BoneChat #61 - Open Discussion of M&A - VB/Stryker Spine and ZB/P28

Well, we don't have a topic today, but there may have been a couple acquisitions this week.

Maybe just a few.

Yeah, man, there's a lot going on.

It's exciting. I don't know, it makes me be super excited about the space again.

Yeah, I can't even imagine the IP implications of, you know, all that, but that's got to be crazy.

Yeah, I'm— can't wait. Yeah, I can't wait to see the, the trickle-down effect of, of everything new powers do. Yeah, new dynamic for sure.

Yeah.

Anybody, anybody here ever sat in the boardroom during an acquisition? Well, listen, to the CEO, tell everybody to make sure you tell the sales force nothing's gonna change.

I've been there.

Knowing, knowing, knowing full well that they've already signed a deal that they're gonna fire everybody or there's gonna be a transition that's gonna affect most of them.

Yeah.

But they, you know, what stability?

There's sort of the public statements just to keep the wheels on and keep the business going. And then there's the private stuff going on behind the scenes. Yeah, it's, it's fascinating.

Yeah, especially in public companies because there's a period, like a regulatory period and everything, when between when you disclose the acquisition to when it actually happens. So you don't want, you know, you don't want, especially the business that's getting acquired, to, to have like a massive exodus.

Exactly. And there's sometimes there's, I guess there's not in public companies, there's not earnouts, but sometimes there's earnouts, so you can't really You can't tank the sales force early because you, you need those sales to get through. Interesting. Well, we've got open discussion, so what do you guys— where do you guys want to start?

Yeah, I think, I think the Striker VB, that's the most exciting, I think.

Well, it seems like— I think it— I wrote an article on LinkedIn and it just went crazy. You know, um, I just looked, there's 57,000 views.

Whoa!

Oh wow. I mean, it just went, and there's 183 people that, you know, replied, and there's 20 comments.

Is that the one that from the Bone, the, your webpage, that your thoughts that you—

Yeah, I just, I just wrote a, you know, here are my thoughts on streams, and then I posted it on LinkedIn. Man, it kind of went— I don't usually see— now it's 58,000, it just went up. I don't really see that.

I think it's a sign of how exciting this is and, you know, what it means for the space and how everyone, like, on every category is, you know, excited about it.

Yeah, I'd love to get Colleen's thoughts on it? Because I mean, it's really clear why Stryker dumped that. That's, that's simple. But the VB play is fascinating.

You know, I, it is fascinating to me because I had heard fairly clearly from VB that they were kind of stepping away from devices. Um, but you know, this seems to be, you know, maybe it's, um, opportunistic in some way. They think that somehow they can turn this into, um, something they can increase the value of and then resell.

Yeah, I think it's opportunistic. Um, they do have a bunch of little spine properties Sentinel Spine is just killing it right now. They're growing like crazy. I mean, they're in the early motion preservation area. I'm sure maybe Asher and other people have thoughts on that, but I think they did $93 million last year in mostly cervical disc replacement.

But they haven't integrated everything, right? They're still, they're separate, kind of to Colleen's point, maybe they're waiting for opportunities to, yeah, turn.

Turn them.

Yeah, it's, you know, I don't— it's— I, I think there's— I, I think there's 3 gambles. So they had to— they had to leverage a lot of cash to do this, and, you know, probably over a billion dollars. And I don't know how they did that. Uh, I know they have a connection back to Turkey with, with, with some big money in Turkey. The second thing is they've got to execute like Andrea said. They've got to put all these pieces together and make it work. And, um, that's, that is really, that's a private equity, uh, execution play. And then the third thing is they got to— I think they're counting on the IPO market opening up, which is not certainty yet.

So yeah, I, I think, you know, they're going to have to hold this, um, new acquisition for some period of time here. Um, you know, if they're counting on IPO, I mean, who knows what that is, um, especially in the spine market. You know, it's a, it's a pretty frothy space. And, um, you know, in order to do what they would need to from a private equity perspective, that sometimes takes years to pan out. So, um, Yeah, it's a— this is a pretty big, you know, roll of the dice for them.

It is. They're betting the house. How long do private equity companies usually hold on to an asset before they try to exit?

You know, from what they prefer, you know, late current time period over the last 2 to 4 years has been a little bit of an exception. But I'd say private equity in general likes to be out in 4 years.

Yeah, that makes sense. So there you're talking 2029. Well, that is a long horizon.

But you know, the other thing that private equity is famous for is taking a look at all the properties they own in any given space and finding unique and novel ways to extract cash out of those businesses. You know, whether it's reducing expenses and there's more cash flow to the bottom line, or all of a sudden, you know, the companies are, you know, paying for something, you know, they didn't use to, or they're selling off assets and leasing them back. I mean, there's all kinds of things that private equity does to really maximize the cash they can get out of the businesses they own when they're doing kind of a combination, which I would guess this is.

And, and they use that cash to sort of pay off the loan or whatever.

Yeah, they, they saddle the companies with debt and they use the cash in, in their operations to, you know, deal with the aftermath of having, um, bought the company. Well, that's fascinating. Lots of studies about how really successful companies have, you know, kind of been challenged by being bought by private equity. And sometimes it works out well for everyone, so I can't really say it's, it's always bad.

Yeah, I mean, they, they usually create efficiencies, like you said. They, they usually change management. In this case, there is no management. They need a, they need a head of of the business. I know Keith Valentine's name has been tossed around. I'm sure there, there's probably a short list of spine executives.

Uh, I can see Valentine taking over.

Yeah, yeah.

