Providing cost-effective solutions to the needs of surgeons and patients is the path to growth for some firms in tumultuous times.
As so many of its products are designed to do, the orthopedics market is stabilizing. A good sign given how generally moribund the sector has been for the past few years. Some market analysts are using terms such as “cautious optimism” to describe the sector these days, and based on the recent past, that’s a good thing.
Cowen & Co. released a report in early July that quietly anticipated positive news for the orthopedics sector as the sector’s “big guys” prepared to issue second-quarter earnings reports.
“We are cautiously optimistic heading into 2Q12 results for Stryker and Zimmer,” analyst Josh Jennings, M.D., said. “[However] we continue to believe the soft economic climate and incremental pricing pressure will continue to challenge recon [reconstructive] sales growth for the duration of 2012 and into 2013.” He forecast global hip and knee market growth in the second quarter of 2012 of 2 to 3 percent for the market leaders, but said he anticipates even more pricing pressures for implant manufacturers. “Our checks indicate that vendor consolidation has contributed to continued price concessions from manufacturers,” he added.
Jennings said Cowen is (you guessed it) “cautious on the potential stabilization of the spine market … [although] we do not think global spine market conditions are materially improving following less than 1 percent year-to-year growth in 1Q12 as pricing and utilization headwinds remain in place.” He added that “reimbursement hurdles, including restrictive lumbar fusion criteria, and ongoing governmental efforts to reduce ‘inappropriate’ procedures, are in play.” He expects additional pricing pressure in the spinal area as well.
In her Ortho Roundup for the first quarter of 2012, issued in May, medtech analyst Joanne Wuensch of BMO Capital Markets said, “stability continues to be the word of the day, followed by cautious optimism. In general, the 1Q12 results were better than expected, particularly in knees, and the variance versus our market expectations was to the upside.”
Wuensch said the hip market “stayed the course” in the quarter, reporting low-single-digit growth rates.
“In the U.S., after five consecutive quarters of decline, the hip market finally reported a positive growth rate, increasing 0.8 percent in 1Q12,” Wuensch wrote. She added that the worldwide knee market surprised in 1Q12, increasing 3.4 percent after a streak of four quarterly declines. “In the U.S., sales rebounded nicely to increase 2.7 percent, and were way ahead of our 0.9 percent projected decline,” Wuensch said. She also noted that the spine market was up 0.7 percent in the first quarter, marking five quarters of an essentially flat market.
“Management commentary resoundingly calls for low-single-digit procedure growth and low-single-digit mix benefit, offset by mid-single-digit price declines, leaving us with a market that is flat to up slightly on a constant currency basis,” she wrote, adding that, “although it is clear that lumbar fusion has a place in the treatment spectrum, it appears that payers have successfully questioned the extent to which it is being used (e.g., for disc herniation and degenerative disc disease) and created an approval system that more heavily scrutinizes reimbursement requests and ensures that all conservative treatment options are exhausted before turning to surgery.”
However, she said the transition to minimally invasive surgery continues, exemplified by the success of the lateral access offerings from NuVasive Inc. and Medtronic Inc., and more recently with Stryker Corp.’s Aria device.
She said the extremities market appears to remain relatively healthy, with growth rates in the 8 to 10 percent range “supported by increasing physician/patient awareness, training, and penetration of new technologies in a generally younger patient population. The smaller participants (e.g., Tornier Inc., Exactech Inc., and Integra LifeSciences Corporation) continue to innovate and demonstrate rapid growth, while the larger companies position themselves to rejuvenate their portfolios.”
David Roman, medtech analyst with The Goldman Sachs Group in New York, N.Y., saw “limited upside” for big guys Stryker and Zimmer Holdings Inc., with “very modest” volume recovery in the foreseeable future. He added that he anticipates continued declines in pricing going forward.
Among smaller firms, he hailed Ft. Lauderdale, Fla.-based MAKO Surgical Corp. for its “disruptive technology in a sizable market,” with both large growth potential in the core knees market and “further upside from hips.” He also cited NuVasive, the San Diego, Calif., spinal implant maker, as a growth company.
He said the orthopedics market continues to be affected by price declines, which he pegged at 3 percent for the sector overall. While utilization rates improved in the first quarter, he said “one quarter does not make a trend,” so “broader rebound timing and size remain uncertain.”
William Plovanic, managing director of equity research in the medical devices sector for Canaccord Genuity, said in a report based on this year’s American Academy of Orthopaedic Surgeons (AAOS) meeting and Canaccord’s own Musculoskeletal Conference that the industry “has shifted its focus away from implant materials and squarely onto fit and alignment.”
