Spinal Dynamics Sticks Its Neck Out

For the past decade, fusion, cage or not, has been the gold standard in spine surgery. Now, a handful of companies, including Seattle-based Spinal Dynamics, is betting that fusion will be replaced by joint replacement, in this case artificial disc replacement, in spine surgery just as it did in total hip and knee surgery many years ago. Spinal Dynamics' main challenge lies in overcoming surgeon skepticism, especially in cervical procedures where fusions are common and very successful. And to help, they've lined up a distribution agreement with spine market leader Medtronic Sofamor Danek.

Fusion has been the gold standard in spine surgery. Now, a handful of companies are betting that joint replacement will come to the spine just as it has to hips and knees. The second of a two-part series.

by David Cassak

• Over the past several years, as big-company interest has heated up, the spine market has undergone a major competitive upheaval. But the real revolution in spine may ultimately be technological: a shift from fusion to disc replacement.

• Companies promoting disc replacement, such as Seattle-based Spinal Dynamics, maintain that the procedure accomplishes all that fusion does in eliminating pain, but does so while preserving spine function and flexibility, thus offering patients better quality of life after surgery.

• One challenge for disc replacement companies: overcoming surgeon skepticism about the need for a new clinical procedure, particularly in the cervical spine, where fusion success rates are extremely high.

• Helping Spinal Dynamics get to market more quickly is an innovative distribution agreement with spine market leader, Medtronic Sofamor Danek.

As we noted last month, spine instruments and implants are the orthopedic industry's version of a 20-year overnight success. Today, the market couldn't be hotter, with dozens of companies, both big and small, trying to find their way and surgeons confronted with a rich array of new and new-trading-on-old devices and approaches.

But barely more than a decade ago, few companies—particularly large orthopedic companies—wanted much to do with spine. The traditional joint replacement market in hips and knees was booming; spine was an orthopedics backwater, small in size and rife with pitfalls, the most serious of which was the threat of litigation.

Just as the total joint market slowed during the 1990s, however, spine started growing—and dramatically so. In the process, large companies, looking for dwindling high-growth opportunities, began to pay attention to the spine market. Sulzer Medica Ltd. 's $595 million acquisition of Spine-Tech Inc. (now Sulzer Spine-Tech Inc. ) in 1997 was the bellwether of big-company interest [See Deal]; Medtronic Inc. 's 1998 acquisition of Sofamor Danek (now Medtronic Sofamor Danek ) for $3.6 billion was its confirmation [See Deal].

Nor were Medtronic and Sulzer the only large companies to feel the attraction of spine. In short order, orthopedic leader DePuy Inc. , a Johnson & Johnson operating company, would also make a major acquisition—of Sofamor Danek competitor Acromed Inc. [See Deal]. Today, virtually every major orthopedics company either has or is contemplating establishing a major franchise in spine. In the process, they've dramatically changed the competitive landscape: a market once populated by a handful of small companies selling virtually the same product lines is now filled with dozens of companies, large and small, bringing different technologies and different skill sets into play.

But the competitive upheaval in is only part of the story. Even spine's most important technological development over the past several years, i.e., spinal cages, preserved what has been the gold standard approach to spine problems, fusion. The next major technological development may be more truly revolutionary, as joint fusion cedes to joint replacement, in this case, disc replacement, paralleling the clinical evolution from fusion to total joint replacement in hips and knees. At least that's the bet of Seattle-based Spinal Dynamics Corp. , one of a growing number of companies who hope that the intuitive sense that replacement makes will win over even the most skeptical spine surgeons, particularly in the cervical spine, where success rates with fusion have, to date, been high.

Until now, most of the early disc replacement surgery has focused on the lumbar spine, and the adoption issues and success criteria are different in cervical and lumbar. But if Spinal Dynamics and other disc replacement companies are right, the technological changes in the spine market over the next several years could mirror and approach in magnitude the competitive changes of the last several years.

Old at 20 or 30

Spinal Dynamics was founded in 1993 by Vincent Bryan, a neurosurgeon from Washington State. For years, Bryan had done cervical discectomy and fusion procedures and noticed that a large percentage of his patients were returning fairly soon after their initial procedures, requiring a second and third surgery due to adjacent disc disease. "For the past 70 years, spine problems have been treated with decompression, taking pressure off the spinal cord, with fusions done if, in the process of decompressing the neural structures, the spine was rendered unstable or if the surgeon worried that the spine might become unstable as a result of the decompression," Bryan explains. "In either event, neither [fusions] took into account the natural progression of the disease; the degenerative process was simply considered a natural outgrowth of getting older."

Such a view "never made sense to me," Bryan goes on, because there were clearly some patients whose spines degenerated faster than others and with little correlation to their chronological age. "I saw patients who, if you looked only at their spine, appeared old at 20 or 30," Bryan notes. Fusing the spinal cord after decompression treated the symptom, i.e., relieved pain and ensured stability, but didn't address the underlying problem. "If you removed a malignant tumor [on the spine], the first thing you'd do after decompression is tackle the disease that caused it," says Bryan. "But if it was a simple spine problem, you'd decompress and fuse, relieve the symptom, and then be finished."

