Finsbury's Last Stand

One of the most innovative and creative orthopedic implant designers, the UK's Finsbury's Orthopedics never quite built the sales and distribution capability to enable it to capture the full value of its designs. The company's recent sale to DePuy underscores how much the orthopedics industry has changed since its earliest days.

Recently acquired by DePuy, the UK's Finsbury Orthopaedics recalls the earliest days of the orthopedics industry—and, more importantly, how much has changed.

by David Cassak

Through the 1980s and 1990s, Finsbury Orthopaedics earned a reputation as a design and manufacturing operation par excellence, providing OEM services to some manufacturers and leaving the sales and distribution of its devices to others.

The company played a key role in the launch and success of two other UK orthopedics companies, Corin and MMT, though both would prove to be frustrating and disappointing experiences.

Finsbury scored some big hits over the years—for example, helping make real the renaissance in re-surfacing of a couple of years ago—but the failure to build its own sales and marketing effort ultimately created an unsustainable situation.

Finsbury's sale last December to DePuy Orthopaedics underscores not just the importance of critical mass and distribution in today's total joint market, but how much the industry has changed over the past decade.

In many respects, the orthopedics industry, and in particular the joint replacement part of it, seems like a profoundly conservative industry. Success rates for existing devices are extremely high, leaving few major unmet clinical needs and fostering an "if-it-ain't-broke, don't-fix-it" attitude. Thus, technological enhancements come incrementally, focusing on materials and such, but leaving base design characteristics untouched. Real technology breakthroughs are rare.

Such a dynamic fosters a view of the industry as somewhat static, with long-cherished skills and values still relevant after many years. But in very profound ways, the orthopedics industry has changed from its early days. Early implant design rested on finely crafted designs developed in close collaboration with high-volume surgeons. Today, the market is driven much more by high-volume production of basic design concepts, valuing ease-of-implant to broaden a device's appeal.

Few companies embody and reflect those changes like the UK's Finsbury Orthopaedics Ltd. Long one of the most skilled design and manufacturing shops, the company regularly turned out innovative implants, but struggled to create the kind of high-volume sales and distribution capability that is a hallmark of the industry's giants. The company helped enable the recent renaissance in re-surfacing but was frustrated in a number of business collaborations and, more importantly, ultimately never built its own focused distribution network. The company's sale last December to DePuy Orthopaedics Inc., a Johnson & Johnson operating company, was, on the one hand, an affirmation of the company's design and development skills, but, on the other hand, it also was a strong indication that the company's business model had, in the end, become unsustainable. [See Deal]

A Biomechanics Lab

Unlike many technology sectors, orthopedic implants has a (relatively) long history, dating back to the 1960s and '70s, and to explore the early days of Finsbury Orthopaedics is to re-visit the industry's earliest days. In the early 1970s, Mike Tuke, Finsbury's CEO, was an engineering apprentice at Imperial College London. In those days, Tuke recalls, engineers actually made things. "It was very hammer and tongs," he recalls. "What I was learning was real engineering."

For a while, Tuke bounced around from department to department at the college, helping different professors realize their ideas by supplying the engineering expertise to turn our projects. "I could help them invent what they wanted to do because I could actually make things," he says. "They would dream up the craziest things, but they often had no idea how to put them into practice."

Within a couple of years, Tuke was invited to end his peripatetic ways and join a newly formed department at the college as a full-time engineer. Within the mechanical engineering department, a surgeon and an engineer, Michael Freeman, MD, and Alan Swanson, respectively, had established what Tuke says was one of the first biomechanical laboratories. "The idea was to study the properties of bone and cartilage because very little was understood at the time about the mechanical elements of those materials." Physicians looked at things like arthritis or bone loss and didn't really know what lay behind either or why cartilage would disappear in one patient and not another. "There were some very basic questions in those days and very little understanding of how joints worked or what different materials would do," he says.

At the time, Michael Freeman was a young, ambitious orthopedic surgeon, who has since gone on to become one of the leading voices in orthopedics. Allan Swanson eventually became the head of the department at Imperial College. But in those early days, they were novices, with some interesting ideas about orthopedics but unsure about how to apply those notions to treat patients.

To make those ideas real, they began looking for research assistants, "people who could help them get their hands dirty," Tuke recalls, who was hired to join the team. "Some people know from the cradle what they're going to do, but with me, it was very opportunistic. It just seemed like an interesting thing to do, though I never thought that's what I would do the rest of my life." Freeman and Swanson's project launched just as modern total hip joint repair in orthopedics was emerging, driven principally by two European surgeons, John Charnley, MD, of Britain and Maurice Mueller, MD, of Switzerland. Metal hip replacements had been around since the 1930s, but it was the advent of a new material that would usher in the modern age of total joint replacement—and the multibillion dollar industry that serves it today. "Polyethylene was just starting to be used, and Charnley had invented a hip that was taking off," says Tuke. Freeman and Swanson weren't necessarily looking to develop their own artificial hip—their research was, at first, broader, looking into how joints and cartilage work and even examining the chemistry as well as mechanics of the knee and hip joints. But, says Tuke, "Polyethylene, in a special grade, was the major breakthrough that helped joint replacement get to where it is today."

Chicken-and-Egg

Even today, as he recalls the early days of what would eventually become Finsbury, Tuke conveys a sense of engagement and excitement that has been characteristic of the company's culture over the years. As he talks about an early project on cartilage, Tuke takes a detour. "It's really fascinating material," he says. "Think about all of the wear you put on your knees and in most people, the original cartilage is still there. It doesn't repair itself or turn over, unlike other body parts. Skin falls off all the time; bone is re-growing all the time—everything is being replaced. Except cartilage, so if you damage your cartilage, you're in trouble. It's a one-way street." Moreover, he notes, in the 1970s, it was easy to see how things such as sports injuries could result in cartilage damage; the kind of chemical or organic breakdown of cartilage that results from arthritis was hardly understood at all.

Describing the program that Freeman and Swanson had built, Tuke notes, "What it was was a laboratory looking at all sorts of areas, trying to understand things, materials mostly." But if much of the work in the new biomechanics department at the college was still largely unformed, still asking basic, elemental questions, the work of Mueller and, in particular, Charnley, who was from a small town in the north of Britain, helped to give some shape to the practical applications of this research. Freeman in particular had been treating a number of arthritis patients in his practice, many of whom wound up in wheelchairs because their hips and knees no longer worked, and he became interested in developing some viable solutions to their problems.