In that regard, he said that robotic surgery was “front and center” for the AAOS meeting, and hailed MAKO Surgical for its levels of booth traffic, saying the firm “continues to be the market leader, with minimal market competition expected for the next 12-24 months.” Plovanic added that he continues to see large-joint customization as “one of the only novel technologies in large joint reconstruction, especially as it expands outside of unis [unicompartmental devices].”
Overall, he said industry sentiment seemed to indicate stable procedure volumes, but “with no catalyst for a rebound, other than [year-to-year] comparables and economic trends.”
In a time of tumult for the orthopedics sector, particularly the largest players, here’s a look at five companies that are attempting to parlay their unique solutions in order to be part of the growth curve in the sector:
Salt Lake City, Utah
Eric Olson, President and CEO
Amedica Aims at Transformational Technologies
Founded in 1996, Amedica is a spinal and reconstructive implant and instrument maker focused on the development of what it terms “transformational technologies” to improve patient outcomes and lower costs in spine and orthopedic surgery. The company provides surgical applications that include silicon nitride ceramic technologies. Its silicon nitride implants provide what Amedica terms “a hydrophilic and bone-friendly surface structure that may enhance bone attachment. In addition, the material is fracture-resistant and its semi-radiolucent characteristic eases accurate placement.”
Beginning with a proprietary blend of silicon nitride powder, Amedica claims that it is able to produce interbody fusion devices that are “significantly stronger” than PEEK [polyetheretherketone] with micro-textured, hydrophilic surfaces. Radiographically, silicon nitride implants are radiolucent with clearly visible boundaries, and produce no MRI or CT imaging artifacts, an advantage for intraoperative implant placement and post-operative assessment.
Amedica’s porous ceramic substrate has a structure that mimics natural cancellous bone. It says that its cancellous structured ceramic (CSC) product “may prove effective as an osteoconductive scaffold for critical skeletal attachment.” CSC has potential application as an insert in spinal spacers, as well as a porous backing for hip and knee implants, according to the company. At present, Amedica’s products include the Valeo TL lumbar Spacer, Valeo C+ CSC Cervical Spacer and Altia TDR-C
In April, Amedica added to its product offerings by reporting that it would begin distribution of Dynamic Bone, a unique expandable allograft bone provided by Germantown, Tenn.-based Dynamic Surgical Solutions LLC and BioDfence DryFlex, an easy-to-handle, flexible amniotic membrane manufactured by Cordova, Tenn.-based BioDlogics LLC.
In February, Amedica launched an extension of its Valeo product line, the Valeo VBR (vertebral body replacement) device, which will use the material characteristics of silicon nitride to increase fusion potential in corpectomy procedures. The Valeo VBR spinal implant is intended for vertebral body replacement to aid in surgical correction and stabilization of the thoracolumbar spine and is designed to restore the biomechanical integrity of the spine.
On the leadership side, Eric Olson, who has more than 20 years of experience in the orthopedic and spinal device markets, was named president and CEO of the company in February. Prior to joining Amedica, he was executive vice president of sales and marketing for Axial Biotech Inc., and prior to that was vice president of sales and marketing at Facet Solutions Inc. He also has held senior sales and marketing positions with Medtronic Neurological and Smith & Nephew plc.
In May, Amedica reported the promotion of noted ceramist Bryan McEntire as chief technology officer. McEntire, who previously was vice president of manufacturing and research and development, is responsible for directing the company’s technology strategies as it expands the use of its proprietary medical grade silicon nitride for spine, total joint, dental devices and potentially anti-infective coating applications. He said he was very excited about the potential of Amedica’s silicon nitride to dramatically change the development of medical devices: “I firmly believe in the future of Amedica and the role that silicon nitride will play. The company has a unique technological lead and I look forward to contributing to the commercialization efforts.”
Amedica filed for an initial public offering on NASDAQ in 2007, but withdrew that filing in May of that year and has remained privately held since then.
Privately held, venture-backed
David Paul, Chairman and CEO
Minimally invasive spinal implants
‘Largest, Fastest’ Globus is on the Move
Billing itself both as the world’s largest privately held spinal company and as the fastest-growing company in the history of orthopedics, Globus Medical Inc., certainly pushes our envelope as an emerging company, but it clearly is one to watch with its innovative suite of products for minimally invasive spinal surgery.
The company says its goal is to use its strengths in engineering and technology to help patients suffering from spinal disorders achieve pain-free and active lives, and it follows that path with a suite of more than 100 products, with another 30 or so in development. The company fits into categories including minimally invasive, motion preservation, cervical, intervertebral fusion, and thoracolumbar, along with biomaterials.
