An Update on Generic and Low-cost Manufacturing Companies in Orthopaedics (Posted on 10/10/2013)
By Julie A. Vetalice
It’s been a year since I shared that list on my wall of companies that operate in the generic and low-cost manufacturing/low-cost sales space, but the topic is still critical as stakeholders look for ways to drive new business, differently. Here are a few others I’ve added since then, to keep you apprised of who’s who in the marketplace.
B2B Spine (Back 2 Basics)
Baulkham Hills, NSW, Australia
Received first FDA 510(k) in 4Q12, for Dymaxeon posterior pedicle screw system: rod/screw with anatomical hooks, to primarily treat neuromuscular disorders, trauma, degenerative disease
Dymaxeon to be provided sterile and traceable, with individually packed pedicle screws (in pairs) plus rods of varying pre-contoured lengths
With B2B Direct, seeking to provide access lower cost, high quality spinal instrumentation without unnecessary expense
Delivery system will use advanced communication technologies to allow streamlined, reproducible delivery to the end user
Dublin, Ohio, USA
Distribution partner for Emerge Medical low-cost trauma products
Launched Orthopaedic Solutions in 2012: integrated offering to allow hospitals and surgery centers to reduce ordering costs and on-hand inventory; created specialized ValueLink Par Optimization program to reduce trauma implant inventory inside hospitals' processing areas
No separate procurement process or additional labor; next-day delivery
Offers analytics based upon customer supply chain data and clinical insights to drive inventory “right-sizing efforts”
Reports savings at 30% to 50% less than leading brands
Pierceton, Indiana, USA
Spinal implants are U.S.-made by X-spine Systems, FDA-cleared, backed by clinical data, part of a comprehensive portfolio including cervical plates, pedicle screws, reduction screws, PEEK cages, facet screws, DBM, etc.
Claims savings of 40% to 70% less than current contract prices
Offers customized service and management options with no inter-operative upselling
Removes traditional sales distribution model
Fort Myers, Florida
Specializes only in one FDA-cleared product, Discovery PEEK Cervical Intervertebral Fusion Device with Bone Graft
Identifies as a low-cost alternative: no reps, no advertising in journals, no promotion at
national meetings or other surgeon-directed marketing
Dayton, Ohio, USA
NovoKnee total knee is FDA-cleared for posterior stabilized and cruciate retaining applications; has also developed NovoHip total hip
To introduce revision, trauma and spine products in the future
Provides high-performance implants/service solutions at a breakthrough value point
Claims ability to save a typical practice $500,000 to $1MM/year with no changes in surgeon or patient behavior or techniques
Sarasota, Florida, USA
Distributes suture anchors, titanium and PEEK carbon fiber interference screws and ACL graft fixation accessories/instruments, etc., via low-cost manufacturing and direct-to-customer distribution
Claims one ASC customer’s savings of $17,000 on implants/associated costs on 1st 10 cases
Georgetown, Texas, USA
Founded 2013, focusing on trauma, spine, sports medicine and total joints
Formed “to make high quality orthopedic products at the lowest possible cost passing these savings on to the end user”
Complete line of patent-free endoprostheses based on designs developed by surgeons like Spotorno, Müller, Zweymüller, etc.
Sources: Press releases, company web sites, articles in the public domain, FDA 510(k) Releasable Database
Web Exclusive: Highlights from THE SPINE MARKET report (Posted on 10/10/2013)
In 2012, revenues generated by global sales of spinal implants and instrumentation reached an estimated $7.35 billion. Though historic double-digit growth in the segment flattened in 2010, looking ahead, conservative increases should occur based upon a shift in focus to more cervical discs, lateral access fusion, motion preservation, increased adoption of minimally invasive technologies such as those to treat facet fixation and sacroiliac joint fusion, and the support of a globally aging and obese population.
The top ten players in spine controlled 94% of the space in 2012, ranked as Medtronic, DePuy Synthes Spine, Stryker, NuVasive, Globus Medical, Zimmer, Alphatec Spine, Biomet, Orthofix and Aesculap.
Estimated Spine Company Market Share in 2012: Top Ten and All Others
THE SPINE MARKET covers an update for 4Q12 to 3Q13, highlighting mergers/strategic alliances, funding, products cleared and launched, matrices of technology landscapes and a robust directory of companies that provide spinal implants, instrumentation and osteoplasty systems.
This report is available now.
NASS Preview: New and Notable in Spine (Posted on 09/09/2013)
These brief profiles preview newer or noteworthy companies in the spine space—some of whom you will meet on the exhibit floor at the North American Spine Society meeting in October. We’ll be there, too—find us in Booth 1718.
For a refresher on past newcomers to the spinal scene, visit the ORTHOKNOW archives and check out the October 2011, September and December 2012 and July 2013 issues.
Cardinal Spine, LLC
Louisville, Kentucky, USA
NASS Booth 3014
Two FDA-cleared products, STCC cervical cage interbody spacer, and STCG vertebral body replacement
Trapezoid-shaped, titanium-based devices claimed to have “superior compressive strength compared to cylindrical cages”
Encino, California, USA
Manufacturing a range of minimally invasive spine surgery delivery systems and implants, including the FDA-cleared Nexus anterior cervical plate and Core pedicle screw
Developed the NIP (Non Invasive Pain) Procedure that enhances the release of natural endorphins, with application to treat chronic back and neck pain
Frontier Medical Devices, Inc.
Marquette, Michigan, USA
First FDA 510(k) clearance in 4Q12 for Lateral Locking Cage for treatment of degenerative disc disease and instability
Claims to be first of its kind minimally invasive interbody cage, locks to the vertebra above and below the disc space
G6 Spine, Inc.
Newport Beach, California, USA
NASS Booth 448
Focus on treatment of advanced degeneration, trauma, scoliosis and spondylolisthesis will include motion preservation, minimal invasive techniques and enhancement of current market fusion treatments
Caledonia, Michigan, USA
NASS Booth 3213
Formed over 40 years ago, now entering the bone biopsy, vertebroplasty and percutaneous discectomy market
Vertebroplasty needles, Solidus vertebroplasty system, kyphoplasty set, ozotherapy needle for treatment of herniated discs, herniatome discectomy device, etc.
Akron, Ohio, USA
NASS Booth 3119
Developing a wireless implantable microelectronic lumbar spine fusion sensor
In 1Q13, received a $1.1MM investment to support prototype development and animal studies; seeking up to $500,000 to complete the series B1 round
Miamisburg, Ohio, USA
NASS Booth 3236
Developing devices and methods to support spinal fusion procedures
Brands include Silex Sacroiliac Joint Fusion System, Zygafix Facet Fusion System
JG Spine, LLC
Ponte Vedra Beach, California, USA
Received first FDA 510(k) clearance for Surefix Interspinous Fusion System
San Ramon, California, USA
NASS Booth 2836
Not a spine company, but counts several among its customers: DePuy Synthes, Integra, K2M, Stryker…
Developed a comprehensive UDID (Unique Device Identifier Database) system
SOPIC solution provides manufacturers, distributors and healthcare providers a single-vendor suite to leverage use of UDI information for electronic patient records, adverse event reporting, product recalls, inventory management, etc.
Next Orthosurgical, Inc.
Vista, California, USA
Received first FDA 510(k) clearance for Interform Interbody Cage System
Toledo, Ohio, USA
NASS Booth 551
Early-stage company, chaired by Dr. Anand Agarwal
Developing novel synthetic calcium phosphate-based cement in injectable, putty, granule and structural block forms for orthopaedic and spine surgery
Pan Medical, Ltd.
Gloucester, United Kingdom
NASS Booth 3123
InterV balloon kyphoplasty systems + Vfix bone cement are approved under the CE Mark
Providence Medical Technology, Inc.
Lafayette, California, USA
NASS Booth 215
Recently received FDA 510(k) for minimally invasive PMT Cervical Cage implant and delivery system for cervical fusion
Markets DTRAX Facet System ex-U.S.
Cooper City, Florida, USA
NASS Booth 2542
In 2012, launched the Y-wire guidewire in the U.S., designed to reduce wire migration and kinking issues common with standard guidewires
Recently secured $1.1MM investment to support Tiger Needle for placement of Y-wire to desired depth within vertebral body
Shanghai Sanyou Medical Instrument Co., Ltd.
Shanghai, Peoples’ Republic of China
Founded in 2005
Developing minimally invasive non-fusion spinal products, as well as trauma products
Received first FDA 510(k) clearance for the Katia intervertebral body system
Southern Spine, LLC
Macon, Georgia, USA
NASS Booth 3215
Recently launched StabiLink MIS Spinal Fixation System for use in lumbar fusion
Device is implanted with PG Precision Guided Inserter/Compressor, an “all in one” instrument designed to place the implant with or without removal of the interspinous ligaments
Spinal Balance, LLC
Holland, Ohio, USA
NASS Booth 955
Very recent start-up; limited information available
Led by Vijay Goel, Ph.D.
Spinal Ventures, LLC
Minneapolis, Minnesota, USA
NASS Booth 641
Founded in 2005 by by orthopaedic industry entrepreneur, designer and developer
Developing technologies based on beads flexibly connected on a chain, for treatment of vertebral compression fractures, bone voids and weak or deficient bone Beads deliver the flowable agent at zero pressure; bead chain and agent can be retracted; precise aliquot of material is delivered per handle pull
Spine Soft Fusion Co.
Rio de Janeiro, Brazil
NASS Booth 236
Developing the first translaminar facet PEEK screw, to be placed through percutaneous approach via an all-in-one fluoroscopy-guided technique, addressing lumbar degenerative disease up to 2 levels
“Not so rigid as pedicle screws, and not so mobile as lumbar TDR”
Sources: Company press releases, web sites, articles in the public domain, FDA 510(k) releasable database, filings with the U.S. Securities and Exchange Commission, etc.
What We Have Learned About the Medical Device Excise Tax (Posted on 09/08/2013)
By William D. Ault, CPA, and Jonathan Soleimanzadeh, J.D., Crowe Horwath LLP
The Health Care and Education Reconciliation Act of 2010, in conjunction with the Patient Protection and Affordable Care Act, created a new excise tax on manufacturers and importers of certain medical devices. Just before the tax took effect on January 1, 2013, the IRS issued final regulations and interim guidance that helped eliminate some of the substantial uncertainties surrounding the tax.
Accordingly, much has been learned about the nuts and bolts of the tax, and in light of the guidance provided, manufacturers may have opportunities for savings or can take concrete steps to mitigate risk. Manufacturers that have not carefully considered all sales in light of the new rules should act now, given that the IRS’s transition relief from deposit penalties for good faith compliance errors is soon coming to an end.
Which Devices Are Taxable?
Section 4191 of the Internal Revenue Code (IRC) imposes a 2.3 percent medical device excise tax (MDET) that manufacturers and importers must pay on sales of certain medical devices. The U.S. Department of the Treasury avoided independently defining medical devices for tax purposes and linked taxability to Food and Drug Administration (FDA) status. Accordingly, the tax applies to devices that are listed as a medical device with FDA; if a device isn’t listed with FDA, it should not be subject to the tax.
An exemption to the listing rule applies to devices purchased by the general public at retail for individual use (the retail exemption). The regulations provide eight separate factors that must be considered to determine whether a device may qualify for the retail exemption.
Manufacturers that claim this exemption should carefully document (with supporting evidence) why their device qualifies under these eight factors. Prototypes manufactured for a purchaser and not currently listed with FDA also are exempt from the MDET. However, once a prototype has been accepted and must be listed, any sale would be subject to the tax.
The final regulations also clarify that medical devices intended for use in animals and that are listed with FDA are taxable if they also may be used for humans.
Determining the Taxable Price
The interim rules address how to determine the taxable price of medical devices for purposes of the MDET and resolve much of the uncertainty that existed on the issue. It is important to note that the MDET is not calculated based on a taxpayer’s actual sales of taxable devices.
The rules generally treat the price for which a manufacturer sells a taxable device to an independent wholesale distributor as the applicable price, subject to certain adjustments.
IRC Section 4216 also provides rules for determining the “constructive sale price” when a manufacturer sells a taxable device to a purchaser other than an independent wholesale distributor. The constructive sale price approximates the price an independent wholesale distributor would pay the manufacturer for an identical device.
The applicable price generally depends on the type of distribution chain. Under the interim guidance, issued by the IRS in Notice 2012-77, if a manufacturer sells directly to unrelated end users, the constructive sale price is 75 percent of the actual selling price. If the manufacturer sells to unrelated retailers, the constructive sale price is 90 percent of the lowest price for which the devices are sold.
The interim guidance also includes rules applicable to sales to various types of related retailers and resellers (that is, intercompany sales to subsidiaries, for example).
The interim guidance also states that a taxpayer can use its own independent methodology to determine a constructive sales price as long the taxpayer is able to demonstrate, using expert testimony and industry data, that the constructive price represents the fair market price of the article. Accordingly, restructuring should be considered when a manufacturer can document a fair market sales price that is substantially lower than the percentages permitted under the interim guidance.
For example, a manufacturer that sells to end users and can document a fair market price to a related distributor that is 50 percent of the sales price to end users could realize significant tax savings.
Who Is Liable for the Tax?
When the law first went into effect, contract manufacturers were not certain whether they or their customers would be liable for the tax. Generally, the manufacturer or importer of a taxable medical device is liable for the MDET.
According to the IRS, for purposes of the MDET, the manufacturer is the person who produces a taxable medical device from scrap, salvage, or junk material – or from new or raw material – by processing, manipulating, or changing the form of a device or by combining or assembling two or more devices.
It is not uncommon for a manufacturer to contract with another manufacturer to perform some aspect of making the device. In some instances patent owners outsource their entire manufacturing process. In such cases, the IRS has explicitly directed taxpayers to Revenue Ruling 58-134, Revenue Ruling 60-42, and Polaroid v. U.S. for rules regarding the determination of which party is the manufacturer for purposes of the tax.
These examples dictate that the substance rather than the form of the transaction is determinative. These bodies of tax authority indicate three factors that must be weighed in order to determine who the manufacturer is for purposes of the MDET:
Ownership of raw materials
Control over production and sale
Ownership of patent rights
The most important of these factors appears to be the ownership of patent rights, as parties who hold patent rights can be ultimately liable for the tax even if they take no part in the manufacturing process. The factor weighted least is ownership of the raw materials. Critics have argued that this position is inherently counterintuitive, questioning how the party who manufactures the device isn’t the manufacturer liable for the MDET.
Surgical Kits and Procedure Trays
Surgical kits and procedure trays are a common method of delivery to end users, and, as such, determining the taxable manufacturer of the items assembled into a kit is an important issue. Under the proposed regulations, assembling and packaging devices into a kit was considered manufacturing, so companies selling individual kit components would not be liable for the tax. In the final regulations, however, the opposite rule was adopted, and assembling devices in a kit is not considered manufacturing. As a result, companies selling individual devices that will be assembled into a kit must pay the MDET. However, if a manufacturer assembles a kit that includes a nontaxable device, then only the proportional value of the taxable devices should be taxed.
Further Manufacture, Export, and Resale Exemptions
Unlike a sales tax, there is no resale exemption with respect to the MDET. Section 4191 of the IRC does, however, provide several other exemptions for the MDET, including the further manufacture and export exemptions. Devices subject to the MDET are exempt from the tax when purchased for further manufacture or for resale to a second purchaser for further manufacture. A device is considered sold for further manufacture if it is sold as a material in the manufacture or production or as a component part of another taxable device to be manufactured by the purchaser.
To document a tax-free sale of a medical device that will be used for further manufacture, the customer’s purchase order must state:
The exempt purpose for which the devices are being purchased
The purchaser’s registration number
It is important to note that purchasers and manufacturers who intend to remanufacture need to register using Form 637, “Application for Registration (For Certain Excise Tax Activities).”
The manufacturer also should disclose certain information to customers who purchase a device for further manufacture in order to document the sale’s MDET tax-free treatment. The manufacturer’s invoice for sales to purchasers who further manufacture should state that:
Certain devices normally subject to the MDET tax are being sold tax-free.
The customer is obtaining those devices tax-free for an MDET-exempt purpose under an exemption certificate or its equivalent.
The invoice also should indicate that:
The purchaser can compute and remit the tax due if a device sold tax-free for further manufacture is diverted to a taxable use.
The manufacturer can remit the tax due with respect to a device purchased tax-free for resale for use in further manufacture if, within a six-month period, the manufacturer does not receive proof that the device was used for further manufacture.
The purchaser should notify the manufacturer if a device otherwise purchased tax-free is diverted to a taxable use.
Sales to a purchaser for resale to a second purchaser for use in further manufacture also can be exempt in certain circumstances. For example, manufacturer X sells a device to manufacturer Y, who further manufactures for sale to manufacturer Z who further manufactures and resells to the end user. The sales from X to Y and Y to Z would be exempt, and Z’s sale to an end user would be taxable. To guarantee exempt treatment, a manufacturer should obtain a statement from the purchaser similar to sample provided by the IRS in Treasury Regulation 48.4221-2.
Section 4191 also grants an exemption for sales of taxable devices for export (or for resale for export). Manufacturers should confirm that their document retention policy requires retention of documentation of export, such as proof of shipping outside of the United States. As with the remanufacturing exemption, the purchaser must provide its registration number to the manufacturer and certify on the purchase order or other document furnished by the purchaser to the manufacturer the exempt purpose for which the device will be used.
Seeking Further IRS Guidance
The IRS informally has indicated that it expects, and is open to, a number of requests for clarification because the MDET is a new tax. Medical device companies shouldn’t hesitate to reach out to the IRS Office of Chief Counsel (OCC) for guidance on uncertain issues. In some cases, companies may even consider requesting a private letter ruling (PLR) on a specific issue. The OCC might be willing to informally discuss a ruling request with a manufacturer before submitting a formal PLR request. Revenue Procedure 2013-1 provides further details on the procedures for requesting a PLR.
Reporting and Tax Deposit Rules
The IRS has developed a new six-page form for reporting the MDET – Form 720, “Quarterly Federal Excise Tax Return.” Payment is due with the return by the following filing dates:
January-March quarter: April 30
April-June quarter: July 31
July-September quarter: Oct. 31
October-December quarter: Dec. 31
Manufacturers and importers of taxable medical devices also generally are required to make semimonthly deposits of tax. The deposit for a semimonthly period is due by the 14th day following that period. Generally, this is the 29th day of a month for the first semimonthly period (14 days after the 15th day of the month) and the 14th day of the following month (14 days after the last day of the month) for the second semimonthly period.
IRS Notice 2012-77 provides transition relief from deposit penalties during the first three calendar quarters of 2013 if the taxpayer demonstrates a good faith attempt to comply with the applicable requirements and if the failure was not due to willful neglect.
Still Feel Like You Are Navigating Murky Waters?
Much of the uncertainty that surrounded the MDET at its adoption has been resolved by the regulations and interim guidance; however, it is clear that there is much more to the tax than simply reporting and remitting. Some manufacturers might benefit from re-evaluating their obligations in light of the guidance released to date to potentially reduce their tax liability.
Will Ault is a director with Crowe Horwath LLP in the New York office. He can be reached at 203-554-2486 or firstname.lastname@example.org.
Jonathan Soleimanzadeh is with Crowe in the New York office. He can be reached at 212-572-5579 or email@example.com.
Crowe Horwath LLP
A Word from an Industry Supplier
OEMs aren’t the only companies affected by the excise tax. Suppliers are reacting to the pressures their customers face, as well. At OMTEC® 2013, Mike Miller, Chief Executive Officer of Orchid Orthopedic Solutions, spoke about the topic and the lean manufacturing processes that Orchid has implemented to meet their customers’ needs in the current regulatory and economic environment.
ORTHOWORLD: How has the medical device excise tax affected Orchid and other suppliers?
Mr. Miller: The device tax is a really tough one. It’s tough on our customers. While it seems small at 2.3%, it’s 2.3% of their selling price. If their costs were 50% of that, it’s really a 5% tax. Then it becomes even greater as you spread cost down. The facts are, that’s a significant blow to them, to their margins and to the opportunity they have to make money for their stakeholders.
To be a better partner for OEMs, we have to work harder on our end producing better parts at lower cost, using better processes, using automation, using lean manufacturing techniques—all of that comes into play to help them deal with this tax.
The question remains, is the tax going to stifle innovation and new product launches? Is that going to hurt the volume of products that we make? We’re just not sure about that yet. It’s something that the government needs to think about. Certainly on the innovation side, we want to give patients the best care that we possibly can. Even though we make the hard parts and hard instruments that doctors and hospitals use, the facts are that we’re all serving patients, and the patients need the best care they can get.
The Top Ten Orthopaedic Device Companies: A new report from ORTHOWORLD (Posted on 08/08/2013)
The Top Ten Companies in Orthopaedics: Estimated Market Shares in 2012
Merger and acquisition activity in 2012 altered the list of the top ten largest orthopaedic device companies, ranked by revenue. NuVasive, with an estimated 1 percent of the orthopaedic market overall, entered the lineup as number ten upon Johnson & Johnson/DePuy’s acquisition of fellow top ten market competitor Synthes.
ORTHOWORLD® observations show that in the slowing orthopaedic market, NuVasive was one of only three top ten companies to achieve double-digit growth in 2012, alongside Arthrex and DePuy Synthes. All three remain poised for continued expansion.
Arthrex launched numerous products in 2013, expanding its TightRope technology offerings and releasing a new comprehensive foot plating system. To accommodate projected growth, the company expects to open a 197,000 square foot manufacturing facility in 3Q13 and create nearly 500 jobs by 2016.
DePuy Synthes undertook a variety of global and domestic product launches in 2013, including the GLOBAL UNITE shoulder arthroplasty system and the ATTUNE knee. ORTHOWORLD observations note that the largest orthopaedic device manufacturer plans to accelerate growth in the Asia Pacific region and emerging markets by customizing products, developing simpler and more affordable systems and sourcing R&D locally.
NuVasive opened an office in Japan and noted completion of the first eXtreme Lateral Interbody Fusion procedure in key cities throughout that region. The company is forecasting six percent growth in 2013 and an $8 million sales contribution from the Japanese market.
The idea for The Top Ten report arose while assembling this year’s installment of THE ORTHOPAEDIC INDUSTRY ANNUAL REPORT®. While the annual report lends a very broad, high-level view of the industry overall, the Top Tens allow you to dig a little deeper, with a lot of information collected in one spot.
ORTHOPAEDIC DEVICE COMPANY PROFILES: THE TOP TEN summarizes product portfolios, mergers and acquisitions, strategic initiatives, product launches, significant regulatory and reimbursement events, 510(k) clearances, legal developments and ORTHOWORLD observations.
Leverage the intelligence in these profiles to enhance your business plans, complete competitive analysis, position yourself for acquisition, identify new customers and get smarter about existing customers and the orthopaedic market.
To download your copy of THE ORTHOPAEDIC INDUSTRY ANNUAL REPORT
, click here
. To purchase a copy of ORTHOPAEDIC DEVICE COMPANY PROFILES: THE TOP TEN
or individual company profiles, click here
How will you use these Top Tens? What companies would you like to see profiled? Please share your thoughts.
Julie A. Vetalice
Unique Device Identification: Start Preparing Now (Posted on 07/11/2013)
By Karen Conway, GHX
With the final rule for FDA’s proposed unique device identification (UDI) expected for release this summer, orthopaedic manufacturers are focusing upon what they need to do to comply with the regulation.
OEMs will be among the first to be impacted, with the final rule expected to require manufacturers of Class III devices to be in compliance one year after publication. Data will be a large challenge, but those companies that take a more holistic approach to UDI have an opportunity to reap benefits beyond just checking the regulatory box.
First, a little background on UDI.
The proposed rule, which was published in the Federal Register in July 2012, is the result of language included in the FDA Amendment Acts of 2007, requiring medical device labels to bear a unique identifier that “shall adequately identify the device through distribution and use, and may include information on the lot or serial number.”
But as with any regulation, it’s more complicated than that. In addition to assigning a code that is part of the ISO 15459 series of standards to each of their products (e.g. GS1’s GTIN or HIBCC’s LIC), OEMs must make sure the label displays the code in both human- and machine-readable formats. But the highest hurdle might be the requirement to populate the FDA Global UDI Database (GUDID) with specified data about those products.
“UDI compliance is more than a labeling exercise,” says Jackie Elkin, Global Process Owner, Standard Product Identification, for Medtronic. “FDA plans to make UDI the key for master data management within the Center for Devices and Radiological Health, and as manufacturers, we need to think similarly within our own organizations.”
According to the proposed rule, FDA intends to integrate UDI into the Code of Federal Regulations (CFR) to improve the visibility and consistency of product identification across multiple applications. By using UDI as the foundation for their regulatory master data, manufacturers can achieve a more consolidated view of product data within their own organizations that they can use for different regulatory submissions.
Many of the data elements that manufacturers need to submit to the GUDID have likely been included in one regulatory filing or another, but are often owned and managed by different business functions that have historically not worked closely together. (See GUDID Attributes.)
These attributes will likely be required in the Global UDI database.
• Primary Device Identifier (DI)
• DI Issuing Agency
• DUNS Number
• Brand Name
• Model/Version Number
• GMDN Code
• FDA Premarket Authorization Number
• FDA Listing Number
• Device Size (dimension type/value)
• Device Sterility
• Device Contains Latex?
• Device is sold as a Kit?
• Device is a Combination Product?
• Device Production Identifiers (e.g., controlled by lot or batch number, serial number, manufacturing date, expiration date)
• Device Package Configuration
Locating, harvesting and aggregating the data can be quite challenging. The data elements exist in a variety of places and formats, some not even electronic. It’s even harder for suppliers that have gone through mergers and acquisitions. One division might keep a certain attribute in an ERP system, while another might keep the same attribute in an entirely different place.
Developing a sustainable process for publishing data to the GUDID requires a cross-functional business process, involving a variety of stakeholders, including but not limited to:
• Process Engineering
• Supply Chain
• Labeling and Barcoding
• Information Technology
• Marketing and Sales
Getting all of these players together is an exercise in change management, but is absolutely critical to manage highly dynamic data. (On average, 30 percent of products sold in the U.S. have some kind of change in their associated data elements each year.)
FDA has said the final rule will mirror much of what is in the proposed rule, giving manufacturers a good place to start preparing now (See Questions to consider), but some critical areas of uncertainty remain, including:
• Which products will require direct part marking (DPM) and when?
• How to label kits and combo products?
• Which finished products will be exempt, e.g., those in manufacturer warehouses or on consignment, or only those already purchased?
Questions to consider in preparation for UDI
• Which products will be covered by UDI, and when?
• Is production manual or automated?
• Where are those products produced?
• Into which markets are they sold?
• Will the label artwork have enough space to accommodate the UDI?
• Do you need to add printing capabilities to accommodate dynamic (production) data? If so, how will that impact space and layout on the production floor?
• How will you handle validation of new IT equipment and processes?
• Do you have kits or combo products? If so, you do label each of them late-stage, and then combine?