Precisely because Charnley was making such a splash with his new hips, Freeman and Swanson decided to focus on knees, a less-than-obvious decision in those days since few people recognized that knee replacement could become as large a market as hip replacement. "I remember surgeons came to us asking, 'Why are you working on knee replacements when it's hips that patients want?'" Tuke recalls.

Indeed, he notes, there's often a catch-22 in the development of medical technology: until there's a device to treat a condition, physicians often don't readily see the problem, and until they see the problem, there's no incentive to develop products. "It's still a phenomenon today," Tuke goes on, "if you look at how long it's taken to develop implants for ankles and shoulders. It's a chicken-and-egg thing." And in orthopedics, the dynamic is compounded by the fact that feedback on the efficacy of a device can take a while. "It takes a very long time before we realize whether something works or not," he points out. "It needs to be tested over time," and re-designs or tweaks in the product in the interim are hard to do because you may fix one problem only to cause another. "It's a very long loop of feedback." Just as importantly, the early hips often came with major complications: high levels of infection that often went deep into the bone. "What happened was you had a group of [hip replacement] patients with half decent results—those where your successes—but another group with serious problems," he says. "There was a long learning curve."

Knee implants posed an additional challenge: any knee replacement would be much more complex than the early hip designs, which were basically ball-and-socket devices without the stem—a kind of early version of hip re-surfacing, Tuke points out. Still, Freeman and Swanson soon began to work on developing knee implants, paralleling what Charnley was doing in hips and, says Tuke, "moving from this kind of analysis of the body's materials into more engineering resolves to make devices to treat arthritis." (The team also worked on an ankle prosthesis and hip resurfacing.)

One early innovation of the Imperial College team—Finsbury as a company wouldn't be formed until later—was the use of metal-on-plastic in its knee implants. As noted, metal-on-metal implants had been around for decades in hips; Charnley's innovation had been to incorporate plastic in his design. He had experimented early on with using implants made of Teflon, heralded in the 1960s as a kind of wonder material used in all sorts of things, most notably frying pans. But Teflon implants didn't work. "It was very low friction and so addressed a lot of problems," Tuke explains. "Unfortunately, when you put it in the body, it didn't work because Teflon works by transferring a film of itself onto the other side of the material, in this case the joint." Having Teflon on both the ball and the socket provided a sub-optimal mechanism. In addition, fluid was a natural enemy of Teflon because it destroys the film transfer; in industrial applications, you can limit the amount of fluid interacting with the Teflon—inside the human body, you can't. As a result, Teflon hips "wore out in no time," he says. It was the failure with Teflon that led Charnley to turn to polyethylene as an implant material, an approach Freeman and his colleagues followed in their own designs.

A Focus on Knees

Charnley would eventually turn to a company in Leeds, England, Thackray Surgery, to produce his implants, and Thackray itself would eventually be acquired by DePuy, coincidentally, the company that acquired Finsbury last December. So small was the group of clinicians and engineers working in hip replacement in the mid 1970s, however, that Freeman and the others at Imperial College worked closely with Charnley as well. But while Charnley had already begun to realize the commercial potential of his implant designs, the Imperial College team still saw what they were doing as a kind of research project. In those days, doing anything commercial within a university was frowned upon, Tuke recalls, and the projects he was developing under Freeman's guidance were getting "too risky," he says. "We'd be making things in the workshop—hips, knees, ankles, those kinds of things—and taking them to Freeman's hospital in Whitechapel where they'd be implanted," he says. With no real regulatory oversight at that time, "you could fiddle around with a design, change it and in a couple of days have something new; today, it would take a year to do something like that, with all of the regulatory processes." The process was, Tuke emphasizes, "entirely ethical"—the implants were being put in patients who were in great pain and unable to walk, with no other real options and unlikely to be any the worse if the implants didn't work. "In those days, we saw what we were doing as serious, pioneering experimentation, but we had to make things up as we went along because we didn't know what would work until we tried it."

And if Freeman provided the vision and the clinical insight, Mike Tuke actually created the implants. "I was hands-on, going to [surgical] theaters, holding the patient in my hands, designing the implant. I got to know the materials, the design process, the manufacturing, all the way to implant in the patients, seeing the problems the surgeons ran into," he says. Today, he notes, that spectrum would incorporate a dozen or more people working on different aspects of the process. "One mind able to see all of that provides a much better insight into what needs to be done and what should be changed—it's a much more interactive development," he says.

Freeman's early cases incorporated hips, knees, and ankles—the college didn't make any money, but it did often charge the hospital for the devices, using the money in turn to fund further research. But, as noted, it was in knees that the company that would become Finsbury made its first big push. At the time, few surgeons saw the market for knee replacements—most patients sought hip replacements. But there had been a few early knee designs—most very primitive, in which significant amounts of bone were removed and long rods implanted with a hinge-like mechanism that enabled the knee to flex but couldn't incorporate any of the other more nuanced twists and turns that a normal knee performs. "They worked reasonably well—until you had any kind of trauma, like tripping over the pavement," Tuke recalls. The hinge design made for a very rigid construction and provided little give and flexibility "and so something would invariably break" inside the implants. (The hinges were also subject to wear.)

But the biggest problem was that the hinges would break free of the fixation. "It's still the biggest problem today," Tuke points out. "Does the joint stand the test of time?" But a hinge-like mechanism wears out particularly quickly—just as a door hinge would, if opened and closed thousands of times, he explains—and when it does, there are related problems: if debris is formed, where does it go? The enormous range of motion and flexibility of the knee only makes the challenge greater. "We're putting inanimate things into a very animate structure, and there's lot of learning yet to do."

Tuke notes that he and Freeman realized early on that the hinge-like approach "didn't work very well very often," and developed what he calls "the first unconstrained knee design." "We sort of went back to the Charnley principle," he explains, putting a piece of plastic on top of the tibia and a piece of metal at the end of the femur, making sure to leave some give, the way natural knees move. "The trick was always to get as close as you could to the natural joint." Joining Freeman in the early design of the knee was John Insall, MD, an orthopedic surgeon who had trained with Freeman at Cambridge and became a close friend, even after he moved to the US to take a post at the Hospital for Special Surgery in New York. Together the two identified the need for a knee implant and each came up with designs for a successful one. In short, says Tuke, Freeman and Insall "invented knee replacement as we know it today."