In February, Globus reported a settlement by the company and Chairman and CEO David Paul with the U.S. Food and Drug Administration (FDA) to resolve an administrative complaint alleging Food, Drug and Cosmetic Act violations regarding Globus’ former product, NuBone. The complaint involved no patient safety issues regarding the product, nor did the amended complaint allege any intentional wrongdoing by Globus Medical or Paul.
Globus had considered NuBone to be minimally manipulated tissue exempt from premarket notification, but in March 2008 the FDA’s Tissue Reference Group determined that NuBone required 510(k) clearance. Two subsequent 510(k) submissions with substantial animal data followed, but Globus decided to discontinue NuBone in 2010.
A key executive hire at the beginning of this year brought Richard Baron as senior vice president and CFO. Prior to joining Globus, Baron served as vice president of finance and CFO for Avid Radiopharmaceuticals Inc., ERT, Animas Corp., Genex Services Inc., and Marsam Pharmaceuticals Inc. Previously, he spent 10 years in various finance and accounting positions.
In January 2011, Globus acquired substantially all of the assets of Facet Solutions Inc. of Hopkinton, Mass. Facet Solutions is a developer of facet arthroplasty devices. Its cornerstone product is Acadia, an unconstrained pedicle screw-based total facet replacement system whose first indication is for symptomatic spinal stenosis. The acquisition supplements Globus’ posterior motion sparing technology platform. Facet acquired certain assets of Archus Orthopaedics in 2009, including an intellectual property portfolio of more than 100 patents and patent applications concentrated on posterior motion preservation technology. “Combined, this creates the strongest intellectual property portfolio in this segment and a platform product that will allow Globus to address a multitude of clinical indications and treatment scenarios in the future,” Paul said at the time of the Facet Solutions deal.
Among new products showcased by Globus at last fall’s North American Spine Society annual meeting in Chicago, Ill., were the minimally invasive Caliber vertically expandable lumbar fusion device, InterContinental Plate-Spacer for minimally invasive lateral fixation, SP-Fix spinous process fixation device, and Revere Corrective Osteotomy Set.
Another well-known and highly used Globus product is the Transition Stabilization System, a semi-rigid system for lumbar fusion incorporating the company’s SoftStop Technology and providing advanced lumbar stabilization. The Transition System includes hydroxyapatite-coated, multi-axial pedicle screws, PET (polyethylene terephthalate) cords, and PCU (polycarbonate urethane) spacers.
Globus may not be waving the “largest privately-held spinal company” flag much longer. The company, which raised $110 million in a Series E financing round led by Clarus Ventures, has filed for an initial public offering of $150 million, but as of late July had not set a date for the IPO.
John Dinusson, President and CEO
Osteoarthritis pain relief
Reimbursement a Key for OrthoCor
OrthoCor Medical’s Active Knee System is a knee brace that uses electromagnetic pulse therapy to alleviate pain and speed healing, and users seem to swear by the results.
John Cretzmeyer, a 63-year-old dentist and Minneapolis, Minn.-area resident who gives new meaning to the term “avid runner”—he has logged about 67,000 miles and 62 marathons in his lifetime—is an enthusiastic user of the system. Cretzmeyer, who has suffered the to-be-expected degenerative damage to his knees—has had his right knee replaced, with the left due for replacement soon, told the Star-Tribune in Minneapolis recently that the Active Knee System’s combination of pulse therapy and heat helps him stay active. He bought one for each knee.
“I have used it. It has helped my recovery from all the various surgeries,” he told the newspaper, adding that he is on the tennis court four days a week and works with a personal trainer three days a week. “I have worn it at work. I’ve worn it at night, sleeping. I have worn it during some activities. I am always looking for some way to get to the starting line and whatever allows me to do that, I am going to look at.”
Area orthopedic surgeon Mark Dahl, M.D., told the Star-Tribune that he heard about the device from one of his patients. He later bought one for his wife, who has arthritis, and she liked it. Then he wore one, easing his knee pain. As temporary pain relief, Dahl said, “It’s a good augment.” While emphasizing that it isn’t a “miracle” cure, he was impressed enough to become an investor in the company and now serves as OrthoCor’s medical adviser.
But the newspaper story wasn’t all sunshine and flowers. It noted the OrthoCor device has proven safety and effectiveness and has received U.S. Food and Drug Administration approval. The company also has gathered an impressive amount of angel investment and has a growing roster of impressed orthopedic doctors and happy patients. But, as the Star-Tribune’s James Walsh noted, “There remains a speed bump along the way … Medicare and widespread insurance company reimbursement. Until that comes, OrthoCor lingers on the verge of becoming big.”
