Spinal implant market grows, but few companies benefit
Curt Werner
Still, the spinal implant market remains tantalizingly out of the reach of all but a few manufacturers. The reasons? The segment is so litigation-prone that it has frightened off most potential competitors (or at least discouraged them from entering the market). The current players are very wary of the situation. For example, Memphis, Tenn.-based Sofamor Danek, the clear market leader, said in January that its 1996 financial results include a $50 million pre-tax charge relating to costs associated with product liability lawsuits.
To carry the illustration further, Sofamor Danek is in the midst of a boom period: making remarkable gains in sales, offering a respected product line and enjoying an outstanding reputation among physicians. Nevertheless, the company is still a defendant in more than 2,800 individual product liability lawsuits, many of them arising out of instrumented fusion surgeries that involved bone screws. Sofamor Danek is not the only lightning rod for legal action. Many other manufacturers of internal fixation devices have been sued by patients who have undergone spinal fusion surgery that used these screws. In fact, Sofamor Danek, which feels it has defenses to these lawsuits, is merely alleged as a co-conspirator with the majority of other spinal implant manufacturers in these cases.
Government regulation is another big headache for the spinal implant manufacturing community. The FDA has been watching the segment very closely. Too closely, say its participants. “I spend half of my time worrying about litigation,” E.R. (Ron) Pickard, Sofamor Danek’s chairman and CEO, told The New York Times last year, “and the other half worrying about regulation.” Most of the troubles in the segment can be traced to the Dec. 17, 1993 20/20 show on ABC, that detailed horror stories of some patients who were fitted with pedicle screws manufactured by Cleveland-based AcroMed, a company that is now the second largest spinal implant player. Though the screws had been used successfully for decades, some patients were portrayed on the show as “virtual human guinea pigs.” The panic was on, and so were the calls to attorneys’ offices and to the FDA. The fallout has just recently subsided.
In the meantime, it would seem that most of the large orthopedic implant manufacturers, companies that are dealing with heavy price pressures in their knee, hip and shoulder implant product lines, would join in for a shot at that “last frontier,” a segment that has much less price pressure, fewer competitors and probably more opportunity for growth. James Gallogly, president and COO of Sofamor Danek, probably put it best: “The large pharmaceutical corporations like Bristol-Myers Squibb and Pfizer (which own Warsaw, Ind.-based Zimmer Inc., and Rutherford, N.J.-based Howmedica Inc., respectively) are very worried about placing their $20 billion companies at risk to enter a $250 million market.” Not only that, but these huge pharmaceutical companies also have consumer products in fragile, competitive markets, whose sales could be ravaged by the bad publicity a big spinal implant lawsuit would bring.
For those companies that have chosen to compete in the spinal implant market, however, the rewards are there for the taking. According to a recent report from market researchers Frost & Sullivan, Mountain View, Calif., the total spinal product market is estimated at $264 million. And though the segment still has yet to rebound fully from the staggering 33.6% growth rate it enjoyed in 1992 and 13.5% in 1993 (prior to the fateful 20/20 telecast), it is still moving along at about a 7% growth clip. The segment’s 1994 figures (instrumented fusion procedures declined by 42% that year) reflect the impact of the television show, though by 1995 and 1996, a more traditional growth pattern returned. Spinal implants account for about 75% of the market, with the remainder attributed to sales of spinal fusion stimulators (18% in 1997) and minimally invasive disk decompression and diskectomy products (7% in 1997).
In terms of the patient population, Sofamor Danek’s Gallogly estimates that there are approximately 400,000 Americans (twice that number worldwide) who may need diskectomies, procedures in which a portion of a disk that is impinging on a nerve root is removed. He also estimates that 225,000 Americans will undergo spinal fusion procedures, about half of which are performed using instrumented, or internal bracing products. Gallogly says uninstrumented procedures have about a 65% success rate, while instrumented procedures succeed as much as 95% of the time.
About 110,000 of those fusion cases are degenerative problems involving the lumbar area, while 90,000 involve the cervical area, and another 25,000 involve the thoracic region (scoliosis or curvature of the spine). The trauma portion of the spinal implant market is small, accounting for only between 5,000 and 10,000 cases annually in the U.S.
Yet another market measure: Frost & Sullivan sets the cost of worker’s compensation from low back pain in the U.S. at between $40 billion and $60 billion.
Sofamor Danek commands the spinal implant market with a share between 50% and a 55%. AcroMed’s estimated $80 million in sales (the company is privately held) puts it runner-up, followed by DePuy (about $40 million); Synthes (USA), Paoli, Pa.; Spine-Tech Inc., Minneapolis; and Smith & Nephew Inc., Memphis.
Health Industry Today spoke with executives of two of these companies to determine their impressions about their market and their plans for the future.
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