A Home Office

By 1978, what had started as a kind of academic research project had begun to grow beyond its original scope. Freeman and his team had made so much progress in designing new implants that it was, says Tuke, "getting a bit awkward" for Imperial College. "We were doing all of these great things designing new knees and ankles, but the college was getting anxious," he says. "They felt that we ought to stop making these commercial products or do so in a separate company."

The college ultimately helped Freeman and Tuke form Finsbury—another engineer, William Day, was a third founder—by setting up a transition during which they would remain employees of the college, continuing their research, while they set up a company. (Though Tuke cites three founders of Finsbury, he was by far the largest shareholder in the company, with more than 80% of the equity at the time of sale.) Indeed, Tuke recalls with a laugh, "We had no idea what we were doing. If we had tried to come up with a [business] plan, we probably wouldn't have done it. We didn't even know how to set up a company." (The name Finsbury came from Finsbury Square in London; Michael Freeman had asked his accountant to help with the company's incorporation; finding himself in need of a name to finish the paperwork, he tried to reach the founders by phone. When he couldn't, he looked out his office window and saw a street sign that read "Finsbury Square," and plugged that in as the company name. "We always said we'd just change it later," Tuke says. "But by the time we got around to it, there was no reason to; too many people knew us as Finsbury.")

For the first six years of the company's existence, Finsbury's founders worked out of their garages at home and other remote offices, taxing the patience of both family members and neighbors. For those first few years, Mike Tuke had two offices, one in the house he shared with his then-new wife; the other a workshop a few miles away in his parents' home. "We finally got to the point where we were becoming a problem for the neighbors," Tuke recalls. "We'd have trucks driving up delivering stainless steel, and every time we wanted to do some real engineering or turn on the air compressors, the whole street would go dark." In turn, Tuke and Day practically had to shut down at lunch time. "Once everyone started cooking lunch, we couldn't start our machines because there wasn't enough power." (By 1984, the company had moved to industrial premises and then a few years later expanded to its current headquarters in Leatherhead, an industrial area south of London.)

It mattered little to Finsbury's founders, however, because they were focused on one thing: designing and developing superior implants for what was then the burgeoning field of total joint replacement, creating a culture that Tuke, in telling the story, likens often to car manufacturers producing high-performance automobiles. In a country that gave the world the Rolls-Royce and the Bentley, Finsbury aspired to become the Rolls-Royce of orthopedic implants. That culture would, over time, become Finsbury's hallmark--its greatest asset and, ultimately perhaps, its greatest obstacle as well.

A User-Friendly Approach

Mike Tuke calls Michael Freeman and John Insall "the two pioneers of knee replacement," and notes that they were "philosophically remarkably similar" in their thinking about how knee replacement should work, collaborating closely at a time when most orthopedic surgeons were focused on hip replacement. But behind the similarities were what Tuke calls "slightly different mind-sets," that would eventually have huge implications for the future of knee replacement and, in particular, for Finsbury.

Finsbury's first products ranged from hips to knees to ankles. Following on John Charnley's early work, the company began to produce a hip replacement line, a partial system that was, in essence, a kind of hip re-surfacing, based on a design that Freeman had first worked on at Imperial College a couple of years earlier. But it was in knees that Finsbury made its name early on. Working with a US surgeon, Kent Samuelson, MD, out of Salt Lake City, Freeman developed the Freeman/Samuelson or FS Knee. Tuke notes that the design of orthopedic implants has, over the years, been characterized by a handful of breakthrough developments accompanied by smaller, incremental changes along the way. There have been changes in the design of the FS Knee over the years, he says, "but when you look at the implant today, it has many of the features today that it had over 30 years ago."

To say that Freeman's knee was a breakthrough, however, is not to say that surgeons jumped eagerly to implant the device. Tuke notes that surgeons resisted adoption in large part because of the difficulty in implanting it. "Surgeon skill was always a problem," he recalls. "And that came back to the instrumentation. We would occasionally see patients who would do really well and others who wouldn't and at first we didn't really understand why." Ultimately, the differences came down to what Tuke calls variability in surgeon technique. "There was a lot of guesswork that went into it," he goes on, and knee replacement didn't really take off until better instruments and forgiving implant designs came along.

Those, however, were designed not by Freeman, but by John Insall. "I don't like to say it, but he was ahead of us in many ways," Tuke concedes. "He was much more savvy about what the market wanted and needed." Indeed, a superb clinician and a man of exacting personal standards, Freeman was rigorous in his belief that both implants and instruments should be designed to the most precise measures and used that way; if implanting them wasn't for the faint of heart among orthopedic surgeons, then those surgeons shouldn't try. Freeman was "a scientifically correct" person who "expected all surgeons to be able to do what he could," notes Tuke. "But they couldn't." Insall, on the other hand, saw the limitation in such an approach and decided to design implants and enabling instrumentation that average surgeons could use with greater ease. Insall, says Tuke, "gave the world devices that were actually user-friendly. You didn't get quite the ideal outcome [that you did with Freeman's device], but you got a better average outcome." (Insall's system, the PS Knee, or Posterior Stabilized Knee was originally produced and sold by Howmedica and remains part of Stryker Orthopaedics' line.)

Freeman and Insall may have worked together in the early days of knee replacement, but this difference in approach, this departure point, became huge, especially for Finsbury. Over the past 30 years, Finsbury may not have become the biggest name in orthopedics or had the greatest market share, but the company has earned a reputation as something of a connoisseur's implant—an orthopedic company's orthopedic company. Combining the clinical insights of Freeman and Swanson with Tuke's engineering expertise, Finsbury produced implants that strove to deliver the highest clinical results--period. Commercial considerations weren't lost, but they were secondary. Finsbury's exacting standards become clear when Tuke talks about the early development of the company's knee replacements, a device that struggled to catch on, not just because most surgeons were focused on hip implants, but also because the procedure was, early on, perceived as extremely difficult to do.

