K2M finds its way through Sahara, looks to gain market share in spine

June 21, 2017 – 11:24 AM | By Andrea Gonzalez | No comments yet

By Omar Ford, Staff Writer

K2M Group Holdings Inc. is launching its Sahara Al Expandable stabilization system, the company’s first expandable offering within its interbody portfolio. Sahara adds more ammunition to the Leesburg, Va.-based company’s portfolio options and its bid to gain more share in the spine market, which has seen significant consolidation over the past few years. K2M is third in the complex spine market, trailing behind New Brunswick, N.J.-based Johnson & Johnson Corp. and Dublin-based Medtronic plc.

K2M’s Sahara has a multiscrew fixation, designed to provide stability to the anterior column, while featuring a comprehensive range of lordotic adjustments of up to 26 degrees.

The technology is indicated as a standalone device for lordotic angles of 15 degrees or less.

Sahara’s launch goes hand in hand with K2M’s recent launch of the Balance ACS, a device that provides solutions focused on achieving balance of the spine by addressing each anatomical vertebral segment.

“The introduction of the Sahara Al expandable stabilization system marks a significant addition to our interbody portfolio as our first expandable offering in this category,” said Eric Major, president and CEO of K2M. “This latest milestone – coupled with the launch of the Balance ACS platform earlier this year – further reinforces our commitment to developing differentiated technologies with the goal of facilitating Total Body Balance.”

Solid performance

K2M had a strong 1Q17, bringing in revenue of $61.9 million, up 11 percent year-over- year and ahead of analysts’ consensus of $60.2 million. Complex spine is a standout business for K2M, which saw an 8 percent growth in sales when comparing 1Q17 to 1Q16.

Sales growth in complex spine was driven primarily by increased surgeon usage of the company’s Everest Deformity System, which was launched two years ago. (See BioWorld MedTech, Oct. 1, 2015.)

During that same time, K2M launched several other products in complex spine, which include the Mesa 2 Deformity spinal system, the Nile alternative fixation spinal system and the Capri Corpectomy Cage System.

“In complex spine, I think we’re very well set up,” Major said during the company’s most recent earnings call. “I think some of the continued additions that we’ve been making to our technology combined with Mesa 2 sets us up very nicely going into the complex spine season.”

The company was also able to bolster its efforts in Japan and Australia, two substantial markets. In April the company said it received product registrations for its Mesa and Everest lines in Japan, which came several months earlier than expected.

Cowen and Co. analyst Joshua Jennings said by controlling these registrations itself, K2M can authorize new distributors for additional territories in Japan and scale that business significantly longer term. Currently K2M has a presence in two cities in Japan through one distributor and has annual revenue of less than $3 million for the region.

“Japan is a $300 million spine market, so [having product registration] presents a long runway for growth,” Jennings said.

The company also signed a new five-year supply agreement with Lifehealthcare for Australia and New Zealand.

“We are believers that K2M’s relentless innovation, and number three positioning in the complex spine market will drive meaningful outperformance relative to pure play spine peers which in turn should attract new investors to the story,” Jennings said.

Compact, steep market

K2M squares off firmly against Audubon, Pa.-based Globulous Medical Inc. and San Diego-based Nuvasive Inc. However consolidation in the spine market has intensified competition in the space.

About a year ago, Zimmer Biomet Holdings Inc. revealed a plan to acquire LDR Holding Corp. for about $1 billion, or $37 a share in cash. (See BioWorld MedTech, June 8, 2016.) The deal called for Austin, Texas-based LDR to be combined with Zimmer Biomet’s Spine & CMF category. Zimmer Biomet completed the deal in July 2016.

The deal has the potential to move Zimmer Biomet’s stake in the $10 billion spine market from 5 percent to 7 percent. Medtronic currently has a 31 percent market share, while Johnson & Johnson’s Depuy Synthes holds 16 percent.

Zimmer began its plans to have a more dominant position in spine and orthopedics about three years when it agreed to acquire Biomet for $13.35 billion. (See BioWorld MedTech, April 25, 2014.) The deal closed about two years ago.

Not all of the acquisitions in the space have been received favorably. For instance, when Zimmer bought Abbott Laboratories’ spine business for $360 million in cash in 2008, by 2011, analysts were labeling the acquisition as unsuccessful, as revenues in the combined company’s spine segment were shrinking. (See BioWorld MedTech, April 28, 2011.)

The roughly $20 billion J&J deal that saw Synthes integrated with DePuy raised eyebrows due to its complicated structure, which was implemented to avoid tax issues in the U.S. (See BioWorld MedTech, July 12, 2012.)

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