• Do you have multipacks? Will secondary or tertiary labeling be required?
• Do you have any products that are implanted longer than 30 days or that must be re-sterilized before reuse and may require direct part marking?
• Will you need to add a contingent workforce to prepare for UDI?
Let’s look briefly at the critical areas of uncertainty.
Under the proposed rule, products that are implanted in the body for more than 30 days and those that must be re-sterilized before reuse, such as instruments, would be required to carry the UDI on the product itself as well as on the label. DPM was the target of many of the comments submitted to FDA on the proposed rule, but interestingly, it was also an area where some manufacturers, hospitals and healthcare systems and physicians agreed, at least on how implantable devices should be treated.
Representatives from all three stakeholder groups argued that direct part marking implants themselves was unnecessary, ineffective and potentially dangerous. For example, they stated that once an implant is in the body, the direct part marking would be unreadable. More importantly, the American Academy of Orthopaedic Surgeons pointed to studies in which etching on implantable devices led to early weakening and failure.
Finally, it was argued that as long as the UDI can be read on the label and captured in various systems such as electronic health records (EHR) and implant logs, there is no need to capture it again in the sterile field during a procedure.
Therein lies another challenge. Providers must have the technology and make the necessary process changes to ensure that UDIs are captured in patient records, a key to delivering on their intended value. Today, without UDIs in EHRs, a surgeon preparing for a revision case often does not know exactly which implant the patient has.
Something as small as not knowing the original manufacturer for screws for an orthopaedic implant can require that multiple instruments are on hand for a single case, given that screws designed by different manufacturers often have different heads.
Myriad parts used in orthopaedic and spine cases make the second issue, regarding kits and combo products, a concern for orthopaedic manufacturers. For example, if FDA treats orthopaedic trays as kits, will it require that each individual component (e.g., screws and plates) have its own UDI, as well as the kit itself? Given the large amount of orthopaedic products sold on consignment or handled as trunk stock and the extremely low inventory turns, the third matter regarding finished goods is also problematic.
FDA faced this same question when the pharmaceutical barcode rule took effect in 2006, and it is possible that FDA will adopt a similar solution, providing manufacturers with a grace period for finished but not yet sold or used goods.
These are all legitimate concerns, but should not stop a manufacturer from thinking now about how to achieve compliance, and if possible, added value. Global manufacturers should also consider how their compliance efforts in the U.S. will relate to UDI regulations in other parts of the world.
The European Commission has already issued draft regulations referencing UDI, as well as a vision for a common UDI framework, and countries ranging from Korea to Canada are considering their next steps around UDI as well.
When it comes to UDI, manufacturers are encouraged to think globally and holistically to minimize the compliance challenges and to leverage those efforts for additional efficiencies across multiple functions and regions.
As Executive Director of Industry Relations for GHX, Karen Conway works with industry associations, standards bodies, government agencies, analyst firms, academic institutions and the media to identify opportunities for hospitals and suppliers to improve business and clinical performance. Conway serves on the board of directors of AHRMM, the supply chain organization for the American Hospital Association; the leadership council of the ASU Health Sector Supply Chain Research Consortium and as co-chair of the HIMSS Supply Chain Special Interest Group. You can reach Ms. Conway at firstname.lastname@example.org.
Looking Back at INFUSE: 2002 to Today (Posted on 07/10/2013)
In mid-June, two independent research groups released a long-awaited review of trial data regarding the use of Medtronic’s INFUSE recombinant human bone morphogenetic protein-2 (rhBMP-2). The following timeline summarizes events that brought us here from the product’s initial clearance.
July 2002: Under a PMA, FDA approves Medtronic Sofamor Danek’s INFUSE Bone Graft/LT-Cage Lumbar Tapered Fusion Device, a proprietary formulation of rhBMP-2, for use in anterior lumbar interbody spinal fusion to treat skeletally-mature patients with degenerative disc disease at a single level from L2-S1.
June 2003: Analysis of 679 patients from four prospective groups finds that INFUSE, used with the LT-Cage, delivered statistically better spinal fusion results, with less pain and blood loss, shorter recovery times and fewer complications than autograft.
April 2004: INFUSE receives additional approval for treatment of acute, open tibial shaft fractures in skeletally-mature patients that have been stabilized with intramedullary nail fixation after appropriate wound management.
April 2004: Aetna acknowledges INFUSE as “medically necessary” for spinal fusion procedures if certain medical standards are met.
July 2006: Medtronic agrees to pay $40 million to the U.S. to settle civil allegations that Medtronic Sofamor Danek paid kickbacks to doctors to induce use of its spinal products.
March 2007: INFUSE receives additional approval for oral-maxillofacial indication as an alternative to autogenous bone graft for sinus augmentations and localized alveolar ridge augmentations.
February 2007: Two whistleblowers file a complaint alleging that 120 spine surgeons and 18 medical device distributors were involved in a scheme to promote Medtronic products by offering bribes. This is a second suit brought by one plaintiff; the government declined to intervene in a first case, which was dismissed.
July 2008: FDA issues a warning that rhBMP may be linked to life-threatening complications when used without approval in the cervical spine.
July 2008: Medtronic reports largest revenue quarter ever for INFUSE, attributed to contribution of clearance to market two smaller kit sizes (for certain spinal fusion and oral maxillofacial procedures).
July 2008: A qui tam suit alleges that a number of spine surgeons and distributors may have colluded with Medtronic Sofamor Danek, engaging in violations of Medicare regulations designed to restrict reimbursement for products. Unlawful practices alleged include improper on-label purchase/promotion of products influenced through the use of kickbacks/consulting fees, etc., and improper off-label promotion of products such as INFUSE.
September 2008: INFUSE is honored with the Prix Galien USA 2008 Award for Best Biotechnology Product.
November 2008: Medtronic receives a subpoena from the U.S. Department of Justice regarding off-label use of INFUSE.
December 2008: A suit filed in a U.S. Federal court is reportedly the 1st to allege that use of INFUSE was responsible for the death of a patient. In this case, the product was implanted in a cervical procedure.
December 2008: Two former employees file a whistleblower suit against the company, alleging that Medtronic signed consulting and royalty agreements with seven surgeons to use INFUSE in applications not cleared by FDA.
March 2009: A whistleblower lawsuit filed in 2007 by former employees is dismissed. The court rules that the allegations did not constitute a whistleblower suit, and blocks a motion to file an amended complaint.
FY2009 (ended April 2009): INFUSE revenue reports at ~$839 million.
May 2009: A study on INFUSE is retracted by the Journal of Bone and Joint Surgery due to false claims made by the author.
June 2009: Medtronic states that it made ~$0.8 million in direct payments between 2001 and 2009 and ~$0.6 million in indirect payments from 2001 to 2007 to a military surgeon who was accused of falsifying a medical journal study involving INFUSE. Further, Medtronic noted that it did not participate in the collection or analysis of the study data, preparation of the manuscript for the article or its submission for publication, nor did it fund the study. The company is subpoenaed by the U.S. Attorney for Massachusetts, seeking documents related to the former U.S. Army surgeon. Prosecutors also seek information about contracts, research grants, speaking and education programs, and payments for certain named physicians.
October 2009: An investigative panel concludes that evidence is insufficient to indicate that the orthopaedic military surgeon had falsified data for a study of INFUSE. Other actions by the surgeon, such as listing doctors as study co-authors without their permission, amounted to “research misconduct.”
FY2010 (ended April 2010): INFUSE revenue reports at $867 million.
FY2011 (ended April 2011): INFUSE revenue reports at $884 million.
May 2011: Study results suggest that use of INFUSE may increase the risk of infertility in men following some procedures.
May 2011: Omar Ishrak is appointed Chairman and CEO of Medtronic, replacing the retiring William Hawkins.
June 2011: The U.S. Senate and Department of Justice open an investigation of off-label use of INFUSE and of reports that doctors with financial ties to Medtronic were aware of serious complications arising from use of INFUSE, yet did not report these in clinical literature.
June 2011: The entire issue of The Spine Journal is dedicated to INFUSE and Medtronic in >10 articles. Eugene Carragee, spine surgeon from Stanford University, serves as editor. Carragee and staff present a host of criticisms, from unreported/underreported side effects common with use of INFUSE to the tens of millions of dollars in royalties received from Medtronic by study authors, who were co-inventors of Medtronic products. Noted side effects included unwanted bone growth, infections, nerve damage, increased risk of cancer and retrograde ejaculation in males.
August 2011: Medtronic pays $2.5 million, commissioning Yale University to analyze INFUSE data from 1996 to 2012 from individual patients, all Medtronic-sponsored studies, related internal documents, documents from FDA and other published research. Harlan Krumholz, director of the Yale Center for Outcome Research & Evaluation, organizes the project that selects two groups to undertake the independent reviews: Oregon Health & Science University (OHSU) and the University of York (UY) in the U.K.
March 2012: Medtronic agrees to pay $85 million to settle a shareholder suit alleging failure to disclose that more than 85% of INFUSE sales arose from off-label use.
FY2012 (ended April 2012): INFUSE revenue reports at $800 million.
May 2012: U.S. Department of Justice and the U.S. Attorney’s Office close an investigation of INFUSE, finding no wrongdoing.
October 2012: Findings stated in a U.S. Senate finance committee report suggest that Medtronic edited studies by outside researchers about INFUSE, claiming the product to be superior to competing product.
FY2013 (ended April 2013): INFUSE sales reports at ~$528 million.
June 2013: In an investor meeting, Medtronic stands by FY2014 projected INFUSE sales growth of flat to down in mid-single-digits.
June 2013: Annals of Internal Medicine publishes results from York and Oregon. OHSU group determines no clinical benefit to use of INFUSE vs. the gold standard, iliac crest bone graft. Further, the group finds that certain studies, funded by Medtronic, did underreport problems with use of INFUSE. UY determines that INFUSE use will more likely cause vertebrae to fuse. While patients report less pain, the UY team indicates that the difference is not statistically significant and may have been due to placebo effect. Both groups discover a slight increase in cancers in INFUSE patients.
The OHSU and UY summaries are accompanied by editorial from Dr. Daniel Resnick of the University of Wisconsin and Dr. Kevin Bozic of University of California. The authors suggest that INFUSE should not be used with a posterior in cervical or lumbar procedures, but may be an acceptable choice for its FDA-cleared indication, anterior lumbar interbody fusion, as well as in patients whose iliac crest bone graft is not optimal.
June 2013: Medtronic and the Australia Therapeutic Goods Administration initiate a recall of unused lots of the INFUSE LT-Cage Bone Graft Kits, which contain Integra LifeSciences’s Absorbable Collagen Sponge. In April, Integra communicated a deviation in production that may result in the sponge having endotoxin levels slightly higher than product specification. No injury or adverse events have been reported regarding this recall.
Fall 2013: Results expected from retrospective analysis of large, national payer database investigating the incidence of cancer in real-world use of INFUSE.
Sources: Company press releases, investor meeting, articles in the public domain.
PODs: Proceed with Extreme Caution (Posted on 06/10/2013)
By Edward J. Buthusiem, Cheray Lynch Sieminski, Vahan Minassian; Berkeley Research Group, LLC
U.S. legislators and enforcement agencies have grown increasingly concerned with physician-owned distributors (PODs) and their relationship with hospitals and other providers. Because physicians may refer patients to hospitals—and use specific products in connection with such referrals—the government asserts that PODs have the potential to unduly influence physician decision making, encourage overutilization of certain products and services, create unfair competition and otherwise increase unnecessary healthcare spending by Federal programs.
While PODs have not been expressly prohibited, legislative statements1 and agency guidance2 cite concern for the “questionable nature” of such entities and underscore inherent regulatory risks.
The Department of Health and Human Services’ (HSS) Office of Inspector General (OIG) recently released a Special Fraud Alert3 regarding PODs that distribute implantable medical devices. This release will inevitably usher in a wave of investigation and enforcement activity against these entities.
PODs and companies transacting with PODs, such as hospitals and medical device manufacturers, must weigh the substantial risks against the rewards of their operation and consider introducing significant safeguards in order to mitigate government actions.
In this article, we will highlight recent agency guidance and enforcement developments, and provide practical considerations for PODs (and entities that interact with PODs) to promote compliance with regulatory standards and mitigate the risks presented by these business models.
What is a POD?
OIG has defined PODs broadly as any physician-owned entity that “derives revenue from selling, or arranging for the sale of, implantable medical devices and includes physician-owned entities that purport to design or manufacture, typically under contractual arrangements, their own medical devices or instrumentation.”4
In other words, a POD is a company in which at least one physician has an ownership interest that also distributes, manufactures, sells, or arranges for the sale of medical devices. Most PODs will operate as either distributors or group purchasing organizations (GPOs)5 that (i) negotiate a discounted price for certain third-party products, (ii) share this savings with hospitals and other institutional customers (e.g., ambulatory surgical centers) and (iii) distribute profits to physician investors.
Oftentimes, the POD physician will exclusively use the product that it distributes in reimbursable surgical procedures, thus creating a potential conflict of interest given that the physician-owner profits from the use of the reimbursable product.
OIG Enforcement and the Special Fraud Alert
OIG vigorously monitors arrangements with physicians who have the potential to unduly influence medical judgment, promote overutilization of products or services and ultimately unnecessarily increase costs to Federal healthcare programs.
Accordingly, OIG has consistently taken the position that ventures in which physicians earn a profit (directly or indirectly) through the sale of reimbursable products are at substantial risk for violating the Anti-Kickback Statute (AKS). AKS makes it a criminal offense to give or receive anything of value to induce, or receive, referrals for the purchase of items or services reimbursable by a Federal healthcare program.6
For many reasons, the POD business model creates a substantial risk of running afoul of the AKS. PODs mainly operate in the orthopedic and cardiac implant markets, and thus service a patient base that largely comprises Medicare recipients. Moreover, physician-owners of PODs often refer their patients to providers (e.g., use of a surgical suite, and/or post-operative care), thus creating liability under the anti-referral provisions of the AKS.
Furthermore, most POD products, including orthopedic implants, are “physician preference items” (i.e., the implanting physician generally dictates the product he or she will use). Finally, POD arrangements often involve lucrative investment opportunities/distributions for potential physician-owners, a means to supplement their income that has declined due to reductions in reimbursement rates.
As such, PODs are vulnerable to AKS enforcement because physician-owners are in a unique position to influence, and be rewarded for, the referral or purchase of products that are reimbursable by a Federal healthcare program.
On March 26, 2013, OIG released a Special Fraud Alert on PODs that draws a further line in the sand regarding the status of these entities.7 The Fraud Alert restates the OIG’s general concern regarding the propriety of certain arrangements involving physician investors, citing several “questionable features”: (i) selecting investors because they are in a position to generate substantial business for the entity, (ii) requiring investors who cease practicing in a certain area to divest their ownership interests, and (iii) distributing relatively disproportionately-high returns on investment considering the low level of risk involved.8
The Fraud Alert identifies specific elements of a POD arrangement that will draw heightened scrutiny regarding the POD’s operation and interaction with physician-owners and customers:
• “The size of the investment offered to each physician varies with the expected or actual volume or value of devices used by the physician.
• “Distributions are not made in proportion to ownership interest, or physician-owners pay different prices for their ownership interests, because of the expected or actual volume or value of devices used by the physicians.
• “Physician-owners condition their referrals to hospitals or ASCs on their purchase of the POD’s devices through coercion or promises, for example, by stating or implying they will perform surgeries or refer patients elsewhere if a hospital or an ASC does not purchase devices from the POD, by promising or implying they will move surgeries to the hospital or ASC if it purchases devices from the POD, or by requiring a hospital or an ASC to enter into an exclusive purchase arrangement with the POD.
• “Physician-owners are required, pressured, or actively encouraged to refer, recommend, or arrange for the purchase of the devices sold by the POD or, conversely, are threatened with, or experience, negative repercussions (e.g., decreased distributions, required divestiture) for failing to use the POD’s devices for their patients.
• “The POD retains the right to repurchase a physician-owner’s interest for the physician’s failure or inability (through relocation, retirement, or otherwise) to refer, recommend, or arrange for the purchase of the POD’s devices.
• “The POD is a shell entity that does not conduct appropriate product evaluations, maintain or manage sufficient inventory in its own facility, or employ or otherwise contract with personnel necessary for operations.
• “The POD does not maintain continuous oversight of all distribution functions.
• “When a hospital or an ASC requires physicians to disclose conflicts of interest, the POD’s physician-owners either fail to inform the hospital or ASC of, or actively conceal through misrepresentations, their ownership interest in the POD.”9
While PODs containing one or more of these elements are not deemed to be per se illegal, there is no doubt that the OIG and Department of Justice (DOJ) will target PODs engaging in these practices. The legality of a POD arrangement will ultimately depend upon the intent of its owners (e.g., the entity’s legal and compliance controls) and the actual conduct of its owner’s employees and customers.
These safeguards notwithstanding, PODs are deemed to be “inherently suspect” in the eyes of the OIG and, as such, will be closely scrutinized for potential violations of the AKS.
OIG/DOJ’s July 2010 prosecution of United Shockwave Services, United Urology Centers and United Prostate Centers (United Group) illustrates the type of POD arrangements that cross the prosecutorial threshold. DOJ alleged that the United Group, with the help of their physician investors, leveraged their ability to control patient referrals in order to coerce business referrals (supplying lithotripsy and other laser equipment) from hospitals (e.g., by threatening to refer patients to competing institutions if the respective hospital did not contract with the United Group, promising referrals to hospitals that did contract with the United Group).10
Moreover, OIG/DOJ alleged that the United Group rewarded physician–investors with company shares based on generating referrals, and had a process for divesting physician investors for not using United Group products or services.11
Based on these allegations, the United Group paid over $7 million in fines and entered into a five-year Corporate Integrity Agreement with OIG/DOJ.12
Leading Compliance Practices
In light of the increased scrutiny and inevitable surge of enforcement activity, PODs must seriously evaluate the level of risk posed by their current business model and whether such practices will draw prosecutorial attention.
PODs will continue to be viewed as “inherently suspect” entities, even when supported by an optimal legal structure and good intentions. PODs that ultimately decide to proceed with this venture should, at a minimum, adopt strategies informed by government guidance, settlement provisions, and industry best practices that may reduce risk of enforcement, including, but not limited to:
• Develop and adopt (if not already) a Code of Conduct and related policies that ensure compliance with AKS and other relevant Federal and state regulatory requirements. The Code of Conduct and policies should be made available to all relevant employees and physician-owners.
• Refrain from entering into exclusive agreements with hospitals in order to prevent the perception of an improper relationship.
• Warehouse and manage products on site. Employ or contract with personnel necessary for operations in order to demonstrate a bona-fide business rather than a shell company used by vendors for improper inducement and referrals.
• Refrain from offering potential physician-owners preferential investment opportunities, condition compensation ownership or initial investment requirements, based on their volume of referrals (or lack thereof). This includes PODs retaining a right to repurchase a physician’s ownership interest, or threatening reduced distribution payments, in the event that a physician fails or is unable to refer or arrange for the purchase of a POD’s products.
Procedures and Documentation
• Assess and improve/formalize current processes governing HCP interactions to promote consistency in compliance with company policy and facilitate auditability.
• Develop efficient and effective processes, with documented workflows, for areas such as (i) determining fair-market value of relevant goods and services, (ii) review and approval of potential agreements and payment requests prior to execution or adjudication, (iii) periodic review and approval of agreements with HCPs by compliance officer or analogous entity, and (iv) response to suspected or actual violations of Federal or state law or company policy.
• Evaluate and revise current contracts, forms and templates to ensure their alignment with company policy and government requirements. Standard agreements governing HCP relationships such as physician ownership and compensation, discounts and consulting or speaking arrangements must be structured, with the help of counsel, to comply with relevant safe harbors to AKS and Stark exceptions (indirect compensation exception).
• Routinely train relevant employees on the relevant laws, policies and processes governing interactions with HCPs.
• Document completion and retain results of such training.
Auditing, Monitoring and Review
• Develop and formalize an auditing and monitoring program overseen by compliance or another analogous entity within the company. For instance, companies should periodically review the accounting and inventory functions, particularly the effectiveness of payment and product request review, approval, and document retention (e.g., expense receipts), and develop recommendations for improving the process.
• Monitor ownership investment distributions to ensure they align with terms of their respective agreements.
• Review the terms of the Code of Conduct, policies, processes, template contracts, and forms, and make appropriate revisions to ensure compliance with changing regulations, safe harbors, guidance, industry best practices, and internal preference.
Importantly, companies transacting with PODs will also be at risk of AKS enforcement. Hospitals will bear significant risk of AKS enforcement if their arrangements with PODs are perceived as intended to induce the use of POD products in procedures by a physician-owner—particularly where POD physician-owners are employees, have privileges or are otherwise associated with the particular hospitals.
Some hospitals and health systems have already developed policies limiting or restricting interactions with PODs.13
Moreover, medical device manufacturers that have an ownership interest in PODs, or otherwise have physician-owners that are potential referral sources, face substantial risk of AKS enforcement. These manufacturers should ensure that PODs they have invested in reflect the above safeguards.
Although most of the manufacturer’s risk will arise from their ownership interest in such companies, it is possible that contractual arrangements (e.g., agreements to purchase products) with PODs can create an equal level of risk of AKS enforcement.
Thus, when dealing with a POD, manufacturers should conduct thorough due diligence to determine potential risks in their contractual arrangement or ownership in the POD with respect to PODs’ downstream business arrangements with hospitals and other providers.
For example, manufacturers should avoid conditioning purchase price, or the execution of the contract itself, based on volume of referral business that the POD generates as a result of its agreements with its provider/payor customers.
Moreover, manufacturers should familiarize themselves, to the extent possible, with the POD’s structure and operation, and ensure that it reflects the best practices described above.
The downward trend on physician compensation attributable to reduced reimbursements will continue to drive physicians to seek alternative sources of income in the form of PODs or other similar business ventures.
To the extent that these ventures involve the referral or purchase of products or services reimbursable by Federal healthcare programs, enforcement risk associated with these ventures will substantially increase for all stakeholders, including hospitals, manufacturers, and other healthcare companies.
Indeed, with the recent success and empowerment of DOJ health fraud section prosecutors,14 as well as increased whistleblower incentives, the opportunity for civil and criminal penalties is at an all-time high.
Companies that choose to continue to operate as or transact with PODs are encouraged to critically evaluate their structure and strengthen their corporate compliance programs.
5 42 CFR 403.902: Applicable group purchasing organization (GPO) means an entity that (i) Operates in the United States, or in a territory, possession, or commonwealth of the United States; and (ii) Purchases, arranges for, or negotiates the purchase of a covered drug, device, biological, or medical supply for resale or distribution to a group of individuals or entities, but not solely for use by the GPO or commonly owned entities of the GPO.
6 42 U.S.C. 1320a–7b, “Criminal penalties for acts involving Federal health care programs.”
7 OIG, “Special Fraud Alert, Physician-Owned Entities” (2013).
Edward J. Buthusiem is a director in the Health Analytics practice of Berkeley Research Group, advising executive management and general counsels on strategic business and operational issues. He can be reached at email@example.com.
Cheray Lynch Sieminski is a principal in the Health Analytics Practice of Berkeley Research Group, providing forensic and regulatory advisory services to healthcare and life sciences companies and their legal counsel. She can be reached at CSieminski@brg-expert.com.
Vahan Minassian is a consultant in the Health Analytics and Compliance practices of Berkeley Research Group, assisting medical device manufacturers and healthcare providers on Federal and State regulatory compliance concerns. He can be reached at firstname.lastname@example.org.
StelKast on PODs (Posted on 06/09/2013)
StelKast has been a vocal proponent of physician-owned distributors. ORTHOKNOW® asked John Reyher, Senior Vice President and General Manager of StelKast, how the company works with PODs and what their effect may be upon the orthopaedic industry.
ORTHOKNOW: Upon what factors have you based your decision to work with PODs?
JOHN REYHER: StelKast is very selective in reviewing each situation and evaluates each on its own merit. To consider a physician-owned distribution entity, the entity must be qualified with a solid legal opinion and a well-defined operational structure. In addition, the distribution organization must include continual oversight to ensure that it remains in compliance with the current regulations and operational agreements.
ORTHOKNOW: In your opinion, what direct effect could PODs have on the orthopaedic device industry?
REYHER: When structured properly, physician-owned distribution entities by their nature should align incentives to provide increased efficiencies that allow for a lower cost structure to the healthcare system. Proper physician-owned distribution structures are operationally complex, requiring substantial investment, continual oversight and a business risk, therefore their adoption in the market will be limited.
ORTHOKNOW: In your opinion, what does the latest Office of Inspector General’s Special Fraud Alert suggest for the future of PODs?
REYHER: The OIG's Special Fraud Alert helps to further define the components that are required to operate a legally structured physician-owned distribution entity. Although it provides limited guidance, the alert does present clarification on the areas of concern for surgeons developing these structures. The opinion conveys that PODs can be structured legally, provided that they fall within the narrow guidelines of the law.
Five Steps to Sunshine: Strategies for Complying with CMS Reporting Requirements (Posted on 05/09/2013)
By Edward J. Buthusiem, Cheray Lynch Sieminski, Vahan Minassian; Berkeley Research Group, LLC
U.S. and global regulators heavily scrutinize financial arrangements between healthcare professionals (HCPs) and life sciences companies, including orthopaedic manufacturers and distributors. Recent prosecutions and settlements involving drug and device manufacturers frequently allege that certain payments and other incentives provided to physicians are being improperly made in order to promote their products. Indeed, several prominent medical device companies have been subject to investigations and corporate integrity agreements stemming from alleged improper consulting payment arrangements with physicians.1
The passage of the Physician Payment Sunshine Act (Sunshine) will serve to heighten this scrutiny by requiring transparent disclosure of most financial interactions with HCPs, thus providing a potential prosecutorial roadmap to vigorously pursue investigations and enforcement actions involving these arrangements. It is therefore imperative that companies subject to Sunshine conduct a rigorous analysis of their HCP financial interactions prior to disclosure and build a robust, efficient and effective internal process to comply with Sunshine’s reporting requirements, which go into effect August 1.
Sunshine requires manufacturers and distributors of certain FDA-regulated devices to report almost all payments and financial arrangements with U.S. HCPs to the Centers for Medicare & Medicaid Services (CMS).2 Reportable payments include cash or cash equivalents (e.g., gift cards), in-kind items, consulting agreements, free products, honoraria and more.3
Along with payment data, manufacturers and distributors will have to obtain and report certain identifying information for each healthcare professional they pay. This data will then be aggregated and published on CMS’s website for public consumption. Penalties for non-compliance range from $1,000 to $100,000 for each payment not timely, accurately or completely reported, depending on the company’s knowledge of such failure.4
However, monetary penalties associated with non-compliance pale in comparison to the potential fines enforcement agencies may pursue and reputational risks imposed by public scrutiny of the reported data from interest groups. Further, with the publication of Sunshine, foreign legislation (e.g., France) will likely begin to rapidly progress toward implementation, moving the industry closer to global and disparate reporting obligations for HCP transactions.