A Good Average Result

Tuke notes that many surgeons today still believe that the PS Knee is the best knee replacement for their patients. In reality, he says, it isn't, though it's a perfectly good knee. "It gives you a good average result," he says. "But we know it doesn't give you as good a result as you can get if you [want something better]." Focusing on ease of implantation, most knees today represent what Tuke calls a kind of dead-end. "You can get a good average result repeatedly, but you can't get a brilliant result repeatedly."

Finsbury has always had a strong design and engineering component to its culture and Finsbury's approach might truly have made the company the Rolls-Royce or Porche of the orthopedics industry but for two-inter-related developments that began to take place in orthopedics right around the time Finsbury moved into its first building.

The first was the explosion in the implant business. Thirty years ago the orthopedics industry was a relatively small business, filled with companies hammering out implants in low volumes to match the needs and specifications of individual surgeons. By the late '80s, however, the industry had fundamentally changed as standardized implant designs, manufactured in high volumes, created a boom built on aggressive adoption and favoring a kind of critical mass. Suddenly, Finsbury's exacting standards became as much liability as asset.

And with the orthopedics boom came enormous economic opportunity. Tuke notes that the biggest change to come to orthopedics was that "big companies and big money became involved and suddenly what the device does and how well it does it got lost in the bigger picture of where the money is." Moreover, as mass production came to orthopedics, implants could be produced inexpensively, while continuing to fetch high prices, resulting in robust profit margins. Suddenly, he says, "something that seriously changes somebody's life came with a high price tag. And with that, other considerations began to overtake the science and what is the right thing to do."

Today, pricing and margin pressures are widely felt, but "it's still a pretty good business to be in," Tuke notes. Not that Finsbury executives didn't want to make money as well. But other considerations drove the company. For example, with the early FS Knee, Tuke notes that Freeman "was always scientifically correct and he wanted [the procedure] to be correct, too. He wanted it done the way he had always done it, but it wasn't an easy operation." Even today, patient registries from around the world continue to show extremely high success rates with the FS Knee. But the device was never widely adopted because other devices were easier to implant. Turning to his favorite metaphor, cars, Tuke notes, "That's the way the commercial world works. What makes everyone go out and buy a Japanese car is price, reliability and they're easy to drive, even if they are all me-too cars. You could spend a bit more money and get something that's more challenging to drive, more unique, that makes you feel a bit special. But not many people do—otherwise there'd be a lot more AC Cobras on the road, wouldn't there?"

Comparing Finsbury's approach with the high-volume strategies of Big Ortho, Tuke says, "It was the difference between a Rolls-Royce and the Model T." But it wasn't just high-end product segmentation. With its strong design focus and rigorous clinical orientation, Finsbury for much of the 1980s and 1990s made sales and marketing a secondary priority. In the years before Finsbury was officially formed, Freeman had licensed the FS Knee to Howmedica of Ireland to manufacture and sell. After he had a falling out with the company, sales and marketing were turned over to Protek, which became Sulzer (and eventually Centerpulse, now part of Zimmer Biomet Holdings Inc.), even though Finsbury was, by that time, fully operational. [See Deal]

Back-Room Boys

But by the late 1980s, the FS Knee was simply one of several knees in the Sulzer offering, and "it sort of got lost along the way," notes Tuke. Characteristically, Tuke notes that Finsbury continued to make improvements over the years on behalf of the company's selling partners because, as he puts it, "That's what Finsbury did—we were a design and development company. We weren't selling them in any big way, but we weren't trying to compete with the Zimmers and the other big guys." In fact, as a result of its Centerpulse acquisition, Zimmer became Finsbury's partner in bringing the FS Knee to the market, a relationship that continues today, though even before the DePuy deal, Zimmer had announced plans to discontinue selling the device in the future.

In turn, through the 1980s and 1990s, Finsbury also became a design shop for other companies. Notes Tuke, "There are all sorts of devices out there that we've developed, but don't have our name on them. We've been kind of the back-room boys."

Tuke notes that from its very beginning, Finsbury has always had three different arms: design and development, manufacturing, and sales and marketing, "but in different balance." Design and development has, he goes on, "been our lifeblood." The manufacturing piece was critical as well—too many young designers create products that are elegant in conception but difficult if not impossible to manufacture—though Finsbury even today is far from a high-volume manufacturer in the way the orthopedics giants are.

By 2001, however, it became clear to company officials that they needed to focus more on sales and marketing, bringing their own products to market. "We needed an income," Tuke says with a laugh. With a nod to Dickens, he goes on, "We worked on the Mr. Micawber principle: we paid ourselves only if the money came in."

Indeed, Finsbury was always self-funded. Even prior to 2001, the company always drove enough of a revenue stream, through its own products and royalties from those developed for others, to support the design and manufacturing aspects of its operations. And contract design work for other companies continues to be an important revenue stream for the company: for the past several years, it has had a fruitful relationship with Stryker, having designed the company's re-surfacing line. (Finsbury's relationship with Stryker covers only re-surfacing products sold in Europe; Stryker actually sells Corin Group PLC's line in the US and has another relationship for the Japanese market. [W200520487])

In such deals, Finsbury keeps the IP but the product is manufactured, sold, and branded by the larger partner. Talking about such relationships, Tuke says, "We still do that to some extent, but we've backed off a bit as we've grown our own sales and marketing [efforts]. We're more reluctant to let other people have our good ideas now. Our view now is, 'Let's keep them for ourselves.'"

By the late 1990s, it was becoming clear that the imbalance in the three arms of the business and the strong focus on design, though the company's strong suit, was becoming less sustainable. As the orthopedics industry consolidated, critical mass and high-volume production became an even more defining dynamic. An industry that had long resisted standardization efforts on the part of customers was engaging in its own kind of standardization as large-scale production of easy-to-implant devices became critical to financial success.

And with that, the market changed dramatically: companies with smaller market shares either got acquired (or in some cases did the acquiring)—think of Stryker's Osteonics business or Johnson & Johnson, which purchased DePuy—or went away. [See Deal] In the mid 1990s, nearly a dozen orthopedics companies competed with market shares of between 6 and 20%; today, the top three companies, DePuy, Stryker, and Zimmer, account for over 70% of the market; factor in the next two, Biomet Inc. and Smith & Nephew PLC, and the figure is almost certainly over 90%.

