The Mazor Robotic System
Medtronic’s spine division has been bent out of shape for a while.
An expensive, failed acquisition under former CEO Bill Hawkins, sales force flux, off-label use of a controversial biologics product that led to a Department of Justice investigation and nimble competitors chipping away hobbled the high-margin business for several years.
Now, an executive says, the business is finally on the road to recovery. That makes the acquisition of Mazor Robotics announced last week for $1.6 billion (including the value of its equity investment made in 2016) a major reset for Medtronic Spine. Today, 200 Mazor robots have been installed worldwide, of which around 40 are outside the U.S.
“We believe robotic-assisted procedures are the future of spine surgery, enhancing surgeons’ abilities to perform complex procedures with greater precision, consistency and control. Medtronic is committed to accelerating the adoption of robotic-assisted surgery and transforming spine care through procedural solutions that integrate implants, biologics and enabling technologies,” said Geoff Martha, executive vice president and president of the Restorative Therapies Group at Medtronic, in a statement Thursday announcing the deal. It is expected to close during Medtronic’s third fiscal quarter ending Jan. 25 after Mazor shareholders vote.
Reached by phone after the announcement, Martha acknowledged that the spine business has been clobbered and digging out of a real rough patch. He added that Mazor’s technology would be key in distinguish the business from the competition, while also going the extra mile in improving hospital efficiency and patient outcomes.
“You’ve got the right historical context. [The Spine unit] has been battered whether it be like you said, the Kyphon acquisition did not go as planned and put a lot of stress in the business; all the noise around InFuse that caused the InFuse business to go from $800 million a year down to $400 million. You had DOJ investigations. There were really a number of tough issues that the business had to deal with that it put it on the defensive,” said Martha cataloging the challenges the spine unit has faced.
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
To start with Kyphon: In July 2007, Medtronic bought the business for nearly $3.9 billion, a month before CEO Art Collins retired to be replaced by Bill Hawkins. The latter’s tenure included the failure of the acquisition with salesforce integration proving particularly daunting.
Then, just after current CEO Omar Ishrak took the helm in mid 2011, the controversy involving a blockbuster biologics product — InFuse — heated up. The bone growth biologic product was approved in 2002 to treat lumbar degenerative disc disease, but over the years had made millions in off-label procedures in some cases with deadly results. The Spine Journal devoted an entire issue in June 2011 to the product charging that physicians with financial ties to Medtronic overstated InFuse’s benefits while downplaying the risks. Multiple lawsuits followed charging the company with promoting off-label use, which is illegal, and Medtronic settled many with as much as $300 million. However, the Department of Justice investigation that followed concluded without any charges of wrongdoing.
But by that time, sales of InFuse had been hammered and as Martha put it, pretty much halved. Meanwhile nimble competitors such as NuVasive and others began to chip away at the company’s commanding lead in certain components of the spine marketplace. Some experts speculated whether it was time for Medtronic to sell its spine unit. But the division, even with the difficulties, was a cash cow for the company. Instead of selling it, Martha who followed Ishrak from GE Healthcare to Medtronic in 2011 embarked on a path to stabilize the business when he took over as the head of the Restorative Therapies Group three years ago.
He decided to inject some capital for R&D into the spine division, shored up its sales force, invested in inventory so that “enough spine sets are out there in the field to cover cases,” and focused more on international markets than before.
The result?
“That got the business from shrinking 5 percent a year to now a year ago the business was growing at 3 percent. The market has taken a little bit of a step back and so now we’e more like 1 percent, but we’re competitive. We are anywhere from taking share in a quarter to holding share and so, call that Chapter 1 of the recovery,” he said.
And now it’s time for the next chapter, where Mazor is expected to play a pivotal role. Per Martha, the robotics marketplace has only two main competitors – Israel-based Mazor and Pennsylvania-based Globus Medical with approved products on the market. And nobody, until now with the Medtronic-Mazor combination had all the pieces of the puzzle – a high-margin spine implant, surgical imaging that provides intraoperative 2D and 3D imaging during spine procedures, powered instruments such as drills, surgical navigation as well as now a surgical robot and surgical planning software.
“In the $8B implant market, we’re high 30s market share and then next one would be the J&J DePuy Synthes – I have them estimated at like half of what we are,” Martha declared.
Now if the Medtronic implant could be integrated with the Mazor robot and linked to its supporting technology of planning software, intraoperative imaging — the Medtronic O-Arm — and surgical navigation, then Medtronic may be able to put even more distance between it and its next-largest rival DePuy Synthes, while leaving the likes of Stryker and those intending to enter the robotics market in spine behind.
That’s all very good but where does the robotic system fit in with our cost-conscious era of value-based care? Martha declared that certain steps could be automated and if all those innovations occur as planned, a health system can take 40 percent of the operating room time out of a basic degenerative procedure. And saving time in the OR is akin to manna from heaven to health systems.
“You can automate some of the bone cutting, some of the tissue resection using all this technology together,” Martha said.
Done with a robot, the prospect of procedure variability may be reduced, which also bodes well in terms of patient outcomes. But that begs the real question: Are back surgeries really that necessary? After all, there have been multiple reports over the past few years that have found that spinal fusions have soared in the 2000s and the procedure may not be any better than non-surgical treatments.
Martha pushed back strongly at the prospect that Medtronic may be peddling a therapy that is not effective for patients — “Medtronic is a mission-driven company and if we didn’t believe in the therapy we wouldn’t be in it, and financial people may or may not believe this.”
However, he did concede that more can be done by Medtronic, payers and providers to properly segment patients so that only those that need the therapy get it and only at the right time, preferably after more conservative treatments have been exhausted. In fact, a pilot study of 187 patients published in Spine last year showed that a team of providers from various medical disciplines recommended nonoperative treatment for 58 percent of patients. Those same patients had been advised by a surgeon to undergo spinal fusion.
Patient selection, not withstanding, Martha also spoke of the necessity for Medtronic to develop the economic evidence for products that will enable the business to stand behind them with more product guarantees in the way certain cardiology products that undergo premarket approvals have done. For instance, the Tyrx, antibacterial envelope that encapsulates implantable cardiac electronic products such as pacemaker or defibrillator and elutes drugs to prevent infection that often occurs after implanting such devices. So robust is the data from Tyrx that Medtronic now offers to pay for the treatments costs should a patient implanted with a Tyrx develop an infection.
“So, we implemented a few fusion guarantees …[but] we haven’t gotten some of the traction yet in the marketplace that we’ve gotten on the cardiology side,” Martha said. “But with Mazor there’s no way that Omar would have permitted Medtronic to invest this kind of money unless we had value-based underpinnings in our plan.”
Photo: Medtronic
