Tornier CEO David Mowry: Affordable Care Act Will Make the Rich Get Richer

Posted in Orthopedics by Jamie Hartford on May 7, 2013

Mowry also discusses the upside of biologics and how consolidation has helped the orthopedics company. 

David Mowry became president and CEO of Tornier Inc. (Bloomington, MN) in February 2013, after joining the manufacturer as COO in July 2011.  Operating in more than 30 countries, the company makes approximately 90 products for the surgical treatment of musculoskeletal injuries as well as procedures for the shoulder, hand, foot, and other extremities. 

This is Part II of MD+DI's conversation with the Tornier CEO (you can read Part I here). 

MD+DI: I get the sense from reading the fourth quarter report you believe biologics, even though they’re a small portion of Tornier’s business, have a big upside. The Conexa line is doing well, for instance.

Representatives from Tornier and other top orthopedics companies will be at the OrthoTec conference and exhibition in Winona Lake, IN, June 4–6, 2013. 

Mowry: The Conexa line did better than expected for us in the fourth quarter. I don’t believe it’s necessarily the long-term future of the company, but it’s a significant contributor. The way I would classify biologics is these are the things that either augment or improve outcomes through the addition of some sort of catalyst to the environment. They promote healing or they accelerate healing or they improve outcomes by lowering risk or getting better long-term success.

When I look at biologics, I think about the fact they have to be part of an economic equation with the payers. A lot of folks perceive biologics as pixie dust that you just kind of add to a procedure. I think you have to be able to show clinical and economic benefit. Our focus has been significantly on rotator cuff repair. Just as an aside, rotator cuff repair has a 60% success rate, which means 40% of rotator cuffs tear. That’s not a good outcome, frankly. Those tears are generally traced back to a lack of healing of the tendon or the patient maybe did something he shouldn’t have done too early in his recovery.

Anything we can do with biologics that would either enhance the healing, improve the long-term results of eliminating tears, or speed the recovery and the return to full use are all significantly financially beneficial to the value stream. That’s where we see biologics playing a part in the equation.

MD+DI: You mentioned the consolidation of Tornier’s distribution facilities in passing. In April 2012 your predecessor, Douglas Kohrs, announced the closing of some facilities. In the fourth quarter report you referred to some of the struggles and European economic problems Tornier is facing. Has the consolidation helped the company overcome some of these problems?

Mowry: We don’t think you can save your way to success. However, as a company we have the responsibility to manage our costs so that we can remain competitive, No. 1, and, No. 2, put ourselves in a position to have the right cost structure to support future growth. The facility consolidation that we started last year, and completed actually within the 12 months, was significant in reducing our footprint and reducing our overall cost structure. But most importantly—and this is something that is missed by a lot of our investors—it increased the density within the existing facilities, so we’re actually putting more people working closer together and more collaboratively, which I believe will drive faster project execution. I think that’s an important strategic benefit of facility consolidation that hasn’t really been talked about.

MD+DI: Do you see any trends in orthopedic medicine that could affect Tornier or your market segment? An aging population is an obvious one.

Mowry: I think these markets are very healthy. In particular, I think the extremities market that we play in is underpenetrated and still in in great need of improvement in design and in materials. Frankly, I think it’s a market that has three key areas that need investment. We still need better products; we’re working on that, obviously. There needs to continually be an investment in research and clinical data-gathering, which I believe is underserved in this space. And the third piece is long-term commitment to medical education. When I say medical education, I’m not talking about just doing training on products. We have fellowships within extremities in particular that need to be funded and fueled. I think we’re going to need master’s courses where even the most experienced physicians have an opportunity to get together and talk openly about concerns, complications, and so on, so that they can share best practices and continue to improve the outcomes. All three of those things are important, and Tornier is pretty well aligned with investing in all three equally.

MD+DI: You mention outcomes. With the Affordable Care Act, the healthcare debate in this country, and the buzz about Steven Brill’s recent major cover exposé in Time, there’s a lot of talk about cost and about outcome-based healthcare. I want to get your overall view on how this emphasis will affect manufacturers.