A Problem with Debris

In such a market, Finsbury almost had to step up or get out of the way. If consolidation and the changing economics of orthopedics were forcing the change, Finsbury's opportunity was provided by a resurgence of hip re-surfacing, a technology largely developed within the small UK orthopedics community of which Finsbury was long a central player.

As noted, the early hip designs from the 1970s had featured a kind of re-surfacing: metal-on-plastic ball-and-socket implants without the stems. But re-surfacing fell out of favor by the early 1980s because surgeons noticed the implants weren't working as well as the full hip implants. The re-surfacing systems too often failed because the implant's head would collapse. "The bone would just sort of disappear and nobody really knew why but everyone just assumed it was because the blood supply had been compromised," Tuke explains. "Everyone said that if you compromise the blood supply, the bone just dies, and suddenly Freeman and all of the surgeons became heavily criticized and ostracized."

Indeed, by the early 1980s, hip re-surfacing devices were off the market. New technology at the time, however, that enabled researchers to analyze polyethylene debris offered a new explanation as to why the bone died, undermining the early explanation about the lack of blood supply. What the researchers found was that it wasn't the cut-off of the blood supply, but the destructive qualities of the tiny debris from the wear of the polyethylene that caused the bone to disintegrate. "The debris wasn't much so the devices last a long time," Tuke explains. "But the constant wear created a very fine dust of debris, so fine that it could travel through the interface of the implant. And when it got to the bone it was very destructive." Reacting strongly to the debris, the body's protective mechanisms tried to fight off the foreign substance, as if it were an infection. In the end, that protective response ironically wound up destroying the bone. "The re-growth and strengthening process that would otherwise naturally occur was halted and reversed, and you wound up with bone that is like mush," Tuke explains.

In short, says Tuke, it wasn't that re-surfacing wouldn't work; it just wouldn't work with the materials then commonly used. In 1989, Finsbury was presented with the opportunity to test the theory about the limitations of re-surfacing. At the American Academy of Orthopaedic Surgeons (AAOS) meeting that year, Tuke was approached by Derek McMinn, MD, a Birmingham, England, surgeon who asked if he'd be interested in taking a look, from a design and manufacturing perspective, at re-surfacing again.

A New Partnership Goes Bad

As noted, the resurgence of hip re-surfacing would ultimately provide Finsbury with its greatest commercial opportunity but also its greatest challenge. But the story really begins several years earlier, with the formation of a sales and marketing partnership.

Four years before the meeting with McMinn, Michael Freeman had come up with a new hip system, one that incorporated a stem, but a stem that was much different from the stem designs that Charnley and others had come up with and it incorporated much more retention of the patient's bone. (Freeman's insight was that preserving the bony femoral neck gives the patient more torsional stability, making sitting and rising safer on the fixation of the implant due to a lower torque being transferred.)

Tuke notes that the Freeman Hip Stem is still a popular design today though not wildly popular if only because, as he puts it, "the Freeman technique is not easily followed." Still Finsbury executives felt they were on to something and decided to manufacture the stem under the Finsbury brand. What they needed was someone to sell and distribute the device. "At the time, we didn't want to go into sales and marketing ourselves because we didn't know anything about it, and it would have been very expensive to do it on our own," he goes on.

Tuke started asking around, looking for potential distribution partners. He ran into Peter Gibson, a Zimmer employee from Swindon, England, who suggested that Tuke take another tack: create a joint venture, with Finsbury doing the design, development, and manufacturing, and Gibson and some colleagues, the sales and marketing. That joint venture would become Corin Medical, even today a leading UK orthopedics company.

The agreement would be exclusive: Corin would sell only Finsbury products and Finsbury would put all of its new designs through Corin. Under the terms of the deal, Finsbury would develop products and keep the IP; Corin would market and sell the devices in a symbiotic relationship. Gibson, however, didn't want a 50-50 joint venture; he wanted some measure of control, so, with each side putting in £10,000, Gibson and his colleagues wound up with 51% of the company and a number of minor shareholders, including Finsbury, the remaining 49%. Tuke says he understood about the control issues, and he already had his own company. "Gibson insisted [on control], quite sensibly from his point of view, and we knew it would only work if he had ownership," he recalls. Finsbury also lent Corin £80,000 in working capital to get the company started.

To say that the Corin joint venture was a failure or bad for Finsbury isn't accurate; working together, the two sold many implants over the next decade. Still, there was friction between Corin and Finsbury from the beginning. Finsbury had always been a pay-as-you-go kind of company; as noted, Tuke and his colleagues worked out of their homes for the first six years and didn't take a salary unless the company was generating the revenues to afford them. Gibson and Corin's other senior executives were used to regular paychecks. "The way they wanted to run the company was not the way I would have run it," says Tuke. "But I figured they knew more about running a company than I did, so I wasn't going to dictate how they ran the company." More to the point, Tuke knew he needed a distribution vehicle for the Freeman Hip Stem, and whatever reservations he had, the Corin joint venture seemed the best path to take.

Whatever the ultimate success of Corin, the deal began to grate on Tuke almost immediately. Executives in the industry who've worked with Tuke invariably describe him as a no-nonsense guy of high integrity; his up-by-the-boot-straps history is an important part of Finsbury's culture. For someone who professes to have known nothing about running a business before launching Finsbury, the Corin experience quickly gave him an education. "The shark investors came in and began to run everything," he says. "Within a year and a half, our interest in it was diminishing."

Looking back, Tuke says now that he realizes he should have demanded equity for the £80,000 loan. The loan was eventually paid back, he says, "but with nothing but hassles and aggravation." More importantly, the founders'--including Finsbury's--equity was soon significantly diluted as Corin brought in investors to provide working capital. Corin has since gone on to become a public company and Tuke remains, in his words, "only a minor shareholder," with some success but having missed a significant opportunity.

Putting Finsbury on the Map

The Corin experience resonates in the Finsbury story: Finsbury provided much of the design and development work and the collaboration was reasonably successful. But the whole relationship lay under a cloud of business dealings that mis-fired. Finsbury's experience in re-launching re-surfacing with an innovative metal-on-metal design would bring with it an important success for the company, but also a series of frustrations, mostly on the business side, that would echo the Corin episode.

