demanding surgery. There’s been a viewpoint for a long time that a lot of the patients that are seen in an extremities clinic are less debilitated than the hip patients or the knee patients or the spine patients. I think many of the orthopedists who focus in these areas would dispute that. These patients are patients that see a reasonably high level of disability at times. The treatment can have just as profound a difference on their quality of life when done effectively. The combination of small size and less margin for error in addition to the fact that many different procedures are done, it’s not a cookbook process treating a lot of these disorders. It’s often many things that have to be done in conjunction together to fix an ailment that patients experience. If you have a broken wrist, a lot of people would say, 'well that patient doesn’t ambulate on his wrist, so he’s still highly functional.' If you’re trying to work and conduct your normal life with a broken wrist in a cast, you can’t drive a car, you can’t take a shower, you can’t comb your hair with that hand. Many of these patients are elderly and they may be living on their own, so that’s a very dramatic thing for a patient to go through. And you can take that anywhere – foot problems are the same.
Denhoy: It’s this notion that there’s so many little clinical niches that are being exploited by these companies. It’s the broadness of the clinical challenges that they are trying to address that makes it somewhat more difficult because there tends to be a lot of very small markets as opposed to one or two big ones that you see with hips and knees. You’ve got a different call point in foot and ankle surgeons and surgical podiatrists who really aren’t used to being catered to by these companies. There are sales forces being created to just call on these particular types of clinicians who are bringing these innovative solutions that are being adopted by the market. Hip and knee markets are established and largely mature at this point. What makes the foot and ankle market so interesting is that you’ve got a growing body of patients, which the large joint market has as well, but the [small joint market] patients are underserved. There are lots of conditions that aren’t being treated with advanced technologies and these companies have the ability to now offer that. You have growth coming not just from a growing number of patients but also a growing use of technology and the growing of revenue per procedure. In large joints, the markets are fairly well-established - most of the growth you’re seeing right now is demographic growth being offset somewhat by pricing pressure. Those markets are as mature as you can imagine. But the extremities market is very much a new niche, it’s a new business. In last five years it has really started to catch a lot of attention. Some companies like Wright Medical, Integra Life Sciences, Small Bone Innovations, Tornier, these are some of the companies that have really tried to build a business around just targeting these particular segments.
How do the technological/physiological demands of small joints differ from other orthopedic markets?
Smith: It’s high stresses and it’s often complex stresses. You rarely have a situation where there’s a simple load being applied in a simple direction without other outside influences. If you look at either a hand or a foot, there are many bones, many ligaments, many tendons all of which work in concert to accomplish a particular thing, a motion whether it’s walking or eating. You can’t really affect one joint in the hand or the foot without affecting all the other joints around it. The closest parallel I could draw there would be the discussion that’s been had in spine for a long time with compensatory issues and adjacent levels. You do a fusion at one level then what becomes the effect at the other levels? In extremities that’s a profound, well-identified experience. From a surgeon’s standpoint, a lot of it really comes down to trying to keep things in balance. If you have a particular issue, how do you address that issue and permit the other things in the surrounding area to continue to function normally and to not worsen over time?
Denhoy: They could potentially be more challenging areas. The lower extremities have less blood flow, they tend to bear the brunt of weight from obese patients, and a good portion of the problems that diabetics develop happen in the lower limbs. That’s really where it all comes to bear. That’s why you see ankles and feet conditions increasing quite a bit because for obese patients and diabetics, that’s where you’re going to see a lot of the problems develop. All of the weight that’s on your hips gets transferred to your knees and that gets transferred to your feet and ankles. The feet and ankles bear all the weight. There hasn’t been great solutions up to this point for foot and ankle replacement products. Even if you look at the ankle replacement market in the United States, there hasn’t been great solutions, clinicians have not used them because the previous generation of products did not work very well. There is a company called Small Bone Innovations which has a very well-regarded ankle which they’ve brought to the U.S. market and they’re seeing some success with it. Other companies are trying to bring products to market as well. In a sense, we’re seeing some next-generation products now coming and the technology continues to move forward and the solutions are getting better.
Donley: Physiologically you demand a lot of motion from your feet. You use your feet with every step you take, so there are tremendous loads that go through the foot. The hands have extremely intricate functions that allow you to perform the basic functions - moreso than the hip, knee or spine. The two issues I see are you can't be off your feet, and with all those bones [in the hand and foot], there's many different joints. All those joints need to work together to give you a reasonable function.
