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`Encyclopedia.com > Politics and Business magazines > International Directory of Company Histories > January 2007
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`Kyphon Inc.
`
`International Directory of Company Histories | 2007 |
`700+ words | Copyright
`Kyphon Inc.
`FOUNDER’S BACKGROUND
`
`INCORPORATION OF KYPHON: 1994
`
`IPO: 2002
`
`PRINCIPAL SUBSIDIARIES
`
`PRINCIPAL COMPETITORS
`
`FURTHER READING
`
`1221 Crossman Avenue
`Sunnyvale, California 94089
`U.S.A.
`Telephone: (408) 548-6500
`Fax: (408) 548-6501
`Web site: http://www.kyphon.com
`
`Public Company
`Incorporated: 1994
`Employees: 885
`Sales: $407.8 million (2006)
`Stock Exchanges: NASDAQ
`Ticker Symbol: KYPH
`NAIC: 339112 Surgical and Medical Instrument Manufacturing
`
`Kyphon Inc. is a medical device company focused on a minimally invasive
`treatment of spinal fractures it calls balloon kyphoplasty, the name drawn from
`the Greek word kyphos, or “bent.” It is essentially an improved form of
`vertebroplasty, a procedure in which cement is injected into the fissures of
`collapsed vertebra to provide reinforcement and pain relief, although the
`vertebra remain collapsed. Carried out under local or general anesthetic,
`kyphoplasty relies on small balloons, about the size of a thumb, introduced
`into collapsed vertebra of a patient through small incisions on both sides of the
`spine. The balloons, or tamps, are gradually inflated to lift crushed or collapsed
`vertebra—the result of osteoporosis, cancer, or other causes—to near their
`normal height. The cavity created by the balloons is then filled with Kyphon’s
`proprietary cement or some other bone filler. It hardens in about 15 minutes.
`All that remains are the incisions, which can be closed by simple Band-Aids.
`
`The procedure lasts about 45 minutes, and when it is completed patients are
`able to walk immediately, most of them experiencing a tremendous relief from
`pain as well as some correction in height. Kyphoplasty also provides better
`control over cement than does vertebroplasty, which carries a greater risk of
`cement leaking into a patient’s lungs or organs and creating severe
`complications. More than 10,400 physicians in the United States, Europe, and
`some countries in Asia are trained in the balloon kyphoplasty procedure. The
`company also offers the X-STOP Interspinous Process Decompression system
`to treat lumbar spinal stenosis, another minimally invasive spine therapy,
`added through the acquisition of St. Francis Medical Technologies. Based in
`Sunnyvale, California, Kyphon is a public company listed on the NASDAQ.
`FOUNDER’S BACKGROUND
`The man who conceived of balloon kyphoplasty was Dr. Mark A. Reiley. After
`receiving an undergraduate degree from Claremont College in California, he
`earned his medical degree from George Washington University School of
`Medicine in Washington, D.C., in 1979. He then received five years of
`orthopedic training at the University of California, San Francisco, where he
`was a fellow in the Musculoskeletal Tumor Clinic at the school’s medical
`center. It was here that Reiley attended a patient who suffered from multiple
`compression fractures of the spine. His efforts to provide help were frustrated
`by the instability of the bones and pain caused by the fractures. He began
`thinking of a way to stabilize such injuries.
`
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`As an orthopedic surgeon in Berkeley, California, Reiley toyed in 1984 with
`the idea of restoring the lost shape of a vertebra by creating a gap that could
`be filled with bone cement. According to Forbes, “He dove into spines of
`cadavers with tiny jacks, scrapers, expandable rotors, lasers and ultrasound
`when he happened upon a stock of balloons used to clear small kidney
`stones.” Reiley tried out the balloons on the cadavers, and then began
`working with surgical product developer Arie Scholten, to establish the basic
`elements of balloon kyphoplasty.
`
`Reiley and Scholten looked for a way to develop the procedure commercially
`and bring it to patients. They turned to the obvious places, the top orthopedic
`and spine companies, but the procedure they proposed seemed too radical
`and no one was interested. It was at this point, through a chance encounter,
`that Reiley met a former biotech executive named Karen Talmadge, who held
`a doctorate in biochemistry from Harvard University and had dealt with the
`orthopedics sector while serving as a chief executive. She was intrigued
`enough by the elegance of the procedure to study clinical literature, and soon
`realized that it had a great deal of commercial potential due to the large
`number of patients suffering from the kind of spinal fractures the procedure
`could address.
`INCORPORATION OF KYPHON: 1994
`In early 1994 Reiley, Scholten, and Talmadge incorporated Kyphon in
`Delaware. Talmadge engaged in the task of attracting venture capital to make
`the company operational. It proved to be a tough sell, however. Talmadge
`spent nearly three years attempting to gain support from venture capitalists but
`with no success. They expressed concerns about the procedure winning U.S.
`Food and Drug Administration (FDA) clearance and the willingness of insurers
`to reimburse for it. “But what these reasons told me,” Talmadge said in an
`interview with Medical Device Link, “was that investors were most concerned
`about the risk associated with backing an idea that would change the practice
`of medicine.”