Building an effective Sunshine compliance program requires a deep understanding of a company’s business model—its regulated products, markets, go-to-market strategy and, most importantly, the manner in which it conducts business with HCPs. Moreover, building an effective program requires close coordination among various functional areas within the organization. Each of them most likely interacts with HCPs in some fashion, oftentimes without the knowledge or involvement of other functional areas.
Therefore, it is imperative that companies conduct a comprehensive, thoughtful assessment and, in some cases, a recalibration of their compliance infrastructure and relationships with HCPs. A company must understand the impact of disclosing its financial interactions with HCPs in areas that are most likely to draw heightened scrutiny, particularly those involving the provisions of gifts, entertainment and consulting/royalty payments.
As your company prepares for Sunshine compliance, consider the following five-step strategy to better enable you to deal with the complexities and collateral impact of this law.
Step 1: Preparation and Initial Assessment
First, determine whether and to what extent your company is subject to the Sunshine reporting requirements. Sunshine applies to so-called “applicable manufacturers” (and in some cases their distributors) that manufacture or distribute at least one “covered product” in the U.S.5 Covered product is defined as a prescription drug or medical device that is (i) subject to FDA pre-market registration (i.e., does not qualify under a registration exemption) and (ii) is reimbursable by Medicare, Medicaid or the Children’s Health Insurance Program (CHIP).6
Sunshine further provides that a company deriving more than ten percent of its revenue from the sale of covered products must report all payments to HCPs.7 Companies that derive less than ten percent of revenue from the sale of covered products need only report payments to HCPs associated with covered products.8 In making these determinations, the company must understand its corporate structure as well as its FDA-approved product portfolio and its sales/distribution model. Complex corporate organizational structures with multiple entities that manufacture or distribute covered products should designate, communicate and coordinate reporting roles, responsibilities and workflows.
This analysis should be documented and the resulting inventory could ultimately support the assumptions document that may be submitted to CMS with the reported data.
Having the right people and adequate resources are critical to the success of a Sunshine readiness assessment and program implementation. A capable and empowered team must be assembled that represents a cross-section of relevant stakeholders in the Sunshine process (e.g., personnel from legal, compliance, finance, IT, sales and marketing, medical education and other functional areas).
It is equally important that companies engage and enlist the support and leadership of senior management. A program built from the bottom up, without visible and prominent support from the highest echelons, is likely to be of limited utility. Senior management must have a substantive and operational understanding of Sunshine, as designated executives (CFO, COO, CCO) will ultimately be required to attest to reports submitted to CMS.
Step 2: Information Gathering and Scoping
Conduct due diligence in a systematic and organized manner to ensure that all processes, stakeholders and appropriate technology resources relevant to Sunshine compliance are identified. This involves the review of key company documentation and interviews with relevant personnel.
The goal is to identify a comprehensive definition of the way in which the company interacts with the HCP community to ensure that the data capture and reporting transparency program is flexible and scalable to the evolving regulatory landscape. This process can be approached as a who/what/where/how analysis, though not necessarily in that order:
Who? Know what types of healthcare professionals and entities you currently (and prospectively) interact with in order to guide their data capture requirements. Sunshine requires applicable manufacturers to report payments and transfers of value to physicians and teaching hospitals. “Physicians” under Sunshine include doctors of medicine who are licensed to practice by the state in which they operate.9
In contrast, certain state aggregate spend laws, such as in Vermont and Massachusetts, define covered recipients more broadly (e.g., individuals who can lawfully purchase, refer or dispense prescribed products in their respective state are covered under the law). CMS has committed to publish a list of covered teaching hospitals that will be designated as reportable HCPs. Companies must review this list to confirm whether reportable spend has been incurred through interactions with these institutions. Companies should establish an internal definition of HCP that comprehensively includes all individuals and entities potentially subject to reporting.
Finally, companies must identify third-party entities that market or distribute their products, or otherwise engage in reportable transactions with HCPs on the manufacturers’ behalf. Sunshine requires applicable manufacturers to report these payments, with certain limitations, made through a third party.
What? Identify and categorize current and anticipated HCP payments (cash or in-kind) and arrangements, and establish common definitions (e.g., spend types, functional areas). Sunshine provides a list of examples for types of reportable interactions, such as consulting fees, honoraria, food and beverage and physician ownership interest. Carefully compare findings with exceptions to reporting requirements provided by respective Federal and state regulations in order to later craft your reporting process.
Where? Determine the geographic extent of your business operations and interactions with HCPs. Under Sunshine, payments or transfers of value to covered recipients made outside the U.S. are reportable. Further, other laws governing interactions with HCPs outside the U.S. may be implicated, such as local transparency laws and other local laws regulating interactions with HCPs. As such, it is critical that companies coordinate with their ex-U.S. subsidiaries and distributors so that these payments can be accurately vetted, captured and submitted.
How? Identify and assess the mechanism with which each of the aforementioned payments or arrangements with HCPs takes place. This includes a review of policies, procedures, forms and templates associated with interactions with HCPs: Is there a consistent process for request, review and audit of payments and arrangements? Does the process align with regulatory standards and safe harbors? Have relevant personnel been interviewed to corroborate that the written policies and processes are being carried out day-to-day?
Also, assess current IT capabilities and business systems governing interactions with HCPs to identify what tools exist and how they may be leveraged for data capture and reporting. Supporting technology and data resources may include accounting, sales and distribution, inventory management, travel and expense systems and master data of customers, vendors and products.
Step 3: Enable Processes with Technology
Consider configuring internal systems to comply with data capture requirements dictated by, at a minimum, Sunshine—and, where different, state analogues. Some companies may find that they can use existing systems to build a reporting module internally. Other companies may find that the scope, volume or diversity of potentially reportable transactions or the company’s existing IT infrastructure will not support an internal data capture platform and/or reporting program.
In these cases, it may be worth investing in one or more third-party portals for entry, maintenance and reporting of data. Proceed cautiously with technology investments—purchasing third-party software solutions without defined business processes and vetted requirements often results in inefficient, and ultimately unsuccessful, implementation.
Step 4: Training and Communication
All relevant employees, including senior management, should be given an adequate substantive overview of Sunshine, as well as training on the internal processes involved in complying with these regulations. Consider including adherence to these processes, and the company’s overall compliance program, in employee performance evaluations and develop disciplinary guidelines for non-compliance.
Coordination with business partners and customers is critical to a successful Sunshine compliance program. Communicate with distributors, packagers, dealers and other third parties to develop effective and comprehensive methods for capturing and delivering back incurred HCP spend data.
Moreover, consider communication with your HCP constituents prior to reporting required data. HCPs should be educated on the regulatory requirements of Sunshine, and how these requirements will affect your company’s internal policies and its relationship with the HCP community. It is advisable to stipulate in written agreements for consulting services, evaluation units and other arrangements that the value transferred may be subject to disclosure under Sunshine and/or state laws.
Sunshine provides for a 45-day period for HCPs to review submitted data and either certify or dispute its accuracy.10 Data disputes that remain unresolved within 15 days will result in the data being published and marked as being disputed, potentially drawing closer attention from public and private entities that view these reports.11 As such, maintaining strong communication with the HCP community plays a significant role in the operation and success of a company’s Sunshine compliance program.
Step 5: Critical Assessment
The final and arguably most important step is to undertake a critical assessment of the way in which your company interacts with healthcare professionals. Determine the potential implications/optics from disclosing the collected financial data. What does this data mean, and how will it be viewed by the public, particularly government enforcement entities? Based on these determinations, consider whether any changes to company policies, structure or culture are necessary.
For example, your company may choose to prohibit the provision of gifts to HCPs, institute limitations on travel and accommodations and the provision of food and beverages to physician practices, or institute restrictions on in-kind items or free products, based on collected data portraying potential impropriety to government agencies.
Moreover, critical review of the financial interactions captured provides new insight into your business and offers substantial intelligence that can be leveraged as a tool to inform process and operational improvement.
2 42 CFR §403.900 et al.
3 42 CFR §403.904(e)(2).
4 42 CFR §403.912(a)–(b).
5 42 CFR §403.902.
7 42 CFR §403.904(b).
9 42 CFR §403.902.
10 42 CFR §403.908(g)(3)–(4).
Edward J. Buthusiem is a director in the Health Analytics practice of Berkeley Research Group, advising executive management and general counsels on strategic business and operational issues.
Cheray Lynch Sieminski is a principal in the Health Analytics Practice of Berkeley Research Group, providing forensic and regulatory advisory services to healthcare and life sciences companies and their legal counsel.
Vahan Minassian is a consultant in the Health Analytics and Compliance practices of Berkeley Research Group, assisting medical device manufacturers and healthcare providers on Federal and State regulatory compliance concerns. Please contact these authors at Berkeley Research Group, www.brg-expert.com.
Accelerating Pricing Pressure: Five Ways That Device Companies Can Prepare (Posted on 04/10/2013)
By Christopher Provines, Value Vantage Partners
Over the past 20 years, the medical device industry has experienced cycles of pricing pressure. At times, the pressure was self-inflicted by the behaviors of the market participants. Consider the price wars that have occurred in certain segments of the industry—orthopaedics, for instance. At other times, changes to the reimbursement system or reimbursement rates have created pressure on customers, which in turn created pricing pressure for suppliers.
Today, however, fundamental changes are occurring in the market structure, in customers’ buying behaviors, in stakeholder incentives and in provider business models that point toward reacceleration of pricing pressure for the medical device industry. This is particularly true for the U.S. market, which is the primary focus of this article. Device companies that adapt their strategy and approach have the opportunity to address pricing pressure head-on. Those who enter this new period unprepared will likely face significant pricing, margin and growth challenges.
Why This Time is Different
To be prepared for accelerating price pressure, it helps to understand the changes that are occurring in healthcare and to know how this differs from the past. Here are key forces that make the immediate future different and more of a threat than ever before.
• Healthcare reform: Most notably, the Accountable Care Act (ACA) has ushered in changes intended to better align incentives for providers to reduce costs, improve quality and enhance patient satisfaction. Many of the changes are focused on reducing overall costs for managing patients as opposed to paying for volume and fragmented care.
• Physician and provider alignment: Bundled payments and the physician employment trend mean that providers’ and physicians’ economic interests are better aligned than at any other point in the past. A more aligned physician means that they will likely act in ways that are aligned with the fiscal interests of the provider.
• Hospital supply chain evolution: The hospital supply chain and purchasing capability has lagged far behind other industries.¹ This is quickly changing as providers see the supply chain as a potential source of cost reduction and extraction of more value from medical device companies. Moreover, many supply chain leaders see it as their role to help the hospital bring a much greater focus on outcomes, quality and cost in device company selection decisions.
• Value-based purchasing: At a provider level, many hospitals are building value-analysis teams and committees to ensure that purchasing decisions incorporate costs, quality and outcomes. There are two new hospital industry societies, the Association of Healthcare Value Analysis Professionals and the Association for Healthcare Resource & Materials Management CQO, focused on helping providers improve how they incorporate value into medical device company selection decisions.
• Price transparency: Group Purchasing Organizations (GPOs), as well as a number of new purchasing start-ups, are attempting to provide much greater price transparency to what has traditionally been an opaque area.² This is being enabled by technology and the Internet.
• Leveraged buying: Traditionally, GPOs have tried to play a role in aggregating spend. However, their ability to drive savings for providers has been debated.³ Medicare and other large buyers have stepped in to conduct competitive bidding with much success. ⁴ Expect this leveraged buying to accelerate.
• Demographics and fiscal situation: The aging population will put significant pressure on the healthcare system. This is happening at a time when the government is already overburdened with enormous debt. One of the logical solutions is to reduce healthcare costs, which account for a substantial portion of government.
• Customer consolidation: Hospitals and health systems will continue to consolidate to create cost synergies and efficiencies, as well as to create market power with payers and employers. This will create more powerful buyers and expose unexplained variations in market pricing.
Key Actions to Prepare for Accelerating Pricing Pressure
All of these forces will certainly accelerate pricing pressure. While it may sound like a gloomy future, it shouldn’t be for smart medical device companies. They have the opportunity to turn this changing marketplace into a source of advantage—if they are prepared. While there are many actions that a company may want to consider from an R&D perspective, here are five key commercial actions companies should take—and employees at all levels should understand—to be ready:
1. Update the Sales Model & Selling Competencies: The traditional model of selling clinical benefits to the physician or user-buyers has changed. Sales teams must connect their solution to the cost, quality and outcome metrics used by all of the people involved in the buying decision. Moreover, they will need to specifically address how their solution connects to the customers’ reimbursement and business model. The ability to navigate the economic buyers and committee-based purchasing processes will also critical. An improving customer procurement function and a more-aligned physician require a different level of negotiation skills. Further, many companies may need to reassess salesforce structure and roles in the face of the market changes.
2. Reassess the Offering Strategy: Traditionally, many medical device companies have bundled together value-added services with core product offerings. This creates an issue when selling to hospitals with different buying behaviors. A hospital that is a value buyer may appreciate the value-added services and be willing to pay for them. On the other hand, a price-focused buyer may want—of course—the lowest price, and will have no interest in paying for value-added services. As pricing pressure intensifies, medical device companies need to be in a position to unbundle their value-added services to deal with highly price-sensitive customers. Suppliers should also seek to create tiered offerings with different quality and performance to target buyers with differing needs. The offering strategy should include the core product, enabling technologies, services and the business terms that govern the relationship.
3. Invest in Economic Value Marketing: Being able to quantify and communicate the economic benefits of one solution relative to the next best alternative will be critical for device companies. The changes to reimbursement and the hospital supply chain will mean that buyers will be more interested than ever in how your solution impacts the hospital’s financial performance. Many companies under-invest in this area, and lack a clear understanding of the economic value of their solutions. If you believe this is an exaggeration, just count how many products in your sales bag have a clear, compelling and quantified value proposition for the hospital. Given that many hospitals have joined or will join accountable care organizations (ACOs), the value message will have to cover the total cost to care for the patient—inside and outside of the hospital.
4. Develop Risk-Based Pricing/Contracting Models: Progressive device companies with a clear economic advantage may want to consider new population-based or risk-based contracting models. Hospitals that are part of an ACO will be interested in how a solution impacts the total cost to care for that patient over a multi-year period. Since ACOs will be at risk with Medicare for managing the costs of the patient over a three-year period, device companies that are able to provide guarantees or go at risk for costs will be seen as part of the solution.
5. Get Control of Discounting: Companies lacking control of discounting and pricing will end up with messy market pricing and significant risk. As price transparency increases and customer consolidation accelerates, companies face the risk that customers will become aware of pricing that is out in the marketplace. Companies without a logical discount strategy and disciplined price execution will face price erosion. Additionally, poor pricing discipline can cause loyal customers to abandon suppliers if they believe that they have been treated unfairly.
This is an exciting time in healthcare. More change is happening then at any other point in recent memory. For well-prepared companies, the future should be bright.
Rahman, B. et al, “Repositioning Supply Chain in Health Care Systems” Health Sector Supply Chain Research Consortium wpcarey.asu.edu/hsrc-asu
Accessed January 11, 2013.
Empson, R., “Procured Health Nabs $1.1M From Bessemer, Athena Health Founder To Help Reduce Health Costs.” Techcrunch.com
Aug 8, 2012. .
See details in: MDMA Statement on Senator Grassley and GAO Reports Showing No Evidence of Cost Savings by GPOs. September 27, 2010. www.medicaldevices.org
Accessed June 28, 2012.
Christopher Provines is a healthcare and medical technology industry veteran with 23 years of experience in various functions, including executive roles at Johnson & Johnson and Siemens Healthcare. He is an expert in medical technology pricing and market access, serving as CEO of Value Vantage Partners, a global consulting and training company focused on strategic pricing, value selling and sales negotiations. He is the author of
Strategic Pricing for Medical Technologies, and is an Adjunct Professor at Rutgers University Business School where he teaches in the MBA program. Mr. Provines can be reached at email@example.com
What You’ll Learn at OMTEC 2013 (Posted on 04/08/2013)
For the ninth year, industry leaders and experts will gather to discuss the state of the industry and performance enhancement at OMTEC, the Orthopaedic Manufacturing & Technology Exposition and Conference, June 12 and 13 in Chicago, Illinois.
Here is what you’ll get from this year’s educational lineup:
The State and Future of the Orthopaedic Industry: A High Altitude View
Takeaways: How current and pending regulations impact the supply chain; how stakeholders are responding. Which industry segments are expected to slow? How will healthcare reform affect industry growth and global competition?
The State and Future of FDA
Takeaways: How FDA changes manifest themselves regarding manufacturing, innovation and new product releases. How will future regulations affect current systems and processes?
Research and Development Track
Using Imaging Analytics to Improve Manufacturing Quality Assurance
Takeaways: The latest imaging techniques that can be applied to the manufacturing process and the economic benefit of implementing them.
Residual Stresses: Tools for Optimizing Components
Takeaways: How to use residual stresses in the manufacturing process to enhance the fatigue strength of orthopaedic metals.
The State and Future of Additive Manufacturing
Takeaways: Growth trends in the additive manufacturing segment, and ways that it may enhance orthopaedic device companies’ processes.
Legal, Clinical and Regulatory Affairs Track
The Role of Outcome Data in the Development, Sales and Marketing of New Technologies
Takeaways: Changes in the marketplace that are altering the need for data, types of data needed by various stakeholders, how to demonstrate your product’s cost effectiveness, how to collect the best data to support the product.
How to Design and Execute a Clinical Trial
Takeaways: Techniques for the best investigative site selection and initiation, patient recruitment and retention, investigative site management, pre- and post-study reimbursement strategies and payer mandates for coverage.
Unique Device Identification: From Compliance to Value
Takeaways: What you need to know and do to comply, and how to drive data management benefits across your organization and beyond regulatory compliance.
Supply Chain Management Track
Purchasing Controls: The Challenges of Compliance in a World Market
Takeaways: How to meet regulatory requirements and supplier demand via six phases of controls.
Discussion with OEMs on Procurement and Sourcing
Takeaways: Real life examples of how OEMs are dealing with sourcing and procurement challenges, and changes that may affect these supply chain links in the future.
Are Your Suppliers Qualified? Prove It.
Takeaways: How to overhaul supplier quality programs, reduce costs and spend less time fixing problems caused by a weak supply chain.
Business Critical Track
Communication: Tools for Improving Workflow
Takeaways: How your communication affects the performance of individuals and your business as a whole.
Energizing and Leading a Team
Takeaways: Skills needed to ensure that your team is motivated, effective and successful, with tips on how to become a more effective leader and manager.
Healthcare Reform Watch: FDA to Audit New Refuse to Accept Policy (Posted on 04/07/2013)
FDA’s Refuse to Accept (RTA) Policy for 510(k)s went into effect in mid-January. Recent reports, however, indicate that the organization plans to audit the program following device company claims that reviewers wrongly commenced substantive review during the new quick review process. The audit is expected to take place in June 2013.
The purpose of the RTA Policy is to assess whether a submission is, in FDA terms, “administratively complete,” meaning it includes the necessary information to later conduct a substantive review of the 510(k). The final policy guideline explicitly states that the acceptance review phase should not be based on substantive review.
The goal of RTA is to enhance the quality of received 510(k)s and to improve the review time once submissions reach substantive review.
The Orthobiologics Market (Posted on 03/11/2013)
As defined by the American Academy of Orthopaedic Surgeons, orthobiologics are substances that orthopaedic surgeons use to help injuries heal more quickly. Orthobiologic products incorporate biology or biochemistry to repair, replace or regenerate musculoskeletal structures.
Nearly 300 companies market orthobiologic products around the world. In 2012, estimated revenues generated by sales of orthobiologic products reached $4.61 billion, an increase of 2% from 2011. Exhibit 1 displays estimated biologic product sales growth for the past five years, both U.S. and ex-U.S.
ESTIMATED 2012 WORLDWIDE ORTHOBIOLOGIC PRODUCT SALES: 2008 TO 2012 ($BILLIONS)*
* Orthobiologic market estimates vary widely by source due to a variety of factors (e.g., products included). Products ORTHOWORLD includes for orthobiologic estimates include allograft and xenograft bone and tissue; synthetic bone graft substitutes; autologous platelet/plasma systems; cell-based products for tissue repair; growth factors and bone proteins; soft tissue repair, replacement and reinforcement products; anti-adhesion technologies and hyaluronic acid viscosupplements.
† Due to disparities in revenue reporting, further geographic delineation is not available.
‡ ORTHOWORLD estimate based upon publicly-announced revenues, actual revenues supplied by private companies, revenue ranges provided by private companies and ORTHOWORLD interpretations.
Exhibit 2 shows displays the trajectory of the orthobiologic segment for the past five years.
ESTIMATED ORTHOBIOLOGICS MARKET GROWTH: 2008 TO 2012 ($BILLIONS)
Exhibit 3 illustrates estimated market share for the top ten players in the orthobiologic space, and all others.
ESTIMATED 2012 ORTHOBIOLOGIC MARKET SHARES
FOR TOP TEN PLAYERS AND ALL OTHERS*
*Orthobiologic revenues for DePuy Synthes, Musculoskeletal Transplant Foundation and Stryker are ORTHOWORLD estimates.
The top ten players offer the orthobiologic product types delineated in Exhibit 4.
TOP TEN PLAYERS: PRODUCT TYPES OFFERED
The entire orthobiologic space is rich with strategic activity. Exhibit 5 details funding secured during 2012, while Exhibit 6 summarizes mergers, acquisitions and alliances that occurred last year.
FUNDING IN THE ORTHOBIOLOGIC SPACE IN 2012
• Aursos: raised $95,000 of a planned $0.5MM Series A round of funding; developing AUR-84, bear-derived parathyroid hormone peptide
• Bacterin: closed a $25MM financing; net proceeds of ~$10MM will support general working capital; develops bone grafts/antimicrobial coatings for use in spinal fusion, foot/ankle surgery, etc.
• Binder Biomedical: raised $0.68MM of planned $2MM in funding; biologic products include X-GRAFT interspinous allograft
• BONESUPPORT: received SEK 70MM (~$9.9MM) in final tranche of funding; will support research & development, commercial expansion of antibiotic CERAMENT bone substitute in the U.S., Europe and Asia, etc.; >4,000 patients treated to date
• CartiHeal: raised $10MM in venture funding to support product launch in Europe in 2013; developed Agili-C cell-free implant for the treatment of cartilage and osteochondral defects
• Cerapedics: completed a Series C round of private equity financing, totaling $19MM, to support U.S. Investigational Device Exemption clinical trial/commercialization of i-FACTOR peptide enhanced bone graft for cervical spine applications
• Flexion Therapeutics: secured $20MM in a Series B financing round to support late-stage clinical development of intra-articular, sustained release osteoarthritis therapies
• Histogenics: completed $49MM Series A round of financing, supports ongoing Phase III clinical trial of NeoCart autologous neocartilage tissue, EU regulatory clearance of VeriCart collagen scaffold
• Oss-Q: received SEK 9MM (~US $1.3MM) financing to support launch of a novel implant technology and related bioceramic innovations for orthopaedic applications; initially pursuing applications in cranial surgery (Mosaik), followed by fracture repair
• Regenerative Sciences: secured a $2MM investment to support research of stem cell-based treatments for musculoskeletal injuries
• Regentis Biomaterials: raised $10MM in a Series C financing, will support presence in Europe, clinical study of GelrinC biodegradable treatment for articular cartilage repair
• SurgaColl Technologies: secured a €2MM (~US $2.5MM) investment fund to support global launch of HydroxyColl bone graft substitute, preclinical trials of ChondroColl cartilage regeneration product
MERGERS/ACQUISITIONS AND STRATEGIC ALLIANCES IN ORTHOBIOLOGICS IN 2012
• Baxter acquired Synovis for $325 million in cash for shares transaction; portfolio includes orthopaedic and wound management products used in reconstructive, orthopaedic and sports medicine applications
• Musculoskeletal Transplant Foundation acquired Cascade Medical’s orthopaedic assets (platelet-rich plasma and platelet-rich fibrin matrix technologies), to be distributed globally by ConMed Linvatec
• Wright Medical and BioMimetic Therapeutics entered into definitive agreement to combine businesses in a transaction valued at potentially ~$380MM; will combine Wright’s extremities portfolio with BioMimetic’s biologics platform
• aap Implantate signed contract with Dutch Sanquin Bone and Tissue Bank to process human tissue
• Alphatec acquired exclusive U.S. distribution rights to sell under the company’s own label an FDA-cleared synthetic biologic for posterolateral spine fusion
• Amedica commenced distribution of Dynamic Surgical’s Dynamic Bone expandable allograft and BioDlogics’ BioDfence DryFlex flexible amniotic membrane
• Anika Therapeutics entered into licensing/distribution agreement in Korea for Hyalofast + bone marrow aspirate concentrate
• Arthrex and Graftys signed an agreement to co-develop calcium phosphate bone void fillers
• Bacterin signed 3-year agreements with Broadlane, Novation and Premier Healthcare Alliance to provide its biologic portfolio to their networks
• BioRestorative Therapies entered into an agreement to obtain exclusive license to use or sublicense certain stem cell related-technology and clinical treatment procedures developed by Regenerative Sciences for use in the treatment of degenerative disc disease
• BONESUPPORT signed a multi-year agreement with Biomet for exclusive U.S. and Canada distribution of CERAMENT bone void filler for orthopaedic, trauma and foot/ankle indications
• ConMed signed an exclusive worldwide marketing agreement for Musculoskeletal Transplant Foundation’s sports medicine allograft tissue and Cascade Platelet-rich Plasma
• Orthofix entered into an agreement with MTF to co-develop a natural biologic solution to complement Trinity Evolution
• Premier awarded contracts to Advanced Biologics to supply OsteoAMP allogeneic growth factor, and to Zimmer to supply bone cement
• Seikagaku entered into an exclusive agreement with Bioventus for U.S. distribution of SUPARTZ injectable treatment for knee osteoarthritis pain
• Seikagaku entered into exclusive agreement with Kaken Pharmaceutical for Japan marketing rights for SI-6603, a condoliase injection indicated for the treatment of lumbar disc herniation
• Summit Medical entered into a distribution agreement with Mosaic International covering products including the Hi-Vac-bone cement mixing system, CellTrans blood transfusion system, etc.
• ThermoGenesis entered into a 5-year collaboration with Arthrex to market Res-Q 60 System technology for the preparation of autologous Platelet Rich Plasma and Bone Marrow Concentrate
• TiGenix and Genpharm signed an exclusive agreement to market ChondroCelect cartilage repair product in the Middle East
While determining market size is challenging, due to disparities in reporting across the spectrum of companies playing in the space, it is apparent that the orthobiologic market should continue to experience growth in coming years. Exhibit 7 provides a summary of key dynamics at play in the orthobiologic space in 2012 and beyond.