Walsh quoted OrthoCor President and CEO John Dinusson: “We are right on the cusp. We are basically educating [insurers] on why they should be covering. If we get reimbursement, the patient population is huge.” Until then, patients bear the freight of $695 per unit.
Reimbursement plays a huge role in whether a new medical product makes it or not. Thom Gunderson, a Minneapolis-based medtech analyst with Piper Jaffray & Co., said “reimbursement is the third leg of the stool for any successful medical device—one that sometimes gets overlooked. Payers are historically and notoriously slow in paying for new technologies. You have to show them it’s in their best interest to do this.”
So that’s what Dinusson and company are fighting. Even with less-than-ideal reimbursement to date, he says the device is selling—2,000 of them in 2011. It is in about 150 clinics nationwide. The Active Knee System has gotten a lot of media attention, including an endorsement by Mehmet Oz, M.D., of “The Dr. Oz Show” fame.
Dinusson has said the national market for the device, which he describes as the first product to combine two established methods of alleviating pain—pulsed electromagnetic field technology and heat—is worth a potential $370 million, and anticipates much larger sales as reimbursement kicks in more broadly in 2013.
OrthoCor has done very well on the financing side. In May, it closed on $2.4 million in angel investment, bringing total financing to about $5 million since the company’s 2007 launch. Its genesis goes back to the following year, when Dinusson asked the University of Minnesota for help in developing and identifying a market for the device. A group of graduate business and engineering students got involved and found there was a vast potential market, with the American Academy of Orthopaedic Surgeons reporting, for instance, that 12 million patients visited physicians for knee pain in a normal year. University of Minnesota doctoral student in electrical engineering Kin-Jo-Sham led the design effort and has since become OrthoCor’s chief operating officer.
With the announcement of its latest round of angel financing, the firm named Patrick Carroll as national sales director. Carroll previously was eastern regional sales manager at Exos Corp.
Aside from the knee brace, OrthoCor has diversified and now also makes heat and cold wraps under the Alleva brand name.
Privately held, venture-backed
Daniel Webber, President and CEO
Orthopedic/spinal implants and instruments, biologics
Company a Pioneer in Niches
Pioneer Surgical Technology is a maker of niche surgical systems, implants and biologics. Its foray into biologics, which dates to two acquisitions carried out in 2007, has been so successful that the company recently completed an expansion of its Greenville, N.C., biomanufacturing facility to accommodate growth of that segment of its business.
That expansion, which doubled the company’s capacity to produce biologics, came on the heels of the launch of Pioneer’s nanOss Bioactive 3D, the newest addition to its flagship nanOss Bioactive bone graft line, which had its first clinical use in January 2012.
Pioneer Surgical Biologics now offers a full line of synthetic bone grafts, human tissue products including machined lateral, traditional lumbar and cervical allograft, human demineralized bone matrix (DBM) bone grafts, as well as bone graft delivery accessories.
Shane Ray, executive vice president-biologics for Pioneer, said at the time of the formal opening of the expanded manufacturing facility in January that “expanding our biomanufacturing facility to increase our capacity will assist in our aggressive future growth plans within and outside the U.S. This expansion shows our commitment to being a top-tier provider of surgical products for bone and soft tissue procedures.”
That commitment includes Legato, a resorbable, collagen-based implant that acts as a scaffold for the in-growth of new bone and designed to have broad appeal in repairing bony defects in the extremities and pelvis, including those caused by trauma. Legato also forms a cohesive and adhesive product readily shaped to defects while maximizing direct contact with host bone. At the time of its introduction, Ray said, “Our goal has always been to establish highly effective products first in spine and now expanding into additional high-growth markets such as extremities.”
The company’s nanOss Bioactive Loaded, introduced in June 2011, is a pre-filled mixing syringe containing nanOss Bioactive. The system is designed to enhance the delivery of bone grafts during minimally invasive procedures as well as enhance the sterile mixing of bone grafts during surgery.
NanOss Bioactive is a resorbable, porous calcium phosphate bone void filler for use as a bone graft substitute in various orthopedic and spine procedures. It is an osteoconductive implant with a multidimensional porosity similar to human cancellous bone and acts as a scaffold for the in-growth of new bone.
On the instrument side, Pioneer’s Sternal Cable System was developed to be an improved alternative over traditional monofilament sternal wire. The system consists of multi-strand stainless steel cable that is tensioned and then secured using Pioneer’s tensioner/crimper instrument. The cable is smooth and flexible, which the company said makes insertion and removal easier than traditional wire.
