Do You Have an Effective “Moat” Around Your Business?

I read a recent blog post that discussed “moats”, competitive advantages or barriers to entry, that protect a company from its competitors.

In 2007, at a Medtronic investor and analyst meeting in which management addressed the numerous “ankle biters” that were taking market share, management touted all the PMA [premarket approval] products in their pipeline. That was their “moat.” Management said that those “ankle biters” could not compete long-term because “this is a whole different ballgame.”

Medtronic projected that in 2012, 50% of their sales would be from PMA or IND [investigational new drug] products. It never happened. All the PMA products noted on slides that day were never commercialized in the US. Their “moat” never materialized.

Which current companies appear to be building truly effective “moats” in spine?

Tech “Moats”

Are robotics, imaging, navigation, AI [artificial intelligence], augmented reality ecosystems a “moat” in spine?

Medtronic and Globus Medical, Inc. are the primary movers in this area, but most of the mid to large spine companies are working to add some element of enabling technology to their portfolios, and numerous independent technology companies are developing open platforms that can be used by any implant manufacturer.

I analyze U.S. patents related to the spinal implant market and publish an annual Patent Power Ranking.

I found that the number of enabling tech patents has grown from 2% of issued spine-related patents 10 years ago to approximately 20% in 2023.

Medtronic and Globus credit pull-through from their respective ecosystem for growth in implant sales, and at present they have benefited from being first-movers. It remains to be seen how durable these enabling tech moats will be as more spine companies enter the market and independent, open platforms expand their user base.

Procedural “Moats”

NuVasive, Inc. [NUVA] built a long-lived moat with the XLIF lateral procedure. Lateral continues to grow more than two decades after NuVasive pioneered it, and the barriers to successful entry have been durable. I spoke with an executive at NASS [North American Spine Society] who shared that their company was abandoning lateral because it was too costly and not profitable. NUVA’s market share has declined, but remained double its nearest competitor in 2023, and the combined Globus/NuVasive will hold more than 50% market share in lateral*.

Tried and True Intellectual Property “Moats”

Globus filed their first patent for expandable interbody in 2009 and received 510(k) clearance for the Caliber expandable interbody in January 2011.

At that time, Spine Wave’s StaXx was the only fully expanding device on the market. Through the third quarter of 2023, expandable devices represented approximately one-third of the ~ $1.7 billion U.S. thoracolumbar interbody market and Globus/NuVasive held ~ 40% market share.

Globus currently has more than 150 issued U.S. patents related to expandable devices and appears to have created an effective moat that has significantly delayed and/or prevented larger competitors from entering the space. Following Globus’ Caliber launch, it took four and six years respectively for Medtronic and NuVasive to successfully launch an expandable device in the U.S. Stryker Corporation and DePuy Synthes currently do not own the expandable devices they distribute.

Regulatory “Moats”

Medtronic received PMA approval for Infuse more than 20 years ago and sales of this product exceed $10 billion over this time period. The product remains the only biologic with PMA approval for use in the lumbar spine.

Sales peaked in 2008-09 but Infuse remains by far the best-selling biologic/bone grafting product in spine. Cerapedics, Inc. filed for their cervical P-15 IDE [investigational device exemption] study in September 2005 and received PMA approval 10 years later. The final modules for their TLIF PMA were just filed and approval will likely be forthcoming.

Reimbursement “Moats”

SI-BONE, Inc. is the 800-pound gorilla in SI fusion. The company really pioneered the procedure and invested heavily in clinical studies and education to create this market. As new companies entered the space, SI-BONE was successful in gaining exclusive coverage from payors for the use of iFuse.

The company also realized a significant benefit in 2023 due to the Category III coding requirement for dorsal allograft procedures. These are examples of an individual company gaining an advantage over the competition through reimbursement.

There are other examples where companies have successfully created a regulatory moat only to be restrained by reimbursement challenges. I’m reminded of a discussion at ISASS [International Society for the Advancement of Spine Surgery] last year in which the surgeon attendees agreed that continued growth in the use of cervical disc was stymied due to greater reimbursement for fusion procedures.

Future “Moats”

Alphatec Spine (ATEC) has included a slide in recent presentations that contrasts the revision rates in spine vs. hip and knee.

The slide highlights the fact that although spinal implants themselves are viewed as commoditized, there is tremendous opportunity to improve outcomes.

Enabling tech will likely assist in that regard through better surgical pre-planning, less invasive procedures, and more precise implant placement.

As procedures become more standardized and reproducible, we will at some point reach the limits of what enabling technology can provide in improving outcomes and new implant technology moats will emerge.

Lateral defined as interbody spacers designed for transpsoas or direct lateral that can also be used for an antepsoas or OLIF approach.

I’m interested in your thoughts, especially as it relates to enabling tech. What companies do you think are creating or have created a sustainable moat in spine? — RP

For more information: contact Rick Phillips: Email: Rick.Phillips@spine-market.com  Website: spine-market.com