Other Articles

Using DNA to Predict Scoliosis
Six million people (estimate from the National Scoliosis Foundation) have scoliosis in one form or another. The primary age for onset of idiopathic scoliosis is 10-15 years old. Finally, there is a test which can reliably predict scoliosis. Fewer X-rays. Lower cost. Better outcomes.

New Capital, New Science for Cartilage Repair
$36 million invested in the last couple of months. TiGenix has more than that in the bank to fund market penetration. Then a new paper last week finds molecular cause of OA. Cartilage repair momentum is building.

Should I Become a Physician-Employee?
Large healthcare institutions are increasingly purchasing orthopedic practices. What does this mean for patient referrals? How beneficial can it be for orthopedists? The upside is more stability, among other things…and one of the downsides is loss of freedom.

Outrageous Whistleblower Lawsuit Challenged
Spine surgeons sued by whistleblowers in Boston are fighting back. Their lawyer is outraged and says the claimants are just shopping an old and settled case to another judge. Is this the proverbial lipstick on a pig? Find out.

Medical Education Under the Microscope – Is It Up to Today’s Challenges?
Where is the line drawn between what medical schools, residencies, and professors should provide to students and what doctors-in-training should reach for themselves? Here are the results of interviews with three senior surgeons, who opine on things such as attitudes, how people learn, and the possible effects on the field.

The Underlying Meaning of Zimmer’s Purchase of Abbott Spine
From the price paid to the timing, this transaction held an underlying meaning for the entire spinal implant industry. Zimmer, the $4.2 billion (revenue) diversified orthopedic company is now #5 in spine. More to come?

Resurging Lumbar and Cervical Total Disc Replacement Markets! New PearlDiver Estimates
Rumors of the TDA market’s demise were premature. Increasingly positive long term patient data is at the core of a resurging lumbar and cervical TDR market. Senior analyst Matt Menze tackles the TDA market and interviews one of the fathers of TDR, Dr. Scott Blumenthal from the Texas Back Institute. Where is this market actually heading? We think to the $2 billion range by 2015. All details here.

Six Days in June – Biomet and Zimmer Battle for Distributors in Kentucky
Documents filed recently in a Kentucky lawsuit pull the curtain back on an epic battle between Biomet and Zimmer. For six fevered days in June 2007, Biomet CEO Jeff Binder and founder Dane Miller went into the trenches to save one of their own. For all the details, read on.

Multicenter Clinical Trials: Do They Get the Respect They Deserve?
They’re not fast or sexy, but they are critical…large trials, that is. With multiple sites and principal investigators who donate their time, large trials are more complex—and normally yield more actionable data—than smaller, quicker studies. But large trials don’t always get the respect they deserve. And, says at least one physician-researcher, this could affect the future of the field.

Patent Wars: Medtronic Attacks NuVasive
MSD’s lawsuit came amid a period of declining spinal implant market share – from a peak of 60% in late 1998 (just prior to being acquired by Medtronic) to, we estimate, 36% currently – and a growing sense that MSD’s reign as the king of spine was coming to a close. What’s really behind Medtronic’s attack on its former senior exec? Read on.

Spine Gainsharing Through the Looking Glass
The feds have issued their first opinion allowing a spine gainsharing proposal. In Alice in Wonderland style, Through-the-Looking-Glass logic, they said the proposal was improper but would not impose sanctions. Who is the author of such a plan and what’s her secret? Read here.

PearlDiver Data Raises New Questions About Synovial Injections
Synovial injections for painful knees have been approved for use since 1997. If the goal is to improve the quality of life for the patient, is that being accomplished? The latest numbers from the PearlDiver Patient Records Database cast doubt.

Plantar Fascia: The Annual 3 Million Patient Market
“Plantar Fascial Fibromatosis (ICD-9-D-728.71) is right up there in frequency with pain in the shoulder joint, degeneration of lumbar intervertebral discs, pain in the lower leg joint, and carpal tunnel syndrome. As usual, PearlDiver has this market mapped out.

Orthopedic Incubators: Where Little Ideas Grow Up
Business incubation, also known as acceleration, can be a wild ride. Thus it’s best to approach it armed with the solid advice of experienced professionals. Who should take this ride? What can venture financiers bring to the table? These questions and more are answered by two seasoned VC professionals.

Just Say No to CMS Potential Coverage Decision List
Unless you want to be on the receiving end of a non-coverage letter, just say no to CMS’ proposed list of potential National Coverage Decisions. You’ve got until September 28 to make your case. Read what a leading industry consultant and analyst have to say.

Staking a BIG Claim
Alphatec, the company whose IPO collapse served as an object lesson for all medical device companies, has nearly completed its turnaround. The key? New management and new technology. Exhibit A: OsseoFix™—with it Alphatec stakes a claim to the next big spinal implant market.

Where does venture capital (VC) money flow and why? Says Gary Stevenson, Managing Partner at MB Venture Partners, LLC in Memphis, Tennessee, “Numerous factors affect which areas of orthopedics receive the most funding from venture capitalists. Innovation, the amount and quality of data collected in research studies, and the public equity market are just some of the things that determine which projects get funded, and ultimately, which patients benefit.”