Various other products are related to the company’s Cable-Ready System, which is distributed solely through Zimmer Holdings Inc. The company has been involved in numerous corporate alliances over the years, including those with such orthopedics giants Johnson & Johnson’s DePuy Spine division, Synthes Inc. and Zimmer.
Since January of this year, Pioneer has been headed by Daniel Webber, who was named president and CEO, succeeding Jeffery Millin, who served as president of the firm since November 2008 and as CEO since January 2009. Webber had served as the company’s chief financial officer since coming on board in July 2008.
Pioneer, founded in 1992, is described as Michigan’s largest privately held medical technology company. It says its growth since then has been based on its focus on innovation, with more than 130 U.S. and foreign patents, and numerous other patents pending. The company says its portfolio of orthopedic, spine and biologic systems is aimed at providing “cost-effective solutions for surgical procedures that have proven difficult or problematic for both surgeons and patients.” Pioneer employs more than 270 people worldwide.
San Clemente, Calif.
Earl Fender, President and CEO
Minimally invasive spinal surgery
VertiFlex’s Pivotal Trial Pushes Ahead
VertiFlex, a developer of minimally invasive and motion-preserving spinal surgery technologies, reported in December 2011 the completion of enrollment in its pivotal IDE clinical trial of the Superion Interspinous Spacer (ISS), the results of which will form the basis for a premarket approval application to the U.S. Food and Drug Administration (FDA).
Superion, which received CE Mark for sale in Europe in 2007, can be used by interventional spine physicians and traditional orthopedic or neurosurgical spine surgeons. The Superion investigational device exemption study is the largest-ever FDA clinical trial for lumbar spinal stenosis with 470 patients enrolled. A prospective, multi-center, controlled clinical trial, it is studying the safety and efficacy of the Superion ISS compared to control arm using Medtronic Inc.’s X-Stop IPD in healthy adults suffering from at least six months of moderate lumbar spinal stenosis who haven’t responded to conservative care. The trial is being conducted at 31 spine surgery sites in the United States. The study endpoint is the rate of overall success at 24 months.
“The Superion ISS from VertiFlex may offer a less-invasive, motion-preserving solution to traditional spine surgery,” said President and CEO Earl Fender. “We are excited to complete enrollment of the trial, and over the next 24 months we will be further evaluating the data for submission to the FDA.
Completion of enrollment in this pivotal trial marks a significant milestone for minimally invasive spinal surgery.”
Peter Whang, M.D., associate professor in the Department of Orthopedics and Rehabilitation at Yale University School of Medicine and a principal investigator in the Superion trial, said, “Spinal stenosis can have a tremendous impact on a person’s mobility and physical activity. While there are treatment options available, many patients want less-invasive options for lower back and leg pain relief. The Superion ISS may offer a less-invasive, motion-preserving solution to traditional spine surgery. Over the next 24 months we will be further evaluating the data for submission to the FDA.”
The Superion’s minimally invasive surgical technique is performed through a single, half-inch skin incision. Once in place, the device is intended to act as a support column to open the passageways that contain the spinal cord and nerve roots, according to the company, which claims that this may reduce compression on the nerves, resulting in potential pain relief in the leg, groin and buttocks, and the return to a more active lifestyle for patients.
As of the time of completion of trial enrollment, the Superion had been implanted in more than 2,000 patients around the world.
VertiFlex is venture-backed, with current investors including Aberdare Ventures, Alta Partners, New Enterprise Associates, and Thomas, NcNerney and Partners. It completed a $14 million equity placement in early 2011. At that time, James Thomas, co‐founder and partner of Thomas, McNerney & Partners, who is on the VertiFlex board of directors, said, “We strongly believe in the role interspinous spacers play in the continuum of care for lumbar spinal stenosis. Because Superion is implanted percutaneously, interventional surgeons will greatly expand the market opportunity, as will traditional spine surgeons who seek an alternative to current offerings.”
More than 1.2 million Americans are diagnosed each year with lumbar spinal stenosis, with that number expected to rise as the population ages.
Founded in 2005, VertiFlex is led by Fender, who has been president and CEO since 2008. He brought more than 25 years of experience in general management and product commercialization in the medical device and spinal industry. During a 10-year span, he led DePuy Spine as vice president of sales, U.S. president and finally, worldwide president. Prior to DePuy, Fender led the U.S. sales organization for Synthes USA. He also served as vice president and general manager of Osiris Therapeutics Inc.
In addition to the Superion, VertiFlex also is developing products that will be used for minimally invasive spinal decompression procedures as well as interspinous fixation procedures.
Jim Stommen, retired editor of industry publication Medical Device Daily, is a freelance writer focusing on the medical product sector.