Practicing in the Pacific Northwest, Bryan notes, "We were seeing a lot of young people who were mountain or rock climbers or worked in the lumber industry, coming in with serious injuries. If they were operated on in the traditional manner, which was to decompress the neck and fuse it, we found that in five or six years, they'd come back for another fusion and before they were very far along, they were invalids in so far as normal movement of their neck is concerned." Bryan was convinced that the problem lay in fusion itself—after fusion, the vertebra become rigid, and the stress that that joint would normally absorb would be shifted to the joint next to it. As a result, that next joint would wear out much faster than it would have had the fusion never been done. "It's like the suspension mechanism in your car," Bryan explains. "If your shock absorber were to go bad and instead of replacing it, you were to weld the axle at that wheel to the frame of the car, you wouldn't necessarily improve the ride and you'd likely aggravate the stress on the other three wheels."

As he was formulating his new approach, Bryan concedes that "For whatever reason, [the problems associated with fusion] didn't appear to be recognized by the rest of the world. Most surgeons seemed quite content with what they were doing and felt that, in order to relieve the patient's symptoms at least in the short run, [fusion] was a good procedure and successful most of the time." There were some surgeons performing disc replacement procedures in selected lumbar cases—most often as a course of last resort after numerous fusions had failed—but virtually none in the cervical spine, which is where Bryan had focused his efforts. Perhaps because surgeons in other parts of the world weren't seeing the same kind of young, physically active patient population that a Washington-based neurosurgeon sees, he says, most surgeons "failed to see the consequences of the treatment they were doing."

Bryan was convinced that there had to be a better way to address the underlying problems associated with spine pain. "Our approach was to intervene early," he says, "when the symptoms first present themselves, with something brand new, avoiding fusion altogether, and see if we can change the pace of the progression of the accelerated degeneration in adjacent levels and return the spine to the normal aging process by re-establishing normal motion and stress in the joint in question as well as in adjoining joints." Bryan's solution: a prosthetic inter-vertebral disc that would allow the surgeon to treat a patient's herniated disc and its symptoms without having to fuse his or her vertebrae. He would simply replace the disc with a fully functioning device.

Good Vibes

It's not that Vince Bryan doesn't see a role for fusions in spine surgery. "If you break a bone and have to put it back together, you have to fuse it," he says. But, he goes on, "when something is inherently designed to be functional, if you can continue its functionality, rather than make it rigid, that's certainly preferable."

Bryan and a local engineer and business executive, Alex Kunzler, did much of Spinal Dynamics' early designs and prototypes themselves and also funded the company's start. A viticulturist, Bryan found that a cliff side at one of his vineyards was, acoustically, a natural amphitheater and turned it into an informal concert venue for area residents. As the concerts caught on, Bryan brought in more and better established acts, eventually expanding the venue into the 20,000-seat George Amphitheater, today the leading concert amphitheater in the US, which he sold to the record company MCA for a lot of money.

Much of Spinal Dynamics' seed funding came from the sale of the amphitheater. But by 1997, Bryan had raised his first round of venture financing, with Annette Campbell-White of MedVenture Associates leading the deal, along with Three Arch Partners and Technology Partners. (Bryan and Kunzler had earlier sought corporate investors, including Johnson & Johnson and Medtronic, but chose venture investors instead.) In four rounds of financing, Spinal Dynamics has raised $40 million [See Deal], [See Deal].

Chuck Clark, Spinal Dynamics' CEO, who spent 10 years at CR Bard Inc. and its USCI business and later 11 at Mallinckrodt, now a division of Tyco International Ltd. , where he was group vice president of its critical care/anesthesia products group, notes that patients who are candidates for the Spinal Dynamics prosthetic disc present with a disc prolapse or herniation that is causing "a clear, diagnosable neurological symptom," either pain or tingling in the upper or lower extremities caused by nerve compression, "corroborated by radiographic evidence."

That herniation may be the result of trauma or, more likely, the wear and tear of daily living; every day, people put tremendous strain on their vertebrae and, after a certain age, the nucleus of the disc begins to dry out, leading to pressure that begins to wear down the annulus of the disc. When enough wear and tear occurs, the damaged nucleus can push its way through. For most people, even into old age, disc degeneration is asymptomatic; herniated material may be reabsorbed, and eventually the disc and vertebrae compensate by slowly freezing enough to prevent the person from feeling pain. "But for hundreds of thousands of people," Clark notes, "the disc problems become symptomatic and they have to have the offending disc surgically removed."

Most surgeons remove the damaged disc and replace it with a harvested or cadaveric bone graft, in the process fusing the adjacent vertebrae together. As noted, the fusion relieves pain but also results in a lack of mobility and flexibility in that joint. A single fused vertebra probably won't significantly limit a person's mobility, but fusing two or three vertebrae will.