And then Eric Major is part of High Ridge, so I don't see him jumping in, but who knows.

Yeah, I mean, with all the Novasive talent floating around too, this could be a good time to snap up and, you know, keep these ex-Novasive as well, and old going back. Um, but yeah, kind of reconfigure this team.

Then the other conundrum is the sales force. So I mean, you know, the Stryker K2M sales force has been around a long time. And now you've got Companion and a lot of cats and dogs. I mean, how in the world do you— oh, I can't imagine.

I think, I think if they're smart, they'll, they'll look to merge Sentinel and what is VB Spine now and really tap into that network of independent distributors because they already have networks of, you know, hundreds of distributors across the country selling ADR. Now they can kind of bundle that with a, you know, comprehensive Fusion portfolio with navigation. And I'd be surprised if they don't merge those two companies within the next year or two before they look to IPO or offload it to somebody. Because I think that's the problem with Sentinel is it costs, you know, tens of millions of dollars to get those products out on the market. There's no cash to really extract from that business yet. But I think if you combine that with what Stryker has, they probably have an appealing way to either IPO or just, you know, pay off the debt with their, you know, free cash flow from Stryker's business.

Wow. And are most of Stryker's reps W-2s?

No, they're like exclusive distributors, so they're independent, you know, 1099 contractors, but they have some kind of exclusivity with Stryker where historically they haven't been allowed to sell products that Stryker deems competitive. Now my guess is they're probably going to tap into the conventional, you know, free-for-all that is spine distribution.

Well, well, and it's going to vary, you know, if they have non-competes, it's going to vary by state how they can operate. It's really kind of a mess.

Do all Striker dealers carry everything?

I mean, it depends on what LLC you're looking at. I mean, they may have one LLC that carries Striker and then they have another LLC that carries everything else. So it's sort of, I mean, it's I think a lot of groups will push Stryker as their main product, but they're also well aware of the deficiencies and they want to make sure they're in the OR at all times. So they will do what they can to protect territory.

Well, what I meant was, if you're a Stryker dealer selling, selling hips and knees, do you also always sell spine?

Oh, that I don't know.

I don't think so.

I think spine's typically pretty segmented.

Yeah, most often not. There might be some very, very legacy, you know, people that have had that, you know, that had the whole portfolio for, you know, since the, you know, for at least 25 years. But typically, no, you wouldn't find that.

Yeah. In my backyard, I got Gordon Ford.

That's more of an exception. That's not a— that, that, that's an unusual one. I think that, that, that's not replicated in most, most situations around the country.

Yeah. I don't see how it could be.

And what happens with the international part of Stryker? Is it going to go on the way it has, or—

Well, typically there's different branding outside the US and inside the US, so they may— that's another question, is what— it's going to confuse the customers. You know, nobody's heard of VB Spine. Everybody knows Stryker and K2M. You know, it's gotta be confusing.

Yeah, it's gonna be kind of a free-for-all for a while. I would think that other, you know, spine companies are gonna look at this as a huge opportunity to take some market share.

Yeah, agreed. I was trying to figure out who the winners and losers are. The one winner's got to be Globus because Globus is just killing it right now. They are killing it.

And I, I think almost everyone who was sort of a, at least from an IP perspective, like you, you were maybe afraid of Stryker to, to strike back, right? If you're infringing and if you have something close close-ish. But I don't know, would the VeVe Brothers get into patent lawsuits? Unlikely. I don't know, it just seems like they, they wouldn't have the same— at least until they prove otherwise, right? That they don't— that you, you might not have the same fear.

Yeah.

And then the losers, I mean, that one loser just, just jumps out at me is DePuy Spine because their, their spine business grows at 0% every year and they're gonna lose market share. And Medtronic keeps bleeding market share. They'll lose probably.

Maybe they will divest too and we'll have a, a whole new ortho spine world.

Interesting. So how do— Colleen, how does somebody leverage cash for something like that? Do they go out and borrow?

Do you borrow?

You mean to do the acquisition in the first place?

Yeah, it's got—

I mean, you know, rather than, you know, to the extent that they haven't had any divestitures lately that generated a lot of cash, they'll go out and find a source of funds You know, in the market, you know, and offshore is really, I think, a good observation because the interest rates outside of the U.S. are lower in many parts of Europe. So I'm guessing they probably have some type of financing deal with someone offshore, right, where their cost of capital is substantially less and the terms are long enough and good enough to give them the runway they need to execute their strategy.

It's interesting.

And has the— does anybody know, has that VB Spine LLC entity, has that been around a long time or is that something they created recently?

That's the parent company. I think that's probably a relatively new LLC.

I can check when the trademark was, if there is a trademark registered to it and when that was. Oh, that's a good point.

So if it all crashes down, they're not going to— they're going to protect the VB business overall by keeping it all within one entity.

Sounds like.

Yeah, but I think Sentinel was gearing up for an IPO at one point, maybe before COVID So I'd be surprised if they don't fold— they don't fold at least a couple of companies together just to kind of have that strength of having a comprehensive portfolio. Plus, I know they, I know they just recently sold, uh, Micra to, um, forgot the name of the company, but they may have some free cash just from that deal because that was relatively recent.

Yeah, I forgot about that. Yeah, Micra grew to be a big business.

Did, did they sell rights to Mako Spine? Um, part of this deal, who knows?

Yeah, they, they have, uh, like distribution rights for Mako and, um, the, uh, imaging system. I'm blanking on what it's called.

Is that the same Mako hardware with just different software, or is it completely different robot?

I have no idea.