If nothing else, the launch of Corin in 1985 gave Finsbury something it badly needed: a sales and marketing arm through which it could begin to put some of its innovative designs, thereby capturing more of the value of its IP itself. And even Tuke concedes that "it worked well for a number of years," as Finsbury designed a number of new products including a couple of new knee systems, the Nuffield Knee as well as the Rotaglide+ knee implant, and a new hip as well.

Thus, in 1989, when Derek McMinn approached Tuke at AAOS, his proposal fell on ready ears. Because of his understanding of the limitations of previous re-surfacing devices, Tuke believed he knew what needed to be done to make McMinn's idea work. Just as importantly, because of the new relationship with Corin, Finsbury also had a ready sales and distribution vehicle.

McMinn, too, had seen something Tuke had seen: that patients who had had metal-on-metal implants fared better than those who had had plastic-on-metal devices. Plastic-on-metal "worked well for about 10 years," notes Tuke. "But McMinn was seeing patients with metal implants lasting 20 years and more."

Interestingly, McMinn had tried to interest the larger implant companies in a metal-on-metal design, "but they weren't interested because at the time all of the big companies were sure metal-on-metal didn't work," says Tuke. He notes that McMinn, too, had come to realize the problem with polyethylene debris. His pitch to Tuke at the Corin booth at the 1989 AAOS meeting: let's re-visit the idea of metal-on-metal re-surfacing.

Tuke jumped at the chance because McMinn's thinking meshed so closely with his own. Working with a colleague of Tuke's, George Gremore, developers at Finsbury came up with a metal-on-metal design that is, says one industry executive, "brilliant. They got the idea behind metal-on-metal early, before anyone else. They knew how to take McMinn's idea and make it real and make it very well." Ultimately, this executive goes on, the new implant, though it would be marketed under another company's name, "was what put Finsbury on the map."

Under the terms of the agreement with Corin, Finsbury would design and develop the device, called the McMinn Hip, and receive a royalty. McMinn's license would be with Corin, which would manufacture and sell the device. By the mid 1990s, however, Finsbury's relationship with Corin was unraveling: as Corin got bigger, it wanted to do its own design and development, something precluded under the original terms. Corin's investors, too, began to worry that the exclusive relationship left the company vulnerable and could compromise any exit. By 1997, Finsbury and Corin had gone their separate ways in what Tuke describes as "a somewhat acrimonious divorce."

Fortunately for Finsbury, McMinn, too, decided to move on from Corin. Around the same time, he started his own company, called Midland Medical Technologies (MMT) and turned the manufacturing of the McMinn Hip and a next-generation device, the Birmingham Hip Resurfacing (BHR) system, over to Finsbury, with exclusive manufacturing rights.

Just a few years ago, re-surfacing had a kind of mini-boom, though many industry executives believe the broader potential of the approach is limited to, maybe, 10 to 15% of the market. Still, it was attractive enough to catch the attention of Big Ortho, symbolized by Smith & Nephew's 2004 acquisition of MMT [See Deal]. In many ways, the deal was a confirmation of Finsbury's contribution. But it was also a source of frustration. Though the concept was clearly McMinn's, the success of the device rested on Finsbury's design and manufacturing execution. Says one industry executive, "Yes, the idea was MMT's. But Finsbury grasped the concept and made the device real with some very elegant manufacturing."

Here, too, as with the Corin experience, Finsbury certainly saw its share of success with the arrangement, but by manufacturing the device; through most of this decade, the more re-surfacing systems Smith & Nephew/MMT sold, the more money Finsbury earned. Tuke today has only good things to say about Finsbury's relationship with MMT and Smith & Nephew. But the company ultimately missed out on the real upside: when Smith & Nephew bought MMT, McMinn and his investors cashed out; Finsbury got nothing. Worse, in early 2009, Smith & Nephew decided to take the manufacturing of the BHR in-house; the impact on Finsbury was significant and the company wound up laying off a third of its manufacturing people. In short, not only did Finsbury not participate in the upside, but the deal ultimately dealt a blow to the company's manufacturing operations. "That was a major part of our income," says Tuke.

A Different World

Through all of the struggles, Finsbury has continued to innovate, to design new implants in the hope, if not expectation, that they would eventually find the market they deserve. As noted, the company's novel metal-on-metal hip re-surfacing product helped to launch the re-surfacing renaissance in the early 2000s. Even more promising may be its porous-coated ceramic-on-ceramic system, the DeltaMotion--developed with a German company, CeramTec AG, which supplies the ceramic parts for the implants, based on Finsbury's design--which is generating enthusiasm within the company and praise among competitors as well.

Indeed, Tuke calls DeltaMotion "the most exciting thing we've ever done," and notes ceramic bearing devices reduce the wear rate by a factor of 10 or so. Moreover, he says that the ceramic-on-ceramic material will be used not just in full hip but in re-surfacing implants as well—and indeed, Finsbury is also working on just such a large-diameter implant, another very promising opportunity—and the company has a new knee system, the Saiph, coming out, in part to respond to the mania for gender-specific implants, a device that Tuke calls "the next generation of the Freeman/Swanson/Samuelson design, which promises to do a lot more than our current knees do," in terms of flexibility, range of motion and patient satisfaction.

Still, even the promise of the new hip system proved not to be enough. As Mike Tuke struggled through the better part of the 2000s to finally build the sales and distribution capability Finsbury desperately needed, the challenge of creating that commercial capability were compounded by a series of frustrating business experiences. The experience with Corin was bitterly frustrating, but really more of a missed opportunity than anything else. In many ways, the MMT experience was worse: not only did Finsbury see no benefit itself from the sale of MMT to Smith & Nephew—even though it was Mike Tuke's ability that helped create an actual product out of McMinn's concepts—but it brought about the depletion of its manufacturing staff, as detailed above.

Perhaps Finsbury started to build its sales and marketing arm too late; by the mid 1990s, the importance of at least some critical mass was becoming clear as Big Ortho companies jumped on the industry boom by turning out products in ever higher volumes to serve a growing number of surgeons, low-volume as well as high-volume, who would implant those devices. The consolidation that took place between 1998 and 2003 when Stryker bought Howmedica, Johnson & Johnson acquired DePuy, and Zimmer picked up Centerpulse only magnified the importance of scale. [See Deal]

The orthopedic industry, says Tuke, "has gone like the motor car industry," picking up his favorite metaphor. "A lot of what's in the marketplace today is me-too; most of the designs are a copy of what the next guy's got because that's the easiest way through the regulatory process. If you change things too much, it makes your life difficult, and leaves you with a five-year delay in getting on the market."