Spinal Dynamics' alternative is a small, flexible disc prosthesis, soft and malleable in a way that other disc replacements aren't, that surgeons implant into the cleaned out space after a discectomy. More than just the disc itself, however, the company has a line of proprietary instrumentation to make the placement of the prosthesis as precise as possible. "Usually when a surgeon does a discectomy and fusion, he's using relatively crude instruments," says Clark. "What we offer is something quite a bit more sophisticated, because one of the critical success factors in a long-term efficacious disc replacement is careful, accurate, reproducible preparation of the bone surfaces, just as is necessary in knee replacement."

Specifically, Spinal Dynamics instruments enable surgeons to more accurately measure the disc angle using a fluoroscope. Once the angle is measured, a small proprietary scaffold is attached to the vertebrae, ensuring that cutting is done at the correct angle. High-speed milling tools are then used to more finely prepare the endplates. (Pin stops ensure that the tool won't accidentally slice into the spinal cord or nerve roots.) Vince Bryan notes that he got the idea for the innovative instrument design from stereotactic systems used to remove brain tumors. "I had done a lot of stereotactic work and was always impressed with the degree of precision that we were able to achieve with it," he says. Extending sterotaxis to the spine, though appealing, had to overcome some obstacles. In the brain, the skeleton surrounds soft tissue and provides a convenient base to attach the stereotactic frame to. But in the spine, the bony base is surrounded by soft tissue. Bryan soon realized that developing a stereotactic approach to spine surgery "was going to require a new kind of system, one which could achieve the same degree of precision ultimately, but would work in a reverse form," he says. Thus, where typical stereotactic surgery creates a frame first and then establishes a target and entry point, Spinal Dynamics' system had to establish the target and entry points first and then affix the frame to the bone using gravitation localization concepts to ensure that the surgeon had identified the right location.

A Move into Lumbar

Spinal Dynamics' instrumentation allows for "extraordinarily accurate, precisely centered contours in the vertebral end plates," argues Chuck Clark. Into the space defined by the endplates, surgeons place the disc prosthesis, now so finely matched, it doesn't require screws or other fixation. "In fact, because of the precision of the fit, it's so tight in the capture, you can't move it," he goes on.

All of this is done in order to ensure that the prosthesis and endplate fit as tightly as possible. "If you don't have the vertebral end plate prepared precisely," he says, "you won't get a good fit and the stable in-growth necessary for long-term success. We want to make sure we reconstruct the disk in its proper biomechanical orientation."

One critical question for Spinal Dynamics is whether the company, currently focused exclusively on cervical disc replacement, will eventually have to move into lumbar replacement, particularly since lumbar devices tend to fetch higher prices in the spine market than cervical devices. Vince Bryan notes that once he became convinced that disc replacement was "intuitively logical," the cervical spine was the best place to start because 90% of the discectomy procedures in the neck are fused, often when they don't need to be. By contrast, micro-discectomy without fusion was still a much more common procedure in lumbar cases when Spinal Dynamics was launched. "In one case, we were replacing a fusion which is unnecessary, in the other, there often wasn't a fusion being done," he notes. "That's changed over the years, but nonetheless, at the time, that made the cervical spine an appropriate place to start."

Bryan also argues that the anterior approach of most cervical cases lends itself favorably to prosthesis. Chuck Clark, for his part, argues that Spinal Dynamics has focused on the cervical spine "because it will be easier to demonstrate unequivocal clinical success there than in the lumbar spine." And given that there are 260,000 cervical patients a year, creating a $1 billion product market, company officials believe they can build an attractive business around that segment. "This is a huge business, even if we never touch lumbar," says Clark.

At the same time, it's not lost on company officials that, although adoption rates haven't been spectacular, the two leading disc replacement devices on the market today, the Charite from Waldemar Link GMBH and ProDisc from Spinal Solutions Inc., are both lumbar disc replacements. Vince Bryan notes that Spinal Dynamics has been working on lumbar disc prostheses for four years, along with a line of lumbar instrumentation similar to that for its cervical procedure. Spinal Dynamics is currently approaching animal studies in its lumbar development program, and Bryan calls lumbar disc replacement "a logical next step" for the company.

Chuck Clark, too, sees lumbar as a logical evolution for the company. "We think there's a subset of [lumbar] patients who are being fused who are candidates for prosthetic disc replacement," he says, "not [patients with] simple nerve compression, but the syndrome where the patient has pain and has been unresponsive to medication and conservative treatment, and the doctor doesn't know what to do." A lot of fusions, he goes on, "are done on patients for whom the surgeon, I think, isn't really sure what's causing the problem, but the pain won't go away and the patient wants to be better. So the doctor goes in and fuses them and they do feel better, but it's not really the best thing that can be done for them."

If It Ain't Broke, Don't Fix It

Behind Spinal Dynamics' prosthetic disc approach was Vince Bryan's conviction that fusion not only is unnatural, but accelerates degenerative disc disease. Once the patient's vertebrae are fused at one level, every time the neck moves, says Clark, "the discs above and below the fusion are forced to move in a greater range of motion and absorb more stress than they normally would—that accelerates the degenerative disc disease, and the adjacent discs are more likely to blow out like the first one."