I know there's the Q navigation system, which I believe is a standalone navigation unit, but I believe Stryker is working on a Mako Spine software module and like integration with the Q Navigation Tower. And then they also have the integration with Arrow, their, their version of the O-arm for the intraoperative imaging. So my guess is, is like Stryker is still going to license out through like an exclusive deal to VB Spine to still use all Stryker, you know, enabling technology.

Yeah, I think that was in the press release.

And that's primarily for pedicle screw placement and like deformity correction, that thing? Yeah. Okay.

Wow.

Yeah, they, they don't have anything of VB spine. Um, not even VB, but they have other ones that are mostly dead, like trainwrecks, like no bones about it, and you're lucky break. Uh, boning up, lucky break.

That's good.

Yeah, joint ventures, which is interesting that they were allowed to have something like that. Uh, new spine, N-E-W, but also N-E-U. And that's that. Yeah, that's about it. Wow, that I can see. I don't know if there's more.

Hey Tiger, so what do you think about the Paragon 28 impact on the foot and ankle market?

Yeah, I don't know. I mean, the— so I got— I mean, I have two thoughts I had immediately were, um, Zimmer got a deal because the Paragon stock's been beat up a lot recently. Um, I mean, they were $13 a share, was, you know, they were there a year or two ago, you know.

Um, I think it's below their IPO price.

Yeah, it's a good point, Patrick. That's a really good point.

Yeah, I mean, it's way up from what it was 6 months ago, but I think it's still below the IPO price.

Yeah, they, they, they took advantage of that. Um, and then the second thing is that I thought is Zimmer is so bad at integrating extremities that I just can't— I mean, they, they were a total disaster in spine, you know, and I— they're a, they're a total joint company. They're the world total joint company, and that's what they do well. And every time they venture into other areas, NorthPeaks, they, they fail. So I don't see a lot of action, a lot of— yeah, go ahead, Mauricio.

Yeah, no, I think it's just they need the— they need, they need an ASC play. They, they just named their VP of ASC, and like in, in JP Morgan Kevin, Kevin Lobono, Ivan Tornos was talking, all of his talk was like, we're going into ASCs and we have a new VP of ASCs and this is where we're going. So I think they, they need a bigger offer to, to really get buy-in from, from the larger ASC groups. And I think that's why they made the acquisition. The, the challenge is that if they're going to be able, as you said, they're, if they're going to be able to execute on that, I have my, my doubts.

Yeah, me too. You know, for— with Zimmer, 1 1 usually equals like 1.1.

Well, plus I think if you look at like, you know, Paragon was able to for so many years, maybe not so much in recent years, but for many years historically, last decade, let's say, they came out with so many products in such a rapid succession. That won't be able to— I'd be very surprised if that pace of new product development was kept up at, at Zimmer for a variety of reasons. And then also, this is much more of a sort of qualitative thing, but Paragon was one of these companies, and it's a good strategy, like it works well oftentimes, but they saw a sort of historically neglected subspecialty or historically neglected kind of subspecialty of surgeons, and they kind of went to them and said, like, we love you more than anybody else. We care about you more than anybody else. So even if you think there's product, even if you just think there's product equivalence, you know, you think our products are sort of no better or no worse than whatever it is you're using, use us anyways because we care about you more and we will invest in the subspecialty, so on and so on and so on. That's like, that's a, like, I would do the same thing if I were them. That's a good idea, but you can't like really do that at Zimmer. So some of the, the ways that I think their reps have historically probably sold, I don't know that you can just like do that at, at a, at a big sort of, you know, all-comers type of, of company. So it doesn't mean they'll lose business necessarily, but I'd be a little skeptical myself, um, of like their ability to like continue to, to sort of grow.

It isn't— I mean, isn't total joints and extremities and ASCs, isn't that two different call patterns and two different reps?

Probably. And I think their press release said they're gonna keep— Paragon had a direct sales force. Uh, at what cost, who knows? They'll probably trim it, I'm sure, because I think they're— I think their sales were about $250 million a year, and they talk about a sales force of 250.

Yeah, in their financials, their, their, their sales expenses were almost 80% of their sales.

Yeah, so Zimmer will trim that for sure, and I'm sure they were doing, you know, quasi-pointless education events and all that sort of stuff that Zimmer will take a hatchet to, um, over time. But it's different call, it's different surgeon, it's different, you know, it's like a different— your sites of care are the same, but your surgeons are different. So Zimmer said I think they're going to keep their sales force, which is probably smart. And that's probably what I, you know, not knowing all the financial details, that's what I would probably do is the closer you can just say almost to your point, Tiger, of like they've done bad at integrating historically. It's almost like you say we don't have to integrate this because you just sort of assume, you know, they had some products of course, but they should probably just assume we had no foot and ankle division. We just bought an entire division and the whole goal is to just sort of lift like a, you know, like you're lifting a house up and transporting a house, like lift the whole house up and move the whole house over rather than try to like take the floor from this house with the roof from this house with the curtains from this house and so on and so on. That I think that's what I would That's what I would do.

But going back to Mark's comment, I think they have to say they're gonna keep the sales force even if they're not.

Well, I mean, you do that because that's in the CEO's like, like, like, you know, like a reflexive thing. You have, it's like, you know, McKinsey, McKinsey said we have to say this, therefore we say this on day one, even though of course they'll be, nobody should take those kinds of comments you know, very seriously. I, I think it would be more of a numerical thing rather than like a, we're, we're gonna just give this to the— it would be a bad idea if you asked me to just like roll it into the, to the—

yeah, the guys, right? I mean, typically they cherry-pick, so they go like, you know, zip code by zip code, and it— if we're— Paragon's really strong, they, they keep the sales, and then where they're weak, they may give it to the Zimmer guy to see if he can do something with it.