First of all, the sexy spine arena is now beginning to share the limelight with other orthopedic specialties. Gary Stevenson: “Spine has been one of the longest-running trends in this niche, with the total disc being the most visible player. Now there are other emerging themes in the spinal niche such as dynamic stabilization and motion preservation. These are appealing to VCs because there are usually early, attractive exits for the firms. And many VCs recognize that if a patient has a spine problem there have to date been only two solutions, either fusion or discectomy, with not much in between. We are beginning to see some innovation, however, and VCs are getting on board. Beyond spine, another trend is a new emphasis by VCs on sports medicine and trauma. In the past there has been a shortage of innovation, especially in trauma. Now, however, there are an increasing number of alternatives for patients as surgeon-entrepreneurs rise to meet the challenges in those subspecialties. And some innovations that have found commercial success in spine can be translated to trauma, as an example. I have also seen a trend where entrepreneurs who have had some success in one therapeutic field sometimes move on to another opportunity in a different specialty. Perhaps they are taking a break from spine, for example, because they have a noncompete agreement and so they move on to other areas, such as trauma or sports medicine. Take Cayenne Medical and its CEO Jim Hart. Jim was previously successful in the sports medicine/shoulder arena as the President and CEO of Opus Medical, which was sold to ArthroCare. He then moved on to start Cayenne to address ACL reconstruction issues.”

But writ large across the ceiling of any orthopedic funding meeting are biologics. “Venture capitalists, like nearly everyone, are enthused about the possibilities inherent in biologics,” states Stevenson. “The Medtronic success with INFUSE® is evident and tracked closely by Wall Street. BioMimetic Therapeutics has developed a platelet-derived growth factor that is targeted to regenerate bone with a biological product. These are radical changes for an industry that has been oriented around plates, metal, and PEEK. VC firms now must have biomedical engineers on staff, preferably with a lot of experience in traditional materials. There is a new set of expectations and a new language to master. And because most companies in this space only did a 510(k) as opposed to a PMA, this is a real change for venture investors. As the industry migrates from traditional materials to biologics, our team, like other venture firms, includes a partner with a strong scientific background. Our star in this regard is Stephen Snowdy.”

The most prominent growth factor in venture capital? Data, says Gary Stevenson. “When you’re talking about biologics, for example, companies are doing large clinical trials more like what we traditionally see in the pharmaceutical arena. Insufficient data is a huge obstacle for many companies. They expend a significant amount of money collecting data that has as much to do with reimbursement as with FDA approval. We are vigilant about expenses and want our portfolio companies to be realistic about the amount of capital it’s going to take to position their company for reimbursement. There is greater risk for entrepreneurs and venture capitalists, with longer lead times, more patients, and longer time to market…meaning that overall we are more careful about investments now.”

Also slowing down the wheels of progress are legal concerns. Explains Stevenson, “Recent changes in intellectual property (IP) law are significantly affecting investment selection. It is more difficult for a company to assert its rights now, so we spend more money and time on due diligence than we used to. Defensible IP should start at the product design phase. Companies that are cognizant of this work with an engineer from the beginning to ensure their products are fully theirs. These cautions have really put the kibosh on some healthy deals. I would say that intellectual property concerns have resulted in our firm rejecting several deals in 2007 that we otherwise would have done.”

Further cooling of the VC coffers can be attributed to the uncertainty on Wall Street. “The current public equity market has definitely impacted our portfolio companies,” says Stevenson. “The volatility ultimately finds its way into valuation expectations in the private equity market. And there are limited opportunities for portfolio companies to find attractive exits through the IPO window because it is closed for most start-ups. In general, public stocks are down from IPOs because the market is down. This makes a VC think twice when considering taking a company public. And if there is no opportunity to go public, then it’s a strategic buyers market.”

Asked what the average orthopedic surgeon doesn’t know about VC funding, Stevenson notes, “Most don’t appreciate the terms we use for valuations, the effect of options for dilution, and how much capital it takes to achieve certain milestones. Certain things are not a surgeon’s bailiwick, such as the notion of taking a small amount of capital initially, hitting a milestone that adds to the valuation, and raising more money later. Those who are savvy regarding these issues usually have been involved with other start-up companies. In the end there can be a nice exchange, however, as the orthopedic surgeons teach us VCs certain clinical issues and we educate them on the aforementioned topics.”

For some surgeons, the prospect of going after venture capital is so daunting as to make DBM mean, “Don’t bother, man.” Says Stevenson, “Those surgeon-entrepreneurs who are thorough and persistent do have a chance to obtain VC funding. This occurs in one of two ways. In one scenario the orthopedic surgeon approaches a VC firm with an idea. The hit rate on this is lower than the opposite way, however, because the surgeon-entrepreneur has usually identified an opportunity where there is not a large market opportunity or there is some existing IP in that niche. Conversely, there are a lot of successes when a venture fund, by virtue of frequently investing in this industry, has another idea and finds an orthopedic surgeon to help with a solution. VCs have frequent interactions with orthopedic surgeons, which sometimes result in us bringing forth ideas of our own. And like other firms, one of our partners, Mike Sherman, is an accomplished engineer with a successful track record of designing and conceiving of ideas and getting surgeon input. If all goes well with this process, we will start several companies and fund them.”

And if you should find yourself approaching a VC firm, what should you not do? Gary Stevenson: “It is amazing how often we hear people say the same, ineffective things to us. ‘There is no competition for this product,’ is one. ‘It is a billion dollar market!’ is another. ‘We have perfect IP on this,’ is also a common theme. Taking the latter issue as an example, it would be more genuine (and appreciated) for people to say, ‘Here is the IP position we will stake out, but we still have work to do.’ As a general rule, it is best to avoid overly promotional statements. We are ultimately investing in your credibility so it is wise to be genuine and forthright.”

As surgeon-entrepreneurs adjust to the reimbursement landscape, so must VCs. As VCs acclimate to the changing legal climate, so must surgeon-entrepreneurs. So the next time it seems that both camps are on different teams, think again. Fundamentally, they’re playing for the same team…the patients.