Spinal Dynamics officials concede that not everyone buys this theory of fusion-driven accelerated degeneration at adjacent levels. Vince Bryan notes that there are surgeons "who fall into both camps," i.e., those who are eager to find an alternative to fusion and as well as those who "are content with the way they've always done things." Chuck Clark agrees. "There's a segment of the spine surgeon community who believe that disc degeneration is natural and once a person blows out a disc, they're obviously predisposed, whether genetically or not, to degenerative discs," he says. In essence, this argument goes, that patient will experience additional disc degeneration whether he's been fused or not. And Clark recognizes that those who argue for accelerated adjacent-level disease caused by fusion still need to prove their case. "It's going to take a five- to ten-year controlled study to get statistically significant data proving it one way or the other," he says.

The debate is an important one for Spinal Dynamics; unlike other companies, such as NuVasive Inc. , the subject of the first part of this series, which is trying to apply new technology to traditional fusion procedures, Spinal Dynamics is among a handful of companies at the forefront of spine surgery's next real technology leap: from fusion to disc replacement. Clark acknowledges that there are a lot of spine surgeons, including many thought leaders, who believe that, especially in the case of single-level disease, fusion "is one of the best surgeries the spine surgeon has, particularly for cervical disc disease, and their attitude is ‘If it ain't broke, don't fix it.'"

Clark notes that such an attitude stems not just from past successes and a conservative practice style, but also from the rocky history of disc replacements. Surgeons and others "have been trying to find alternatives to fusion for 30 or 40 years," he notes. Early attempts included putting ball bearings between vertebrae to restore movement, he says, "but most resulted in failure." The reason: those attempts to find an alternative didn't go far enough in testing and reiterating device designs. "Someone would come up with an idea, draw it on a piece of paper and get someone to build the device, and then they'd put it directly into a patient," he argues. "No one started from detailed bio-engineering principles and tested their theories, step-by-step, through disciplined preclinical bench and animal testing."

Even more recently, advanced designs like the Charite have gone through several iterations, says Clark, and in the process have been tested virtually exclusively in humans. As a result, he says, "There's a large portion of the surgical community that has said, ‘Wait a minute. This [disc replacement] is too radical; it hasn't been proven yet.'" Using adult chimpanzees, which can weigh more than 150 pounds and whose spines and posture are virtually identical to those of humans, Spinal Dynamics "learned a lot, through extensive iterations of preclinical bench and animal testing, about where the failures and shortcomings in our device were," says Clark. "And without that, I don't think we'd have been as successful in our human clinicals."

Getting Comfortable

Now beyond animal studies, Spinal Dynamics claims its device is proving itself in human trials as well. The company has just completed its prospective clinical study in Europe and, says Clark, "It's gone extremely well." And it has just started its three-level clinical trial, he goes on, "and the short-term results are excellent."

Even if Spinal Dynamics' prosthesis proves itself in clinical trials, however, Clark knows that some skepticism is likely to persist for a while. "There are a lot of doctors who think, on some level, ‘Hey, my fused patients do pretty well—at least for the first four or five years when they come back with adjacent disease. I don't want to stick a plastic or metal disc in there, because what happens if it fails? At least I know my fusion is going to be okay.'"

But Clark also believes that even fusion's strongest proponents for single-level disease acknowledge that something other than fusion is needed for patients who've already had multiple fusions. That's why Spinal Dynamics' early clinical studies have addressed two- and three-level disease. "By the time that patient shows up with his or her fourth level blown out and already has half his neck fused, the surgeon really doesn't want to go back and fuse the remaining vertebrae." That, says Clark, creates a ready market, albeit small, for Spinal Dynamics' prosthesis, and his bet is that as surgeons become comfortable with disc replacement in that small subset of patients, they'll begin to use it more generally, leading to more widespread adoption.

The growing presence of orthopedic surgeons in cervical spine surgery is also good news for Spinal Dynamics. Clark notes that while neurosurgeons "tend to think more in terms of removing the biological problem and are less inclined to put hardware into the spine to reconstruct it," orthopedic surgeons are, by training, "more comfortable with implants."

For Clark, who spent nearly a quarter of a century with large device companies, the appeal of running Spinal Dynamics lay in the innovativeness of the technology. "I was looking at a number of start-up opportunities," he says, "and chose this one because it was one of the most exciting new technologies I saw. There are a lot of companies doing me-too products or doing some incremental twist on technology that other companies had. But it was clear to me that what Spinal Dynamics was up to wasn't some minor or trivial improvement—it was a major breakthrough in the way [degenerative disc] disease is treated."

Just as importantly, despite the skepticism, Clark from the beginning believed the opportunity for Spinal Dynamics is huge. "This isn't something for a couple of thousand patients a year," he says. "There are hundreds of thousands of patients." But perhaps mindful of the skepticism of surgeons and the conservative attitude that underlies it, Clark dismisses comparisons between what Spinal Dynamics is doing and an earlier transforming device technology he's intimately familiar with: balloon angioplasty. "That was an extraordinary and valuable innovation because it replaced open heart surgery and graft transplantation with a far less invasive, transluminal approach," he says. "We're doing something quite different."