THE ORTHOBIOLOGIC MARKET: KEY MARKET DYNAMICS
• Estimated revenue $4.61 billion, grew 2% from 2011 to 2012
• Players seek to develop alternates to the gold standard of autograft bone, due to length of hospital stay and increased risk of complication, limited supply, etc.
• Technological advancements include flowable allografts, bone glues and a variety of cell-based treatments
• Demographics will continue to serve the segment well, with an increased incidence in arthritis and osteoporosis, increasing elderly population, growing obesity rates, etc.
• Patients will continue to demand alternatives to joint arthroplasty, such as viscosupplementation, allografts, synthetic grafts, as they seek to extend their physically-active lives while putting off major surgeries as long as possible
• Significant need will remain for soft tissue reinforcement grafts in sports medicine applications (rotator cuff, Achilles tendon, knee ligament and cartilage)
Healthcare Update: FDA examines regulations regarding clinical studies data (Posted on 03/10/2013)
FDA has proposed amending its regulations on accepting clinical studies data for medical devices performed inside and outside the U.S. to achieve consistency in requirements.
Suggested changes to Human Subject Protection; Acceptance of Data from Clinical Studies for Medical Devices include the following:
• Require that clinical studies conducted outside the U.S. be conducted in accordance with good clinical practice (GCP) if applying for an investigational device exemption (IDE) application, 510(k) submission, premarket notification submission, product development protocol application, or humanitarian device exemption (HDE) application. GCP requires companies to obtain and document the review and approval of the study by an independent ethics committee (IEC).
• Identify the requirements for clinical studies data conducted inside and outside the U.S. and submitted to support a 510(k) submission or IDE application.
• Amend the 510(k), HDE and IDE requirements for FDA acceptance of data from clinical studies conducted inside the U.S. with the goal to parallel the existing FDA requirements for PMA applications.
FDA will collect electronic and written comments on proposed rule Human Subject Protection; Acceptance of Data from Clinical Studies for Medical Devices until May 28, 2013.
AAOS Preview: New, Notable and First-Time Exhibitor Companies (Posted on 02/11/2013)
Are you putting final touches on your plans for the annual meeting of the American Academy of Orthopaedic Surgeons? Arm yourself with knowledge about your peers before you hit the exhibit hall in March.
Exhibit 1 shares fast facts for select exhibitors and overall attendees from years past and present. Highlights on first-time AAOS exhibitors follow. We’ll be there too, in Booth 974—stop by!
EXHIBIT 1: AAOS EXHIBITOR AND ATTENDEE STATS, 2009 TO 2013E
Marietta, Georgia USA
- NEOX amniotic membrane grafts for adhesion reduction in orthopaedic and spine surgeries
- Published data on hallux limitus application indicates improved range of motion, decreased adhesions in 1st metatarsophalangeal joint
- Possible application in tendon repair, joint arthroplasties, nerve decompression
Indianapolis, Indiana USA
- Supplier of case/tray systems, offering all-riveted construction as a standard feature
- Production times described as Level 1 prototypes – 2 weeks, Level 2– 3 to 4 weeks, Production units – 6 weeks
- Incorporated 2009; supplier/manufacturer of devices and instruments for fracture fixation, hip arthroplasty, ACL/PCL reconstruction, etc.
Beijing AKEC Medical
- Established 2003, >200 distributors covering
30 provinces in China
- Products include Primary and Revision Hips, Acetabular Components, Total Primary and Revision Knees; trauma and spine information not yet available
Ocala, Florida USA
- Launched Bio-MAC aspiration catheter for harvesting bone marrow in 3Q12
- Bio-MAC can be inserted with any standard surgical drill, eliminating potential micro-fracturing, bruising and pain
Phoenixville, Pennsylvania USA
- Supplier/manufacturer of spinal and orthopaedic implants and instruments, graphic cases and sterile packaging, provider of services to OEMs
Lexington, Massachusetts USA
- Pre-clinical research organization supporting research, education and advancement of early-stage biomedical technologies; offers lab facilities and equipment.
Universal City, Texas USA
- Regenerative matrices to deliver platelet-derived growth factor, bone marrow aspirate, platelet-rich plasma and antimicrobial agents following treatment of bone defects
- Business 65% spine, 20% orthopedics, remainder foot/ankle, trauma and reconstruction
Menlo Park, California USA
- Raised $19.5MM of a planned $20.6MM round of equity financing in 1/13
- Manufactures arthroscopic tools to enable placement of stitches in tight joint compartments, while protecting surrounding tissues
Cleveland, Ohio USA
- Raised $3MM in 2012
- Neuroprotective stimulator is CE Marked; for evaluation of nerve and muscle excitability during surgeries
- Plans initial sales in Australia and South Africa
Conventus Orthopaedics, Inc.
Maple Grove, Minnesota USA
- Raised $0.2MM of planned $2MM financing
- DRS (Distal Radius Surgical) self-expanding Nitinol implant designed to stabilize fractured bone fragments from within bone; technique that may reduce surgical trauma by up to 70% vs. traditional plate and screw fixation
- Patients reportedly experiencing earlier range of motion vs. other treatment methods
Jupiter, Florida USA
- Received patent allowance for Fibronectin-Aggrecan Complex Test, may be used to pinpoint source of musculoskeletal pain
- DePuy Synthes holds 20% ownership
- Received >$14MM in funding to date
San Clemente, California USA
- Compressyn Band for fixation + compression in sternal closure, small/long bone, spinal, sports med applications
- Raised $3.35MM in funding to date
Cire Pergine, Italy
- Supplier of surface treatments for orthopaedic implants: coatings (plasma spray, titanium, HA, calcium phosphate, etc.); additive manufacturing processes (Electron Beam Melting, Direct Metal Laser Sintering); resorbable bone substitutes
Francis Lamont Innovations
Derbyshire, United Kingdom
- Developing FLOTE, low-tech table extension to assist with hip arthroplasty direct anterior
- Allows hip to be flexed, extended/distracted, abducted, adducted, rotated, reduced
- Potential to reduce length of hospital stay (typically ~2-2.5 days vs. average of 7-8 days in U.K.)
- Founded in 2004 by professionals from the trauma segment; offers external fixation products
Iconacy Orthopedic Implants
Warsaw, Indiana USA
- I-Hip Total Hip received FDA 510(k) clearance in 2012
- I-Hip pricing to be lower than $7,000 to $9,000 charged for competing devices
- Invested $2.6MM in Warsaw manufacturing complex, plans to create 50 new jobs by 2015
Jiangsu BaiDe Medical Instrument/BaiDe Ortho
- Founded 1984; provide internal and external fixators, plates/screws, CMF, spinal systems, etc.
West Chester, Pennsylvania USA
- Founded 2007; developing Subchondroplasty procedure to treat chronic bone marrow lesions by filling with biomimetic AccuFill bone substitute
- Raised $2.6MM in funding to date
Fort Wayne, Indiana USA
- Established 2007; supplier of manufacturing/design services for implants and instruments
- Invested >$5MM in 2010 to support creation ~65 new jobs in 2013
Li Wai Precision/Aquila Precise Tools
Kowloon, Hong Kong
- Contract manufacturer of instruments for applications in joint replacement, spine, trauma, sports medicine procedures
Annandale, NSW Australia
- Supplier of RFID orthopaedic loan kit tracking solutions
- Phase Jitter Modulation transmits between reader and the tags, reportedly yielding highest data rate vs. Amplitude Modulation-based RFID
- Contract manufacturer of implants and instruments for orthopaedic, spinal, trauma and sports medicine markets
Fitchburg, Massachusetts USA
- Contract manufacturer of orthopaedic implants (large and small joint, spine, trauma)
- Orthopaedic division established 2009, developing spinal and trauma treatments
- First FDA 510(k) clearance in 2012, for Reindeer Locking Plate
- Flexit for open wedge high tibial osteotomy, compact size, allows early weight-bearing; Dynafit for forefoot osteosynthesis
Maldon, Essex, United Kingdom
- Founded 2001; develops fracture fixation devices and accessories: foot/ankle, trauma, blades/burs, etc., numerous with FDA 510(k) clearance
Mokena, Illinois USA
Developed products include Flow-FX bone paste, Flow-Screw, Flow-Nail
Kanagawa, Yokohama, Japan
- Rebossis: resorbable cottony flexible synthetic bone material comprising calcium carbonate + silicate + polylactic acid, electrospun into fiber; can be mixed with autograft
Sunnyvale, California USA
- Raised $32MM in funding to date
- Developing port-access hip restoration system to expedite access to and improve visualization of hip compartments, offer capsule management capabilities to visualize and treat femoral pathology, etc.
- Principals’ professional experience includes ArthroCare Sports Medicine, Kyphon, St. Francis Medical, etc.
Edgewater, New Jersey USA
- Fracture fixation and deformity correction products, including Smart Correction computer-assisted external fixator for deformity correction (latter launched in Europe in 2009)
Shanghai Xinsheng Photoelectric Technology/CINSUM
- Established 1996; provides saws, drills, etc. for a variety of orthopaedic, craniomaxillofacial and spinal applications
Memphis, Tennessee USA
- Founded 2008; developing extremity products in metallic alloys, biologics and elastomers: implants, acellular dermal matrix for tendor repair
- Leadership includes experience from DePuy Mitek, MemoMetal, Nexa, OsteoBiologics, Zimmer, etc.; sales experience from Biocomposites, Endius, Orthovita, Paradigm Spine, etc.
Nashville, Tennessee USA
- Founded 2008; provides allograft tissue, synthetic products: viable mesenchymal stem cells, extracellular matrix, traditional allograft, tendons/ligaments, demineralized bone
Cincinnati, Ohio USA
- Supplier of device coatings for orthopaedic, spinal devices with facilities in Cincinnati, Memphis and Trento, Italy
Auckland, New Zealand
- Next-generation titanium drill bit features an internal wire that extends near the tip of the drill bit, acting like the hook on a depth gauge and enabling accurate measurements on the drill bit, obviating the need for a depth gauge
Synergie Ingenierie Medicale (Synimed)
- Biomaterials (cement for orthopaedics, vertebroplasty, kyphoplasty and cranioplasty; antibiotic temporary hip, knee and shoulder spacers and temporary IM nails etc.), spinal implants (transpedicular screws, cervical plates, cervical/lumbar PEEK cages, interspinous implants)
Tipsan Tibbi Aletler
- Founded 1987; produces hip, knee, shoulder elbow prostheses; IM nails, external fixators, anterior/posterior and cervical systems, plates and screws, etc.
- ArthroS simulator combines lifelike rubber knee model with virtual reality; tracks and records users movements, providing feedback during simulation of basic and diagnostic arthroscopy, knee lesions, etc.
- Plans to launch shoulder module in early 2013
Weihai City, China
- Manufactures hip, shoulder, spine and trauma products
- Claims RMB 300MM (~US $48MM) annual sales, >5,000 procedures/month performed across China
- In 4Q12, ended distribution joint venture with Medtronic in China
Sarasota, Florida USA
- Zip-Tie next generation knotless constructs for soft tissue repair, designed to convert any bone anchor into a knotless device
- Initial focus on shoulder; offers "far-cortex" fixation as an option for rotator cuff repair
- FDA clearance expected by end of 2013; seeks to market 16 orthopaedic devices over next 5 years
Sources: Company press releases, web sites, articles in the public domain, AAOS media relations, etc.
Healthcare Reform Watch: CDRH Priorities for 2013 (Posted on 02/10/2013)
With 2013 in full swing, the Center for Devices and Radiological Health has started working its prioritized list of medical device guidance documents which the Agency intends to publish in FY13.
CDRH publishes A– and B-list priorities, the latter for which time is allotted if resources allow. It also breaks up the topics by draft vs. final guidance. The following select final guidance topics are proposed for the A-list.
Refuse to Accept (RTA) Policy for 510(k) Submissions: Currently in effect. FDA has 15 days to decide whether to accept a 510(k) submission based on administrative completeness. If the application lacks any items from the Agency’s Checklist, the applicant will be informed and have 180 days to respond, or the submission will be considered withdrawn.
Acceptance and Filing Review for Premarket Approval Applications: PMA guidelines currently in effect. FDA has not significantly changed the guidance from previous PMA checklists and documents. Criteria has been separated into acceptance criteria and filing criteria. Acceptance review involves assessment of the application’s completeness and a response from FDA within 15 days. FDA updated the checklist for the filing criteria to enhance consistency of acceptance and filing decisions.
De Novo Classification Process (Evaluation of Automatic Class III Designation): The FDA last ruled on this topic in October 3, 2011, but certain sections of the guidance may no longer be current as a result of FDASIA. The original purpose of the guidance document was to provide a route to market for medical devices deemed low to moderate risk but still classified as III by the FDA.
The 510(k) Program: Evaluating Substantial Equivalence in Premarket Notifications: After the final ruling, this guideline will supersede Guidance on the CDRH Premarket Notification Review Program, 510(k) Memorandum K86-3, dated June 30, 1986 and The New 510(k) Paradigm - Alternate Approaches to Demonstrating Substantial Equivalence in Premarket Notifications, dated March 20, 1998. The draft guidance was issued in December 2011 to provide current review practices for premarket notification submissions.
CDRH Appeals Processes: After the final ruling, this document will supersede “Medical Device Appeals and Complaints: Guidance for Dispute Resolution,” February 1998 and “Resolving Scientific Disputes Concerning The Regulation of Medical Devices, A Guide to Use of the Medical Devices Dispute Resolution Panel; Final Guidance for Industry and FDA,” July 2001. This draft guidance describes the processes outside stakeholders can take to request additional review of decisions and actions made by the CDRH.
Medical Device Classification Product Codes: The draft guidance was issued January 2012 to educate when and why to use classification product codes for medical devices regulated by (CDRH and the Center for Biologics Evaluation and Research (CBER).
The Pre-Submission Program and Meetings with FDA Staff: The pre-submission program draft released July 2012 is similar to the pre-IDE program. It provides the opportunity for applicants to obtain FDA feedback prior to submission of an IDE or marketing application or protocols for clinical studies.
Premarket Notification [510(k)] Submissions for Medical Devices that Include Antimicrobial Agents: The final rule will be an update on the draft guidance issues in July 2007. The draft was issued after an increase in the number of submissions for devices that included antimicrobial agents, and provides recommendations for information that should be submitted with apply for a 510(k).
A complete list of CDRH’s final and draft guidance topics can be found on FDA’s website, www.FDA.gov
, CDRH Fiscal Year 2013 (FY 2013) Proposed Guidance Development.
Steadman Philippon Research Institute: Providing Global Research for Orthopaedic Device Companies (Posted on 01/08/2013)
The Steadman Philippon Research Institute (SPRI) recently renamed its Department of Clinical Research the Center for Outcomes-Based Orthopaedic Research (COOR). The new name better reflects the department’s mission: to document and publish outcomes following procedures performed at the Steadman Clinic.
Per SPRI’s 2011 annual report, COOR’s database has grown to include 13,000 knee surgeries, more than 3,200 hip surgeries, more than 2,200 shoulder surgeries and more than 800 foot and ankle surgeries. The research institute uses the database to determine new research projects. SPRI also collaborates with medical device companies on sponsored research. In 2011, the institute received $4.4 million of its $8.4 million in revenue from corporate sponsors such as Arthrex, Biomet, DePuy and Smith & Nephew.
Karen Briggs, M.B.A., M.PH., Director of COOR, expanded upon COOR’s mission to support the orthopaedic device industry.
ORTHOKNOW: What does COOR’s outcomes database track?
Briggs: The COOR data registry tracks information on all patients who are seen at the Steadman Clinic. This includes the patient’s assessment of their condition prior to their first appointment, the physician’s assessment of the patient at initial presentation, and then detailed data regarding the patient’s surgery. In addition, patient’s annual follow-up information is stored in the data registry. For the patient’s assessment, common scoring systems are collected, for example in the knee, Lysholm, IKDC, Tegner and patient satisfaction.
ORTHOKNOW: COOR has a stated intent to have a global impact on orthopaedic and sports medicine treatments. What is COOR’s global impact, today?
Briggs: Our research is published in journals with worldwide circulation, and our physicians and researchers travel throughout the year to international conferences, presenting the results of our outcomes-based research. The Institute also supports an international scholar program which introduces physicians from many countries to outcomes-based research. Many of the physicians have participated in research studies and publications at the Institute.
ORTHOKNOW: Can you share one or two of these publications or presentations, and the impact of the shared knowledge?
Briggs: In May 2012, we presented a paper at the European Society of Sports Traumatology Knee Surgery and Arthroscopy (ESSKA) conference in Geneva, Switzerland, titled “Pre-participation Screening in Elite Youth Tennis Players.” This was the result of a collaboration among SPRI, the Clinica Mapfre de Medicina del Tenis and the Fundación Rafa Nadal in Barcelona, Spain. The purpose of this study was to determine if certain factors are related to hip injuries in young tennis players. If we can determine these factors, we can design injury prevention programs around them, with the goal of reduction of injuries in young athletes. This presentation resulted in other physicians from around the world wanting to screen their youth athletes and participate in the study.
The groundwork for this study of tennis players was presented in 2011 at the International Olympic Committee World Conference on Prevention of Injury & Illness in Sport in Monte Carlo, Monaco. The SPRI study, titled “Screening of asymptomatic elite youth hockey players: Clinical and MRI exam,” detailed our results from screening young hockey players. This program has now been expanded to include pee-wee hockey players and similar screenings in several other countries.
ORTHOKNOW: How are device companies supported by or involved with COOR?
Briggs: Several device companies sponsor research at the Institute. Currently we are not performing any research on specific devices; however, we do publish results following procedures that use devices such as anchors, etc. These are used to show new patients what to expect and also help to secure insurance reimbursement. Device companies also use this research for internal and physician education worldwide.
ORTHOKNOW: How can companies access results of CORR’s research?
Briggs: Once published, the papers become part of a database like PubMed. Anyone can access these databases. Many companies, however, do purchase reprints of specific articles that provide important information about their products.
ORTHOKNOW: Based on your work, what advice do you have for device companies? Are you seeing trends of which they should be aware?
Briggs: What we have learned at SPRI is the importance of staying in touch with the patient. The only way to know if something is going well or not is to stay in touch. In order to ensure the highest level of care and superior outcomes, patients need to be kept informed.
ORTHOKNOW: How do you stay in touch with the patient?
Briggs: All patients receive questionnaires via email or regular mail every year following their surgery. Not only do we ask about their symptoms, but also about complications, additional surgeries or failures of the surgical procedure. Even if an email or envelope comes back as a bad address, we take additional steps to find the patient.
ORTHOKNOW: What advice do you have for OEMs on collecting data outcomes?
Briggs: Collaborate with those physicians who see the importance in outcomes and the value in collecting data. This link between devices and outcomes will result in the output of critical information. Not only will this reveal data early on devices that may be problems, but these efforts will also show which devices are providing greatest benefit to patients. This would provide the opportunity to shift focus to optimal devices.
ORTHOKNOW: What current COOR initiatives would interest device companies?
Briggs: The mission of SPRI is to keep people active. We have several initiatives that are tracking less invasive or arthroscopic treatments for osteoarthritis of the hip, knee, shoulder and ankle. As people are staying more active as they age and many are not ready for a joint replacement, the demand for less-invasive procedures will just continue to greatly increase.
One of our long-term initiatives is identifying ways to delay total knee replacement so patients can continue at their preferred activity level. Dr. Steadman developed a treatment regimen for arthroscopic treatment of osteoarthritis of the knee. In 2007, we published the early results of this study in Arthroscopy, and in 2012, the paper on ten-year results won the Richard O’Connor award at the Annual Arthroscopy Association of North American Annual Meeting. This paper is now in press on the Arthroscopy website.
This long-term project has led to similar projects in the hip, shoulder and ankle. For the shoulder, in 2011, we published “Arthroscopic management of glenohumeral arthrosis: humeral osteoplasty, capsular release, and arthroscocpic axillary nerve release as a joint-preserving approach,” also in Arthroplasty. We are currently tracking mid-term outcomes of this technique which is meant to offer young patients an alternative to shoulder arthroplasty.
Generic and Low-cost Manufacturing Companies in Orthopaedics (Posted on 10/16/2012)
I’ve been keeping a list of generic implant and low-cost manufacturing companies on my wall for a few years. I’d like to share the ones that I’ve identified thus far, along with their missions and any unique attributes, to keep you informed as these companies appear in the media more and more.
ANOVA Ortho Solutions *Company inactive in late 2012
Brentwood, Tennessee, USA
- Developed perioperative service program and implant price points designed to save hospitals hundreds to thousands of dollars per case
- Initial offering is Active Total Knee Replacement, developed by Advanced Surgical Design & Manufacturing
Covenant Orthopaedic Solutions
Bartlett, Tennessee, USA
- The orthopaedic industry’s disruptive innovator, offering “mature and reliable” product designs for recon and trauma
Powell, Tennessee, USA
- Offering trauma systems; seeks to streamline the supply chain, reduce selling, general and administrative costs associated with highly compensated medical device reps and pass those savings directly through to customers
- “In-house design, engineering and manufacturing afford us the opportunity to adjust to market conditions and aid our healthcare partners in reducing healthcare expenditures.”
San Diego, California, USA
- Spinal products (initially cervical cage; more to come, as cervical plate and PLIF cage received clearance in 2012)
- Claims a straightforward, transparent mission:
· All products and prices are shown in online store
· No registration to browse products or prices
· Every hospital gets the same prices, no matter where they are located; no volume contracts required
· Orders placed online, products shipped directly to customers
Denver, Colorado, USA
- Currently offering trauma products; sports med, spine and total joint to come
- Manufactures devices exclusively in the U.S., provides them for costs reportedly 40% to 50% lower than competitors
- Distributed by Cardinal Health and Premier
- Product Selection Criteria:
· “Low Physician Preference”
· No intellectual property
· Financial feasibility
· Regulatory pathway 510(k) or Pre-Market Approval
Iconacy Orthopedic Implants
Warsaw, Indiana, USA
- I-Hip Total Hip received FDA 510(k) clearance in 9/12; used vitamin E-infused polyethylene licensed from Mass General and Cambridge Polymer Group
- I-Hip pricing not final, but will be lower than $7,000 to $9,000 charged for competing devices
- All products (hip, knee, and shoulder replacements) to be produced in the U.S.
- Focusing upon “the needs of patients, surgeons and hospitals without the bureaucracy and costly infrastructure of a large organization”
- Plans to provide “individualized service levels at the hospital setting while eliminating inefficiencies within the traditional supply chain”
- Investing $2.63MM in Warsaw, Indiana manufacturing complex
Portland, Oregon, USA
- Sports medicine: graft fixation system, instrumentation for shoulder/knee, suture anchors, etc., trauma products: plates, screws, K-wires, etc.
- “We seek innovative products that are priced responsibly in addition to commodity products that utilize tried and true technology.”
Internal Fixation Systems
Miami, Florida, USA
- Delivering “proven products with doctor-inspired features at superior value”
- Claims that costs are implants are typically 40% to 60% less than competitors
- Launched GoDirect sales program in 2012: facility maintains surgical trays, gains benefit of lower implant costs
Fort Wayne, Indiana, USA
- Offers ORDT (Operating Room Device Technician), a training and mentoring program, for a fee to teach surgical techs in hospitals how to manage purchase of “stable technologies” (generic/commodity products)
- Member of Physician Hospitals of America
Orthopaedic Implant Company, The
Reno, Nevada, USA
- Offers spine, trauma, disposable drill bits
- Implants priced at 50% to 60% of average market price of premium implants; pledges to save >$1BB in healthcare costs by 2015
- Company claims annual revenue growth of 25%
- Data from 2 independent studies presented at the Orthopaedic Trauma Association annual meeting suggest that generic implant utilization may result in hospital cost savings of >65%; studies investigated use of OIC’s generic screws
Woodbury, Connecticut, USA
- Received 510(k) clearance in 2012 for first spinal products (cervical plate, cervical and lumbar plates, etc.); future products to include MRI contrast agent and “orthopedic systems of implants and instruments”
- Raised $2.8MM in venture capital in 2012; seeking to raise up to $10MM
- Principals include experience from Doctors Research Group
ROG Sports Medicine
Orland Park, Illinois, USA
- Offering ecological, economical solutions; for instance, reusable inserters could remove 95% of waste in anchors
- Provides products at 70% off retail
- Partnered with OrthoDirect to remove distributor and sales rep from distribution model
Newport Beach, California, USA
- Over 20,000 SKUs of FDA cleared products, addressing spine, trauma, endoscopes, disposables
- Established business relationships with nearly 200 manufacturers globally, many the same utilized by leading brands
- Claims typical savings of 30% to 50% for provider customers; projecting $10MM revenue run rate by end of 2012
- Acquired Eden Surgical trauma
hardware company during 2012
- Formed SMDC, wholly-owned subsidiary to form joint venture opportunities with spine and orthopaedic surgeons in U.S. markets; will own a minimum of 60% of each operating entity with participating surgeons owning up to 40% of the operating entity
- Notes that SMDC complies with all regulatory issues, including Federal anti-kickback legislation and state laws; claims this is not a physician owned distributorship strategy
Marblehead, Massachusetts, USA
- Offers direct-to-hospital sales; tracking of individual patient outcome data; quarterly reports summarizing results (infections, dislocation rates, revisions, etc.)
- Current products include spine, hip/knee arthroplasty
Murray, Utah, USA
- Offerings include contemporary materials and designs for knee implants; hip implants feature large diameter heads on highly-crosslinked poly counter surfaces + porous coated acetabular cups; PEEK spinal spacers, pedicle screws tested in axial compression, instruments, etc.
- Agreement to supply spinal products to Premier customers; also affiliated with White Box Orthopedics
White Box Orthopedics
Arlington, Tennessee, USA
- Launched in 2011 by Wright Medical to offer lower-cost versions of primary hip/knee products
- Does not sell to physician-owned distribution companies
Sources: Press releases, company web sites, articles in the public domain
Julie A. Vetalice is Editor, Information Products for ORTHOWORLD Inc. She may be reached at 440.543.2101 or firstname.lastname@example.org
The Global Orthopaedic Supplier Market (Posted on 10/13/2012)
In 2011, ORTHOWORLD estimated 2009 annual global orthopaedic supplier market sales to be ~$2 billion. At that time, slowing growth from the 2008 orthopaedic original equipment manufacturer (OEM) sector was reflected in supplier side revenue. In 2010 and 2011, the supplier market commenced signs of a gentle increase in growth.
Today, ORTHOWORLD estimates 2011 annual global orthopaedic supplier market sales to be ~$2.2 billion. Exhibit 1 displays 2011 earnings, estimated and actual, for ten supplier companies plus all remaining.
2011 Estimated Orthopaedic Supplier Sales ($MM) and Market Share
Sources: Company earnings calls, SEC filings, press releases, ORTHOWORLD estimates for non-publicly-traded companies. Supplier companies include contract manufacturers of implants/instruments, raw materials providers, etc.