Patients and patient expectations have changed as well, whether following or driving the approach taken by most orthopedic companies, he goes on. When Freeman and Swanson were developing their first implants, most patients were severely compromised, with few alternatives, looking for sophisticated devices that would help them, he says: "Today, patients want a hip replacement when they feel a tweak when they're playing golf." Direct-to-consumer marketing and the widespread influence of the Internet have amplified the impact, as patients look for quick, not necessarily lasting solutions—and certainly not the kinds of clinically rigorous devices Finsbury cut its teeth on, he goes on.

Even in the one area that's been so critical to Finsbury's success, says Tuke, "the thing that's driving hip re-surfacing is patients talking to patients and getting enthused about something they think is wonderful but that hasn't actually been proven." Indeed, he says that several of the systems currently on the market are "disasters, simply terrible, and that's seriously blotting out the chances that metal-on-metal [implants] are going to survive several more years." But the large orthopedic companies can't afford to take them off the market "because that would be an admission that the products weren't very good in the first place," he says. (Part of the problem, too, is that patients with more active lifestyles—an early target market for re-surfacing—are returning to those high levels of activity soon after their procedures, making worse the problem associated with the difficult procedure, of abnormal wear that can result and create what some researchers are calling "pseudo-tumors." As a result, implants that, under the right conditions could last 40 years, "are now lasting four years," says Tuke.)

If those devices survive at all, says Tuke, it's because the big companies' powerful distribution forces have become expert at selling them. Finsbury itself is not immune from the pressures. Tuke calls the idea of gender-specific knees "crazy," and "a marketing ploy"; finding the right knee for a woman, as opposed to a man, is, he goes on, just a "sizing issue." That said, Finsbury, as noted, is itself developing its own gender-specific knee story, the Saiph, named after the kneecap of a star in the constellation Gemini. "It's complete marketing," he says, but you have to do it if you want to get a new product on the market in anything like a reasonable period of time. "If you want a new product at next year's Academy meeting, what you need is a story, not necessarily a product; you can launch a story without FDA approval." (Parenthetically, Tuke notes that it's easier designing hip implants than knee implants because it's easier to achieve real stability with a hip replacement. "Ask any surgeon whether his patients are really happy with their knee replacements and they'll say no," says Tuke. "They're OK, but not as happy as their hip patients.")

Interestingly, Tuke argues that gender-specificity has more relevance in hip re-surfacing, if only because women use their hips differently than men do. About Finsbury's new re-surfacing, Tuke is excited, but characteristically cautious. "I really do think we've solved that problem [i.e., debris]," he says. "But it's yet to be proved. It's perfect theory, like anything in science. But it's not proven until you've done it," which in the ideal world means hundreds of patients and several years of clinical studies.

By late 2009, those kinds of considerations and the practical realities of the marketplace had begun to weigh on Finsbury. Over the past decade, the changing dynamics of the industry, in particular, had created "a dilemma" for the company, says Tuke. "The world has changed a lot." Last fall, as he looked back over the past decade, he noted that "it's become very difficult to compete with the big guys. We can stay much sharper and are able to develop some very advanced products that serve the patient and the surgeon better—we're way more advanced than most of the other companies. But we haven't got the route to market, despite the fact that we've tried to develop that, and there's no way we can catch up to those guys."

More to the point, Tuke saw little light on the horizon. "Maybe if we could get someone else to do our sales, we could keep the design piece, which is what we're good at," he mused at the time. Still the realities of the market kept encroaching: "It's tricky," he went on, "because prices are going down, costs are going up, the regulatory process means everything gets delayed. It's just very hard to put a new product on the market."

Finding an Exit

By the end of 2009, after a very difficult year, Mike Tuke had reached a turning point. At the time when the interviews for this story were first done, Tuke had come to no decision about the future direction of the company, though he clearly knew he had to do something: raise money, sell to a bigger player, maybe even close up shop. Whatever he chose, the status quo was no longer sustainable.

Burned by his experience with Corin and the decisions he felt were driven by the company's investors, Tuke clearly didn't find the idea of taking on private investors appealing. "Money comes at a serious cost to shareholder interest, and the incentives that drive innovation," he notes. In the end, that left a sale to one of the big orthopedic companies as the only option. According to some industry executives, the active bidders for Finsbury came down to the Big Three in orthopedics: Zimmer, DePuy, and Stryker, with DePuy the winner.

Industry speculation was that DePuy simply saw greater near- and long-term value in the company than anyone else—more than the other two bidders or any one of a number of other potential bidders, such as fellow UK orthopedics companies Smith & Nephew, once-partner Corin, or one of the several orthopedics companies for which Finsbury had done contract work. For those that had worked with Finsbury in an OEM or design relationship in the past, important as the in-licensed technology was, it may not have been enough to justify an acquisition since whatever individual projects and products bound Finsbury to those other orthopedic companies they could likely be taken in-house or to another partner. "Why buy the whole company when they might just as well have found someone else to work with," says one industry consultant. (Some industry executives also noted that Finsbury had made its name in re-surfacing and, to a lesser degree, large-diameter heads, and while the latter remain a promising market, the future of re-surfacing, particularly metal-on-metal, may have a limited upside, with few believing that more than 15% of the market will go that way.)

DePuy on the other hand, could see an immediate up-grade of its metal-on-metal re-surfacing line with the Finsbury acquisition—industry reports suggest DePuy was likely to shut the line down in any event—and could very likely find the real gem in Finsbury's DeltaMotion porous-coated ceramic-on-ceramic re-surfacing line. "Time will tell, but that could be a great product," says this executive.

From Tuke's perspective, the sale was the best outcome as other options were quickly closing down. "I'm 62, and we only get one shot," he said last fall. After one of his polishers had died recently, it got Tuke thinking about the company's future. "We've done a lot and could do a lot more if we could just get more sales," he said at the time. "But we're tiny, and we have to see this [i.e., an exit] as an opportunity." Still, if economically a sale seemed like the right move, "emotionally, it's the wrong thing to do," he said at the time.

