The story in the spinal implant market has been the same for awhile: as the market for spinal fusion implants becomes more commoditized with less innovation, focus is increasingly shifting to the market for spinal nonfusion technologies. These products, which are being adopted worldwide, are touted for their motion-preserving abilities and continue to be a hot topic in the orthopedics world.

Speakers at the NASS 2012 General Meeting in Dallas, Texas presented some industry perspectives on this topic and reinforced the risks to further growth of the nonfusion device market and the opportunities to mitigate these challenges.

Challenges in the US May Shift Market Entry Strategy

Tom Afzal, the President and Cofounder of Spinal Kinetics, focused on market challenges from the venture capitalist (VC) perspective. According to Mr. Afzal, investments in small companies and start-up firms is currently limited due to two main factors:

1) FDA risk, and the declining rate of market approvals for new devices
2) Decreased reimbursement available for procedures

According to Mr. Afzal, the spinal implant market has been hit especially hard by these two challenges.
As a result, VCs are strongly encouraging if not demanding that start-up companies first seek international market entry before attempting to gain entrance to the more lucrative US market. Traditionally, the US has represented the largest market for orthopedic devices and therefore entry there was seen as a necessity to gain a true foothold in the global market.

As of late 2012, the US market represents nearly 55% of global spinal implant revenues; however, over the next 5 years, Millennium Research Group projects that this position will shrink to just over 45% due to stronger growth in the international markets, especially in the Asia Pacific and Latin American regions. Continued challenges in the US and the proliferation of OUS product launches would expand this divide even further.

Mr. Afzal concludes that companies must pursue a dual strategy to launch both internationally and in the US markets. He used Spinal Kinetics own experience launching the M6-C Artificial Cervical Disc to highlight this need. According to Mr. Afzal, Spinal Kinetics spent approximately 2 years and $4 million to obtain a CE mark and launch the device in Europe. By contrast, the company spent over $88 million and 13 years to obtain pre-market approval from the FDA and launch the device in the US. For Spinal Kinetics, success in the European market provided the capital necessary to continue to pursue access to the US market.

[Editor's note: Sound familiar Funnily enough, this same topic was brought up at TCT 2012 regarding transcatheter heart valves not surprising I guess given the uproar about the so-called US Innovation Crisis.]

Surgeon Advocacy Required for Market Growth

Marc Viscogliosi is a co-founder of Viscogliosi Bros., a venture capital and private equity firm that focuses on the musculoskeletal/orthopedics sector of the health care industry.

Mr. Viscogliosi also listed the factors that are hindering spinal implant market growth: slowing spinal fusion procedure growth, increased commoditization of implants, and surgeon loyalty to device manufacturers. He described the current state of the industry as a small company purgatory because they lack the capital required to pursue traditional market expansion strategies, namely product differentiation and increased scale of operations and distribution.

According to Mr. Viscoligiosi, the solution rests in the hands of the surgical community. He stated that the continued adoption of innovative products, like motion-preserving technologies, is required to spur market growth. Millennium Research Group's US Markets for Spinal Implants report supports this argument and forecasts that growth in the US spinal implant market will be bolstered by much stronger procedure growth in motion-preserving procedures relative to spinal fusions (a 13% compound annual growth rate from 2011 to 2016 for nonfusion compared to 5% for fusion). According to Mr. Viscoligiosi, surgeons must become champions for innovative and emerging technologies to encourage their adoption as a standard of care and to advocate for improved device approval from regulators and reimbursement from insurance providers.

But for all the talk, the spinal implant market still remains an extremely large and lucrative market, featuring a very large number of competitors, as far as medical device markets go. Sure, it's not perfect, but it's more opportunity than you're going to find in a lot of markets these days.

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