In fact, Clark makes distinctions between what Spinal Dynamics is doing and minimally invasive approaches like NuVasive's. Spinal Dynamics' disc prosthesis right now is implanted in open procedures. "We're not trying to get less invasive with an elegant approach like minimally invasive surgery," he says. "This is a straightforward, standard surgical approach."

Clark believes that, in time, minimally invasive approaches will catch on, but right now, they're not part of Spinal Dynamics' pitch. Rather, the company makes a variant to the MIS companies' argument that MIS techniques can adapt to traditional fusions; Spinal Dynamics' argument is that its disc prosthesis conforms perfectly to conventional open spine surgery. Says Clark, "We're very consciously saying to doctors, ‘Look, you're creating this nice, open surgical field and removing a disc. While you're there, why stick a big piece of cadaveric bone in there or a fusion cage, if we can offer a disc replacement that really works? All you have to do is to prepare the endplates, put the disc in, and close up the patient.' They're not being asked to do anything different." (Of the company's proprietary instrumentation, only the shaft and scaffold, fostering a precise milling of the vertebra, represents something the surgeon doesn't already do.)

A Step in the Wrong Direction

That's why Clark believes adoption rates for disc replacement, in the cervical spine at least, will outpace those of angioplasty in its earliest stages. And rather than to Dr. Andreas Gruntzig and angioplasty, Clark prefers to compare what Spinal Dynamics is doing to early hip implant pioneers like Sir John Charnley. "Before Charnley, if you had painful arthritis in a hip or knee, the only surgical option was fusion," he notes. "It wouldn't hurt anymore, but you couldn't move your hip. If you want to talk about truly revolutionary advances in technology, I think Charnley's ought to be right up there with Gruntzig's."

Still, analogies with angioplasty are seductive in disc replacement, given the tremendous clinical and commercial success that interventional cardiology spawned. Yet, it's hardly surprising that spine executives and surgeons greet such comparisons cautiously because adoption curves based on new clinical approaches are always tricky to read, particularly in a specialty like spine where success rates have been high and conservative approaches to therapy aren't hard to find.

Indeed, for spine company executives, the story of a technology that comes to market with great promise and sees strong adoption early, creating tremendous buzz—and investor value—only to fall back later as surgeons retreat from their early use, has a familiar ring: it's the story of spinal cages. (Actually, the analogy some industry executives drew was between cages and coronary stents, which proved less apt.) And for most spine executives, the story of spinal cages is both inspiration and cautionary tale.

Vince Bryan sees a silver lining in orthopedics' experience with spinal cages: for disc replacement companies in particular, he argues, cages were "a good thing because they helped surgeons who had never familiarized themselves with the use of instruments or putting in implants to learn those skills and get used to the variables that come when you put in implants." As for the cages themselves, Bryan goes on, "they were an attempt to do something novel, though as a surgeon I never thought they were as novel as some said."

Indeed, if anything, he argues, "for a surgeon interested in retaining functionality, [cages] were a step in the wrong direction as far as the long-term outcome was concerned" in the larger evolution of spine surgery. Similarly, in disc replacement, notwithstanding its intuitive appeal to some, there's a conservative streak among some surgeons that makes them skeptical of disc replacement as a concept. At this year's American Academy of Orthopedic Surgeons (AAOS) meeting, Harry Herkowitz, MD, a spine surgeon from Michigan, offered just such a conservative perspective in a morning program on the future of disc replacement technology, focusing primarily on lumbar disc replacement.

Herkowitz asked pointedly whether disc replacement isn't really "a triumph of technology over reason, a product in search of an application?" Joint replacement works well in weight-bearing joints such as hips and knees, he noted, but he questioned whether the analogy really extends to the spine. "The premise is that [disc replacement] will lead to the elimination of pain," said Herkowitz, "but we need to better understand where pain in damaged spines come from."

Herkowitz argued that in spines that have suffered fractures, the source of pain is clear. "But for the typical case of degenerative disc disease, [the connection] isn't so clear," he argued. "We continue to see lots of patients who function well with degenerative disc disease." In fact, degenerative disc disease isn't really a disease at all, he insisted, but part of the natural aging process; 90% of all people have some form of the disease by the age of 50, and some studies show that the presence of disc disease "doesn't predict lower back pain," he said. Thus, the analogy between disc replacement and total hip replacement, for example, falls apart, he said, since fractured hips are both "a clear source of pain and not part of the normal aging process."