You know, I've already gotten a couple of phone calls today from trees managers, uh, basically asking me for information or numbers to try to pick off some of the Paragon guys.

Yeah, I mean, you know, Zimmer may want to keep them, but they may not be able to keep some of the, the better ones. And, you know, in my experience, having been through this, you know, I was at a company bought by a large giant company. It happened to be IBM. I mean, these big companies, sometimes they just can't help themselves. Yeah, you know, they buy something that, you know, is performing pretty well. They were attracted to it. It's a nice shiny object, and then little by little they start to tear it apart. And, you know, I, I think it's, it's, uh, Zimmer has that reputation, certainly.

Yeah, I don't think, I don't think, uh, like Zimmer-type cultures or big company cultures necessarily respect the cultures that grow up in a company like Paragon.

Well, to be fair, you know, large public companies, they have to optimize for their shareholders.

Yes.

They, they have to meet earnings, you know, and the people get in the way of that sometimes. You know, they, they, what they really bought was probably product. And inventory and patents and maybe some of the people.

Yeah, also in the, in the short term, if you're a large public company like that, like the, the press release, the announcement, the technology that Paragon 28 has and the, the pace of development, and every analyst will think, oh, this might change, this might almost like paragonize Zimmer a little bit. So, you know, and, and it, it drives the stock price in the short term. So it's even if the integration— I saw the other day, like, there was this infographic of like, like the large medtech companies and the price of the price that they've paid for their acquisitions over the past 10 years. And it's a lot more than the market cap of the companies, but the hype keeps the stock price like flowing.

Something new.

It was a bigger purchase at, you know, the company was, was bigger. But there are enough parallels to J&J buying Synthys 10 or 15 years ago. Synthys was a sort of, you know, category-focused— they sort of invented the, the trauma market. I granted, you know, 50, 60 years ago, but, but they largely sort of invented the trauma market. They were so synonymous with AO, which is supposed to be like a—

yeah, they own the cult. I always say, yeah, yeah, it's like, hey, oh, you drink the KO Kool-Aid and—

yeah, and You, but J&J bought them and, you know, very few people I think would argue that 5, 10 years later that J&J did sort of a good job on that. Most of the, most people I know think that, you know, Synthese has been, you know, it's a stagnant brand and, and it's, it's, it's, you know, Stryker has caught way up in, in trauma over the last, the, the last decade. And Synthese, you know, I used to compete against Synthese. They were impossible to compete with.

Synthese had 55% market share. They now have 31%.

Exactly. Wow.

Yeah, they're not even named Synthese anymore, right?

Well, yeah, exactly. Yeah, I mean, it shows how old things, you know, old habits die hard. People still— you still use those names 10 years, 10 years after.

Well, that was a cultural mismatch too. They're completely different cultures.

You know, wow.

So where does this leave Therese? That's the, that's the other, um, that's the only girl at the party that doesn't have a date yet right now, is, is Therese's, the largest pure play foot and ankle company left. I know they're, they'll be adding more products. I know they're adding some more MIS stuff., you know, beyond lapoplasty, but, you know, who knows? Their stock went up today. I think the, I think Wall Street realized they're, they're the only ones left.

Yeah, they do have a, they have a new minimally invasive program called Nanoplasty, I think. And basically it's minimally invasive, ugly X-ray bunion repair.

Well, it's a distal transverse osteotomy for a bunion. So it's, they're fixing the other side of the bone compared to their lapoplasty, which yeah, was, that was heresy for them for a very long time, but they've join the club now.

Give the market what they want.

That's right. It's— I say surgical trends are like fashion. They, they, they come from the East, so they come from Europe, and Europe has been doing MIS distal bunions for, for, uh, for, uh, for a little while now, and I think they've put it on podiums enough where people are getting curious.

Interesting.

Well, we got somebody here from Zoom, don't we? Or from VOOM Medical, don't we? That'll talk to us about bunions if you want.

Yeah, we got, we have VOOM somewhere.

Eric, right?

Yeah.

You don't have him pulled up as a panelist, right?

I don't, but we can do that.

I mean, you know, these, the, I'm interested that you said, so you said Tiger, that Therese is the only one left in the pure play foot and ankle space?

Well, the big, the big ones, you know, they're— what are they, what do they do, in $130 million?

I thought they were over $200, but, um, yeah, what about, what about Vilex? Yep, they're another one. They're not very big, but they're over maybe $50 or something. But others that were smaller that got gobbled up— MedShape was about a $20 million company and got picked up for $100. NovaStep came out of France. That's the Mauricio, there's all your bunions you're talking about from NovaStep. They got jigs everywhere. And then the Trilliant acquisition. So all those got scooped up by Inovis, and those were an order of magnitude smaller than TreeSUN, Paragon 28.

Yeah, the thing about buying a public company is you know what the price is. You know, it's a public price.

I, I think for Paragon Zimmar offered like 10% over market cap.

They—

it was 8%. Yeah, stock was at 12 technically and they went to 13. Yeah, something like that.

Yeah. Trees estimates for their '24 fiscal year at $209 million.

And there's— and their market cap's like around $600, something like that.

Yeah, it was 500 two weeks ago, but I think it's up to 600 now.

