Welsh Carson Sits in K2M Driver's Seat

Article preview from In-Vivo - September, 2010

With the backing of the private equity powerhouse Welsh Carson, K2M will look to grow beyond its historical niche in complex spinal cases, though it will have to do so without any financial ties to the surgeons who once owned part of the company.

Welsh Carson Sits in K2M Driver's Seat

Article preview from In-Vivo - September, 2010

Founded in 2004, K2M set out to employ Surgeon-Driven Design to establish a leadership position in treating spinal trauma and deformities.

In doing so, the company followed a then-novel model of surgeon ownership, finding at least a portion of the company's original investors among leading spine surgeons who were also expected to supply the company with ideas for new spinal devices.

Private equity firm Welsh Carson recently bought out the surgeons and other outside investors, severing what once had been an important – but now is viewed as legally questionable – tie to its founding surgeons.

Now K2M, which is looking to expand its degenerative disc line, is ready to show it can innovate and grow without surgeons holding an equity stake.

Seven years ago, K2M Inc. president and CEO Eric Major had just separated himself from American OsteoMedix Corp., a minimally invasive spine company he'd led until its acquisition by Interpore Cross International (which would later be acquired by Biomet Inc.). [200110130] [200410043] His pursuit of his next opportunity led him to renew acquaintances with John Kostuik, MD, who then was chief of spine surgery at the Johns Hopkins University School of Medicine. Major sought guidance on what shape his next venture should take, and Kostuik, who'd served as president of the Scoliosis Research Society, pointed him toward an opportunity to create a company that would devote itself to developing tools to treat the most difficult pathologies of the spine: deformities, trauma and tumor removal.

Kostuik went further, suggesting that in its pursuit of tools for treating complex spine procedures, the new company adopt the surgeon-led strategy of spinal pioneers like AcroMed (acquired by what's now Johnson & Johnson's DePuy Spine Inc. in 1998) and Danek (now Medtronic Sofamor Danek, part of Medtronic Inc.'s Medtronic Spine Inc. division after merging with Sofamor in 1993). [199310048] "In those early days, there were surgeon-leaders like Dr. Kostuik at those other companies who were really spearheading real-world expertise of the theater of what they needed to treat these patients," Major says. Kostuik, who serves as chairman and chief medical officer, not only brought his own insights but tapped the minds of many of the 100-plus fellows worldwide he'd trained throughout his career. Through this network of frontline surgeons, K2M crafted a strategy to target the most difficult spinal pathologies.

As is the case with many spinal start-ups, K2M's plan included having many of those same surgeons own a piece of the company. Clearly, surgeons often have consulted – and owned stock in – device companies of all sizes and industries. But K2M embraced that strategy more robustly than most spine start-ups – where most surgeons get stock options or warrants commensurate with the value of their consulting work on the start-ups' designs, K2M, along with a handful of other start-ups at the time, would experiment with what was widely described in the industry as "surgeon ownership." In exchange for providing initial device designs and continued development work, surgeons would make up a significant – if still minority – part of the equity ownership of the company. K2M even coined a phrase to describe its philosophy or approach – Surgeon-Driven Design – and acquired a trademark on the term that would be featured prominently in its marketing materials and press releases. ( See "K2M Inc.," START-UP , September 2006 [2006900167].)

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