Herkowitz did acknowledge that in certain cases—simple-level degenerative disease for example, where the patient failed to respond to other forms of treatment—disc replacement may be called for. But he cited a number of concerns with disc replacement including concerns over indications, most of which aren't clear right now, as well as some over biomechanics, specifically whether artificial discs loosen or wear out over time. There are related issues over complications as well, particularly around salvaging failed devices, and Herkowitz said the relative lack of follow-up studies in the US and even Europe, where the number of studies has been greater but is still limited, has done little to address these concerns. Finally, Herkowitz noted, the fact that new disc designs appear with amazing rapidity may suggest not just a robustly competitive product opportunity, but also that we haven't yet found an optimal design.

Such skepticism notwithstanding, the concept of disc replacement as not just a new tool or device, but a new approach to spine surgery seems to be catching on. Dr. Jack Zigler, MD of the Texas Back Institute calls the movement within spine surgery toward disc replacement "evolutionary, rather than revolutionary." "It flows naturally from fusion," says Zigler. "Just as orthopedic surgeons moved from fusions of hips and knees to total joint replacements, I don't think there's any reason to believe that we won't see the same kind of movement in artificial discs in the spine, except from surgeons who aren't comfortable with anterior spinal surgery."

In the short term, that's no small issue. Zigler points out that much traditional spine surgery, particularly rods and screws, are done with a posterior approach. And while there's no FDA-approved lumbar disc replacement on the US market yet, Zigler dismisses comparisons with cages, with its boom-and-bust adoption history. "Unlike cages, there's plenty of long-term experience with this technology."

US studies on lumbar discs are still in early phases—TBI is the only US facility doing clinical trials on both the Charite and Pro Disc artificial discs—but Zigler notes that Charite has been on the market in Europe for 15 years and ProDisc for more than a decade. "I know there are some in the US who claim that the studies, particularly in the US, haven't been rigorous enough," he says. But you can't ignore the evidence from a decade and a half of clinical experience, he goes on. "If we'd had 15 years of disasters from Europe, we'd have heard about it. And all of the studies that we have done suggest that artificial discs work."

Indeed, several artificial disc studies, tracking over 200 patients, have shown good results in 63-79%; preliminary studies done at TBI, while admittedly too early for definitive results, showed most patients returning to a normal range of motion with no device failures, other than expected complications, and excellent range of motion after one year.

Artificial disc advocates concede there are still concerns over poor disc placement, particularly if it leads to post-operative dislocation—a concern Zigler says is particularly at issue in cervical replacement. Moreover, he notes that the adoption issues for artificial discs in cervical are different from those in lumbar cases. For most surgeons, he says, the case for disc replacement in lumbar appears to be stronger than in cervical cases; given the extremely high success rates in cervical fusion, "it's not like lumbar, where most surgeons believe fusion is a less desirable option." Zigler thus calls cervical "a more theoretic application."

Even so, Zigler calls cervical disc replacement "the next phase of evolution" in a clinical area which overall is moving from fusion to disc replacement. Thus, while Zigler does see a role for fusion in the future, particularly in selected populations, such as severely arthritic patients, and for certain conditions, such as trauma and instability, he concludes, "I think disc replacement ultimately will become that accepted treatment in a majority of cases, replacing fusion."

A Distribution Agreement

The perception on the part of surgeons—and not just thought leaders like Jack Zigler, but mainstream surgeons as well—that disc replacement is evolutionary rather than revolutionary is important. Small companies in all device fields must walk a fine line between arguing for the truly radical nature of their innovation and its commensurate clinical value and the comfort and predictability of more traditional procedures—hence, Surgical Dynamics' argument that disc replacement conforms well to traditional surgery. In spine, such arguments take on an even greater resonance, given the combination of surgeon skepticism or conservatism about new technologies and the appearance on the market in recent years of big orthopedic companies, with their enormous marketing resources and predisposition to defend more conventional therapies.

From a small start-up with three employees when Clark joined in late 1997, Spinal Dynamics had done all of its prototyping and animal studies by mid-2000 and even obtained the CE mark to begin selling in Europe. In February of 2001, Spinal Dynamics began its European marketing efforts under a distribution agreement with market leader Medtronic Sofamor Danek covering all geographies outside the US [See Deal].

Clark argues that the MSD relationship has already begun to pay off for Spinal Dynamics. "They have the strongest, best-established channels to the customer," he says. "It's something we could never have created on our own." Spinal Dynamics could have formed its own network of independent distributors, says Clark. "And they would have done pretty well, but the ability to access the channel of a powerhouse like MSD is just extraordinary."

And Clark takes issue with the characterization that teaming with the market leader is like letting the fox into the hen house, dismissing suggestions that large companies sometimes take on new, innovative technology only to bury it, as sales reps focus their selling efforts on the products they've always had success with. "I have to say I've been very pleased with the promotional effort they've made and the attention they've given our product," says Clark, who notes that much of MSD and Spinal Dynamics' early collaboration has focused on surgeon certification and training. "It's one thing I've insisted on and made part of the distribution agreement that surgeons be adequately trained to do the procedure correctly and to diagnose and select patients who are appropriate candidates for this device," he goes on.