So I guess Zimmer didn't want that because it's not enough products in their bag. And it's, it's also a direct-to-consumer play. That's, which is different. Zimmer doesn't know how to do direct-to-consumer. That's, it's a different game.

They used to when they were pushing the gender-specific knee, but they've lost touch.

That's right. Pink and the pink and blue knees. I forgot about that.

No.

Well, they hired Arnold Schwarzenegger as their chief movement officer, so there must be something they're trying to do with the public.

I don't think those celebrities really move the needle, but they've been— companies been doing that forever, right? Jack Nicklaus and every—

everybody.

I think a gender-specific knee is against the law now.

No, no, now it's back. It's gone for a while.

Now, now it's back.

Got it. There's only, there's only two genders now, Mark. Oh, that's funny. Oh, that is funny.

Yeah, they would sue the doctor if they put a pink knee on a on someone who wanted a blue one.

Oh man.

Is that— was Paragon 28 only selling in the US or did they have an international presence?

They were starting an international presence, I think, but it was, it was early.

Yeah. So I think, Tiger, you alluded to it, but I bet part of the play is they're looking to access a fresh customer base. That then they can expand their usage, probably cut the commission down from, you know, if they were all direct, that's different, but financially structure it different, drop the commission from 30% to 10% or something, get some same-store sales, offer the product line that Paragon 28 has to whatever amount of foot and ankle customers they have, 'cause ZB's foot and ankle line It's totally unimpressive, especially since they stopped working with Nextremity as a partner. So I know it's the ASC angle is something I can totally see, but we're just more of a diversification of where your sales growth is. I think if they can make this play and then in their earnings report say that they have a $300 million business that's growing by 10%, is it's a special green arrow that shows up among others that are more boring on a growth basis.

You think they just want to say they're in the extremities business because it's one of the fastest growing areas?

Yeah, I mean, I used to witness this firsthand at DePuy Synthes all the time where it would be shoulders got all sorts of attention because it was growing at 12%, but it was a $250 million business. It just wasn't— it was a bragging point when you had a $2 billion knee business that was flat and even losing share because the market was growing a point or two., but you could point to this shiny green up arrow of extremities and saying, we're, we're in the market leading position for it, even though the, the actual dollar figures were a wash.

Yeah.

And Zimmer hasn't exactly been winning against MAKO. Um, so I think you're right. They're looking for a win here of some sort, whether it materializes in reality, only time will tell.

Yeah. Is there a, is there a generic ROI time horizon that's part of the equation here where they say, well, it's $250 million in annual revenue right now, we'll grow it by 20% over the course of 10 years, that ends up being cumulatively $3 billion, so we'll pay $1 billion in today's money for it. Is there a, like, an equation that— at least an exercise that is taken through for something like that?

So yeah, you would probably do like discounted cash flow or like net present value, something like that. I mean, there's a whole bunch of ways to do it based on what assumptions, and if you're looking at market share or top-line revenue or profitability, but it definitely exists.

Yeah, in his presentation at JPM, Ivan Tornos actually said that they were looking for mid-single-digit return over invested capital numbers over 5 years for acquisitions. He was actually explicit about that in his talk.

Interesting.

Well, I think that's because it's such a, you know, just orthopedics in general is a pretty mature market. So I think that if you were a different type of buyer, you'd be looking for larger returns than that over a 5-year period.

Yeah, I thought, I thought it was, I thought it was pretty modest. I thought that he was being very conservative when he said it. It struck me. That's why I kept the number in like my, my jacket.

You know, one of the most interesting things in the last 5 years in the foot and ankle market is seeing the rising ASP of your typical, you know, foot surgery, bunion surgery. It's gone from maybe $1,000, $1,500 to, I mean, $10,000, $12,000.

Yeah. 3 bunions used to cost $30 and pins, and now it's a couple $1,500 fancy screws.

I mean, more implants and more guides.

I mean, the ASP for a Trese bunion is between $6,000 and $10,000.

Yep.

Wow. I mean, everything has gotten fancier, right? The hammer toes are, you know, they got all, there's 100 of them on the market. It's all sorts of different screws and I think several, some of them really work really well, but that a contraction has got to be coming for that.

That's what I—

that's kind of why I brought it up. I'm thinking, man, that seems like a gamble.

So I spent a lot of time in the reverse shoulder space when it was in its meteoric rise, and there was a time where everybody was getting $13,000 for a reverse shoulder. And eventually the materials manager got to that line item on the expense record. So they had to get the knees figured out and start to roll down the price of the knees. And then they had to go to hips and then they had to, and eventually they got to the shoulder and it started to market correct. And it feels like the foot and ankle products, eventually it's going to get there.

You know, David Kaye's not here, but I'll speak for him. He says that foot and ankle surgery is over-instrumented You know, we're turning it into total knees and there's no need to turn it into a total knee with, with all the guides.

Well, it's not just guides, it's inventory. Paragon 28 just launched a Jones fracture screw with 120 different implant SKUs. That is absurd. Can you imagine the carrying costs of launching that thing with caddies and oof.

For a Jones fracture?

For a Jones fracture. 120 different sizes.

See, that's where Treece has a huge advantage. They have very low inventory. Everything's usually one peel, right, for, for the case. Yeah, that your reverse shoulder is that, uh, exactly what Mauricio said. All fashions come from Europe. I mean, they were doing reverse shoulders forever in Europe.

Technically, it was the very first shoulder in 1893.

Well, historically, Europe had a lighter regulatory environment, so that helped as well. Like, but now with MDR, that might be changing.

Well, Europe also had more wars, so they had more patients to experiment on.

Yeah, they had that going for them.