`
`In 1996 Talmadge finally found someone she thought would be open to
`backing a revolutionary medical approach: Jack W. Lasersohn, a general
`partner at the Vertical Group, a Summit, New Jersey-based venture capital
`firm that specialized in medical technology and biotechnology. Talmadge had
`attended a lecture Lasersohn delivered about the medical devices that
`investors had failed to back because of a reluctance to challenge accepted
`medical practices. In particular he referred to the promise of balloon
`angioplasty, a procedure being developed to open constricted arteries.
`Afterward Talmadge met with Lasersohn, who was indeed receptive to
`Kyphon’s use of balloons to repair spinal fractures. “I have to admit, this was
`one of the best ideas I had ever heard,” Lasersohn told San Jose Business
`Journal. “I love balloons, and the spine, well that’s an enormous market.”
`
`Lasersohn then sold the New York-based private equity fund Warburg Pincus
`& Co. on the idea, and together the two firms provided $1 million in seed
`money. Kyphon sought input from the leaders in the spine field, targeting the
`most skeptical, in the belief that when the procedure gained regulatory
`approval their endorsement would carry the most weight in the marketplace. In
`July 1998 the FDA approved the use of inflatable bone tamps, and in that
`same year the first balloon kyphoplasty procedure was performed. The
`company continued to raise venture capital money, which ultimately totaled
`$40 million. Talmadge, who had served as the company’s chief executive
`since its founding, stepped down in November 1998, replaced by Richard D.
`Murdock, the former CEO of CellPro, a provider of blood cancer treatments.
`
`Early in 1999 Kyphon began to assemble a direct sales and marketing
`operation and by the end of the year posted sales of $261,000. In May 2000
`the company initiated a full commercial rollout of what it called the KyphX
`System in the United States and sales began to grow at an exponential rate,
`as positive results from clinical studies and the company’s educational efforts
`made steady progress in convincing doctors to consider the new procedure
`and then received training to perform it. Sales increased to more than $6
`million in 2000 and topped $36 million in 2001.
`
`COMPANY PERSPECTIVES
`Kyphon’s mission is to be the recognized global leader in restoring spinal
`function through minimally invasive therapies.
`IPO: 2002
`In July 2001 Gary L. Grenter was named president and CEO. He was the
`former chief executive at Biolectron, Inc., a company involved in the spinal
`fusion, fracture healing, and arthroscopy market. Under Grenter, Kyphon took
`steps to go public. After the company failed at one attempt, it succeeded in
`May 2002 with US Bancorp Piper Jaffray managing an initial public offering
`(IPO) of stock that raised $103 million for the company. Grenter’s tenure did
`
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`not last much longer, however. He resigned to “pursue other interests,” and
`the reins were turned over to Richard W. Mott, named president and CEO in
`September 2002. Mott had been a top executive at Wilson Greatbatch
`Technologies, Inc., a maker of implantable medical device components. He
`took over a company that had a great deal of potential but lacked
`administrative structure and a clearly defined strategy. It fell on Mott to build a
`foundation that would allow the company to retain talent and attract new
`employees. Because Kyphon did not even have a human resources officer,
`one of Mott’s first tasks was to fill that position. He recruited Steve Ham, a
`former Hewlett-Packard executive, who played a key role in fleshing out
`Kyphon’s corporate culture. At the heart of it lay education. Just as the
`company grew by educating physicians about balloon kyphoplasty, so too did
`it invest in the continued education and personal development of its
`employees, as well as their families. Ham also played an important part as
`Kyphon expanded its organizational infrastructure, adding more senior
`leadership to support a rapidly growing workforce.
`
`Sales increased to $76.3 million in 2002. The following year the company
`expanded its sales team, which helped grow revenues to more than $131
`million in 2003 and led to the first profitable year in Kyphon’s history. When
`the company netted $27.3 million. To support its growth, Kyphon moved into a
`new corporate headquarters in Sunnyvale with more than twice the space of
`the previous facility. The number of spine specialists trained worldwide in the
`procedure numbered 3,900, up from 2,700 in 2002 and 1,500 in 2001. Kyphon
`also set itself up for continued growth through the launch of a dozen new
`products in 2003. In addition, the company completed the acquisition of a
`German biomaterials company, Sanatis GmbH for $4.5 million, picking up the
`right to a calcium-containing bone filler.
`
`At this stage Kyphon was not able to offer a complete system, and surgeons
`relied on bone cement produced by other companies. Neither could Kyphon
`make claims about the clinical benefits of balloon kyphoplasty. These
`drawbacks ended in 2004 when Kyphon made further filings with the FDA and
`received clearance to sell a bone cement specifically for use in the spine. The
`FDA also agreed that the clinical data the company provided about the effects
`of the procedure was sufficient to allow Kyphon to promote claims about the
`effectiveness of the treatment. Sales increased to $213 million in 2004, and
`helping to fuel further growth the company also received good news on other
`fronts. The Centers for Medicare & Medicaid Services established
`reimbursement codes for balloon kyphoplasty, a move supported by the
`American Medical Association, setting the stage for physician and hospital
`reimbursement for the procedure across the country.