Moreover, there are minimums established in the contract that guarantee that Spinal Dynamics' product will get full attention. "Even if they just want to stick it [i.e., the prosthesis] on the shelf, we'll get top-line benefits as if they were working their hardest," he goes on. But rather than too slow a roll-out, Clark worries about the precise opposite. Perhaps mindful of what happened in spinal cages, he argues that certification and training are critical, "The worst thing that could happen to us right now would be to have a lot of failures because too many surgeons are using this device for the wrong reason," he says. "We have no interest in pushing inappropriate applications of this device."

A Difficult Financing Climate

Indeed, Spinal Dynamics officials say that the very strong demand on the part of surgeons, more than the contractual terms in its MSD distribution agreement, has been the driving force incentivizing MSD reps to sell Spinal Dynamics' products.

As more and more clinical data about disc replacement becomes available, notes Vince Bryan, "there's a level of excitement that I've never seen before among those [surgeons] who are really open to new ideas." Bryan notes that organizers of the first international clinical congress on arthroplasty last year had expected perhaps 100 surgeons; over 350 showed up. "The excitement in the auditorium was unlike anything I've experienced—it was like waiting for a concert to start." Demand for training on the Spinal Dynamics procedure has been high too, says Bryan, and equally so among spine surgeons trained in neurosurgery and those trained in orthopedics—while neurosurgeons tend to be more comfortable in neck surgery, orthopedic surgeons tend to be trained earlier in doing implants. Both come together in the Spinal Dynamics procedure. "If you consider everything, I think there's an equal appeal to both," says Bryan.

As with most device companies, reimbursement will be an issue for Spinal Dynamics in promoting adoption, particularly in Europe, where national governments continue to look for ways to reduce health care costs. (The distribution agreement also includes a transfer price provision that makes reimbursement vagaries somewhat neutral to Spinal Dynamics and incentivizes MSD to work for higher reimbursement rates.) Only in Japan has surgeon interest not been as high, in part because of the different physiology of the Japanese population, in part because of a different philosophy in treating degenerative disc disease. "Japanese surgeons generally prefer to decompress the cervical spine from the back of the neck in what they call a floating laminectomy," says Clark.

But the story behind Spinal Dynamics' distribution agreement underscores the challenges that small companies face in a market like spine, where large companies control the market through powerful distribution channels and small companies struggle to differentiate even truly innovative technology. It also speaks to the challenges that medical device start-ups faced raising money during a specific time a couple of years ago.

"I had had to close three rounds of financing," Clark begins, in explaining how the MSD distribution came about. "And my strategy was to parcel out the financings in small enough tranches that we could build valuation with each step." The trick was figuring precisely how much cash the company would need to get to the next milestone in order to ensure that, at the next round, any financing would be done at a substantial step up in valuation and not be dilutive for Spinal Dynamics' investors.

The strategy was sound, but Clark was trying to raise money in 1998-99, at the height of the dot-com boom, when funding for medical device companies was difficult to come by. "A lot of the VCs that had been obvious candidates for financing were shutting their medical device activities," he recalls. "And those that were interested kept asking, ‘When are you getting US approval?' because in the dot-com world, everyone was getting liquid in very short periods of time." Investors were funding dot-coms one quarter and going public two quarters later, with extraordinary returns; Clark's most optimistic estimate was that the FDA would require two-year clinical trials, at the minimum, before it would even consider approval.

As a result, says Clark, "it became obvious to me that we weren't going to get the valuations we deserved." Instead, Spinal Dynamics turned to strategic investors and, specifically, to the two corporate investors J&J and Medtronic, which had shown interest in the company several years earlier. "I thought they would understand the value beyond any short-term financial return," Clark recalls. "And I stayed in touch with both."

But precisely because they were more strategic investors, both J&J and Medtronic wanted distribution rights as part of any financing. "I set some very hard criteria that had to be met before I would relinquish distribution rights," Clark notes, including change of control provisions. "If we were going to give up rights, it would have to be under terms that would not, in any significant way, deter or restrict our ability to do some other deal with another strategic partner down the road."

The Negative Side of a Big Deal

For the larger spine and orthopedic companies now trying to tap into the quickly growing spine market, particularly those heavily invested in more traditional plate and screw instrumentation, the self-protective considerations that Spinal Dynamics built into its distribution agreement are well worth the price if they bring truly innovative technology. For Spinal Dynamics, as more and more large companies show an interest in spine, protecting an exit strategy becomes less a remote possibility and more a front-line strategy.

Chuck Clark knows well that virtually all of the leading orthopedic companies have put spine high on their list of strategic initiatives. "And if you're a big orthopedic company, what options do you have?" he asks. "You're not likely to [develop a spine business] through internal, organic growth; it would take too long." Acquisition, thus, becomes a primary tactic. "And you need some kind of differentiable technologies to get the attention of the surgeon," he goes on.