For 2011, we estimated that global orthopaedic OEM revenue reached $43.1 billion, an increase of 5% over 2010, similar to 2010 vs. 2009 growth. At mid-2012, overall OEM market growth has held steady at estimated 5% growth 2Q12 vs. 2Q11, and throughout 2012, OEMs have commented upon signs of procedure volume increases:
• Biomet stating U.S. hip/knee markets stable, maybe even slightly improving (May 2012)
• Johnson & Johnson noting that orthopaedic procedures were +3% in 1Q, and 2Q experienced similar trends
• Exactech and Smith & Nephew seeing small signs of stabilization in U.S. market overall; Stryker and Zimmer
noting U.S. recon utilization trends stable to modestly improving (August 2012)
• Medtronic estimating U.S. spine market improved over past 3 quarters; U.S. core spinal results reflecting
stabilization (September 2012)
In 1Q12, publicly-traded supplier companies seemed upbeat that growth would be coming back in the latter half of the year. Greatbatch Medical touched on initiatives to expand and leverage its infrastructure to better support its orthopaedics business. Symmetry commented that customers’ planned new product launches would start to impact revenue in 2H12, and observed that lead times were at or below historical norms.
By the end of 2Q12, Greatbatch announced plans to open a manufacturing facility in Ft. Wayne, Indiana to consolidate its orthopaedic operations there. Meanwhile, Symmetry noted a slight uptick in instrument sales and stable results for implants as order activity rose above usual year-over-year levels. Further, Symmetry, while seeking transparency on inventory practices from its customers, mentioned that it was encouraged by what was happening on those fronts.
At OMTEC 2012, Brian Moore, former Symmetry CEO, confirmed that such factors as OEM inventory handling will continue to be far more important to growth for the supplier companies than will orthopaedic procedure volumes, though the supplier base will naturally continue to ebb and flow in reaction to the OEMs’ strategies.
Moving forward, OEMs will continue to consolidate their supply chains, and suppliers will continue to merge and acquire to meet the OEMs’ needs. A number of such transactions occurred in 2011 and 2012 to date (3Q12), as illustrated in Exhibit 2.
Supplier Merger & Acquisition Activity: 2011 To 3Q12
Despite a slowing to mid-single-digit growth, the orthopaedic market should remain healthy due to solid demographics: an aging population, a more active and more demanding patient, increased reach into BRIC countries, etc.
To keep pace with the OEMs needs, suppliers may find success in offering services other than contract manufacturing, such as Ceram’s regulatory assistance package, Squadron’s customer financing services, etc., to device manufacturers that find themselves more thinly-spread. OEMs and suppliers are all in this together, and together, will find new paths to growth in orthopaedics.
NASS Preview: New and Notable in Spine (Posted on 09/15/2012)
These brief profiles preview newer or notable companies you’ll find on the exhibit floor at the North American Spine Society meeting later this month.
Please visit us at the meeting, too—you’ll find us in Booth 2140.
Dallas, Texas, USA
NASS Booth 2341
- First orthopaedic-related 510(k) clearance in 2012, Matisse Anterior Cervical Interbody Fusion Cage
- Followed by clearances for Oracle MIS spinal fixation system, posterior cervical fixation system
- Company name is trademarked by Accel Biomedics, a Texas company
Ladera Ranch, California, USA
NASS Booth 2118
- Developing OsteoAMP (Allogeneic Morphogenetic Protein) osteoinductive/conductive products in granule, putty, sponge, concentrate and structural formats
- OsteoAMP reportedly contains BMP-2 concentrations 100x greater than market-leading DBMs
- Contracted to supply OsteoAMP to Premier’s U.S. hospital members
- Future products include OsteoMEM ultra porous shape memory scaffold, a synthetic bone graft substitute with antibacterial and shape memory features
San Jose, California, USA
NASS Booth 2312
- 3D medical technology: for surgical applications, offers true 3D hard tissue and soft tissue reconstruction simulation
- Unique 3D life-sized visualization of real patient anatomy, complementing cadaveric dissection and radiology integration in the classroom
- The “operating table” format allows instructors and students to virtually dissect skeletal tissues and muscles
Carlsbad, California, USA
NASS Booth 232
- Established January 2012, focused on minimally invasive devices, regenerative technologies, aging patients
- Founded by spine executives, engineers and scientists, bringing experience from Alphatec, Kyphon, Lanx, Phygen, Spineart
- “Our belief is that the healthcare industry needs to make proactive changes in order to deliver better results and less invasive treatment at a lower overall cost to the consumer.”
- Planning launch of Restore Kyphoplasty system
Universal City, Texas, USA
NASS Booth 2134
- Emerging biologic company, developing regenerative orthopaedic matrices to deliver platelet-derived growth factor, bone marrow aspirate, platelet-rich plasma and antimicrobial agents following the treatment of bone defects
- Products include MatrixCellect demineralized human derived bone scaffolds, Matrix OI demineralized osteoinductive bone scaffolds
Citow Cervical Visualizer Company
Libertyville, Illinois, USA
NASS Booth 1027
- Designed by a neurosurgeon, the Citow device helps to visualize the lower cervical spine by transiently pushing shoulders out of the way, thus enabling a clearer picture on x-ray
Kyunggi-do, South Korea
NASS Booth 2243
- FDA-cleared products include Fixpine II System pedicle screw system, Rexious fixation systems
- Other products include cervical plates, cervical and lumbar cages, facet screws, interspinous spacers/stabilizers, kyphoplasty system, etc.
Salt Lake City, Utah, USA
NASS Booth 2541
- Developing technology that uses human nucleus pulposus (NP) tissue as a source for adult disc stem cells that can be translated into therapeutic cell populations known as Discospheres. Early research suggests that these cells may have a better capacity to regenerate NP tissue due to their direct origin within the disc and genetic footprint.
- Received a Notice of Issuance from the U.S. Patent and Trademark Office on the company's 1st patent, “Compositions of Adult Disc Stem Cells and Methods for the Treatment of Degenerative Disc Disease."
Baldwin, New York, USA
NASS Booth 1428
- Technology incorporates radiowave energy to perform traditional scalpel, scissor, electrosurgical and laser assisted procedures; minimizes tissue trauma and eliminates frequent cleaning and instrument irrigation
- Disc-FX System rapidly performs minimally invasive discectomy to treat contained lumbar spine herniation
- Trigger-Flex Bipolar System offers navigational access in endoscopic procedures; a compliment to all procedures for hemostasis, shrinkage or ablative effects in soft tissue with several shaft and handle configurations available
- Bonovo Orthopedics distributes elliquence products in China
Hensler Surgical Products
Wilmington, North Carolina, USA
NASS Booth 2234
- Hensler Bone Press filters and compresses bone for immediate use in grafts; dramatically shortens time to separate graft material
- 2-step operation allows for little to no interruption of procedure
- Decreases likelihood of disease transfer with bone substitute
- Priced at $350, disposable, 510(k)-exempt product
Gunpo-Si, Gyeonggi-do, Republic of Korea
NASS Booth 2139
- Medinaut kyphoplasty system
- Also manufactures drills and saws
NASS Booth 2308
- Manufacturer of mixing, delivery and application systems for multi-component biomaterial such as polymethyl methacrylate, calcium phosphate bone cement, fibrin glue and tissue sealant
Nexus Spinal Technologies
Salt Lake City, Utah
NASS Booth 2138
- Developing a “radically disruptive” system that allows fusion to be a flexible matrix, conforming to patient’s spinal anatomy, as opposed to a rigid rod construction; sized ~40% smaller than standard fusion products
- Products include PressOn fixation system with ultra-low profile design and a built-in revision feature; FlexBAC lumbar total disc
- Company is affiliated with Crocker Spinal Technologies (www.crockerspinaltechnologies.com), which may eventually be merged with Nexus Spinal (if not done already)
Kanagawa, Yokohama, Japan
NASS Booth 2132
- Developed Rebossis, resorbable and replaceable cottony flexible synthetic bone material comprising calcium carbonate + silicate + polylactic acid, electrospun into fiber form
Mission Viejo, California, USA
NASS Booth 2737
- Markets SLEEQ spinal compression bracing systems in the U.S.
- Proprietary InvisAdjust Technology enables a universal fit for nearly all patients in one single model
Pessac, Bordeaux Region, France
NASS Booth 231
- Pedicular fixation, posterior dynamic stabilization, dynamic interspinous systems
- Principal brings experience from Sofamor, Hexabio, Stryker Orthopaedics; inventor of the Growing Spine Profiler for treatment of treatment of progressive pediatric spinal deformities
Eragny sur Oise, France
Memphis, Tennessee, USA
NASS Booth 2141
- Markets SteriSpine PS Pedicle Screw lumbar fixation system
- Single-use, lightweight, sterile, traceable, recyclable surgical kits are designed for cost-effectiveness: provide simple logistics, replenishment and handling processes
Nashville, Tennessee, USA
NASS Booth 2519
- Provider of allograft tissue, synthetic products: structural/particulate bone, structural allograft, tendons/ligaments, demineralized bone
Wayne, New Jersey, USA
NASS Booth 2634
- Commercial stage company, developing system to enable intra-procedural collection/preparation of autologous Platelet Rich Plasma and Fibrin for placement in the lumbar spine to guide and accelerate new bone formation during fusion
- Licenses patents from Cascade Medical, which commercialized this technology for bone and soft tissue applications
- Fibrinet products successfully used in an IRB-approved 60+ patient clinical tria that defined the performance characteristics and factors required for integration into standard lumbar fusion procedures.
- Company’s PRFM technology has been FDA 510(k) cleared to market for preparation of PRP for broad orthopaedic applications.
- PRFM technology also approved under the CE Mark
MD4 Utah, A Conversation with Gary Crocker, July 25, 2012
Sources: Company web sites, press releases, FDA 510(k) Releasable Database, articles in the public domain, etc.
Updated Company Market Share Standings (Posted on 07/15/2012)
In June, Johnson & Johnson (JNJ) received U.S. regulatory clearance for its proposed acquisition of Synthes (SYST) and subsequently completed the transaction for US $19.7 billion in cash and stock, down from the initial estimates of $21.3 billion. The integrated entities will establish the DePuy Synthes Companies of Johnson & Johnson.
Prior to closure of the transaction, the U.S. Federal Trade Commission required JNJ to sell specifically its distal volar radial or DVR system for the treatment of wrist fractures, to resolve charges that the SYST acquisition would illegally reduce competition for these systems. In 2010, the DVR system accounted for 29% of all system sales. JNJ sold the DVR and its entire trauma line to Biomet.
In mid-June, Biomet announced initial closing of its acquisition of DePuy Trauma’s operations in the U.S., U.K., Australia, New Zealand and Japan, plus manufacturing operations in Switzerland. Closings for remaining countries will occur within the next 6 months.
To reflect Johnson & Johnson’s finalized acquisition of Synthes and commencement of DePuy’s sale of its trauma line to Biomet, we present our adjusted, estimated orthopaedic market share standings.
Exhibits 1 through 3 illustrate overall market share for the top ten and all other companies, for the fracture segment and finally, for the spine segment.
Orthopaedic Market Shares: Top Ten Companies and All Others
Fracture Fixation Company Market Shares
Spine Company Market Shares
Source: ORTHOWORLD Inc. estimates.
THE ORTHOPAEDIC INDUSTRY ANNUAL REPORT: Focus on Joint Replacement (Posted on 06/17/2012)
In 2011, estimated revenues generated by sales of orthopaedic products reached $43.1 billion worldwide, an increase of just under 5% from 2010. As in 2010, sales in the U.S. accounted for 60% of total revenues, and the top three companies ranked by overall orthopaedic revenue were Stryker, Johnson & Johnson/DePuy and Zimmer.
Joint replacement represented about one-third of global orthopaedic revenues in 2011, with the U.S. claiming slightly more than 50% of the segment. Growth in procedure volumes remained at low- to mid-single digit levels during the year as people and companies alike faced lingering economic uncertainty. Still, nearly 2.9 million joint replacement procedures take place worldwide, annually – including more than 1.4 million hip, 1.1 million knee and more than 100,000 shoulder replacements. Over 231,000 hip replacements occur annually in the U.S. alone.
Estimated 2011 global sales of joint replacement products (that is, hips, knees, shoulders, elbows, ankles, wrists, digits) exceeded $13.8 billion, with knees taking the largest piece of the recon pie, as illustrated in Exhibit 1.
Estimated Joint Replacement Sales in 2011: By Segment ($Billions)
Estimated year over year growth for the three segments shown above came in at hips +2%, knees flat and extremities +7%.
The world’s eight largest joint replacement companies – Zimmer, Johnson & Johnson, Stryker, Biomet, Smith & Nephew, Wright Medical, Aesculap and Tornier– generated 95% of hip, knee, shoulder and other joint product sales in 2011. Very little share shift has occurred in the segment in the past ten years.
Exhibit 2 illustrates estimated market share for these top companies.
Estimated Joint Replacement Company Market Shares
Hundreds more companies also occupy the joint replacement space. During 2011, a number of strategic alliances occurred among the group, such Apax France’s acquisition of Amplitude, Arthrex’s acquisition of Cardo Medical’s joint arthroplasty assets and China Kanghui’s majority stake in Wei Rui. (Reports alleged that Smith & Nephew was the subject of potential takeover bids from Biomet and Stryker, but such a transaction did not come to pass.)
China Kanghui and Consensus Orthopedics entered into an exclusive partnership to market joint replacement products in China and select ex-U.S. markets. Bonovo Orthopedics formed Bonovo Recon, kicking off with a full line of hip and knee products for sale in China, while Zimmer established a new research and development center in China to support development of products and technologies to meet the unique needs of patients there.
Some separations occurred, as well. During 2011, Corin and Stryker agreed to terminate their distribution agreement for the Cormet Hip Resurfacing product. Corin now distributes the product in the U.S.
Activities from “generic implant” companies continued in 2011. For instance, ANOVA Orthopaedic Solutions filed a non-provisional patent application providing methods to result in reduced costs, increased surgeon alignment and improved efficiencies across the orthopaedic supply chain.
Last year marked a heightened interest in small joint initiatives, and in how devices are implanted: via customized/personalized instrumentation, robotic assistance, minimally invasive surgical (MIS) approaches and so on.
During 2011, for instance, MAKO Surgical commenced launch of the MAKOplasty Total Hip application, including the RESTORIS MetaFix femoral stem and RESTORIS Trinity acetabular cup. Additional MAKO systems for use with hip applications are slated for launch in 2012.
A key trend in knee replacement to emerge over recent years has been the use of customized instrumentation. OtisMed, acquired by Stryker, began the trend with its TRIOS, a custom disposable alignment cutting guide tailored to the anatomy of individual knee replacement surgery patients. Taking pre-op CT or magnetic resonance imaging scans, the technology applies its proprietary pre-op planning software and rapid manufacturing technology to create a template and cutting “jig” that accurately fits the unique anatomy of each individual patient. In 2011, Stryker received clearance for ShapeMatch cutting guides for use with the Triathlon total knee.
Stryker is not alone in its ability to provide customized instrumentation for knee replacement procedures. Customized instrumentation systems are also available from:
• Biomet – Signature Personalized Patient Care System that uses 3D MRI to create personalized positioning guides that don’t require instrumentation of the bone canal, thus allowing for a potentially less invasive procedure; Oxford Microplasty Instrumentation
• ConforMIS – iUni-G2 with implants, iView patient-specific imaging data and iJig patient-specific instrumentation; iTotal CR Knee Replacement, iDuo G2 next-generation bicompartmental knee resurfacing system
• DePuy – TruMatch Personalized Solutions with software customized to the patient’s anatomy and the surgeon’s surgical preferences along with integrated metal saw and pin captures for improving accuracy and minimizing osteolytic debris (received 510(k) clearance in 2011 for use with SIGMA Fixed Bearing Knee)
• Medacta – MyKnee cutting blocks that use MRI and x-ray images to create customized instruments for use with the company’s GMK Total Knee System
• Smith & Nephew – Visionaire Patient Matched instrumentation system that uses MRI and x-rays to create custom instrumentation for use with the company’s knee implants
• Wright – Prophecy Pre-Operative Navigation Guides that work with MRI or CT scans to provide more accurate implant positioning
• Zimmer – Zimmer Patient Specific instruments that use MRI imaging and pre-operative software planning to create disposable, patient matched, femur and tibia pin placement guides
During 2011, Biomet received U.S. regulatory clearance for the Signature application to create guides for use with Oxford Partial Knee.
In small joint initiatives, DePuy, Integra, Tornier and Wright market total ankle systems in the U.S. Memometal Technologies, acquired by Stryker in 2011, had previously acquired Advanced Bio-Surfaces’ OrthoGlide Ankle, akin to a unicompartmental knee in its more conservative approach vs. total ankle replacement or ankle fusion. Ex-U.S., Baumer, Corin, Euros, FH, Implantcast, Integra, JMM, Link, Protetim, Sovereign Medical and Tornier sell ankle systems. Of note, outside the U.S., mobile bearing ankle designs prevail, with Corin, Dedienne Sante, Integra, Tornier and Van Straten all marketing mobile bearing ankles.
In 2011, Arthrosurface launched its HemiCAP Talus Resurfacing system in Europe and certain ex-U.S. markets. Results from 4-year clinical evaluation of >100 implantations of the device indicate a very high level of patient satisfaction.
Integra acquired Ascension Orthopedics in 2011. The company’s products include FDA cleared and CE Mark approved silicone and pyrocarbon digit implants, the first pyrocarbon trapeziometacarpal implant, resurfacing hemiarthroplasty for Great toe, a hemi-arthroplasty device for treatment of thumb-based arthritis and an implant for treatment of arthritis in the fourth and fifth tarsometatarsal joints of the foot. Integra reportedly plans to introduce a 2-piece (and eventually 3-piece) total ankle in the U.S., noting that the 3-piece device would require a multi-year premarket approval trial.
In 2011, Extremity Medical performed the first KinematX Midcarpal Joint Hemiarthroplasty procedure. The company will continue limited evaluation of the product, and plans future commercialization of a Total Modular Kinematic Wrist. Further, Extremity Medical received FDA 510(k) clearance and approval under the CE Mark for its IOFix Intraosseous Fixation System for use in the foot/ankle. Limited product launch occured in the U.S. and Europe during 2010, opening to broader ex-U.S. markets in 2011.
Long a leader in digit implants, Wright Medical also offers elbow, radial head, ulnar head, wrist, trapezium, lunate, scaphoid, finger, thumb, ceramic interpositional implants, Great Toe, hinge toe and subtalar and hammertoe implants. During 2011, the company received FDA approval to conduct an IDE clinical study on use of the INBONE Total Ankle for treatment of end-stage ankle arthritis or revision of a failed ankle replacement with subtalar joint insufficiency. The company has also commenced full commercial launch of a next generation INBONE II device.
Other small joint implants can be found in the portfolios of Aptis Medical (CE Mark approved and FDA cleared distal radioulnar joint), ESKA (proximal interphalangeal/PIP, MCP, ankle, and Great toe), Memometal (hammertoe fixation system), Merete Medical (FDA-cleared ToeMobile Anatomical Great Toe Resurfacing System), Mathys (finger), Metasurg (subtalar implant) and Tecres (MCP implant), Nextremity Solutions (NEXTRA Hammertoe Correction), Vilex (Hemi and Mini Hemi Toe Implant), etc.
MIS techniques in joint replacement typically center on the refinement of instruments and modification of surgical techniques such that they can be used with standard hip and knee implant components with minimal or no compromise to surrounding structures. MIS techniques allow for smaller incisions, minimal disruption of key soft tissue integrity and reportedly more rapid rehabilitation and less pain.
MIS approaches are intended to reduce surgical trauma, blood loss, scarring and length of hospital stay, while improving overall recovery. MIS procedures can be performed with standard implants, although implant makers have developed implants specially designed for small incision procedures. Most joint replacement companies have MIS instruments and techniques in their product portfolios.
Moving forward, joint replacement technologies likely will not change dramatically. Nor will the overall market or the competitive standing of companies. Dynamics expected to positively affect the market include an aging, obese and active population, while mitigators to growth will include more price conscious environments, rationing of care and an increased pursuit of evidence-based medicine that challenges joint replacement as an option to treat arthritis.
Exhibit 3 provides a summary of key dynamics in the joint replacement market.
The Joint Replacement Market: Key Market Dynamics
• Market estimates: Hips $5.8 billion, +2%; Knees $6.9 billion, flat; Extremities $1.1 billion, +7% from 2010 to 2011
• More than 2.9 million procedures annually
• Highly competitive - 95% controlled by top 8 players; very little share shift in 10+ years
• Highly price sensitive and expected to become increasingly so
• Technologies driving growth: MIS, customized/personalized instruments, small joint initiatives; lowered interest in materials
Excerpted from THE ORTHOPAEDIC INDUSTRY ANNUAL REPORT®, updated May 2012. ORTHOWORLD Members can access the complete report today at www.orthoworld.com/index.php/main/oiar
The Patient Protection and Affordable Care Act, Summarized (Posted on 04/10/2012)
Dear Members and Subscribers,
We are compelled to re-share this succinct summary of the 234,812-word Patient Protection and Affordable Care Act (PPACA). While several elements have been and continue to be modified, the overall constitutionality of its contents are under review by the U.S. Supreme Court. Many are chiming in to offer their predictions on its fate. We possess no crystal ball through which to forecast our future, but we can provide this digestible version of the Act along with continued, concise reporting of its impact.
David Floyd, CEO of OrthoWorx, will query analyst Bill Plovanic, device company executive Bill Kolter and former supplier CEO Brian Moore on the impact of the impending device tax at OMTEC 2012 on June 13 in Chicago. Orthopaedic and spine surgeon Lee Hieb advocates for the free market solution to health care in her keynote address to OMTEC’s attendees on June 14. You’re invited. Find registration details at www.omtecexpo.com.
Summary of the Patient Protection and Affordable Care Act: QUALITY, AFFORDABLE HEALTH CARE FOR ALL AMERICANS
Immediate Improvements in Health Care Coverage for All Americans
Expand Coverage/Improve Access
Mandate that employers with more than 200 employees automatically enroll employees in health insurance plans offered by the employer (employees may opt out). (2014) Companies with 50 or fewer employees are exempt from fees.
Those with fewer than 200 employees do not have to offer coverage; however, those with more than 50 employees must pay a fee ($2,000 for each full-time employee excluding the first 30) if even one of their full-time employees is receiving a government subsidy for private insurance. Employers with more than 50 employees that offer coverage and have employees receiving subsidies can pay the lower of $3,000 per employee receiving a subsidy or $2,000 per full-time employee.
Provide tax credits to smaller employers (25 or fewer employees and average annual wages of less than $50,000) for purchasing employee health insurance (2010-2013). The employer must contribute at least 50% of total premium cost or an amount to be established by the government. The size of the credit will vary based on company size, i.e., companies with 10 or fewer employees and average annual wages of less than $25,000 get a credit equal to 35% of the employer’s contribution to insurance costs. In 2014 and beyond, the tax credit increases to a maximum of 50% of the employer’s contribution.
Limit the deductible in insurance plans for small groups to no more than $2,000 for individuals and $4,000 for families unless offset by contributions offered by the insurance plan. (2014)
Prohibit cancellation of private insurance coverage except in cases of fraud. (September 2010)
Prohibit denial of coverage based on a pre-existing condition.
Prohibit insurers from refusing coverage for patients who have “consumed” a dollar value of services greater than a pre-determined lifetime limit. (2014)
Expand Medicaid to all individuals under 65 with incomes at or below 133% of the Federal Poverty Level ($10,830 for individuals and $22,050 for a family of four). (Prior to this legislation, not all low-income individuals could avail themselves of Medicaid and eligibility varied from state to state.)
Provide premium credits and cost-sharing subsidies to individuals and families who fall below 400% of the Federal Poverty Level, with some restrictions. (2014)
Establish state-based health exchanges to allow individuals and businesses with fewer than 100 employees to pool together to purchase insurance (2014), with larger businesses (100+ employees) able to participate in 2017. The Federal Government will also offer subsidies to low-income individuals to purchase insurance through the exchanges.
Offer (Federal government through private insurers) at least two multi-state health insurance plans in each state health insurance exchange, with at least one being a non-profit entity. (2014)
Allow parents to keep their children on their health insurance plans up to age 26. (September 2010)
Reduce Costs/Reform Government Programs
Reduce Medicare payments to hospitals by adjusting reimbursement increases to below the market basket beginning with a 1/4 percentage point reduction in 2010 and 2011. (0.1% in 2012 and 2013, 0.2% in 2015 and 2016, and 0.75% in 2017-2019)
Reduce payments to inpatient, outpatient and ASC facilities beginning in 2012.
Apply a productivity reduction to future Medicare payment updates.
Reduce by 75% Medicare and Medicaid payments to “disproportionate share hospitals” (hospitals that care for more costly indigent patients). (2014)
Create the Independent Payment Advisory Board to hold growth in Medicare spending per beneficiary to a certain level. Recommendations from the Board are due by 1/15/2014, with implementation in 2015 unless Congress comes up with its own mechanism for bringing costs in line. Limit growth to GDP growth per capita plus one percentage point beginning in 2018.
Adjust Medicare Advantage payments downward. (2011) (Approximately 25% of Medicare beneficiaries now avail themselves of the Advantage program, paying more to receive additional benefits beyond those provided with basic Medicare coverage.)
Prohibit new physician-owned hospitals, with expansion of existing hospitals requiring approval from the Secretary of HHS. (December 31, 2010)
Require the Secretary of HHS to evaluate and adjust “misvalued” Relative Value Units with a view to corralling those that are the fastest growing in utilization; reflect new technologies or services; have low relative values… (Immediately)
Encourage hospitals and doctors to organize as accountable care organizations (ACOs) to provide coordinated care, encourage investment in infrastructure and increase quality and efficiency by redesigning healthcare delivery processes. (2012) If the ACO saves money, Medicare will share the savings with the ACO, with the ACO distributing savings to its participating hospitals and physicians.
Investigate using a single payment for all services involved in an episode of care for certain treatments (to be chosen by the Secretary of HHS) with the goal to reduce the cost of treatment while not reducing quality. (Medicaid 2012, Medicare 2013)
Extend gainsharing demonstration projects through 2011.
Expand comparative effectiveness research program (now the Patient-Centered Outcomes Research Institute) and its funding. Note that the legislation indicates that the Institute may not create treatment mandates or practice guidelines nor can it make recommendations for payment coverage. Also, the legislation specifically mentions using comparative effectiveness research to compare medical devices. (Immediately)
Establish the Medicare Innovation Center with $1 billion/year in funding, to test different payment systems to reduce cost and improve quality. (2011)
Mandate physician participation in the Physician Quality Reporting Initiative and penalize physicians who do not satisfactorily report by imposing a 1.5% cut in pay in 2015 and 2% in 2016 and thereafter.