Viscogliosi: In the case of ankle joint, the ankle takes more physical force on the body per unit of area than any other joint in the body. This is why the ankle replacement technology that has recently been brought to market will play such a significant role in the growth of the small bone and joint market today. There is more than 7 times your body weight of force that is applied to the ankle every time you take a step. Every time you take a step forward or backward, your ankle moves through five separate motions simultaneously. Those motions are up, down, side to side, pitch, yaw, and roll. There’s no other joint that requires all those movements simultaneously. That’s why a mobile-bearing uncemented ankle has demonstrated over the long term such substantial success. And it’s also why cemented two-part ankles have not demonstrated significant long-term success. Technologically and physiologically the ankle is a very high demand joint. Certain other joints such as the finger and the wrist are much lower demand in terms of physical requirements but are technologically very sophisticated in their design. They have several motions also that they have to do, there just isn’t the force and weight on the body that are applied to those joints. Importantly, you can’t really move your thumb, fingers or wrist without going through a range of motions. This is why fusion is not a desired outcome in any of those joints by any patient. Surgeons who have experience in arthroplasty understand that as well.
Where do you see the small joint market five years from now?
Denhoy: It will probably have slowed a little because it will to start to mature, but I think it’s probably going to attract more competitors, probably some of the larger companies will start recognizing what is happening here and start to target it as well. Innovation will continue to happen, it’s going to remain a nice market for a while. We’re still in the early innings of this. Using the example of the spine market – the spine market was a teens to double-digit growth market for probably 10 or 15 years before that market as well started to get somewhat mature. But there’s a long period where a market is very receptive to innovation, to new technologies being brought to bear, to increasing use of technologies to solve these problems – all this stuff is very ripe right now.
As the small joint market gets bigger it will probably attract reimbursement scrutiny. Right now it’s still early enough that it hasn’t done too much yet, but the reimbursement will certainly ebb and flow as this stuff gets more widely used.
Viscogliosi: I see the small bone and joint market growing in the range of 20 percent per year over the next several years. Over a five-year period, that would mean the market will more than double in total size. I think that is going to be the case.
Donley: I see continued growth and continued expansion as more orthopedic surgeons become dedicated to it and industry becomes more dedicated to it. There also will be more collaborations taking place, which will bring about continued improvements. In ankle replacements, we've seen great progress but there's still great progress to be made.
Smith: The word is definitely out on the extremities market, more companies are getting interested. It seems like at the investor level, there are more companies able to find funding and identify a business plan. I expect the market to continue to grow. I think you’ll see more small competitors coming into the space with different, creative solutions. You’ll probably see some consolidation along the way. Anytime you have a fast-moving, fast-changing field with a lot of small entrants coming into that space, the opportunities present themselves, and you’ll have larger companies that may not excel at doing rapid product development or knocking out 20 things at once but may be more effective at acquiring the smaller competitors to build their business out. I hope that my company is able to continue the focus that we’ve applied to it already and continue our leadership in this area. We feel that this is a critically important part of our business and our overall business strategy is to be successful in the extremities market. Our experience at Wright is that it takes many different approaches simultaneously to really win the day in this space. We’ve had many different forms of business partnerships, outright acquisitions, internal product development and basic market development. We're also committed to medical education and training and spreading the procedures out to the subspecialists more effectively as they become newer and better known.
Where do the small joint and trauma markets overlap? How do they differ?
Viscogliosi: The small joint and the trauma markets overlap when there is traumatic injury, or osteoarthritic injury that occurs at the joint. When we look at the $2 billion market for small bone and joint surgery that includes both trauma and joint replacement arthroplasty, we see that about half of the market deals with traumatic injury or disease that is around the joint. Most of the joint replacement application in the small bone and joint anatomy is for post-traumatic osteoarthritis. So trauma and small bone and joint are intricately connected. Where they connect well and what companies need to do to be successful in this industry is they need to be able to treat the entire disease continuum from early stage disease to late stage disease, from surface replacement technology all the way through to fusion technology. Not selling a product but rather providing a whole solution algorhythm to the surgeon so the surgeon can select the most appropriate application of technology for their patients. In summary, this market is a large market that is extraordinarily underserved, for which there will be high- level double-digit growth for nearly an indefinite time and a marketplace that is ripe for development of clinically supported innovation and ripe for the opportunity for companies to leverage their use of capital in the application of clinical success. A perfect example of this clinical success through providing an algorhythm of technology is the use and development of the elbow management system that Small Bone Innovations worked on. We’ve put together an instrument system, an implant system that starts with K-wires, simple cannulated compressions that goes to simple cannulated compression screws then to a family of plates for specific types of more complex fractures of the elbow, then to partial elbow joint replacements in the radial head and uni-elbow joint replacement of the radial head and certain portions of the humorous. Together this ability to provide to the physician a range of options at the same time that a physician goes into the O.R. with a patient is a valid way of supporting the best clinical development of technology through providing the least-invasive form for the surgeon to use given the type of circumstance and challenge the surgeon faces each time he or she is in the operating room.