Having now sold the company, Tuke still has mixed emotions and clearly will for a long time. "It's the early days of a new era for Finsbury, and I dearly hope it can continue as before but with more sustainable resources. But we also need to be as sharp and innovative as before and to do that, we need to be left alone. Can we do that?"

Exits, particularly trade sales, are a natural—and in most cases, a welcome—part of any business. Finsbury is hardly the first small orthopedics company to be acquired by one of the multinational giants—if anything, one could argue it was one of the last hold-outs. And Finsbury's exit was strong—as noted, the company reportedly had three bidders—and the purchase price, rumored to be around £65 to £70 million, has made Tuke, still in his early 60s, a very wealthy man. Yet for all of the upside, Tuke is clearly wistful about the sale and feels a sense of loss.

Says one industry executive, "Ultimately, Finsbury never decided what it wanted to be strategically: an OEM shop, a creator of novel technology, or a commercial operation with a strong distribution network." Tuke himself speaks of Finsbury's three arms, design, manufacturing, and sales and marketing, and concedes there was an imbalance, with more of the company's focus on design.

But it may not have been a lack of balance that led to Finsbury's sale, but just the opposite. As orthopedics has boomed over the past 30 years, so much success depends on building a robust commercial operation and strong distribution network, even if it comes at the expense of other capabilities. Orthopedics' boom started with an explosion of new devices and technology that enabled a host of new procedures; the boom was sustainable, however, only by having ever-larger companies drive toward a kind of standardization in product design, focusing on ease-of-use and acceptable outcomes, and a critical mass in manufacturing that has enabled high-volume production and robust profit margins.

In short, whether it ever truly achieved its goal or not, Finsbury always sought to be the Rolls-Royce in an industry filled with Toyotas. Ironically, Finsbury created a successful business early on out-licensing novel product ideas and manufacturing capabilities for other companies to sell; what it could never do was in-license the kind of sales and distribution capability that would enable it to capitalize on those ideas on its own. With the sale to DePuy, Finsbury won't go away. The company's product lines will likely be an important part of DePuy's line, particularly in re-surfacing, for years to come; perhaps DePuy will even, finally, provide Finsbury with the powerful sales and distribution capability that it lacked so long, a capability to complement its design and manufacturing expertise. In the end, if Mike Tuke mourns the passing of anything, it's not Finsbury's unique vision, but a vision of how the orthopedics industry overall operates.

SIDEBAR: Thinking Out of the Box

Through much of this past decade, hip re-surfacing was Finsbury's salvation, first with a novel metal-on-metal design and, looking forward, with a ceramic-on-ceramic system, the DeltaMotion, which could prove to be the company's real winner. Its metal-on-metal has shown in the Australian joint registry the lowest revision rates at three years of any system on the market. Yet for all of the praise Finsbury's designs have elicited, Mike Tuke himself isn't yet satisfied. Asked whether he thinks that the design developed for Stryker is finally the right re-surfacing design, Tuke says no—if only because he doesn't believe there is anything like a final design in anything.

Indeed, though Finsbury is playing in many of the hot new areas of total joint replacement, it would be a mistake to see the company as one to take up the latest new thing. To a very large degree, Mike Tuke's view of the orthopedics industry reflects the company's explicit corporate strategy—its conscious decision not to follow the same path as the much larger, global players that, he says, produce high-volume, mass-market, lowest common denominator-type products.

Perhaps it started too late, but in the end, Finsbury never did quite build the sales and marketing capability that would complement its design and manufacturing skills. Says one industry executive, "The one real failure was not creating a distribution network." Certainly, such an infrastructure would have helped. But it's not really clear that even with a strong distribution network, Finsbury would have joined the ranks of global orthopedics leader—especially since, philosophically, the company had eschewed the kind of easily implanted devices that enable high sales volumes in the first place.

Behind Finsbury's approach is more than a different strategy; there's a philosophically different, somewhat contrarian world view as well. Ultimately, however, that world view isn't so much contrarian as a kind of closely observed pragmatism, rooted in a hands-on experience about what it means to develop new implants and implant designs. Tuke is one of the few orthopedic company CEOs who actually designs implants himself and he may very well know more about the manufacturing process than the heads of manufacturing at most Big Ortho companies. When he spends an afternoon talking about the design of implants—how, for example, the process has evolved from one of paper and pencil to one done on CAD systems—you know he's spent the morning in the design shop.

Thus, when Tuke talks about the limitations or challenges of implant design, it's from the perspective of someone who spends his days actually trying to address the limitations and solve the challenges. He is, for example, critical of the product regulatory process, not because it is either too lax or too strict, but because it largely misses the point about implant outcomes. Even today, he says, "there are lots of things to improve, and that means understanding where the weaknesses and problems [of current products] are." But that's easier said than done. "Whether you're Finsbury or Zimmer, if you want to develop a new joint, that's fine, but before you put it in a patient, you have to prove that it works and the truth is, we don't have the faintest idea if [a new implant] will work," he says. "If you make any changes at all [to a design], the only way to find out if it works is to put it in a patient and wait 20 years." But realistically, companies can't wait that long to make product enhancements. "That's why product development is incredibly difficult," he goes on. "What we've had in the 30 years leading up to now is an immense learning curve with major improvements, and that's now being stifled."

Mike Tuke's automotive analogy, comparing Finsbury to high-end car makers like Cobra and Rolls-Royce, and Big Ortho to high-volume producers like Toyota, is meant to compare a niche, specialty manufacturer with mass producers. But it invariably conveys an implicit quality comparison, a comparison some in the industry question. "There's no doubt Finsbury's introduced some innovative hip and knee lines," says an executive at one big company. "But are any of them really any better than those [the big companies] turn out? I don't know."

That said, even this executive praises Finsbury for its "inventiveness, nimbleness, and out-of-the-box thinking" in developing new products and, more importantly, products that could be easily manufactured to the highest standards. "Their strength is in design and being able to design quickly," he says. "They're much better at it than the Big Guys." And though Tuke emphasizes Finsbury's design capabilities, this executive also says the company's manufacturing skills were exceptional. About the company's third-generation re-surfacing implants, he says, "They were able to produce metal-on-metal with extremely tight tolerances. They don't get enough credit for their expertise." The question for Finsbury was always: is that enough to build a sustainable business? The answer came with the sale of the company to DePuy last December.