Add a value-based modifier to physicians’ Medicare fee schedule calculation based on quality and cost of treatment to redistribute money to the most cost-efficient physicians. (2017)
Mandate that private insurers (on all health plans) spend a specified proportion of premium dollars (80% or 85% depending on the market being serviced) on clinical services and quality enhancements or measures. (2011)
Add a 1% payment penalty to those hospitals that rank in the top 25% for hospital-acquired conditions; to be applied each year. (2015)
Reduce DRG payments to hospitals deemed to have “excess” readmissions (as determined by HHS), with a 1% reduction in 2013, moving to 3% by 2015.
Redistribute money to the most cost-efficient hospitals based on high quality scores or improvement in scores (calculated based on certain quality measures and cost per beneficiary for certain procedures as determined by HHS). Medicare will pay for the incentives by decreasing base DRG amounts for the procedures, beginning with a 1% reduction in 2013 and ramping to a total 2% reduction in 2017. (Similar programs may be developed for ASCs, SNFs and home health agencies. HHS must report to Congress on these initiatives by 1/1/11.)
Increase Focus on Wellness/Prevention
Mandate that private health plans provide coverage, with no out-of-pocket expense, of “proven” preventive services and immunizations, preventive care for children and adolescents and certain additional preventive care and screenings for women. (2010) A similar mandate takes effect for Medicare and Medicaid in 2011.
Promote wellness programs through incentives to employers, e.g. grants to small employers who establish wellness programs (2011) and ability of larger employers to offer their employees rewards like premium discounts if they participate in wellness programs and meet certain requirements. (2014)
Promote growth in the supply of primary care physicians by paying a 10% bonus to primary care physicians for five years. (2011-2015) (May also be seen as a way to reduce costs, since patients may not require specialist care.)
Promote growth in the supply of general surgeons with a 10% bonus to general surgeons for major surgical procedures in geographies deemed to have a shortage of general surgeons. (2011-2015) (May also be seen as a way to reduce costs, since patients may not require specialist care.)
Redistribute unused residency positions to primary care and general surgery and use
scholarships and loans to support training of primary care physicians. (2010)
Funding the Program
Mandate that all individuals purchase health insurance and impose a fine of $695 per individual ($2,085 maximum per family) for those who do not. Fines may not exceed 2.5% of taxable income. (2014)
Impose a tax deductible medical device fee of 2.3% of U.S. sales of non-retail medical devices to be paid by manufacturers. (Calendar year 2013 revenues)
Impose a 40% fee on insurance companies for “Cadillac” plans, those that offer an aggregate value of more than $10,200 for individuals or $27,500 for family coverage, with the 40% applied to every dollar in value over these amounts. (2018)
Impose fees of $47.5 billion on private insurance companies from 2014 to 2018, as well as an aggregate of $25 billion from 2014 to 2016 to fund a temporary reinsurance program to cover high-risk individuals with pre-existing conditions. After 2018, companies must pay what they paid in the previous year increased by the rate of premium growth.
Impose $16.7 billion in fees on pharmaceutical companies from 2013 to 2019, and $2.8 billion per year thereafter.
Require that pharmaceutical companies provide deeper discounts and rebates for drugs sold to Medicare and Medicaid.
Increase to 2.35% (from 1.45%) the Medicare withholding tax on individuals who make more than $200,000, and joint filers making more than $250,000. (2013)
Impose a 3.8% tax for capital gains and other unearned income on individuals earning more than $200,000 and joint filers making more than $250,000. (2013)
Limit to $500,000 the amount of an individual’s pay that health care insurance companies may deduct as a business expense. (2010)
Transparency – Physician Payment Sunshine Provisions
The “Sunshine” provisions mandate that manufacturers disclose electronically the following information to the government:
All transfers of value to health care providers including individual payments of $10 or more or aggregate payments of $100 or more. (2012) After 2012, amounts will increase by the CPI. Manufacturers need not disclose product samples for patient use, educational materials for patient use, loans of evaluation devices, discounts and rebates, in-kind charity items, profit distributions from publicly-traded securities, health benefits to providers who are employees and payment for non-medical services to licensed non-medical professionals. Furthermore, disclosure of clinical research and product development agreements may be delayed until the product has been cleared for marketing or four years after the date of payment to the healthcare provider, whichever is earlier.
Ownership or investment interest (other than an ownership or investment interest in a publicly traded security and mutual fund) held by a physician (or an immediate family member of such physician) in the applicable manufacturer or applicable group purchasing organization during the preceding year.
Failure to report payments of ownership interest in a timely fashion carries a fine of no more than $10,000 for each payment/interest not disclosed, up to $150,000 per year. Knowing failure to report carries a fine of up to $100,000 per payment/interest not disclosed, up to $1 million per year.
Full text of the PPACA and amendments: www.healthcare.gov/law/full/index.html
Supreme Court of the United States, PPACA Cases: www.supremecourt.gov/docket/PPAACA.aspx [sic]
PPACA transcripts: www.supremecourt.gov/oral_arguments/argument_transcripts.aspx
Do You Know Your Customer’s Boss? (Posted on 02/13/2012)
Device companies, including those in orthopaedics, have traditionally recognized that their primary customer has been the physician. With the recent trend of hospitals acquiring physician practices and physicians seeking employment at hospitals, most device companies would admit they really don’t know their customer’s new boss. The hospital executive and administrator are entering the sales equation as an unknown, with priorities and expectations that haven’t been part and parcel to the device company’s product positioning strategy.
Merritt Hawkins, the Dallas-based physician search and consulting firm, reported in their 2011 Review of Physician Recruiting Incentives that 56% of their physician search assignments in 2010 to 2011 featured hospital employment of physicians, up from 51% the previous year and up from 23% in 2005 to 2006. The Medical Group Management Association’s 2009 Physician Placement Starting Salary Survey stated that hospital-owned practices have been the most successful in attracting physicians.
Many in upper management and executives at medical device and pharmaceutical companies have said that this has happened before. In the 1990s, hospitals were buying physician practices only to turn around and divest them. Device company executives should ask themselves if this line of reasoning justifies a wait-and-see approach, especially considering that the competition is always seeking an edge.
There are several reasons supporting this trend. Many doctors have indicated that they would prefer to treat patients rather than run a business. All of the responsibilities of billing, malpractice premiums, negotiating with insurers, implementing EHR systems and other administrative hassles would be left to the hospital. Hospital employment also provides greater work/life balance for physicians, which becomes prohibitive when running a practice.
According to a CNNMoney.com report entitled Doctors Going Broke, physicians also list shrinking reimbursements and changing regulations along with rising business and drug costs as factors preventing them from keeping a private practice afloat.
Hospitals are on-board because employed physicians provide a steady stream of patient referrals while allowing for more integrated models of care and better coordination of care services, which ultimately drives down costs. A study by the Center for Studying Health System Change noted that hospitals view physician employment as a way to prepare for payment reforms that shift from fee-for-service to methods that make providers more accountable for the cost and quality of patient care.
Insurer Highmark’s pending deal to acquire the Pittsburgh-based West Penn Allegheny Health System adds an interesting twist to our title question. The Wall Street Journal last June reported that Highmark would pay salaries to doctors, offering them incentives to achieve quality and efficiency goals. Their integrated model would also rely on primary care doctors to coordinate patients’ care and focus on preventive efforts. The drivers behind these emerging collaborative relationships are spiraling healthcare costs and efforts to become more efficient.
Interestingly, device companies and many other stakeholders continue to be conspicuously missing-in-action as new models set like wet concrete. Time will tell if Highmark’s move will set trends in the industry, but it is certainly indicative of strategic thinking on their part. Highmark sees the writing on the wall: healthcare stakeholders that address our nation’s core challenges, decreasing costs while increasing value, will be winners in this new healthcare environment.
Last November, Cogency Group Institute hosted Sales Leadership in the New Healthcare Environment, an online interactive workshop series to discuss these and other emerging trends in healthcare with respect to their impact on healthcare sales. One of the speakers, John Ogunkeye, Executive Director/Vice President of the Jefferson University Physicians Group and COO of Jefferson Medical College, fielded a question from a spine executive who asked how the trend of physicians seeking employment at hospitals will impact a surgeon’s choice for implants in areas like orthopaedics, spine, pacemakers, etc.
Ogunkeye’s response was that hospital administrators are now asking whether those implants are being selected because they are cost-effective and proven to result in the best outcome, or because the physician has a relationship with the device company.
Those in orthopaedic implant sales typically follow the “champion selling model” in which reps have developed relationships with physicians who stand up for them and their products when challenged. That physician would be the rep’s “champion.” In the past, sellers in orthopaedics were able to successfully leverage the dual hierarchy within hospitals to their advantage. The trend of physicians leaving private practice is causing the line in between that dual hierarchy to blur. Hospital administrators are working with physicians to standardize devices and supplies based on proven outcomes, which complicates the rep’s champion selling model.
Dr. Robert Kocher and Nikhil Sahni, in their New England Journal of Medicine article “Hospitals’ Race to Employ Physicians – The Logic behind a Money-Losing Proposition,” share Ogunkeye’s outlook. They state that as more physicians become employees, hospitals will be better able to reduce excess costs associated with unnecessary practice variation and unnecessarily expensive supplies selected by physicians. These reductions will be achieved through such actions as standardizing surgical supplies and using evidence to choose cost-effective medical devices.
In the workshop, Ogunkeye stressed that device companies, especially smaller ones, must re-evaluate their business models and sales strategies with a focus on innovation. They must make a case for the value that they add to the hospital organization—value being defined as quality over cost. Just being a vendor that comes along to sell something, even if it is the best mousetrap, is antediluvian and outdated. It is no longer sufficient for physicians to provide fee-for-service volume activity. Device companies have to start looking at it the same way.
Opportunities for Strategic Customer Collaboration
Orthopaedic implant manufacturers and sellers should see these coming changes as an opportunity to engage in strategic customer collaboration, to ensure relevance in this rapidly changing healthcare landscape and gain a competitive leg up over champion sellers simply looking to sell more than they did last year.
Another audience member in Cogency Group Institute’s workshop series, a regional Vice President of Sales from a prominent orthopaedic device company, asked Mr. Ogunkeye what device companies could do, specifically, to help hospitals and providers in the efficiency pursuit. Ogunkeye answered that one approach would be for device companies to start knocking on the doors of hospital administrators as they begin examining the efficiency process for hospital service lines and their applicable disease states. Service lines are being wrapped up under their own umbrella and marketed as such. They are mini-hospitals, if you will. Physicians and administrators run them with committees that include financial staff and social workers. Device companies should aggressively work to include themselves in this mix.
As the dual hierarchy in hospitals becomes ever more obscured with the promotion of integrated healthcare delivery models, orthopaedic device companies should recognize this shift as an opportunity instead of a threat to their traditional sales models.
Professor Dylan Roby, Ph.D., a research scientist from the UCLA Center for Health Policy Research, was also a speaker in the workshop series and offered additional insight on the changing device company/customer dynamic and possibilities that exist for device companies seeking to engage in strategic customer collaboration. Accountable care organizations (ACOs) that are successful in driving down the cost curve in Medicare will receive bonuses as a share of the savings. Roby remarked that it will be important for device companies to negotiate with ACOs what their share of the savings could be if they have a product that increases the quality of care, makes care delivery more efficient or affordable or reduces duplication of services.
Professor Roby echoed some of the themes touched on by John Ogunkeye. He noted that in the past, businesses grew up into specific silos, dealing with a specific population and product, trying to sell to providers without thinking about the integrative model. Now more than ever, these companies must think about the value that their core business can add to developing the integration that is sorely needed in the healthcare system.
Are You Taking the Next Step?
The customer dynamic is changing. How will the sales strategies of orthopaedic implant companies and suppliers of all manner of healthcare products change to reflect this new reality? When coupling this trend with the fact that many sales reps are having a hard time getting beyond case coverage, asserting your company as a strategic partner that adds value becomes an acute imperative.
Is active C-Suite engagement at the core of your strategy? How are you positioning yourself to deliver in terms of technology, innovation and research in collaboration with hospitals, providers and even insurers as this new healthcare environment is being ushered in?
Orthopaedic device companies – it’s time to take your rightful seat at the table.
CNNMoney, “Doctors Going Broke.” January 6, 2012. money.cnn.com/2012/01/05/smallbusiness/doctors_broke/index.htm
The Wall Street Journal, “Insurer's Cost-Cut Plan: Buy Hospitals.” June 29, 2011. online.wsj.com/article/SB10001424052702303627104576413580875856442.html
New England Journal of Medicine, “Hospitals’ Race to Employ Physicians – The Logic behind a Money-Losing Proposition.” May 29, 2011. www.nejm.org/doi/full/10.1056/NEJMp1101959
Malcolm Vivian is a consultant at Cogency Group, a Phoenix, Arizona-based strategic management and sales leadership consulting firm. Cogency Group has extensive experience in driving breakthrough performance for companies in medical devices, pharmaceuticals, biotechnology and healthcare capital equipment. Malcolm may be reached at email@example.com.
Cogency Group, Inc.
Noted at the North American Spine Society Annual Meeting (Posted on 12/15/2011)
As in 2010, this year’s North American Spine Society (NASS) meeting reflected the impact of macro pressures in spine. The following summary echoes sentiments from the voices of surgeons, and offers a look at the pertinent conference takeaways. Highlights of specific company intelligence also follow.
Pricing/procedure trends continue and remain stable
- FDA and CMS demanding more data, while hospitals want to pay less for said data
- Pricing pressure will continue, spurred by lack of innovation, low barriers to market entry, etc.
- Payer pushback continues, expected to affect volumes for another year+; some patients being forced into conservative care and drug treatments
May be the beginning of the end for independent distribution model
- Increased potential for device companies to cut sales and marketing budgets in the face of economic headwinds
- High commissions spent on spine sales reps may come under scrutiny
- Surgeons becoming aligned with hospitals, rather than maintaining independent practice; this trend expected to accelerate
- Several companies increasing number of sales staff, but focusing on direct distribution
Company consolidation may be increasingly motivated
- Spurred by lack of innovation, changing relationships of surgeon/hospital, challenging market conditions, lack of available financing, limited cash flow in smaller entities
Minimally invasive surgery remains hot, with lateral approach leading the interest
- Lateral access systems again highlighted at this year’s meeting
- Almost every company has launched or is developing a system
- NuVasive still in a leading position, followed by DePuy, Globus, Medtronic—competition will continue
- Expect continued battles over intellectual property in this space
- Newer advancement, Endoscopic Lumbar Interbody Fusion, gaining in awareness
Cervical discs poised for growth, pending FDA cooperation (See “Global Spine Market
Landscape: Today to 2020,” ORTHOKNOW, October 2011.)
- Clinical data continues to support cervical total disc replacement in light of outcomes and cost
Select company highlights follow.
- Initiated enrollment in STRiDE study (See ORTHOKNOW, 12/10.); expects to train 350 surgeons by year-end; expanding U.S. direct sales infrastructure
- Gained FDA 510(k) clearance for kyphoplasty product, will distribute through Algea Therapies entity (See BARE BONES®, 11/11.)
INNOVATIVE SURGICAL DESIGNS
- Preparing for pivotal prospective, multi-center, randomized trial to evaluate Altum procedure in the treatment of lumbar spinal stenosis
- Completed Phase I trial and follow-up for NuQu injectable therapy; received CE Mark in 4Q for synthetic bone graft extender; enrolling patients in Phase III clinical trial of DeNovo ET living cartilage
- Showcased Timberline lateral fusion system, partnership with Caldwell Labs for lateral-specific neuromonitoring system
- Expects global 2011 revenue growth of +30%, supported by VertiBRIDGE
- Showcased PROW percutaneous device (FDA 510(k) cleared in 12/11), segmented non-linear structure for use in minimally invasive transforaminal lumbar fusion; developing 2nd and 3rd generation versions
- >400 surgeons trained to date on iFuse, >5,000 devices implanted to date
- Pre-market approval process continues for Kineflex cervical and lumbar discs; completing pilot study for PEEK-on-ceramic disc
- 2012 product launches include interspinous process device, standalone ALIF, cervical systems; company is present in 34 countries and continues to build U.S. distribution
- >200 customers and 17,000 procedures completed to date; incorporating PediGuard wireless technology into a Jamshidi needle for use in pedicle screw placement
- Featured enVue endoscopic cannula, expecting FDA clearance by year-end; designed to enable direct visualization, minimal bone resection and obviate need for hardware
- Initial launch for lateral device slated for 1Q12; gained regulatory approval to commence disc nucleus study in Canada
Review the October 2011 issue of ORTHOKNOW for a complete picture of the latest coverage of the spine segment.
Sources: Canaccord Genuity Equity Research; company web sites and press releases
Data Collection: International and U.S. Registries (Posted on 11/15/2011)
Continuing in our coverage of data collection challenges, we present the first in a series to highlight data registries in existence today. Our initial foray observes seven entities. More will follow in future issues.
We’ll begin with a worldwide registry.
Global Orthopaedic Registry (GLORY)
Who: Supported by a grant from Sanofi, managed by the Center for Outcomes Research, University of Massachusetts Medical School
What: Multinational observational database of outcomes from elective total hip/total knee arthroplasty (THA and TKA) from 2000 to 2004. Includes >100 hospitals in 12 countries. Participating physicians receive confidential quarterly reports showing their outcomes alongside aggregate outcomes of all participating hospitals.
* Provide expanded data to characterize existing/evolving practice patterns, delivery of care and resource utilization in THA/TKA patient management
* Provide data to support internal/external standards and benchmarking of treatment patterns and patient outcomes
* Analyze data/design ancillary studies to address unanswered clinical questions
* Disseminate findings through publication in peer-reviewed scientific journals
Read More: GLORY Publications, including articles such as Overview, Lessons From the Global Orthopaedic Registry and Results: escholarship.umassmed.edu/cor_glory/
Next, we present a selection of U.S.-based registries.
American Joint Replacement Registry (AJRR)
Who: Founded by the American Academy of Orthopaedic Surgeons in March 2009. Multi-stakeholder, independent, not-for-profit organization with diverse U.S. constituents. Privately funded by surgeons, implant manufacturers, payers, medical societies and organizations. (These include American Association of Hip and Knee Surgeons, BlueCross BlueShield, Aesculap, Biomet, Consensus Orthopedics, DePuy Orthopaedics, DJO, Exactech, Smith & Nephew, Stryker, Wright Medical and Zimmer.)
What: Seeks to optimize patient outcomes through collection of data on all U.S. primary/revision total joint replacement procedures to provide benefits to society, including reduced morbidity and mortality, improved patient safety, improved quality of care and medical decision-making, reduced medical spending and advances in orthopaedic science and bioengineering. The AJRR costs ~$4 million per year.
Updates: The AJRR proof of concept trial began in December 2010 with successful submission of Level 1 data. Seeks to identify methods for enrollment/data submission. As of 3/2011, 4 sites sending data with >1,000 patients entered.
Read More: General Information including Fact Sheets, www.orthodoc.aaos.org/ajrr/grp_library.cfm
The following four U.S. registries are sponsored by Kaiser Permanente (KP).
Anterior Cruciate Ligament Reconstruction Registry (ACLR)
What: Established in 2006 to provide standardized documentation among KP surgeons/healthcare providers to generate detailed information about procedure, technique, graft type, types of fixation/implants. Participating sites reside in California, Colorado, Hawaii and Ohio.
* Identify risk factors that lead to degenerative joint disease, graft failure, meniscal failure, failure to return to sports
* Determine outcomes of various graft types, fixation techniques
* Describe epidemiology of ACLR patients
* Determine/compare procedure incidence rate at participating sites
* Provide framework for future studies tracking ACLR outcomes
Updates: Over 8,500 ACLRs recorded. Projects in development/implementation phases include failure analysis of ACL recon, gender differences in Knowledge Translation (KT) measures/subjective outcomes at 2-year follow-up, gender differences in KT outcomes by graft type, time to surgery/associated cartilage injury, re-operation rates in normal vs. reconstructed knees.
Hip Fracture Registry
What: Uses electronic data as primary data source, supplemented other data including Management Information & Analysis mortality. Physician Assistants review x-rays to confirm fracture classification. The registry is currently implemented in California.
Stated Objectives: Support the epidemiologic study of failed hip fracture surgeries, including
* Classification of fractures
* Technical procedures
* Implant use
Updates: 13,821 cases entered
What: Designed to retrospectively track use of pedicle screws, total disc replacement and bone morphogenetic protein using available electronic databases.
* Enhance quality of care
* Allow rapid response in product recall/advisory situation
* Assist product analysis by tracking long term health outcomes on large patient populations
* Track complications for surgical spine procedures in KP system
Updates: 3,209 cases entered
Total Joint Replacement Registry (TJRR)
What: Established in 2001, a postmarket surveillance system for elective total hip/knee replacement. Participation reports are offered to sites on a quarterly basis. Registry staff offer clinical support, site education and mechanisms to enhance participation. Participation in TJRR has consistently been >95% since inception.
* Monitor revision, failure, rates of key complications (e.g., infection, venous thromboembolic disease events, mortality)
* Identify patients at risk for poor clinical outcomes
* Identify most effective techniques/implant devices (best practices/implant constructs)
* Track implant usage/costs
* Monitor and support implant recalls/advisories
Updates: The TJRR has been fully implemented in 6 regions throughout California, Colorado, Hawaii, Northwest and Mid-Atlantic; >350 surgeons and 50 hospitals contribute to database. Registry has recorded >100,000 joint replacement procedures.
Read More: Journal Articles, Presentations/Posters and Abstracts for these KP registries, xnet.kp.org/permanentejournal/NIR/Publications.htm
Society for Minimally Invasive Spine Surgery (SMISS) Registry
Who: Supported by the Society for Minimally Invasive Spine Surgery; initial sponsors include Globus Medical, joimax and Orthofix.
What: Launched in October 2011. Reportedly the 1st and only prospective data registry related specifically to spine MIS. Company- and technology-neutral, with long term goal of collecting necessary data to educate all stakeholders within the segment. Participants and patients receive a stipend for their contribution to this society initiative.
Updates: 1st phase multi-center program will enroll up to 250 subjects at 10-15 sites; outcomes analysis will include minimum 2-year follow-up. Primary objectives will determine rate/incidence of peri-operative and post-operative adverse events in the MIS approach for treatment of spondylolisthesis, degenerative disc disease, spinal stenosis, disc herniation and degenerative scoliosis. Health Related Quality of Life and Quality Adjusted Life Years will be determined.
Read More: Site Pre-Qualification Survey, www.surveymonkey.com/s/SMISSRegistry
New and Notable in Spine: US Orthopedics Inc. (Posted on 10/15/2011)
US Orthopedics Inc.
Pompano Beach, Florida
NASS Booth 2826
* Specializing in low-cost orthopaedic and spinal implants that offer substantial cost reductions.
* Offers trauma and spine products, including Mega Spine Multiaxial Screw
New and Notable in Spine: SpineNet, LLC (Posted on 10/15/2011)
Winter Park, Florida
NASS Booth 2130
* FDA clearance for Daytona Anterior Cervical Cage, K110733, August 2011
New and Notable in Spine: Simpirica Spine, Inc. (Posted on 10/15/2011)
Simpirica Spine, Inc.
San Carlos, California
NASS Booth 747
* Developed LimiFlex Spinal Stabilization
System, available in U.S. for investigational use only
* Recently closed $22MM Series C round of
venture funding, will support European
commercialization of LimiFlex
New and Notable in Spine: Sentio, LLC (Posted on 10/15/2011)
NASS Booth 2725
* Formerly Innovative Surgical Solutions
* Developer of Sentio MMG, proprietary nerve mapping and avoidance system for use in
New and Notable in Spine: Royal Oak Medical Devices (Posted on 10/15/2011)
Royal Oak Medical Devices
Bloomfield Hills, Michigan
* FDA clearance for Helena Lumbar Intervertebral Body Fusion device, K110177, April 2011
New and Notable in Spine: Providence Medical Technology Inc. (Posted on 10/15/2011)
Providence Medical Technology Inc.
San Francisco, California
NASS Booth 136
* Developer of CE-Marked DTRAX percutaneous device for fusion, stabilization, indirect decompression
* Members of management have served in a variety of roles at Cardinal Health, Depuy Spine, Kyphon, Medtronic
New and Notable in Spine: Pinnacle Spine Group, LLC (Posted on 10/15/2011)
Pinnacle Spine Group, LLC
* FDA clearance for InFill Intervertebral Body Fusion device, K103729, April 2011
* FDA clearance for InFill Graft Delivery System, K111632, August 2011
New and Notable in Spine: Paonan Biotech Co., Ltd. (Posted on 10/15/2011)
Paonan Biotech Co., Ltd.
NASS Booth 2136
* Focused upon less-invasive products for fusion without use of pedicle screws
* Also offers trauma products (external fixators)
New and Notable in Spine: NuBone, LLC (Posted on 10/15/2011)
NASS Booth 139
* Offers StemVie synthetic bone graft substitute: resorbable calcium-based biphasic technology
New and Notable in Spine: NSI, Inc. (Posted on 10/15/2011)
NASS Booth 1346
* Objective is to “uniquely integrate the elements of innovation, vision, and cost effectiveness, all working towards the common goal of improving patient care.”
* Provides spinal instruments, retractors, etc.; offers trade-in program and teaching facility discounts
New and Notable in Spine: NeuroPro Technologies (Posted on 10/15/2011)
NASS Booth 1347
* Developing NP3, alternative to autograft harvest/alternative graft materials
* R&D pipeline also mentions dynamic stabilization product
New and Notable in Spine: Medical Concepts, Inc. (Posted on 10/15/2011)
Medical Concepts, Inc.
San Antonio, Texas
* FDA clearance for interbody fusion system, K110659, September 2011
* Parent company to Facet Fusion Technologies
* Other products include Inductafil demineralized bone matrix, Emerald cervical PEEK system, Onyx PLIF PEEK system
New and Notable in Spine: Medfix International, LLC (Posted on 10/15/2011)
Medfix International, LLC
NASS Booth 2712
* Provides instruments, instrumentation and implants for orthopaedic, spine and neurosurgical procedures
* Company identifies itself as “an answer to the overwhelming demand for lower cost alternatives to the traditional avenues for surgical equipment, devices, and supplies.”
New and Notable in Spine: Intuitive Spine, LLC (Posted on 10/15/2011)
Intuitive Spine, LLC
Fort Myers, Florida
* FDA clearance for Discovery Cervical Intervertebral Fusion Device with Bone Graft, K111484, September 2011
* Company identifies itself as a low-cost alternative: “We have dramatically reduced the cost of these implants compared to our competitors by removing all unnecessary overhead…specialize only in PEEK Cervical Implants making us far more efficient…do not employ product representatives…do not spend money advertising in journals, promoting at national meetings, or in surgeon-directed marketing.”
New and Notable in Spine: Innovative Surgical Designs, Inc. (Posted on 10/15/2011)
Innovative Surgical Designs, Inc.