Smith & Nephew PLC 's recent acquisition of Oratec Interventions Inc. [See Deal] is a case in point, says Clark. "I think it still remains to be seen whether that technology is truly efficacious," he argues. "But at least it's a bet on a technology to differentiate itself." Clark argues that buying a company with innovative technology is the only approach that makes sense for a large company—building a viable spine business is a technology play, not a market share play. And the implications for Spinal Dynamics are clear. "Why should spine surgeons who've been loyally serviced by MSD reps their entire careers suddenly shift their business to Zimmer or Biomet, particularly if it's a me-too rod and screw system? There's nothing in it for them. The only reason they'd consider changing is if [the new] company is offering the first viable prosthetic disc, because then you're talking about changing the way they practice medicine." And though most large orthopedic companies have internal development programs in artificial discs, Clark believes the first companies in the space will buy their way in.

More to the point, just as Sulzer Medica's huge deal for Spine-Tech ushered in a new valuation for spine companies half a decade ago, the next series of deals could establish an enormous premium for disc replacement companies. Industry rumors suggest that Spinal Dynamics received an offer last year to be acquired by Medtronic at a price substantially higher than Medtronic paid for embolic protection company PercuSurge Inc. [See Deal]. But concerns on Medtronic's part that the deal would ultimately prove to be too dilutive squashed the deal at the last minute.

Without commenting on the Medtronic deal, Clark is, however, cautious about high expectations in acquisitions. Pointing to some of the other disc replacement companies currently in the market, he goes on. "There's a feeling that someone's going to pay a lot for those companies." But he's one spine executive who doesn't necessarily think extraordinary valuations for start-ups are a good thing. Commenting on one such deal, he notes, "Obviously, it got a lot of people's attention. But the problem is, it was at a valuation that [the acquiring company's] shareholders will never see a return on." And that could have a negative impact, he says since no company wants to be shown in retrospect to have overpaid for anything. "I think there's a downside to deals like that," Clark goes on. "There are a lot of people who look at that deal and now say, ‘Thank goodness we didn't do it.'"

Finding an Audience

Still, Clark believes that prosthetic disc companies with truly differentiated technology that can prove it works will more than earn their value, if only because large companies with conventional technologies understand that, particularly in the cervical spine, "this [prosthetic disc] technology is going to replace the use of plates and screws."

"I liken it to the computer industry a couple of decades ago when companies like IBM and DEC, whose bread and butter were in larger computers, suddenly saw the PC revolution coming," he goes on. "All of the spine companies sell plates and screws to augment fusion, and that business would collapse with a successful introduction of this device." Moreover, the technology shift "isn't going to be in dribs and drabs over a decade," Clark argues. "Once this becomes accepted by the mainstream," he says, adoption should be rapid "because there aren't huge obstacles to overcome in terms of [learning new] surgical techniques or things like that."

One of the benefits to Spinal Dynamics of its MSD distribution agreement is that the company "is gaining a tremendous insight on surgical response and interest in the technology," Clark notes, that should correlate to the US market. Domestically, Spinal Dynamics will avoid the distribution challenges some small spine companies face by going direct. "Because of the uniqueness of our product, I think we'll be able to attract the best and brightest field sales reps," says Clark, who worries that a network of independent distributors would both drain Spinal Dynamics' margins and face a possible conflict of interest with their existing plate and screw lines.

That won't be for a while, however. Spinal Dynamics is just now setting up its US clinical trials, and the company expects the FDA will ask for two-year follow-up data. In fact, Spinal Dynamics decided not to claim efficacy for reduced incidence of adjacent-disc disease in its approval, out of concern that the FDA would want to see five- or ten-year follow up. "Our approach is just to compare ourselves in terms of safety and efficacy to discectomy and fusion," says Clark. Once those studies are done, if you add in the time it takes to get a PMA approval, Spinal Dynamics is probably three to four years away from US launch.

But Clark has high hopes for what Spinal Dynamics can do domestically, particularly since its discs won't be inexpensive compared to more traditional supply costs. Spinal Dynamics will price its artificial discs somewhere between $3,000 and $4,000 in the US, in line with pricing it is currently getting in markets such as Canada and Australia. "If you look at the value we deliver, and as we begin to prove that we're reducing adjacent-disc disease, we think we'll be able to justify a premium price," says Clark.

Moreover, he says, the US market is amenable to a direct sale by a small company. For one thing, it's huge: more than 60% of the total world wide market and it's concentrated in 12 or 15 metropolitan markets "that can be quite readily served with a fairly small group of reps." The ex-US market, by contrast, he says, "is much more difficult, much more diffuse and difficult to serve, with different cultures, languages, and health care systems. It takes a major effort to mount credible access to markets outside the US."

More to the point, Clark's confidence about the US market speaks to his faith in the value of innovative technology in today's spine market. Despite all of the competitive pressures, and in particular the growing presence of large companies, and despite Spinal Dynamics' own bet on MSD outside the US, Clark believes that small companies with truly differentiated technology can find their audience. "If all you have is a minor advance in technology or a me-too product, there's not much you can do," he says. "But for companies that come up with significant advances in technology that truly change the way surgery is practiced, I think there's a very viable pathway to those customers, particularly when you're addressing a concentrated group of specialists like spine surgeons."