On January 31, 2017 ChoiceSpine, LP and Exactech, Inc. issued a joint announcement that $20 million Exactech spine (annual sales) had been sold to Knoxville, Tennessee-based ChoiceSpine. The main reaction throughout the spine industry was…ChoiceSpine? Who’s ChoiceSpine?
ChoiceSpine is the Knoxville, Tennessee, spine company founded by Marty Altshuler and Rick Henson. And if anyone was surprised, then they probably hadn’t been paying attention.
About six years ago Rick and Marty bought the once $40 million Orthotec spine portfolio and made the leap from Knoxville-based spinal implant distributor to full-fledged developer, manufacturer and distributor of spinal implants with an expanding patent estate and business all over the U.S. and seven other countries.
Indeed, this announcement by ChoiceSpine and Exactech can be traced to a 2005 phone call.
Lost a Line, Found a Mission
“In 2005 we got a phone call and a fax saying we didn’t have distribution rights any longer for one of our major product lines here in Knoxville, Tennessee,” recalls ChoiceSpine co-founder Rick Henson. “We had to make a strategic decision. Either we had to pick up another line and be a distributor for another line or do something different.”
And doing something different was what Rick and Marty did. They bought Orthotec. “What we did is that we decided that we were going to buy Orthotec’s intellectual property rights and distribution rights for the United States and seven other countries. Thus Choice Spine. That is what started in 2006.”
As Marty remembers the transition: “We went quickly from being a distributor to being a designer, manufacturer and marketer of spinal implants across the U.S. That was a pretty daunting task but we had a great partnership working together as owners and were blessed in the Team we assembled in a short time to accomplish our strategic goal and mission.”
But the biggest issue for Rick and Marty was the perception that they were a small, regional distributor. Not a national, to say nothing of international, supplier.
“When we got started we were looked at as a regional company based in the South. As we started to grow into the Northeast, Midwest and West Coast we had to get across that barrier that we were just a regional company,” recalls Marty.
Necessity, being the mother of invention, also pushed the young company into product development. “In 2010 we started a rapid development process and this year we will have 90% of what a surgeon typically uses on an everyday basis.” Says Rick, “This year, 2016, we’ll have the best development year in ChoiceSpine’s history. This year alone we’re coming out with a posterior cervical system, an MIS system and also a zero profile system.”
Exactech’s Spine and Biologics Business
Exactech had one of its best years ever in 2016. Sales rose an estimated 4.50% (the final numbers were released February 21) from $242 million last year to an estimated $253 million in 2016. For 2017 Wall Street’s analysts are forecasting that Exactech’s growth rate will rise to about 6.0%.
Best of all, Exactech’s market value soared 38% over the last 12 months to today’s $354 million.
But spine and biologics were not contributors to that sales growth. Extremity, hip and knee implant and instrumentation sales really carried Exactech’s growth in 2016. Extremity product sales now comprise 37% of Exactech’s total annual sales and grew a very strong 16% in 2016. Hip and knee implant sales were also up slightly in 2016.
But spine and biologics, which were down about 9% at the nine month mark, will almost certainly be down for the full year as well.
The following table shows how Exactech’s spine and biologics business has struggled since the acquisitions of Altiva and Vertiflex’s assets in 2008 and 2009.
While Exactech’s spine business was struggling from 2008-2016, ChoiceSpine’s was growing. As Rick Henson explained: “We have now grown out of two facilities and are looking at even larger office locations. At the end of 2009, 2010 we had about 75% of our bag complete. We had a brand new cervical plate. We had a brand new pedicle screw system. We had cervical interbodies. We had lumbar interbodies. Pretty much 75% of what a typical spine surgeon is using on a daily basis.”
The Purchase
The orthopedic industry, generally, is in the middle of an M&A boom. We count 23 deals in the last 24 months (see table at the end of this article). And we probably missed a couple or more.
For Exactech, this was the right deal at the right time.
Said Exactech CEO David Petty, “For nearly a decade, Exactech has driven innovations in spinal surgery and we are pleased to have made meaningful contributions to patient care. We are confident the transfer of these products to ChoiceSpine will provide a continued focus on improving patient care for that population. This divestiture will allow us to sharpen our focus on investments in the core extremities and large joint segments of our business.”
For ChoiceSpine, this purchase expands their sales bag considerably. The metal/polymer implants purchased from Exactech include:
- Proliant® Pedicle Screw System. This is a dual lead thread screw system which allows for faster insertion and incorporates the patented Tightlok® thread pattern which reduces screw pull out and facilitates fusion. EZ Set tulip head which allows surgeons to more easily position and set the tulip head in any position for rod insertion.
- Gibralt® Posterior cervical thoracic spine system that features top-loading polyaxial screws with an EZ Set tulip head and Tightlok thread technology. The system includes hooks, offset connectors and rod-to-rod connectors which can be constructed into a multitude of configurations based on individual patient anatomy.
- Gibralt® Occipital Plate, a comprehensive solution for posterior stabilization and fusion of the cervical and thoracic spine. Gibralt works in conjunction with Proliant and HydraLok pedicle screw systems for a full spine solution.
- Octane® Straight PEEK Interbody Spacer System that provides two different implant options to accommodate a traditional straight spacer insertion or a less invasive insert-and-rotate technique. Octane is made from PEEK-Optima® polymer with radiographic markers and comes in multiple footprints: Bilateral posterior approach using 24mm spacers, or unilateral posterior approach using 28mm and 32mm spacers. The addition of plasma sprayed titanium coating options in cervical and lumbar is an extra option to just PEEK-only users.
- Octane® M, a new design of interbody fusion implant which allows atraumatic entry to its final position between two vertebral bodies.
- Acapella® Cervical Spacer system with integrated anchors that features single-step implantation with an integrated locking mechanism that complements ChoiceSpine’s current Tomcat standalone cervical that is a screw-based system.
- Ambassador™ Anterior Cervical Plate System with narrow plate profile and cam-design locking mechanism and multiple size options.
ChoiceSpine’s Martin Altshuler said about the Exactech product line: “The additional technologies that Exactech has access to, combined with our expanding portfolio, allows us to further solidify our company as a premier, full-line spinal fusion provider in the U.S., with further growth opportunities in select international markets.”
Rick Henson, added: “We’re now in a position to dive deeper into our growth strategy by adding and introducing new distribution and surgeon users to our current and future technologies that we plan to launch over the next few months.”
Looking ahead
There is little question that this transaction vaults ChoiceSpine into a new level in the spine industry. In addition to the products acquired from Exactech, the ChoiceSpine guys are working on a full line of biologic implants as well. For that Marty told OTW; “Stay Tuned.”
This was an exceedingly strategic move for Rick and Marty. At this rate, ChoiceSpine will be the choice for more and more spine surgeons.