NASS Booth 2447
* Developing Altum percutaneous, minimally invasive device/procedure for lumbar spinal stenosis, designed to maintain natural dynamics of the spine
* Not commercially available in the U.S.; company preparing to undergo a U.S. IDE clinical trial
New and Notable in Spine: Kalitec Direct, LLC (Posted on 10/15/2011)
Kalitec Direct, LLC
* FDA clearance for Odalys Pedicle Screw, K111370, September 2011
New and Notable in Spine: icotec ag (Posted on 10/15/2011)
NASS Booth 1447
* FDA clearance for ETurn Intervertebral Body Fusion Device, K100305, July 2011
New and Notable in Spine: Eisertech, LLC (Posted on 10/15/2011)
San Diego, California
* FDA clearance for Intervertebral Fusion Device with Bone Graft, K110915, July 2011
New and Notable in Spine: Domain Surgical (Posted on 10/15/2011)
Salt Lake City, Utah
NASS Booth 744
* FDA clearance for FMwand Ferromagnetic electrosurgical cutting and coagulation device, K110439, July 2011
New and Notable in Spine: Cutting Edge Spine, LLC (Posted on 10/15/2011)
Cutting Edge Spine, LLC
Matthews, North Carolina
NASS Booth 134
* FDA clearance for Interbody Fusion Device, K102957, April 2011
* Focused upon direct supply relationships relative to PEEK Optima interbody systems
New and Notable in Spine: CoAlign Innovations, Inc. (Posted on 10/15/2011)
CoAlign Innovations, Inc.
NASS Booth 2625
* FDA clearance for AccuLIF Cage expandable technology, K110270, April 2011
New and Notable in Spine: Bright Spine, Inc. (Posted on 10/15/2011)
Bright Spine, Inc.
Boca Raton, Florida
* FDA clearance for Galileo Spinal Spacer, K102449, February 2011
New and Notable in Spine: BM Korea Co., Ltd. (Posted on 10/15/2011)
BM Korea Co., Ltd.
Kyunggi-do, South Korea
NASS Booth 236
* Manufactures Guardian kyphoplasty system, Synster PEEK cages, etc. for Europe and Asia
* Planning 2012 U.S. launch of current products plus bone cement, interspinous device
New and Notable in Spine: Aaxter Co., Ltd. (Posted on 10/15/2011)
Aaxter Co., Ltd.
* FDA clearance for A3 Posterior Spinal Pedicle Screw system, K101374, March 2011
New and Notable in Spine: 4-Web Spine, LLC (Posted on 10/15/2011)
4-Web Spine, LLC
* FDA clearance for Spinal Truss Interbody Fusion Device, K083894, January 2011
New and Notable in Spine: Amniox Medical, Inc. (Posted on 10/15/2011)
Amniox Medical, Inc.
NASS Booth 135
* Provides NEOX amniotic membrane grafts for use in orthopaedic and spine surgeries
* Principals reflect a variety of orthopaedic and spine industry experience (AcroMed/DePuy Spine, MedShape Solutions; St. Francis, Wright Medical, Zimmer, etc.)
Global Spine Market Landscape: Today to 2020 (Posted on 10/15/2011)
As we enter the last quarter of 2011, strategic planning for 2012 and beyond is in full swing. The spine segment is upward in the minds of many, as companies gear up to attend NASS.
With that in mind, we showcase tools that shed light upon this specific market, including a new report from MedMarket Diligence: Worldwide Spine Surgery Market, 2010-2020. Highlights follow.
The Global Spine Surgery Market
In 2010, sales of spinal products exceeded $12.4 billion worldwide.(1) The U.S. represented the largest slice of the whole geographically, followed by Japan and China, at 44%, 10% and 7% of global market share, respectively.
By 2020, the global spinal market is estimated to reach $23.9 billion at a compound annual growth rate (CAGR) of 6.96%. The U.S. is expected to retain the largest geographic share at 42%, remaining significantly ahead of all other countries. China is predicted to experience very strong market growth during the decade, moving from 7% of global market share to 10%, while Japan is expected to increase to 12%.
Posterior pedicle screw fusion systems led growth in 2010 at $2.52 billion in estimated global sales, followed by demineralized bone matrix products at $1.3 billion. In 2020, posterior pedicle screw fusion is expected to retain the lead at $5.85 billion globally, followed by cervical discs, which are forecast to reach $2.39 billion. The AxiaLIF lumbar interbody fusion device is forecast to be the fastest growing segment in the spine space between 2010 and 2020, with a CAGR of 33.2%.
Unknowns surrounding healthcare reform in the U.S. suggest that there may be a damper on the markets over the next ten years, but these reforms are likely to be outweighed by the aging U.S. population, many of whom wish to remain active for as long as possible. (The strong growth of minimally invasive spine surgery, in particular, will help to draw in this population.)
A number of procedures, though relatively new to the U.S., have long been conducted in the European Union (EU). Thus, the demand for some product segments is lower there than in the U.S., because orthopaedic surgeons are accustomed to using the devices. The overall growth rate in the EU, therefore, tends to be less than in the U.S., with the exception of new device launches.
China is building hundreds of hospitals, but the growth of spine surgery itself, despite enormous potential, will be limited by the lack of both physical facilities and trained surgeons, among other factors.
During the period from 2010 to 2020, growth will come from a variety of established and emerging segments in the spine landscape. The following tables illustrate a sample of such emerging technologies.
Emerging Biologics Technologies
Stem cell therapy
In Phase II clinical vs. autograft in cervical fusion and Phase II trial to treat chronic low back pain.
Mesenchymal stromal cells (MSCs)
Could theoretically restore disc function. Nucleus pulposus may contain MSC-like cells.
Chemical or chemical+biologic injected into degenerating disc to cause re-generation / repair.
For treatment of burst fractures
Emerging Technologies in Artificial Discs
Two titanium alloy endplates, polyethylene core. For treatment of DDD in 1 level. Limited release in Europe.
Incorporates artificial nucleus and woven fiber annulus; designed to provide controlled range of natural motion in all 6 degrees of freedom along each vertebra. Sold in >15 countries, investigational in U.S.
Emerging Fusion and Fixation Technologies
Adjunct to lumbar interbody fusion. A stabilizing U-shaped portion is designed to provide significant stability by attaching to strong laminar bone vs. spinous processes.
Ultrasonic energy liquefies thermoplastic elements to form a bond in porous materials. May find use in bonding bioresorbable implants to bone. Company will continue development and testing.
Other Emerging Spine Surgery Technologies
Facet Joint Replacement
Opportunity for facet technology to be used as an adjunt to anterior column disc replacement, or as standalone treatment for isolated posteior column disease. (In development by Globus, Premia Spine)
Minimally invasive spine surgery
Advantages: reduced post-op pain, diminished blood loss, shorter hospital stay, faster recovery; disadvantages: deep lealrining curve. (In development by Alphatec, DePuy, Integra, Lanx, Medtronic, Synthes, etc.)
Currently used to remove bone spurs, herniated discs, scar tissue restricting nerves. Overuse may result in bone or disc damage. Reimbursement "spotty."
Linked to form injectable, durable elastic gels capable of sustaining permanent changes in shape, without breaking.
From pedicle screw fixation to microdiscectomy, the overall spine market should continue to post upper single to lower double-digit growth for at least the next five years. Future growth will come with the introduction of more cervical artificial discs and second-generation lumbar designs in the U.S., as well as motion preservation devices, disc revision products, increased adoption of MIS tools and penetration of more premium-priced interbody fusion technologies.
Global markets for devices in spine surgery are ripe with innovation and continue to offer opportunities for growth, despite cost pressures, a challenging economic climate and uncertain regulatory trends.
ORTHOWORLD Members can attain a high-level view of the spine market for 2010-2011 by downloading THE ORTHOPAEDIC INDUSTRY ANNUAL REPORT® from www.orthoworld.com. (The report is a benefit of Membership.)
For a deeper investigation of the spine segment in 2010 and beyond, readers can purchase a copy of
MedMarket Diligence's latest report, Worldwide Spine Surgery Market, 2010-2020, at a 10% savings by using ORTHOWORLD's preferred savings code, 1316628965. See www.mediligence.com/rpt/rpt-m520.htm.
(1) Includes biologics. To view all device segments included in this figure, please review the Table of Contents and List of Exhibits for the spine report, found at www.mediligence.com/rpt/rpt-m520.htm.
Patrick Driscoll founded MedMarket Diligence in October 2001. Mr. Driscoll has over 25 years experience analyzing and writing on medical technology markets, encompassing medical devices, biotech and biopharmaceuticals. He co-founded Medtech Insight and as a principal with Medical Data International directed the custom research, syndicated reports and database research businesses. Mr. Driscoll may be reached at firstname.lastname@example.org.
Julie A. Vetalice is Editor, Information Products for ORTHOWORLD Inc. She can be reached at 440.543.2101 or email@example.com.
NASS PREVIEW - New and Notable in Spine (Posted on 10/11/2011)
Continuing on a spine theme, we present a number of companies that have either received first FDA 510(k) clearances in the space during 2011, or which are newer companies in the space and will be exhibiting at NASS in November.
Please visit us at the North American Spine meeting, too—we are exhibiting in Booth 124.
Amniox Medical, Inc.
NASS Booth 135
Provides NEOX amniotic membrane grafts for use in orthopaedic and spine surgeries
Principals reflect a variety of orthopaedic and spine industry experience (AcroMed/DePuy Spine, MedShape Solutions; St. Francis, Wright Medical, Zimmer, etc.)
4-Web Spine, LLC
FDA clearance for Spinal Truss Interbody Fusion Device, K083894, January 2011
Aaxter Co., Ltd.
FDA clearance for A3 Posterior Spinal Pedicle Screw system, K101374, March 2011
BM Korea Co., Ltd.
Kyunggi-do, South Korea
NASS Booth 236
Manufactures Guardian kyphoplasty system, Synster PEEK cages, etc. for Europe and Asia
Planning 2012 U.S. launch of current products plus bone cement, interspinous device
Bright Spine, Inc.
Boca Raton, Florida
FDA clearance for Galileo Spinal Spacer, K102449, February 2011
CoAlign Innovations, Inc.
NASS Booth 2625
FDA clearance for AccuLIF Cage expandable technology, K110270, April 2011
Cutting Edge Spine, LLC
Matthews, North Carolina
NASS Booth 134
FDA clearance for Interbody Fusion Device, K102957, April 2011
Focused upon direct supply relationships relative to PEEK Optima interbody systems
Salt Lake City, Utah
NASS Booth 744
FDA clearance for FMwand Ferromagnetic electrosurgical cutting and coagulation device, K110439, July 2011
San Diego, California
FDA clearance for Intervertebral Fusion Device with Bone Graft, K110915, July 2011
NASS Booth 1447
FDA clearance for ETurn Intervertebral Body Fusion Device, K100305, July 2011
Kalitec Direct, LLC
FDA clearance for Odalys Pedicle Screw, K111370, September 2011
Innovative Surgical Designs, Inc.
NASS Booth 2447
Developing Altum percutaneous, minimally invasive device/procedure for lumbar spinal stenosis, designed to maintain natural dynamics of the spine
Not commercially available in the U.S.; company preparing to undergo a U.S. IDE clinical trial
Intuitive Spine, LLC
Fort Myers, Florida
FDA clearance for Discovery Cervical Intervertebral Fusion Device with Bone Graft, K111484, September 2011
Company identifies itself as a low-cost alternative: “We have dramatically reduced the cost of these implants compared to our competitors by removing all unnecessary overhead…specialize only in PEEK Cervical Implants making us far more efficient…do not employ product representatives…do not spend money advertising in journals, promoting at national meetings, or in surgeon-directed marketing.”
Medfix International, LLC
NASS Booth 2712
Provides instruments, instrumentation and implants for orthopaedic, spine and neurosurgical procedures
Company identifies itself as “an answer to the overwhelming demand for lower cost alternatives to the traditional avenues for surgical equipment, devices, and supplies.”
Medical Concepts, Inc.
San Antonio, Texas
FDA clearance for interbody fusion system, K110659, September 2011
Parent company to Facet Fusion Technologies
Other products include Inductafil demineralized bone matrix, Emerald cervical PEEK system, Onyx PLIF PEEK system
NASS Booth 1347
Developing NP3, alternative to autograft harvest/alternative graft materials
R&D pipeline also mentions dynamic stabilization product
NASS Booth 1346
Objective is to “uniquely integrate the elements of innovation, vision, and cost effectiveness, all working towards the common goal of improving patient care.”
Provides spinal instruments, retractors, etc.; offers trade-in program and teaching facility discounts
NASS Booth 139
Offers StemVie synthetic bone graft substitute: resorbable calcium-based biphasic technology
Paonan Biotech Co., Ltd.
NASS Booth 2136
Focused upon less-invasive products for fusion without use of pedicle screws
Also offers trauma products (external fixators)
Pinnacle Spine Group, LLC
FDA clearance for InFill Intervertebral Body Fusion device, K103729, April 2011
FDA clearance for InFill Graft Delivery System, K111632, August 2011
Providence Medical Technology Inc.
San Francisco, California
NASS Booth 136
Developer of CE-Marked DTRAX percutaneous device for fusion, stabilization, indirect decompression
Members of management have served in a variety of roles at Cardinal Health, Depuy Spine, Kyphon, Medtronic
Royal Oak Medical Devices
Bloomfield Hills, Michigan
FDA clearance for Helena Lumbar Intervertebral Body Fusion device, K110177, April 2011
NASS Booth 2725
Formerly Innovative Surgical Solutions
Developer of Sentio MMG, proprietary nerve mapping and avoidance system for use in
Simpirica Spine, Inc.
San Carlos, California
NASS Booth 747
Developed LimiFlex Spinal Stabilization
System, available in U.S. for investigational use only
Recently closed $22MM Series C round of venture funding, will support European commercialization of LimiFlex
Winter Park, Florida
NASS Booth 2130
FDA clearance for Daytona Anterior Cervical Cage, K110733, August 2011
US Orthopedics Inc.
Pompano Beach, Florida
NASS Booth 2826
Specializing in low-cost orthopaedic and spinal implants that offer substantial cost reductions.
Offers trauma and spine products, including Mega Spine Multiaxial Screw
Saving Camelot (Posted on 09/11/2011)
In the 12th century, there was a magnificent place called Camelot. It was a place where King Arthur, Guinevere and the knights of the roundtable lived. Everything there was vibrant and well. In the last half of the 20th century, American healthcare was very much like Camelot. Most workers had insurance from employers. In 1965, every person over 65 was given insurance from the government whether or not they needed the subsidy. Nineteen percent of our less-fortunate population was insured by Medicaid.
For the most part, those who used or provided the care knew what anything cost. Patients paid little or nothing, as bills were paid either by the insurance company or the government plan. Physicians could order any test or use any product, and someone else paid for it. It was a bit like going into a grocery store with no prices on the items, taking whatever you wanted and then checking out without being asked to pay.
Quality was important, but became associated with specialization and how much technology you had available, rather than the end result itself. In fact, many marketing campaigns defined excellence with technology.
In this environment, the pace of innovation was startling. Medical knowledge and technology exploded. In orthopaedics alone, hundreds of new procedures were developed. Most of them were real advances. We identified over 13,600 diagnoses and created 6,000 prescription drugs and 4,000 operations.
Small unknown startups in healthcare became some of the largest and most profitable companies in the world. Physicians and hospitals were well-paid, and payment did not depend upon whether the procedures were successful or not. Except for the scourge of malpractice, healthcare for providers, patients, drug and medical device companies had become a modern Camelot.
Then Something Happened
Without the normal economic forces of capitalism in which buyers (patients and physicians) actually paid for the products they bought, the costs for providing this care rapidly began to rise. Despite advances, a disease like pneumonia that took 2.5 FTEs to treat now could take 15.
The cost of healthcare rose from an average of $1,000 dollars per person in 1960 to $8,000. This compared to the rest of the wealthy nations that were spending $3,500. One out of every eight dollars in America was spent on healthcare.
U.S. companies, now needing to compete in the global economy, were at a disadvantage with not only high labor costs but with up to 19% of their costs spent on healthcare. In the last ten years, healthcare costs for employers have risen from $1.60 per worker per hour to $3.35.
This rise in costs was felt by the government insurance plans, as well. Both state and Federal governments began running deficits to fund healthcare. In 1981, Tennessee’s Medicaid budget was half of its K-12 education budget. Twenty years later, it was nearly 2.5 times that same budget. Tennessee spent more money filling prescriptions for Medicaid patients than they did on the entire higher education system.
Predictions of the date of Medicare’s demise increased, due to its $37 trillion in unfunded liabilities. (In eight years, it’s predicted that that number of dollars spent on healthcare will be 1 out of 5.)
On top of all this came the recession. In just a matter of weeks, our economy unraveled due to the catastrophic failure of other large industries. The government felt compelled to bail them out. As the government had no money, the bailout was done on the Federal credit card, resulting in a sharp increase in debt.
The government is now spending $3.7 trillion while only taking in $2.2 trillion. Washington is paralyzed, trying to borrow more money; the word “default” is being thrown around and our bond ratings are threatened. The question for healthcare is, are we getting our money’s worth?
Are We Getting Our Money’s Worth? Do We Have Better Medical Care?
It’s hard to say for sure. I certainly hope so, but the fact remains that we are not good at keeping score. Less than two percent of surgeons aggregate patient reported outcomes after surgery. Without data, we cannot measure or compare our results.
Looking at those areas where the score is kept, we would have to say that we are not necessarily better than other wealthy nations.
In 1970, we were #1 in life expectancy for a woman who turned 65 (17 years). By 2006, we had fallen to #16 in this category (20.3). For men, we fell from #7 to #12 during this same time frame.
We were told that 100,000 people were unnecessarily dying as a result of medical errors. Don Berwick, M.D. challenged hospitals to save 100,000 lives and we saved 122,000. The common theme that is heard: We are not getting our money’s worth.
Yogi Berra once said, “It’s hard to make predictions, especially about the future.” Demographics, we can predict. Healthcare will put considerably more pressure on the government as 10,000 Baby Boomers turn 65 every day and join Medicare.
The economic recession persists, and earning our way out of our debt seems unlikely. States are verging on going broke. For the first time in history, I believe the average American actually cares about Federal spending.
Despite all of this stress, the government passed the Affordable Care Act which may subsidize insurance for another 30 million people. With health exchanges, that number could skyrocket.
Yes, we need healthcare to be available to everyone. However, questions persist. How are we going to pay for it? Is there a way to make care more cost effective and less expensive?
How Are We Going To Pay For This?
With a government unable to meet its obligations, and businesses unable to compete in the market place, ways to reduce payments will be found.
The conditions are ripe for a perfect storm. A hurricane warning is issued for Camelot. Is this the real deal, or just another scare? Some hospitals and physicians are ignoring the warning as just another false alarm. They have heard the cry of wolf before.
Others are “painting the shack” and expecting the leaks to stop and the cold drafts to disappear. I’m afraid that they will disappear before the cold drafts do.
This storm looks real, and there appears no way to escape its effects. It will have profound effects on our healthcare system, and upon Camelot. Here are some of the trends we will see.
1. Limited Resources are Part of Our Future
There is no way that we can sustain the growth in healthcare costs at a higher rate than the economy. Entitlements, including Medicare, once so sacrosanct, are now in play.
Healthcare will be put on a budget by the government and employers. Perhaps it will be fixed at some number related to the gross domestic product (17% or so).
This means that our resources won’t grow at their current rate, and will become limited in the future. Limited resources mean tough choices we haven’t had to make in the past.
2. More Financial Risk will Begin to be Borne by Providers and Eventually Patients
There has been no tension in our medical system to make normal choices like the ones we have to make in every other area of our financial lives.
Eliminating pay for complications is already in place. Bundling of payments for surgeries is already occurring. Putting risk on the providers and patients will begin to create this tension and establish more normal economic market conditions.
3. A La Carte Medicine will Slowly Disappear
Our current “a la carte” system of payment has created a mess. Twenty or more different entities might be paid for one procedure. In the future, payers will seek to pay one entity for either episodes of care or for the health of an entire population rather than our fragmented a la carte system. It will then be up to the providers to divide the money. This will be interesting
4. Patients and Payers Will Increasingly Want to Know Costs and Results
The Internet has fueled the information and transparency revolution. Who would buy a used car without the CARFAX? Our turn is coming. Hospitals and providers will need to provide costs and results of their care. This trend has already begun in Florida, where >90% of the legislature passed a law requiring Minute Clinics to post their prices. Can the rest be far behind?
Entrepreneurs backed by the Cleveland Clinic are creating Cast Light (casting light on pricing). I know that the public and physicians have never been interested before, but that was before they were paying the bill.
Every high ranking politician from President Obama to Senator Baucus has bemoaned our system of paying for procedures, not results. Expect paying for results to slowly evolve.
5. Physicians and Hospital Will Align
Despite the fact that physician owned facilities are cost effective and provide better experiences for patients, don’t expect anyone to embrace physician ownership. Studies have shown that there is higher utilization when physicians own facilities.
This perception of over-utilization will not go away, and will result in less, not more physician’s ownership. This will exert even more pressure on physicians who try to go it alone.
Orthopaedic surgeons are increasingly frustrated and will align with hospitals through employment or by entering into co-management agreements.
6. Hello, Corporate America!
Cost is our biggest issue. Unfortunately, our fragmented system of independent hospitals and physicians is not providing medical care that is affordable. Can ”Corporate America” make a difference? Unlikely entities are entering healthcare. I recently saw a walk-in clinic in an airport.
I have heard it predicted that 40 healthcare systems will provide most of our healthcare. Welcome to the corporatization of American healthcare. It’s already happened in many other businesses, from retail to restaurants.
And while many bemoan the loss of the small independent shops, the fact is, they just can’t compete on cost. However, Walmart didn’t put everyone out of business. There is always a place for something or somebody special. Expect medicine to eventually go the same way as the rest of America. (Walmed?)
7. Generic Medical Devices Sold Directly to Hospitals
Medical device companies provide onsite technical expertise in addition to products. This increases the price. These devices and services can consume a significant portion of the hospital reimbursement, in some cases leaving negative contribution margins. As a result, many companies are popping up that will provide generic-type medical devices at much lower costs.
Whether or not they will be up to the quality standards is certainly a question. Service may not be as available. However, the lure of lower prices will be attractive.
I recently attended a presentation from a startup company that is helping hospitals buy these lower cost products. In some cases the physicians can benefit financially, as well. The interest from the audience was keen.
Is There a Way to Make Care More Cost Effective and Less Expensive?
As Einstein said, “We can’t solve problems by using the same kind of thinking we used when we created them.”
A recent poll of hospital executives determined that cost, not quality, was now their number one priority. The best way to lower cost is to eliminate waste and inefficiencies in our hospitals.
Smart physicians and hospitals are beginning to transform the structure, the culture and the system of care to eliminate this waste and inefficiency. Getting results, not just getting your job done, is their mantra. They are using the focused factory approach and creating service lines that actually do improve care and lower costs.
They are slowly changing the traditional hospital structure. Departmental silos now look more like tents, with everyone included. A leadership triad of physician leader, clinical care/navigator and service line director is being given both authority and accountability. As noted, employment or co-management agreements are being used to create economic and clinical alignment with physicians.
Even medical culture is changing. As Peter Pronovost, M.D. said in his book, Safe Patients, Smart Hospitals, “Success as a physician was not singularly dependent on hard work or my individual skill. Culture and the systems it influences and creates can have a larger influence on patient outcomes.”
Physicians are responding by transforming their values from the treasured autonomy and individual performance to one of teamwork and standard work. Secrecy, blame and workarounds are being replaced with transparency and problem solving at the bed side. In this environment, patient and family systems of care are emerging that are effective and affordable.
These systems are addressing the continuum of care, not just hospital care. Community health education and prevention along with primary care involvement are being strengthened. Specialists are providing more consistent and effective education and communication. Patients who undergo procedures are better prepared and risks have been identified earlier and, in some cases, mitigated.
Operating rooms are becoming more efficient and safer. Hospital care is being provided in dedicated units by dedicated teams who have become experts. Standardization is creating consistency. Families have been made part of the caregiving team, complete with instructions and checklists.
Volunteers are provided with formal instruction and do real work that is safe for them to do. Providers who provide post-hospital care are made part of the team with similar standards and approaches.
Measurement in Order to Improve Systems of Care
Measurement, benchmarking and managing both hospital and patient reported outcomes is being done and aggregated into a national data base. Very focused multidisciplinary performance improvement teams meet regularly to discuss issues, review the data and create innovative solutions. Best practices from the best results from the national data base are being implemented.
Patient and family feedback is being gathered that goes well beyond the current HCAHPS surveys (Hospital Consumer Assessment of Healthcare Providers and Systems) that are too general to provide focused action. Increasingly, good results and metrics are being correlated with good processes.
Physicians and hospitals are being transparent by sharing this information with patients, physicians and payers in a way that is easily understandable. Hospitals, physicians and other providers are bundling their services to insurance companies for care 30 days before and up to 90 days post-procedure.
These hospitals and physicians have a proven record of better outcomes (Womack scores), lower complications (blood transfusion rates) and higher patient satisfaction (90+ percentile) while lowering costs ($2,000+ per case).
All of this translates into higher volumes (20%+ growth) and more profitability. While they won’t fully escape the brunt of the storm, these hospitals and physicians are better prepared for whatever is to come.
A Few Thoughts for Medical Device Companies
Medical technology has changed medicine for the better in many, many ways. It has saved lives and improved the quality of life for millions (I, for one, have benefitted myself, having a total knee replacement over 7 months ago). It has often reduced overall costs of care (e.g. length of stay, complications).
However, the technology itself has remained costly, at least with respect to reimbursements (and don’t expect reimbursements to rise in this environment). Medical products often appear as a line item with a big price tag. Any line item with as much potential financial impact will be targeted.
With the return of more normal economic conditions, pricing and competition will be a bigger challenge. Physicians are increasingly helping hospitals manage costs. There will be transparency in pricing. Demonstrating quality will be critical, but may not be enough. The new code word is “value.”
How will you prepare for this? Can you answer the question, Why is my product worth the cost? Will you be able to show that the outcomes of your products exceed those of similar lower cost products?Like some hospitals and physicians, some medical device companies are ignoring the warning as just another false alarm. Others are lobbying to maintain the status quo and delay the storm until another day, or as they are saying in Washington, “Kick the can down the road.” However, the smart ones see the big picture and understand the inevitability of this storm. For them the future is now, and they are preparing.
Perhaps the Golden Goose of Aesop’s fable is an appropriate analogy. How do we nurse the goose back to health? Transforming our healthcare system is the only way.
What Can We Do?
What can you in the medical device companies do? You are actually uniquely positioned to help.
You are in every hospital, have relationships with a majority of physicians and have skills and knowledge that healthcare could use. Stepping into the moccasins of customers is a good first step. Who is my customer today and in the future? What is it that my customer needs?
In asking and answering these questions, you are transforming from a supplier into a partner. This, of course, builds trust and loyalty.