Unfortunately, that is where a lot of medical advancement comes from.

Yeah, the IM nail came from World War II. Yeah.

Yeah, the country rod.

The country rod, right. One of our BoneChat members is not here is Andy Davidson. He's the CEO of Forma Medical, which it's another small foot and ankle company. And I just talked to him yesterday and Andy surprised the heck out of me. He said, yeah, we're launching in the US first. He goes, we're doing clinical studies to try to get our CE mark. But we already have 510 clearance in the US. It's like, whoa, it's like, what's going on?

No, that's a— that's an inversion of roles because it used to be the opposite. And that's, that's why Europe got all the fancy, all the fancy instruments and all the fancy technology, because it was just so easy to get one to market.

You know, I'm hearing that more and more with the companies I'm talking to that are raising capital. And it isn't just in orthopedics, it's across a lot of specialties, even going into biotech. Where, you know, companies are actually complimenting the FDA on the meetings they've had with the FDA compared to the path in Europe.

Is this— and that's Class II but not Class III typically, I guess, because you still need large studies for Class III devices, right?

You do, you do. But I think that, um, just some of the flexibility that the FDA is starting to show on how those studies are structured is really got attention for the European-based companies. At JPMorgan, I've never seen so many European-based companies at that event and investors from Europe. It was interesting.

My company's European. We won't put out another product ever that is not US-first, barring a regulatory change. Um, again, I mean, everything present and future that we're doing is like, you know, targeted for the US. And if it makes it to the European market one day, so be it. But it, you know, it's not even like— it's almost an afterthought.

The US is 60% of the global market, and now the regulatory is easier. So like, there's no—

there's no reason It's a whole separate discussion, but like, I'm very worried about the— and I've worked for European companies for a good chunk of my career, but I'm very worried about the regulatory, like the impacts of the regulatory market there. I mean, it was already an expensive market to serve anyways. I mean, you can't just like, you know, you got to— if you want to sell throughout Europe, you have to have a German office with, you know, local-speaking population, to say nothing of the sales force and the local brochures and, you know, all the local, you know, office infrastructure. It was always expensive to serve. The pricing was always worse than the US. Then you want to add a more cumbersome regulatory environment on top of it. I don't know what it will have going for it other than US CEOs who like to take fancy European vacations and come back and say, why aren't we doing business on the Amalfi Coast?

So Patrick, do you think that they'll start to peel off, call it Brexit, where you'll see countries that'll start to accept a 510 clearance? We have that with what is it, Israel and maybe New Zealand and sometimes Australia. There's a few that are kind of in that space, maybe none in Europe. But I got to imagine if they don't fix their regs— I mean, this is the absolute direction everybody has gone, but they're going to miss out. I got to think some countries are going to start to peel off.

I agree, I agree, Kyle. Switzerland made— Switzerland, uh, Switzerland dropped hints at this a couple of years ago. They got— it was a narrow focus. They were, you know, it was one of those things they were like threatening, but it was like they wanted some narrow provision change. I don't know exactly what it was, but they already like, you know, they've already kind of stuck their toe in the water or dipped their toe in the water on this. It would not surprise me at all to see that particularly companies— I'm thinking Switzerland or the Netherlands. I mean, Switzerland has a bit of a, you know, they're not like, you know, they've got their own currency and stuff and there's an independent streak within the country already. It's not like 100% like everything EU, but I'm thinking countries that have manufacturing bases that feel the impact much easier. The Netherlands or something like that, I, I, you would have to think it would, it would, it would eventually happen. I don't know how difficult it is. I don't know the, you know, the legal framework of how easily you can, you can kind of do that type of thing.

But, but for sure, I think for, for Switzerland it's easier because Switzerland was like the UK where it was like a member of the EU but not like a fully—

exactly, they're not, they're not based in on everything.

Yeah, but I, but I think the Netherlands, France, Spain, Germany, they're locked in. Like, for them leaving, I think, is, uh, It's like a big situation.

Yeah, another macro trend is all their economies are flat. I mean, we're— our economy is growing faster than Europe. Europe's in big trouble financially. Uh, they print more money than we do and their GDP is just not growing, and that's got to affect their healthcare.

Yeah, there's a number of European countries that are on a They're in a real bad demographic. They have a real bad, you know, like a Japan-like demographic situation as well.

Korea. Boy, Korea is—

yeah, yeah.

Korea's dying.

They're in a population freefall.

Yeah. Plus, plus pricing, pricing, like for devices in Europe, when the euro was stronger than the dollar, you could still make a little bit with the difference. But now with the euro almost on par with the dollar, the pricing is really rough. It's like, it's very hard to to compete there, like, with locals, because they're— everything's in euros. And, you know, you got engineers, like, good engineers making 44K a year. And it's hard.

All roads lead to the US all of a sudden. Who would have guessed?

Fascinating. There's a perverse incentive. It means we're going to do too much surgery.

That's— we got our healthcare so broken, you know. I was talking to some surgeons last week, and they— I was asking what do they pay for, you know, this product. They have no idea. The surgeons have no price transparency. They, they are clueless, and they're making the— at least, at least the initial, uh, product, you know, interest. Yeah, I don't know. I would love to see transparency. I'd love to see transparency across, um, you know, products in the US so we have a real market.

Well, the thing is, there's a lot of incentives in the US to keep products expensive.

Yeah. Yeah.

Oh, we got 10 more minutes. What, what else? This has been a great discussion, like global trends and acquisition trends. What's on anybody's mind?

