Marking Time at AANS
BY ROBIN R. YOUNG CFA, MAY 10, 2004
By Wednesday the most popular document circulating the floor of AANS was a crossword puzzle followed by USA Today's sports section. Compared to AAOS (which was like Times Square), AANS was a monastic retreat; for the exhibitors. For surgeons it was a wealth of scientific sessions. For writers and analysts it was a string of long, leisurely discussions with CEOs, sales people and surgeons. We spotted two of the leading Wall Street analysts prowling the conference - Tom Gunderson of Piper and Bill Plavonic of First Albany. Arguably, two of the more astute analysts in the industry; they were in hog heaven.
For us two words summarize this conference: Marking time. As a group, attending surgeons and sales people are crossing off the days until disc arthroplasty makes its debut. It will be the Charite. Johnson & Johnson (NYSE:JNJ) will again be in the position of being first with a potentially game changing technology.
In cardiology JNJ was first with the Palmaz Schatz stent roughly 10 years ago. Charging $2,000 for what was, essentially, a medical grade Bic Pen spring, JNJ lost virtually the entire the market as soon as competition emerged. JNJ also introduced the first drug coated stent - again, only to see its advantage effectively ripped away by Boston Scientific. Now, JNJ will be first again. Will it be able to maintain its leadership?
Coincident with the AANS conference was the Spinal Arthroplasty Society conference in Vienna. In Europe, all the early disc arthroplasty systems are approved by the regulatory authority and are competing for market share. Some preliminary opinions about JNJ's Charite, ProDisc, etc. are drifting back across the Atlantic. Among the early comments are that surgeons are partial to the Charite, but that its instrumentation is complicated and cumbersome. Not surprisingly, JNJ is rumored to be devoting significant resources to improving Charite's instrumentation. ProDisc is said to have the best instrumentation and is the easiest to implant. But, having a three component system, the failure mode is more complicated than Charite. Finally, we have heard that surgeons find Sofamor Danek's (Medtronic) Maverick to combines the best of both Charite and ProDisc - namely, simpler design with easier instrumentation.
Rumor has it that JNJ has overhauled the Charite instrumentation and will introduce a more surgeon friendly product. FDA panel meets June 2nd. Odds are approval will come at some point between November/2004 and March/2005.
Medtronic's booth was dominated by biologics (primarily InFuse®), minimally invasive products and such platform neuro products as its tremor control therapies and trauma implants.
- Biologics
- InFuse® approved for trauma applications. Last week the FDA approved BMP2 for use in open tibial fractures. Infuse isn't just for spines anymore. In our judgment, this was the biggest news of the conference.
- Biologics Cart: Put all biologics inventory on a single cart that can be rolled from OR to OR. Boxes of Infuse® on the top shelf, DBM on second shelf, engineered allograft on the next shelf and so on. Smart idea.
- Independent biologics sales force. With backgrounds selling such products as Cartecel or tissue engineered skin and armed with biology degrees, this is a qualitatively different sales force than the traditional metal sales person. And they were very good explaining the mechanism of action for all the biologics. Grounded in the science yet possessing the sales man's ability to listen to the surgeon, this is an impressive bunch.
- Resorbable polymer sheets for cranial repair. Macropore's products were well in evidence and garnered strong reviews from the surgeons we interviewed. Comments included: easy to handle, structurally adequate and resorbable.
- Minimally invasive spine surgery
- Sofamor Danek introduced the new Versatile Lumbar Interbody Fixation (VLIF) system at the conference. The technique allows surgeons to operate with much smaller incisions, more precision and less damage to the surrounding soft tissue and, therefore, deliver less post-operative pain and faster recoveries. The VLIF technique takes advantage of SDG's new PYRAMETRIX® ADVANCE Instrument Set in combination with the CD HORIZON® SEXTANT(TM) and METRx™ Spinal Systems.
- Disc arthroplasty
- Sofamor Danek has the market surrounded with two cervical offerings (Prestige and Bryan), one strong lumbar product (Maverick) and a disc nucleus replacement (PDN).
- Combined with an industry leading sales force, Sofamor Danek has to be odds on favorite to eventually grab the market leading share.
The following are some of our jottings from the conference:
- 2004 continues to be a big year for new product introductions at Blackstone Medical. The array and variety of sizes on the PEEK cervical implants is impressive. Now allograft and calcium sulfate void fill are part of the line.
- It was great to get caught up with the guys at Invibio, the originators of PEEK plastic. In an industry (plastics) that is built on volume production these guys are the ugly ducklings that have turned into swans. They developed a small volume plastic, PEEK, that is now used by virtually every major or (and most minor) manufacturer of spinal implants. Standing in their small booth it was no doubt gratifying to see PEEK implants featured at half the booths in the hall.
- The lot in life of a materials supplier is to make other company's products better. Such is the case for allograft supplier Regeneration Technologies who emphasized safety and the BioCleanse process in their booth while most of the product discussion occurred at Sofamor Danek's booth.
- Confluent Surgical was probably the most crowded booth at the conference as surgeons were introduced to DuraSeal - a spray gel that should be available by the end of this year. DuraSeal sets up in less than 2 seconds and provides an effective adhesion barrier. Over 50% of all surgery patients endure some form of post surgical adhesion. In the spine or in the brain such adhesions can cause pain or neurological deficits so Confluent's simple, safe, effective spray attracted significant interest.
- Kyphon's booth didn't have surgeons standing three deep and I doubt any surgeon interested in Kyphoplasty hasn't already been trained or at least approached by the company. Spending nearly $90 million a year on marketing has to build strong surgeon awareness, interest and, as we've seen in the sales numbers, decisions and action. As a result, not much booth traffic. CEO Rich Mott and IR person David Schummer found that they had lots of quality time to spend with surgeons.
- Cloward Medical, the famous Hawaii based manufacturer of unabashedly old fashioned instruments, had the most colorful booth. Standing in Hawaiin shirts, Mr. and Mrs. Cloward were a refreshing throwback to an earlier and certainly simpler era.
- CryoLife demonstrated the ability of its surgical adhesive BioGlue to set up and adhere. Its posters illustrated the use of BioGlue in coronary repair. Why was CryoLife at a neurological society meeting? Eventually, the company wants to market its BioGlue for all manner of neurological repair.
