What is the Second Generation Disc Arthroplasty Implant?
BY ROBIN R. YOUNG CFA, JULY 26, 2004
Last week Stryker announced it was offering $120 million in cash, plus as much as double that amount in future royalties to buy a 'second generation' disc arthroplasty implant. The implant, developed by SpineCore, is a single piece (three components before construction) metal disc that fits between the vertebrae, in the disc space for both lumbar and cervical indications. It has a saddle shaped bearing surface that delivers motion above and below the disc. Its domed design has no keel unlike the Charite. As a result, it is designed to slide into the disc space nicely. This may prove to be more surgeon friendly than such other disc arthroplasty designs as JNJ's Charite, Synthes's ProDisc or Medtronic/Sofamor Danek's Maverick.
SpineCore's implants are not likely to be ready for the U.S. market before 2008 or 2009. Paying as much as $400 million (stated purchase price, ongoing cost of the clinical trials and future royalties) for a product that will not be on the market for 4 or 5 years takes a lot of explaining. Perhaps because JNJ, Synthes and Medtronic all paid hundreds of millions of dollars to buy disc arthroplasty products ahead of Stryker, management need not worry about Wall Street's reaction. For whatever reason, the analysts on last week's call were uniformly positive about the announcement. Could these be the same people who a week earlier chopped 16% out of Stryker's market value, in a single day?
Maybe paying such exceptional sums to buy early stage disc arthroplasty companies is now routine. To paraphrase an old Robin Williams comedy routine, paying more than $200 million for an early stage disc arthroplasty company is God's way of telling you that you have way too much money.
Perhaps in a moment of wanting to justify such an expenditure, Stryker's management called SpineCore's designs 'second generation.' This begs the question, what is a 'second generation' disc arthroplasty product?
To provide context to that question, we at HealthpointCapital look at technology in terms of its functionality in the patient's continuum of care. After evaluating literally thousands of medical innovations over 20+ years, we have come up with four basic categories of medical technology:
- Refinements are products that are essentially the same as existing technology but with modest design changes.
- Modifications are products that modify current technology but do not change the surgeon's surgical approach or technique.
- Extenders are products that extend the patient's continuum of care. In many respects, disc arthroplasty is an extender in that it will fit between removal of herniated disc material and spine fusion.
- Game Changers are products that obsolete current treatment modalities. Technologies like Kyphoplasty that deliver bone cement to treat vertebral compression fractures have obsoleted bracing for that indication and ushered in an entirely new treatment protocol.
Using this framework, disc arthroplasty is, in effect, a third generation spine cage. Spine cages, the first broadly accepted, interbody, vertebral implant, were really modifications of the pedicle screw system. The cage restored disc height while also promoting fusion, as did pedicle screws. The cage changed the surgical approach and, in that manner, created new options for both surgeon and patient. The next generation spine cage was, in our view, the resorbable cage or bone dowel. It delivered the functionality of the spine cage (restore disc height) but with a new, clinically relevant feature; it resorbed. Disc arthroplasty products are, like the cages, an interbody implant which restores disc height, but adds a clinically relevant feature; motion preservation.
Are FlexiCore or CerviCore second generation disc arthroplasty products? SpineCore's FlexiCore and CerviCore technologies look like a mix of design refinements and modifications meant to create an easier surgical approach and, perhaps, better clinical outcomes for the patient. To us, SpineCore's products look like first cousins to Charite, et al.
Like all disc arthroplasty products, SpineCore's clinical purpose is to reduce the incidence of adjacent level disease. The key and perhaps more interesting feature of the SpineCore implants is ease of use. While we will not know the full dimension of these products until the clinical trials are well underway, in a year or so, the advance word is that they are significantly easier to use than such products as JNJ's Charite, which will be the first disc arthroplasty product approved by the FDA.
And in that sense, the SpineCore products are addressing the number one fear that surgeons have regarding disc arthroplasty, namely that this is a new and potentially complex procedure with, initially, high potential rates of complication.
Given the history of medical technology evolution, we suspect that the true second generation disc arthroplasty implant will have an entirely unique design; possibly one that is not yet in clinical trial. We think, it will quite likely employ different biomaterials and gain surgeon acceptance because of promises to rectify the failures and problems of the first generation discs. But, of course, we do not know what those failures and problems are. We may not know for two or three years. At this stage, we can only guess. Stryker, of course, has done more than guess. It has voted and made a $120+ million statement in favor of the SpineCore design.