I was trying to remember the name of the, the president of the AOS 2 years ago, but I listened to one of his talks, his Dave Gaines meeting. And he came right out and said that we don't care what the price is. The surgeon, he said, it doesn't affect me. So, so we don't care. So we're, you know, we're, we can't help you. We don't want to help you. And I found that interesting. It was very candid. But this particular guy's from Texas, kind of a real tell it like it is kind of guy. I wish I could remember his name. It's not Tornetta.

Anyway, back to the, the, um, the Stryker divestiture. I'm sure it was a, you know, one of their least profitable— Spine was one of their, their, their least or lesser profitable business units, but Does anyone know or have thoughts on like, okay, it cleans up their P&L or makes it, you know, look a little bit better, sure. But like, you know, did they need that money for to fund previous acquisitions, to save, to do something, you know, something else? You hear speculations of, well, they're going to buy a soft tissue robot or, you know, these types of things that are non-orthopedic related. Anyone have any thoughts?

I, I read something about cardiac, that they were gonna go into cardiac.

They did just do something, right? Company, like just earlier this, this, um, just earlier this, this month.

I mean, Striker is always, always about operational efficiencies, you know. I remember when John Brown was running the company, if it was kind of like the Jack Welch you know, Jack Walsh years where underperforming divisions just got, yeah, divested or shut down. And they, they, I think what Mark said, uh, what do you say about sales reps? You feed the, you feed the performers and you starve the losers.

Um, 80, 80% of your resources to the top 20%.

Yeah, I think that's the overall philosophy, but I don't I don't know, they don't need the money. I think they're just trying to increase earnings. And if they, they're growing at 11% a year by dragging Stryker Spine along every year, now they're probably growing at 12% a year. I mean, that's compelling. And then Globus. What do you guys think about Globus? They're just, I mean, they're, they're a machine. Uh, they're, what did they, they just announced earnings, I forgot, was it 6% or 8% growth or something?

Uh, they were gonna hit $2.6, I think they hit $2.6 billion for 2024. And I think probably 75% of that is spine, right? But they've made a huge play into trauma in the past couple of years. I didn't even realize that until a couple days ago. They got plates and nails all over the place, and I don't even think they were in that market a decade ago.

And it's, it's all mostly organic, you know, after, you know, after Duvasive. You know, I talk to people that came from Globus and they say the culture is two things. It's, it's finance and it's engineering. That's what drives the company. They don't care about sales reps. They don't care about marketing. They don't care about anything else but finance.

Simular reputation. Really? Well, maybe not the finance part, but they actually didn't even have like marketing teams. Engineers, surgeons, training.

But I don't have a spine background, but everybody I know that was involved with Globus early on, It's living on an island. They made a lot of money.

So what about Henry Schein?

It's pretty young too. It's not a— it's not an old company.

Henry Schein is interesting that you brought that up.

Yeah, yeah. They made a big play into foot and ankle. They're a dental company. It's a $2 billion dental company, I think. And then they had— they took majority ownership in TriMed and Extremity Medical in the past 12 or 18 months. Interested to see how that works.

I think the, the dental— like, the, their market share in dental is so big now that there's very few opportunities to grow. Every— like, with, with our CMF portfolio, I do a lot of oral surgeons are like a mix between surgeons and, and dentists, so they, they actually have double degrees. So you— they, they buy for like their practice is buy from the dental providers. And it's— Henry Schein is— every office you go anywhere in the world buys from Henry Schein.

But I mean, I got to appreciate the irony of having products for the face and then for the foot, right? Dentists and podiatrists are an interesting business model to combine those. It's like an idea—

you're going to play into vision and, you know, I, I think because they have, I, I think they, they, they go after everyone who does procedures in a private practice. I think that's more or less like what they wanna, what they wanna go for.

Okay.

Kind of reminds me of when Medline jumped in to medical device. I mean, they were in every office. They had a great model, you know, basically they were just one big giant distributor. Hemishine reminds me of that, but they're, smarter, it seems. I wonder how it's gonna turn out. Yeah.

And they have this whole, like, online fulfilling. So they'll get office managers, and they have this Amazon for office managers, and you can buy everything you need. It's, it's interesting.

Medline is a monster, aren't they? They've got hundreds of thousands of products, don't they?

Yeah. They do.

What's their, what's their market cap or Anybody know off the top of your head, or, or revenue north of $10 billion?

I think they're right by me in Chicago.

The big guys just keep getting bigger. You know, I just, it seems like it's all about access nowadays. It's whoever, who has the contracts, who has the rep that owns the hospital with the most products, keep the little guys out.

Yeah.

And you can't strong-arm access. It's, it's so hard for the little guys. How, how do, how do you guys see the big companies that, that, how do they control access in both hospitals or even surgery centers?

Well, I think they leverage their ability to deploy, you know, a broad range of products. You know, with annual purchasing agreements that, you know, make it hard for the little guys to compete even if they can get on contract, which is more and more difficult. The pricing is such that it's not attractive.

I think they go after the private equity and the hospital systems that are expanding into ASCs. So they try to build this like system-level agreements like they have with hospital systems at the, at the ASC level.

But I mean, I know it's ancient history, but when you were trying to, I was the first Orthofix dealer here in Georgia and there was a Sintese rep that seemed to live in every OR. And if you're a surgeon, the only question you ask is basically what's in it for me and how easy is it, you know? If that Synthes rep is already there, you, you're gonna give that guy the business.

Yeah.

And Arthrex does the same thing now.