Denhoy: They are somewhat different in that trauma is treating traumatic conditions and a lot of what’s being brought to bear now is not traumatic, it’s more wear-related or degenerative types of injuries. What had happened previously is that trauma products were the only ones that some of these clinicians had to work with and so they often took trauma products and tried to modify them to fix and treat some of these conditions. And now these companies are saying why use an inferior solution? You don’t need to use a trauma product when it’s not a trauma condition, we’ll give you something that works better. There certainly is overlap, because some of the conditions will be trauma related, some will be wear-related, some will be osteoarthritis, there will be wound conditions as a lot of the diabetic issues are ulcerations. I think the trauma piece is a narrow segment of what is going to be a much larger market but trauma will certainly still be there. It’s kind of like how joint replacement came about. Decades ago doctors used to fuse knees and hips if you had problems to stop the movement, and that’s the way that a lot of ankles are still treated. A doctor will fuse somebody’s ankle if they have a problem with it. You could use trauma products for those because a lot of plates and screws and things could be adapted for that. But now clinicians are saying and exploring ideas of maintaining mobility – putting a replacement joint in there as opposed to a fusion type approach.
The [small joint market] is emerging as one of the real bright spots in orthopedics because it’s such a new area. Some of the more established markets I mentioned – large joint and spine - still have a growth in the number of patients but the pricing in those markets has gotten a lot more difficult. Small joint is a bright spot because it’s a new market – it’s wide open for innovation and for companies to bring better solutions.
Smith: That is a discussion that I find very interesting because so many companies tend to view extremities as a branch off the trauma tree. In our experience it’s sort of a one way door between extremities and trauma. Most extremities subspecialists, either hand surgeons or orthopedic foot surgeons or podiatrists, do some trauma in those parts of the body in which they work. They’ll treat fractures both acutely or post traumatic disorders that arise. That same principal does not work in reverse. If you look at an orthopedic traumatologist – a trauma specialist – they sometimes deal in the extremities. They’ll work on hands, they’ll work on feet but they do almost no reconstructive surgery. In fact, many cases of post traumatic arthritis are treated by the subspecialists, not the trauma surgeons. If you talk to most subspecialists they’ll say that definitely upwards of half and maybe as much as two thirds or three fourths of their business is reconstructive surgery. That was a pretty key recognition for us as a company. There’s a lot of room to run in the extremities market just focusing on reconstructive surgery. That’s been a big part of our plan and our success. But we also have our eye on trauma within this area of the market as well. The best way to perceive this extremities market is really just as a microcosm of the entire orthopedics industry at large. If you look at joint replacement, you look at trauma, you look at reconstructive fixation, osteotomies, fusions, things like that, these are all things that have a role throughout orthopedics. Extremities is really just the place where those basic things are still being done. Trauma plays a role in orthopedics at large, it also plays a role in extremities at large. It would be a mistake to look at extremities and say that it’s primarily a trauma-focused market. I came in to extremities after a long time in the spine world. I started as a product development engineer and I worked my way through marketing in spine so it’s been a lot of fun to be part of a prominent company in the extremities world, it does harken back to the opportunities and challenges we had in spine in the early 1990s. There was great opportunity there because the market was underserved and clinical treatment was changing very rapidly. It also became a very competitive space very quickly – there’s a lot of creative thinking that led to good new products and treatments. It’s a fun place to be right now.
Donley: The trauma market is really fractures - when you break a bone. Trauma is any reconstructive fracture. They overlap when you have fractures in your foot and ankle. They are different because trauma is not an anatomically specific market. The trama market is based on the disease and fracture of any bone, where the extremities market has to do with all aspects of the foot and ankle. The extremities market really deals with joint replacement, it deals with trauma and it deals with soft tissue reconstruction, all based in the foot or ankle. There is no isolated knee market, for example. If you fracture your knee or the femur tibia, you get a trauma system put in. If you rupture the ACL, you need the soft tissue market to handle that. If you have arthritis and you need a joint replacement the total joint market handles that. The interesting thing about the extremities market is that is anatomically based so it has to deal with all aspects. Joint reconstruction is based upon putting in replacement parts. The extremities market deals with everything that has to do with that extremity.
To know where the extremities market is going and to understand that it's become more important, there is nothing more obvious than the fact that the media is talking about it. Ten years ago, the extremities market would have been a blip on the screen, no one really would have known about it. But the fact that we're getting to the point now where magazines and trade journals are publishing articles about it because people want to know more about it is great for those who treat these kinds of problems. In the past, implants have been taken from other systems and adapted to the foot and ankle. Now, people are working with us to develop exactly what we need to really improve patients' outcomes.