Mowry: Well, I think it’s real. I don’t think we can bury our heads in the sand and assume this is going to pass and it’s not going to be a big issue and just blow over. It’s real. It’s real in the sense that hospitals are going to get reimbursed based upon outcomes, which will drive in orthopedics in particular greater specialization. I think that’s natural. I mean, you don’t call a carpenter when you have plumbing work to do. It’s going to drive better outcomes in the long term. Not every physician will benefit from this process, nor will every hospital. The sad part of the equation is that this [law] is going to reward better outcomes, which means the rich will get richer, if you will, if you have the skill set.

There’s a downside to that scenario, though. Patients living in certain regions where the population density doesn’t allow for medical specialization are going to receive less care and lower quality care because providers will be afraid of the reimbursement rate for taking on patients where successful outcomes can’t be guaranteed.

MD+DI: Regarding reimbursement, is the greater percentage of Tornier’s products used for nonelective procedures?

Mowry: Some of the surgeries we do are elective, but the majority of them are not. I think you have the ability to schedule it and move it out and move it in a little bit based upon your schedule and your ability to get off work. But these are patients who are in significant pain and discomfort and don’t have range of motion or the ability to lift their hand 90 degrees. These are real issues that are being addressed through surgical intervention, so I wouldn’t consider them elective surgeries nor would anybody else.

MD+DI: I wouldn’t think so, but I just was wondering what the payers think.

Mowry: There are some potential elective surgeries when you start to get into some of the distal extremities like hammer toe surgery. I want to be careful not to paint this with a broad brush. Some [procedures] are more elective [than others] or have a greater percentage of elective surgery.

MD+DI: What does Tornier have planned for the AAOS meeting, if anything?

Mowry: We don’t have anything that we have been holding. I don’t subscribe to the idea that you need to unveil something at shows. Companies need to continue to move at their own pace and appropriately release and launch products in a thoughtful manner. That’s why we always go through a limited-user release type of program to validate and verify our design inputs and findings. So we don’t have any big launches, if you will, at the AAOS. However, we will highlight those things we will be working on more diligently and more recently, such as the Ascend Flex product, which is a convertible shoulder product. That means it can be used in an anatomic configuration, where the humerus has the ball on it and the glenoid side has more of the saucer. Or you can actually reverse that and have a reverse shoulder where the cup, if you will, is on the humerus side, and the ball is on the glenoid side.

As an aside, the reverse shoulder [model] represents about 40% of the volume, and it’s used in patients that have a rotator cuff that can’t be repaired. By putting the biomechanics in a reverse configuration, it actually [puts] the deltoid muscle into range of motion, so the patient can have restored range of motion even if he has a rotator cuff tear.

MD+DI: Does Tornier have a big IP portfolio?

Mowry: You know, every orthopedic company has an IP portfolio. I think there are lots of ways to skin a cat in this space, and we generally don’t get into a situation where we’re infringing or where we’re infringed upon. We like our portfolio, and it’s something we actively build and stand behind. I don’t know that it’s necessarily the biggest barrier in this space.

MD+DI: You’re a West Point graduate with a degree in engineering. Were you always interested in medtech as a career?

Mowry: You always find interesting pathways into business. I actually left the Army as a junior officer and moved back to where my parents were from at the time. I ended up finding a job with a company called Davol, which is part of C.R. Bard, and absolutely fell in love with working in a medical device company because of the value it created between connecting with a patient and the quality of life it provided. I told my kids all along, you have to have passion for what you do, and I have had passion for this for 25 years.

MD+DI: With your military background, is there a sense that Tornier is also doing good for wounded veterans who might need the devices you’re selling?

Mowry: Not for veterans in particular. There are obviously a lot of people who have been wounded. Personally, I’m committed to the Wounded Warrior Program, but that being the case, the company itself doesn’t provide any specific value for those who are injured, I don’t believe.

I actually had thought about it in a previous assignment when I worked for the neurovascular division of Covidien. There was a lot of opportunity for us to work with the military [for veterans with] head trauma.

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