Those are the, the two that I was thinking of that no matter who it is, even big companies that have tried to compete in those areas, Stryker got there in trauma, I think. But for the longest time, you couldn't get Synthes out of the hospital no matter if you had a, a plate that for the, you know, for the femur or the tibia or whatever the doctors prefer, you had this that they prefer, this they like, you, they, they had such a comprehensive portfolio. And Arthrex is the same thing. In sports, even though that plenty of people will prefer this product from company A, this product from company B, this product from company C. If you have a busy sports practice, it's like almost impossible to get Arthrex like out of your, your life, even if you're trying really, really hard. They're, they're still just, they, they, they, they are still just around in a lot of situations. And that because they're gonna be involved no matter what, it seems like they're always at the table and, you know, they can encourage limited vendor contracts with these, you know, discounts and these not even discounts, these rebate things that are just a scam basically because they could give those lower prices right away if they wanted to. But they, you know, in exchange for exclusivity or, you know, a limited vendor contract, they offer these rebate types of things where as long as the hospitals stay compliant, 80%, 85%, 90%, whatever, of the contract by year end, they'll give them a couple percent back in a rebate. And it's, you know, they could offer that pricing upfront if they wanted to. They just, you know, there's— I'm not saying it's not illegal, it's not even bad business, it's— but it is what happens, it is what goes on.

No, it's a scam. But J&J Ethicon pioneered that. And, you know, with their rebates, I always wondered why it was legal.

Anyway, I, I remember 20, 30 years ago I was in a pelvic fracture case and, and the surgeon says, bring in the Synthes cart. It's like, and this giant thing comes in and there's like a million drawers and there's like a plate and screw for everything. Mm-hmm. And I go, how can anybody compete with this? It's like one cart that does everything.

Wow.

Well, it's an hour. This has been really interesting. Any final thoughts?

I think we're gonna, we're gonna have a dynamic year. I think, uh, IPOs are gonna move. I think acquisitions are gonna move. I think the capital is starting to flow a little bit more freely this year. I felt like there's, there's, I feel like there's more, a little more optimism around the industry. So I feel like we're gonna, we have a, we have a lot of, uh, repressed, uh, deals from the past couple of years that I think are gonna be unlocked this year. So it's gonna, it's gonna be quite a ride.

Yeah, risk-taking should come back. I, I, the VCs are probably going to be the last ones though. There's Uh, Colleen, explain, uh, VCs have, they raise money and funds, you know, and then they deploy the capital and then there's a, there's a rhythm to that. Where, where are we in that rhythm?

Well, you know, in that rhythm where we've been is the VCs that had, um, you know, dry powder left in their funds were reserving it for their existing portfolio companies, right? Over these last several years. And, you know, I think that you see VCs raising new funds now. That's starting to happen, which is a good sign. But, you know, honestly, I think there's cautious optimism. But until VCs act in groups, right? I mean, when there's a, if there's a trend, you know, it's like they're motivated by either fear or greed. And that's just my opinion. And I know it sounds kind of negative, but But it's true, you know, and until we see some deals that get done and VCs take note and say, oh, maybe I should have taken that risk, I missed out on that. But they're not quite there. They're still in the, huh, I'm glad I didn't invest in that one. So, but that's starting to change. You know, there are some VCs that used to have the reputation of being early stage. That are now actually getting back to looking at earlier stage, right? So, so as I say, there's a lot of cautious optimism right now, and we'll see how 2025 goes forward. But, but I, I do believe it will be a better year than the last couple.

Yeah, and Alyssa's not here, but she made a good point last week that like 50% of the funding was startups that had the word AI in it. And I think we've got to get over this AI, uh, frothiness, you know, and get back to medical devices. But I don't know what you guys think, or maybe AI is here forever.

Yeah, AI, um, plays are getting a lot more scrutiny than maybe they did even 6 months ago. Um, I mean, some of the sentiment amongst investors is You know, you've got these huge players in AI. You know, these smaller companies are just not going to break through. They just don't have the capital to throw at it. So I think AI, you know, will be there, but it'll be there in a smaller percentage of the deals.

That's good.

Yeah, I think AI has two layers. So there's like the model layer. And that's how many CPUs can you buy and how many expensive scientists can you hire and how much brute force can you put into training whatever model you're trying to develop. I think that is going to be, that is going to be a very difficult space. But I think the application layer where you actually license some of the models that are, that are there to license and develop applications for them, that might be a little more, more dynamic, I think, in the shorter term.

You know, I'm doing that AI webinar on the 11th. You know, I've got some surgeons on there, some PhDs. And the way I'm looking at AI is that, you know, AI can be a jumbo jet, which you have to be a very highly trained person to fly, or AI can be a car, you know, which anybody can learn to drive. And so I, you know, my point in this is that in your medical practice, You got to learn how to drive the AI car. It's cheap and it'll help you. And we'll see what, you know, we'll see, we'll see what happens.

Yeah, by the way, everybody should join Mark's— it's February 11th, is that right?

Yeah, February 11th at 6.

Yeah, everybody at the, uh, it's on Slack if you want to, um, if you want to see the invite.

It's on Slack and I put it on LinkedIn. You know how those things go.

So great.

You guys there, we got the chief of ortho from Kaiser Permanente, a couple of other, you know, well-known doctors, and, you know, Scale Healthcare, a few other people. So it might be interesting.

It's, it'll definitely be interesting. And it's such a nascent area. Everybody's trying to figure it out.

Yeah.

Well, good discussion today.

Thanks, Tiger.

Yeah, that was, that was great. Thanks guys. See you next week.

Bye.

Bye.

Take care, everybody. See you.