I remember years ago hearing motivational speaker Earl Nightingale say, “If you help people get what they want, they will help you get what you want.” Is this too Pollyanna-ish and naïve, or good timeless advice? This is a question you will need to answer.
What are some medical device companies doing? They are acting like partners. In some cases, they are bringing industry “know how” to healthcare, such as Lean and Six Sigma. They are helping to optimize service line performance by reducing waste and inefficiency while providing better systems of care.
In other cases, they are measuring the outcomes of their products in partnership with their physicians and hospitals to demonstrate the quality and value of those products. Improving their educational offerings to include online case reviews and providing onsite mentors when introducing new and innovative procedures ensures higher quality care, reduces the learning curve and avoids expensive and unnecessary complications.
When the hurricane hits, and it will, Camelot as we knew it will never be the same. A crisis like the one that we are facing changes the game for everyone. But a crisis also provides new opportunities and new ways of thinking, as well as new bedfellows.
Hospitals, physicians and medical device companies must partner in transforming healthcare into a better and stronger system that provides patients what they need: effective healthcare that is cost effective and affordable.
Saving the old Camelot just isn’t possible or desirable, but just maybe we can create a new one that will be better. As the anthropologist Margaret Meade said, “Never doubt that a small group of thoughtful citizens can change the world, indeed, it is the only thing that ever has.” Or as Ross Perot said, “Talk, talk, talk is cheap, now just go out and do something.” Hope or help, it’s your choice!
Marshall Steele, M.D. is a board-certified orthopaedic surgeon and founder and Chief Executive Officer of Marshall Steele & Associates, a healthcare firm that implements Destination Centers in orthopaedics and spine, provides data collection tools for both patient- and hospital-reported outcomes and a nascent national registry for benchmarking and best practices. Dr. Steele is the author of the book Orthopedics and Spine: Strategies for Superior Service Line Performance, Healthleaders 2009. Dr. Steele may be reached via www.marshallsteele.com.
The Global Orthopaedic Industry: A High Altitude View (Posted on 08/15/2011)
As can be seen in this year’s installment of THE ORTHOPAEDIC INDUSTRY ANNUAL REPORT®, the global orthopaedic industry is facing a most challenging time, in which implant sales growth is proving to be increasingly difficult. (See below exhibit, excerpted from the Annual Report.)
Source: ORTHOWORLD estimates. © ORTHOWORLD Inc., 2011. All rights reserved.
That is, maturing markets, product commoditization and steady price degradation have become a reality. Although demographics remain favorable, making unit growth inevitable, the “traditional”
innovation model: incremental product improvements driven by physician collaboration, a predictable and timely path to commercialization and reimbursement, the ability to secure a higher end-market price with minimal clinical data—is being severely scrutinized and receiving pushback by regulators, payers, physicians and hospitals. Further, industry continues to feel a profound impact from a slowdown in procedure volumes coupled with uncertainties and delays at FDA, proposed health care reform, an evolving hospital/surgeon/device company relationship and a looming excise tax.
In an effort to find new sources of growth and achieve cost savings, orthopaedic companies have more aggressively pursued acquisitions. However, structural changes affecting the way business is (or will be) done may also require companies to experiment with new R&D and business models, consider diversifying and pursue collaborations with non-traditional partners in an effort to remain innovative and relevant. Maintaining the status quo will simply not be an effective go-forward strategy.
Although dollar growth in hips, knees and spine has slowed to the low- to mid-single digit range, growth in the trauma, extremities, sports medicine and biologics segments remains strong to robust. Emerging markets, especially China, India and Brazil, continue to offer growth potential. Those who adapt best to these challenging times and complex issues will win.
Let’s review the current and future landscapes to some of the abovementioned challenges.
Innovation has been negatively impacted as the FDA 510(k) review process has become more deliberate, less predictable and less transparent
Burden-of-proof now required to demonstrate substantial equivalence for 510(k) products
Increasing need for clinical evidence:
* ~12% of 510k’s submitted in 2010 included some form of clinical data
* Device innovation ex-U.S. is becoming a more attractive product development pathway
* Companies seek to bypass FDA by generating sales and building clinical experience ex-U.S.
* Comments heard with greater frequency: “It’s easier to get into a European country (or countries), secure clearances and commercialize a product” and, “if you want to generate value, go to Europe first”
What to Look For in the Future
Technologies/products that have the potential to improve patient outcomes cost effectively, hospital process/efficiencies or reduce error rates will achieve the greatest commercial success. Potentially disruptive technologies will face a more complex commercialization and reimbursement path.
Comparative Effectiveness will increase the scrutiny on existing and potential future treatments and products
* Data collection will be mandatory
* Implant registries will gain traction in the U.S.
* Reimbursement will continue to be challenging (and likely further reduced)
Lack of data will translate directly into lack of payment
FDA will accelerate enforcement of off-label use; continued investment will be required by device companies to ensure robust quality systems and processes are in place on the manufacturing side (captive and outsourced)
Device companies will integrate key departments (marketing, operations, development, clinical/regulatory, reimbursement) at earliest stages of product development to drive out costs and ensure an agreed upon go-forward strategy
Hospital and Physicians
Share of U.S. hospital-owned physician practices increased from 30% in 2003 to 55% in 2010; ~20% of orthopaedic surgeons were working directly for hospitals, medical centers and academic institutions in 2010
Hospitals are positioning themselves for a new voluntary business model for organizing and delivering health care – Accountable Care Organizations (ACOs)
* Objective is to have physicians and hospitals organize in an attempt to reduce Medicare costs and improve care; reducing costs is critical as Medicare enrollment is expected to increase by 33 million from 2010 to 2030 (vs. only 13 million from 1990 to 2010), with an unfunded liability of > $25 trillion over the lifetime of those in the program
* The healthcare provider shares the financial benefits of any new efficiencies with hospital and physician (and the risks, as well)
* Early feedback from hospitals and physicians suggest that proposed rules may be overly prescriptive, operationally burdensome and costly; “the financial rewards are too limited and the risks are too high”
Physicians are realizing potential benefits of being direct employees of hospitals (guaranteed salary, focus on patient care, no partnership issues); however, benefits come with a cost (no equity, diminished role as a key opinion leader, fewer product options)
Vendor consolidation, slower product adoption and pricing pressures continue to squeeze device companies, especially smaller ones
What to Look For in the Future
Physicians will continue selling out to hospitals:
~ 70% overall and ~ 35-40% for orthopaedic surgeons by end 2015; bond between surgeons and sales reps/device companies will continue to diminish
Delivery incentives will change
* Team-based care (partnerships with primary care physicians, specialists, non-physicians, hospitals) will be incentivized
* Quality outcomes will be reimbursed (versus volume)
* Outcomes data will be more transparent (providers performance will be measured)
Larger hospital organizations will gain greater leverage, force additional price reductions and limit product options
Patient length-of-stays will be further reduced
Device companies will be proactive in driving cost out of the development and manufacturing processes
* Focus will be on simpler, easier-to-use, better and less expensive products
Generic implants/products (priced ~50% below the “standard,” but with an alternative distribution model) and/or those designed for ex-U.S. markets will penetrate a small but growing segment of the U.S. market
M&A, Early-Stage Deals and Start-Ups
Orthopaedic M&A is on the rebound with the potential for above-average year in 2011
Strategics with large cash balances have become comfortable with revenue-generating tuck-ins as they look to “move the revenue dial and increase share across hospitals”
* ~14 material orthopaedic deals were announced/concluded through May 2011 (record of 37 was achieved in 2007)
The percentage of companies without revenue that were acquired by strategics has dropped in each of the past three years
Series A investments by VCs in 2010 dropped for a third straight year; however, select companies with good technologies were still being funded
The VC MedTech model showing cracks
* Absence of an IPO market
* Shortage of capital resulting in focus on existing portfolio companies
* Movement to later (vs. earlier) stage investing
* Admission of longer road to liquidity (10+ years)
* Preference for 510(k) products/technologies that don’t require human clinicals
Start-ups, unable to secure early-stage VC funding, seek non-traditional sources of capital, including angels, corporate VC arms, corporate partners, state innovation funds and the military
Providers of medical care have been active acquirers of late as they look to cut costs; Wellpoint acquired CareMore (26 clinics in 3 states); Humana bought Concentra (clinics in 40 states); and Highmark recently purchased the second largest hospital chain in Pittsburgh
What to Look For in the Future
Early-stage VC investing will take time to return, creating a void; VC-backed companies will be more “reasonably priced” to ensure an exit/liquidity
Revenue-generating tuck-ins will continue to be preferred by strategics as they seek to diversify product portfolios and protect margins; ex-U.S. acquisitions will increase, as large companies have substantial overseas earnings offshore
Strategics will continue to be more selective in their pursuit of pre-revenue/technology opportunities
First-mover advantage will increase in importance, especially given regulatory and payer push-back and expected scrutiny on incremental product enhancements
Select boutique pharma companies, looking to “take ownership of a disease” (treat patient from head to toe, beginning to end), will emerge as serious contenders in device acquisitions
The Consumer’s Impact
Consumers (patients) affecting unit trends as they less-aggressively consume healthcare
CIGNA and Humana had superb Q1/11 earnings due to “decelerated use of healthcare” by consumers
* Consumers remain deeply concerned about uncertain employment outlook, higher deductible healthcare plans, expiration of COBRA benefits
* Percentage of the population employed (58.2%) is lower than when the recession officially ended in June 2009 (59.4%)
* Employment within healthcare looking less robust; healthcare sector feeling pressure pushing hospitals and health systems to cut costs
What to Look For in the Future
* Procedure volumes will remain soft as long as the economy and consumer confidence continue to stall
* Economists have downgraded the prospects for the growth of the U.S. economy for 2H11; belt-tightening from the implant companies will be the norm through year-end
* Every healthcare system in the world will seek to cut additional going-forward costs due to austerity measures
Overview of Orthopaedic Market
* Demographics remain favorable
* ~32 million individuals will soon be insured
* Unit growth is inevitable
* Capital spend environment has improved
* Hospitals still willing to pay for technology
* The “traditional model” and value proposition of products are severely challenged
* Commoditization is a reality; product mix becoming less significant
* Steady price degradation, including a sequential price step-down
* The economy and consumer confidence have stalled, impacting short-term procedure volumes
* Newer alignment between surgeon and hospital is diminishing the bond between surgeon and sales rep/device company
* 2.3% excise tax looming
2010 Worldwide Market Growth and 2011-2012 Projections
85% of total 2010 worldwide dollar market comprised recon, spine, trauma and arthroscopy; worldwide revenue growth +5% in 2010
Hip and knee revenue growth declined from double-digits in 2006 to low single-digits in 2010; five companies accounted for ~95% of 2010 worldwide sales
Hips +3.5% worldwide and +2.5% in the U.S. in 2010, but only +1% in 1Q11; projected sales growth +3% to 4% in 2011 and 2012, respectively
Current hot topics:
* Movement toward traditional bearing surfaces
* Anterior approach gaining traction
* New product launches are continuing
* >50% of cases in 2011 will be performed on patients <65
Knees +4.5% worldwide and +4% in the U.S. in 2010, -1% in 1Q11; projected growth +3% to 4% in 2011 and 2012
Current hot topics:
* Patient-specific cutting blocks gaining in popularity
* Robotics continue to create buzz
Spine +2% worldwide and +1.5% in U.S. in 2010, +3% in 1Q11; projected growth 4% to 5% in 2011 and 2012 (or more in line with hips and knees); 9 companies accounted for ~90% of worldwide 2010 sales
Current hot topics:
* Intense pricing pressures
* Continued private payer pushback/pre-authorization requirements (lumbar fusion)
* Clinical value questions
* Shift toward less disruptive, MIS procedures
Items For Consideration
The biggest challenges facing orthopaedics today include the ability to remain innovative, demonstrate value and ensure growth. Maintaining the status quo will no longer be good enough.
Orthopaedic companies may address these issues by considering diversification, new business models (including outside incubators, less expensive delivery/distribution), more creative deal-making (out-licensing, selling off non-growth lines, VC arms) and relationships with non-traditional partners (including payers, pharma and other large medical device companies).
Products/technologies that focus on repair and prevention vs. intervention will be preferred.
Specific orthopaedic business segments/tech-nologies that will remain attractive include extremities, sports medicine and biologics.
Healthcare reform may favor faster, less expensive diagnostics.
With increasing pressures in the more established healthcare markets, device companies will look to emerging markets like China, India and Brazil to fuel future growth. MedTech markets in China and India are expected to grow between 15% to 25% over the next decade.
Whether you agree or disagree with my views, I’d encourage you to identify your own take-aways, trends, implications and future views, incorprate them into your company’s strategic planning process and confirm whether they validate, alter or completely change your go-forward strategy.
The winners in orthopaedics have always been those who adapted best to the changing environment.
Urbanowicz Consulting (UC) is a medical device advisory firm with a musculoskeletal focus seeking to enable clients to achieve strategic and transaction-related goals by capitalizing on market opportunities.
UC offers a unique perspective on how large global companies approach strategy, valuation, negotiations, due diligence and integration, and a thorough understanding of achieving success throughout all phases of the transaction process. Please learn more online at www.urbanowiczconsulting.com, and contact Don Urbanowicz at firstname.lastname@example.org.
Trauma and Spine Market Standings in Light of JNJ/SYST Merger (Posted on 06/15/2011)
Assuming that the Johnson & Johnson/Synthes acquisition proceeds as expected in 2H11, the trauma and spine market standings could potentially change as follows.
TRAUMA MARKET STANDINGS, PRE-TRANSACTION
TRAUMA MARKET STANDINGS, POST-TRANSACTION
SPINE MARKET STANDINGS, PRE-TRANSACTION
SPINE MARKET STANDINGS, POST-TRANSACTION
(Exhibits include Biomet, NuVasive, Smith & Nephew, Stryker, Zimmer, etc.)
Based on 2010 earnings, uses data published by Mizuho Securities USA.
Integrating Internal Strategies to Impact a Successful Product Launch (Posted on 06/15/2011)
Your company is ISO 13485 certified and has internal processes in place. Individual departments have well-established SOPs. Yes, you have successfully introduced several products to market on a project-by-project basis. If it’s not broken, why fix it? Why the need to integrate strategies?
“Strategy Integration” has emerged as the new catchphrase in the medical technology sector. As companies face daily challenges of bringing new products to market, they continuously seek ways to drive efficiency, reduce internal costs and expedite product approvals to drive profitability.
In addition to the daily operational activities, successfully launching a product requires the combined efforts of several key functional groups: regulatory affairs, clinical research, reimbursement and marketing. The Regulatory team has to navigate the maze of FDA; Clinical Research is tasked with satisfying enrollment in a timely manner while producing data to meet the needs of key stakeholders, Reimbursement will grapple with the Federal healthcare system for payment constrained within a cost-contained environment, and Marketing has to create a value proposition to produce the return on investment that shareholders expect from forecasted sales.
In the end, the individual strategies of each functional group will impact the others. If the individual strategies are integrated early in the product development phase, the better the chance of a timely, successful launch. The clinical trial protocol will impact FDA clearance. The approved labeling will dictate what is medically necessary for payment. The target market will be determined by who will pay and who will buy. Yes, the needs of FDA, payers and the market are different, but are all very much aligned.
A well-designed, departmentally-integrated strategic plan (a.k.a. your Blueprint) will drive efficiency, decrease time to market and ensure coverage and payment, while driving market adoption and generating revenue, thus increasing company profitability. We see our business change day to day as a result of many uncontrollable factors in the healthcare environment. It is important to be as flexible as possible with your Blueprint.
There is no one right way to build the strategy; however, several key components are necessary to build the foundation of the plan.
Critical Components of the Blueprint: Your Roadmap to Success
Product Development Phases
Phase I: Conceptualization
The product idea is conceived.
Phase II: Verification
Determining whether the product can be manufactured.
Phase III: Validation
Is the product reproducible, marketable, will it get approved?
Phase IV: Commercialization
Will the product sell? To whom, and for how much?
Milestones do not belong to the individual groups represented, but to the entire organization. Identify what you want to achieve within each product development phase and agree on ownership. It is also critical to put metrics into place to track and analyze the success of the project.
Key Integrated Activities
These key activities will support the identified milestone in each phase. Two, three or four key functional groups may be involved in an activity. Keeping in mind that the Blueprint is a flexible process, you may need to involve other key functional groups to successfully complete the activity.
After completion of the project, it is important to review the process and determine what was effective, what wasn’t and what can be changed to ensure a higher success rate for the next project.
Tying It All Together
Exhibits 1-4 depict the four phases of product development, including key milestones, key integrated activities and functional groups involved in the successful launch of a medical device.
Integration will have a different meaning to every department and every company. However, the underlying message is simple. By identifying the appropriate milestones, involving the appropriate key functional groups, creating realistic milestones and maintaining flexibility along the way, companies can successfully create and implement an integrated plan without the process becoming too complex. The end result will be a new process for future projects that will not only ensure a successful product launch, but also drive efficiency, reduce internal costs, expedite product approval and most importantly, have a positive impact on a company’s bottom line.
Exhibit 1: Phase I – Conceptualization
Exhibit 2: Phase II – Verification
Exhibit 3: Phase III – Validation
Exhibit 4: Phase IV – Commercialization
Kelli Hallas is the Executive Vice President of Reimbursement at Emerson Consultants, Inc., with over 20 years of experience in the Medical Device sector. Contact Kelli at email@example.com.
ANALYST COVERAGE - Johnson & Johnson Acquisition of Synthes (Posted on 05/10/2011)
On April 27, Johnson & Johnson (JNJ) entered into a definitive agreement to acquire Synthes (SYST) in a stock/cash + stock exchange, valued at US $21.3 billion. The transaction is expected to close during the first half of 2012.
For 2010, SYST reported consolidated sales of $3,687MM, +8% from 2009. (North America $2,154.2MM, +4%; Europe $850.2MM, +11%; Asia Pacific $424.4MM, +10%; Rest of World $258.2MM, +25%)
Per Larry Biegelsen of Wells Fargo Securities, the acquisition appoints JNJ as the trauma market leader with ~55% market share, offers JNJ “critical mass” of ~22% of the market in spine and gives JNJ ~28% share overall in the orthopaedic market. This latter figure is twice that captured by JNJ’s largest competitors, Stryker and Zimmer.
Bundling products may give JNJ a leg up in the hospitals. Biegelsen noted that JNJ’s size may offer the company an advantage when contracting, as it will claim the #1 or #2 position in every major orthopaedic segment. (The only company that comes close is reportedly Medtronic, which has gaps in its offerings.)
Biegelsen and others maintain that the deal indicates a vote of confidence in the market, and could lead to further consolidation in orthopaedics. JNJ’s bulk could require other large players, e.g. Stryker and Zimmer, to acquire mid-size players.
SYST’ relationship with the AO Foundation is expected to remain intact. The non-profit organization trains surgeons on SYST products, and SYST provides AO with an annual research grant.
Wells Fargo notes that the trauma market has not experienced pricing pressure like large joints, as most trauma procedures are non-elective and well-reimbursed. Overall, the analysts do not expect any changes in the trauma scene. JNJ itself forecasts 7% global trauma growth and flat to modest price pressure.
In spine, JNJ does not expect sales dissynergies, focusing instead on complementary products and growth, but Biegelsen and other analysts suggest that potential sales dissynergies could be picked up by Medtronic, NuVasive, Orthofix and Stryker. JNJ expects the spine market to grow at ~2% worldwide, with faster growth coming from emerging markets.
Finally, it was noted that the companies’ selling models differ: SYST sells direct, while DePuy uses distributors. The merger may force a change to JNJ’s sales strategy. Also, Wells Fargo suggests that JNJ may try to reduce costs by removing reps from high-volume ORs.
Per the companies’ conference call, an integration team comprising DePuy and Synthes employees will work out the integration planning and discern the optimal commercial model going forward in the U.S., Europe and Asia.
Sources: Synthes, Inc. and Johnson & Johnson press releases; Form 425 for Johnson & Johnson, Securities and Exchange Commission; analyst reports from Mizuho Securities USA Inc. (www.mizuhosecurities.com) and Wells Fargo Securities, LLC (www.wellsfargo.com)
My Sales Rep is Mired in a Slump ... What Now? (Posted on 04/15/2011)
Over the past two years, as a leader in medical sales education, we have trained hundreds of reps from the major orthopaedic, spine, extremities, biologics, sports medicine and trauma companies. The most common question we hear from our clients is, “My sales rep has hit a wall; now what?” To answer this, we must go back to the beginning.
In the beginning, your rep was full of hope, optimism, work ethic and engagement. He got up early and stayed late to make the sale. (We’re assuming that you had a good training and integration strategy for new hires!) Activity was the order of the day, and rarely does high activity lead to low productivity.
But something happened. Your sales rep hit a plateau and stopped driving new business. Why? Perhaps it was a level of financial security that took away an intense drive to produce. Perhaps he became so busy covering cases that he forgot to sell. Perhaps it was believed that he could never lose his existing customers. There could also be a price deterioration that led to the need for more growth than ever before.
One thing is certain—reps hit a wall because they never saw it coming. Neither did we.
Whatever the reason, your rep stopped performing the activities that led to a constant “filling of the pipeline.” There was no new development; merely the servicing of existing business.
Could this wall have been avoided? Absolutely. As managers, we need to take ownership of this problem. We are often too busy working with the great reps, because there is where the revenues lie, or with the non-performing reps, because there is where the dangers lie. We forget to demand accountability for sales behaviors from the majority of our reps.
Having spoken at a number of companies’ national sales meetings and having interviewed the distributors and hiring managers, we have been able to document what you already know in your business:
* The average rep is making 2.8 sales calls per week
* Reps are calling on less than 20% of their potential customer base (generally the surgeons with which they already do business)
* Most reps are unmanaged or undermanaged
Now they’ve hit the wall. Your first action should address how thick that wall is. Is this a rep who is capable of returning to the fundamental sales activities that launched her business in the first place? An honest assessment, including a self-assessment from your rep, is a critical first step.
If the rep is not ready to take the steps necessary to drive new business again, then it is time for you to change directions. You will only know this through constant accountability and visibility into the activities. Great reps don’t mind you knowing what is going on, since it only makes them better. Poor reps don’t like you looking over your shoulder, since it exposes a lack of proper activity.
If your rep is ready to make changes, then it is critical for you to make certain that he has the tools necessary to succeed. These tools include a return to the basics of selling.
Your rep needs to re-engage his surgeon base. He needs to be communicating with all of his customers, not only the 20% he typically works with. The ABCs of this business are not the traditional “Always Be Closing,” but instead “Always Be Conversing.” He needs to have a plan with every potential customer: what will he talk about, when will he talk about it and how will that conversation move the relationship forward.
Your rep needs to re-engage her understanding of the procedures in which your products present a competitive advantage. Over the course of training hundreds of reps, we have seen this to be a major shortcoming: reps understand their products fairly well, but do not understand the environment (anatomy, pathology, challenges) that is of concern to the surgeon. Reps present products from their point of view, not from the surgeon’s.
Your rep needs to begin to think of the relevance, what we call the Value Proposition, of your products in these procedures. When reps hit a wall, they tend to fall back on marketing-speak features and benefits, rather than truly understanding what it is about an implant or instrument that would positively affect a surgeon. Surgeons don’t often care about what the brochure says; they care how something makes their outcomes better, their surgeries quicker or their results more reproducible.
Your rep needs to relearn the competition, almost as if he were going to be selling it instead of your product. If he doesn’t fully understand why his potential customers are using the “other guy,” then he has no sense for how to change a surgeon’s practices. An important piece of the puzzle will remain just out of his grasp.
Most importantly, your rep needs to find her confidence again. Whether through role play, scripting or some other practice, she needs to find the words to communicate the passion that she needs to feel for your product. Passion sells, but when reps get too busy, they may stop having the sales conversations they need to have. Then, when they encounter small obstacles, they give up entirely. Rep presentations become flat, simple repetitions of a message that doesn’t ring true.
All of these fundamentals can be easy to lose in the day-to-day whirlwind that is device sales. Who has time to rethink his entire territory, procedures, bag, competitors’ bag and the very words he is going to be saying next time he runs in to a potential customer?
The realization may be dawning on you that this task of bringing reps over the wall is enormous. Perhaps one of the greatest benefits of systematized training, almost regardless of the training protocols employed, is the time away from the front lines of battle to rethink the very fundamentals of the business.
The simple reality is that, viewed from one angle, this time is expensive for you and for your reps. Someone has to cover cases, someone has to make calls, and all of these can be seen as real dollars lost.
Lost? Better to say real dollars invested.
Companies spend tremendous resources to make certain that sales forces know their products...what size screws, what pitch thread, what metal options, etc. Compared to these investments, however, companies spend precious little time or resources to make sure that reps are well trained and prepared to perform one of the most critical parts of their job, which is to SELL.
In any professional endeavor, more time and resources will be spent in practice than in performance. Whether it’s an actor in a movie or an athlete on the field, there is a disproportionate amount of time spent preparing. A football player will spend 3,600 minutes a week preparing for a 60 minute game.
How many minutes do your reps prepare for each of their two-minute sales calls?
Your reps have a limited number of surgeons, a limited number of sales calls and a limited number of impressions that they can make in any given week. While our preparation to sell might not be as dramatic as the 60-to-1 ratio of a football player, it is a tragedy that most reps do not spend any time preparing for a sales call with a surgeon. When they do make sales calls, they tend to be largely unplanned. There is generally no thought given to a long sales cycle through which we are carefully moving a potential customer through a thought process, following up religiously and proving our value to their surgical team.
Whether you do the training/rethinking yourself or use an outside system, every bit of it is wasted if you do not add the final ingredient: holding reps accountable. The single most important change we have made in our training programs over the past two years is to provide visibility and accountability for behaviors, both to the reps and to the hiring managers who sent them.
Without structured accountability, the power of bad habits prevails against any new plans, decisions or commitments. A single sheet of paper that you and your rep go over weekly will win out over the best of intentions every single time. Done properly, it will take very little of your time, and will make more difference than you can imagine.
In fact, the entire exercise of asking what to do with reps who have hit a wall is meaningless if you won’t engage with the process of accountability. Whatever small successes they achieve now will simply bring them to the next wall, and you will find yourself trying to figure out what to do about it again, some time in the future.
Fundamentals. Accountability. With the right rep, it works every time.
Jim Rogers is the Founder and Chief Executive Officer of Medical Sales College, a leading provider of training for new and existing medical device sales reps. Medical Sales College is the only State Approved and Regulated school for training medical device sales reps, and has worked with most major orthopaedic, spine, extremities, biologics, sports medicine and trauma companies. Learn more at www.medicalsalescollege.com.
Prior to Medical Sales College and American Institute of Medical Sales (AIMS), Jim spent over ten years as a sales rep for Stryker and Vice President of U.S. Corporate Sales for Wright Medical. He can be reached at JRogers@medsalescollege.com.