`
`About 50,000 patients worldwide underwent balloon kyphoplasty in 2004, a
`number that increased to 73,000 in 2005, leading to a 43 percent increase in
`sales to $306 million and net income of $29.8 million. The company enjoyed
`continued growth in 2005, when sales improved to $407.8 million and net
`income approached $40 million. Success did not come without some measure
`of controversy, however. Early in 2006 Kyphon and Dr. Harvinder Sandhu,
`who had licensed an expandable, mechanical bone tamp to the company,
`sued Medtronic Sofamor Danek, accusing it of trade secret theft, fraud, breach
`of contract, and other charges. In the late 1990s Medtronic had elected not to
`license Sandhu’s invention and a year later patented a device to treat
`vertebral compression fractures using a similar bone tamp. Medtronic
`maintained that because Kyphon was the only domestic player in this niche
`market it was simply trying to keep Medtronic and others from entering it. Four
`months later Medtronic filed its own lawsuit against Kyphon, alleging that four
`of its patents related to balloon-dilation catheters and spinal treatment had
`been violated.
`
`KEY DATES
`1994:
`Company is founded.
`1996:
`Funding is secured.
`1998:
`Inflatable bone tamps are approved by Food and Drug Administration (FDA).
`2004:
`FDA approves bone cement.
`2007:
`St. Francis Medical Technologies Inc. is acquired.
`Also in 2006 Kyphon was joined in a different kind of controversy, stemming
`from the days it had reached out to prominent spine researchers. One of the
`most prominent in the field was Cleveland Clinic orthopedic surgeon Dr. Isador
`Lieberman, who had been a major supporter of balloon kyphoplasty. However,
`in late 2006 he was regaled in the press for also having a financial interest in
`Kyphon, receiving valuable stock options in a company whose procedure he
`was touting. Lieberman was well aware of the clinic’s conflict-of-interest policy
`
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`because he sat on the panel that dealt with the issue. He was required to tell
`patients of his financial interests if they asked, but did not have to volunteer
`the information. While Lieberman argued that his support of balloon
`kyphoplasty was based on the efficacy of the procedure, he was also
`connected to seven other orthopedic device manufacturers, from whom he
`might receive stock, royalties, and consulting fees.
`
`To help sustain its strong growth and achieve some diversity, Kyphon reached
`agreement on three acquisitions in 2006. Early in the year it acquired
`InnoSpine, Inc., which held FDA-cleared technology for the diagnosis and
`possible treatment of axial low back pain caused by disc degeneration. Late in
`the year, Kyphon announced two agreements with an Israeli company, Disc-
`O-Tech Medical Technologies, Ltd., to acquire its spine-related assets, which
`included a vertebroplasty system and the B-Twin Expandable Spinal System,
`which uses an expandable interbody device to treat degenerative disc disease
`in the lumbar and cervical spine. Kyphon also agreed to acquire St. Francis
`Medical Technologies Inc., an acquisition that was completed in January 2007.
`The Alameda, California-based company brought with it the X-STOP System
`to treat lumbar spinal stenosis.
`
`Ed Dinger
`PRINCIPAL SUBSIDIARIES
`InnoSpine, Inc.; St. Francis Medical Technologies, Inc.
`PRINCIPAL COMPETITORS
`Biomet, Inc.; Stryker Corporation; United States Surgical Corporation.
`FURTHER READING
`Benesh, Peter, “Its Surgeries Will Really Get Your Back Up,” Investor’s
`Business Daily, November 30, 2005, p. A05.
`
`Cutland, Laura, “Medical Startup Success Was a Test of Founder’s
`Backbone,” San Jose Business Journal, July 25, 2005.
`
`Dobson, Roger, “‘Balloon’ to Cure a Crumbling Back,” Daily Mail, July 15,
`2003, p. 38.
`
`Elliott, Alan R., “Medical Supplier Puts Its Back into Pain Relief,” Investor’s
`Business Daily, August 13, 2003, p. A08.
`
`Grossman, Robert J., “Developing Talent,” HRMagazine, January 2006, p. 40.
`
`Halasey, Steve, “Growing Up, Globally,” Medical Device Link,
`November/December 2006, http://www.devicelink.com.
`
`Herper, Matthew, “The Inflatable Spine,” Forbes, June 7, 2004, p. 227.
`
`“Kyphon: A Trial Balloon Succeeds in Spine,” In Vivo, July 2002.
`
`Much, Marilyn, “Thanks to the FDA, It Gets a Selling Boost, Kyphon Inc.,”
`Investor’s Business Daily, July 14, 2004, p. A06.
`
`Rutchick, Joel, “Surgeon Kept Quiet About Stake in Company,” Cleveland
`Plain Dealer, December 10, 2006, p. A1.
`
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`

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