By Melissa Davis
Senior Writer
12/22/2005 7:09 AM EST
URL: http://www.thestreet.com/stocks/healthcare/10258602.html

A year ago, Lynette Amodt's back hurt so badly that she sold her Utah home to pay for treatment overseas.

Amodt, a 45-year-old former nurse, had injured her back in 2000 while lifting a dying patient on the job. She and her husband, Carl, a chiropractor, originally sought nonsurgical treatments such as physical therapy and prescription drugs for her condition. They finally decided to try artificial discs, which have a long history in Germany and could become more common here as big medical device makers -- spying a growing market opportunity -- aggressively seek regulatory clearance to sell more of the disc-replacement implants in the U.S.

Dr. Amodt says that his wife got a Johnson & Johnson (JNJ:NYSE) Charite disc in her lower back and two Medtronic (MDT:NYSE) discs elsewhere in her spine. But far from curing her condition, he says, the discs have left her feeling much worse than she ever did before.

So he spends a lot of time warning others about a new technology that, not so long ago, he viewed as a miracle cure. He especially worries about the Charite -- the only disc with regulatory approval in the U.S. -- saying he believes that both the manufacturer and the surgeons who use the device overstate its capabilities while downplaying its risks. He and other critics of artificial discs contend that patients are being shortchanged in a rush by device makers to stake a claim to what could end up being a multibillion-dollar market.

"We could find nothing beforehand to clue us in to any of the negative results of this device," he says now. "We were far too late to discover just how bad an option the Charite is. ... And the other [discs] I have seen look even worse and more brutal yet."

Johnson & Johnson says it has been upfront about risks involved with the Charite, that it extensively tested the discs itself and that it found that the vast majority of patients who received the devices were pleased with the results. Indeed, the company has reported that some 88% of Charite recipients who participated in clinical testing of the discs expressed satisfaction with their surgery -- and most of those would be willing to undergo the procedure all over again.

The company originally seemed to enjoy an enviable position as the pioneer of a breakthrough technology that could revolutionize back surgery in the lucrative U.S. market. But just one year after securing permission from the Food and Drug and Administration to sell the Charite disc here, the company finds itself battling a growing crowd of critics and, some fear, threatening the future of artificial discs as a whole. That could mean problems for other companies, such as Medtronic and Stryker (SYK:NYSE) , that are seeking to sell artificial discs of their own.

Already, Medicare has delayed covering Charite discs because it wants more evidence and less controversy about their value. Some big insurers, including Cigna (CI:NYSE) and Blue Cross/Blue Shield of California, have done the same. Industry experts worry about future challenges as well.

After the Centers for Medicare and Medicaid Services launched a full-blown coverage review of the Charite this fall, industry consultant Barb Peterson urged disc supporters to get involved.

"Non-Medicare payers tend to follow CMS decisions," Peterson stressed in an article for HealthPoint Capital, an organization that focuses exclusively on the orthopedics sector. "So, if CMS does issue a non-coverage decision, device companies will have an uphill battle to get all payers to cover and pay for artificial discs. Overturning a national non-coverage decision requires an enormous effort, published data and years to succeed."

Measuring Success

Swiss device maker Synthes, which already controls more than 10% of the U.S. spine market, hopes to gain FDA approval to sell an artificial disc in this country next.

UBS analyst Martin Wales last month started recommending the company's stock, which trades mostly in Europe, in part because of that new opportunity. Wales is looking for the company's ProDisc to secure the FDA's blessing and rack up sales of $40 million in 2006 before going on to generate $400 million annually by the end of the decade.

But at least one ProDisc recipient fears that problems with the disc could be getting buried and hopes the device never gains approval at all. Patricia Kennedy says that her own ProDisc surgery failed to work -- even though documents for the FDA trial suggest otherwise.

"I'm filling out a questionnaire and saying that my pain level is an '8' on a scale of one to 10," with 10 being the worst, Kennedy says. "And my doctor is writing down that I have 'mild pain.' I don't think so."

Kennedy is suing her Pennsylvania surgeon -- a lead investigator for the ProDisc trials -- as well as Spine Solutions, a division of Synthes, for damages. The former competitive skater says she has gone from taking Tylenol to morphine for her pain and can no longer work for a living.

Synthes declined to comment on the discs. But Kennedy's surgeon, Richard Balderston, says patients recorded their own pain scores in paperwork for the clinical trials. Moreover, he insists that at least 90% of his ProDisc recipients now feel better instead. Balderston has implanted nearly 100 of the devices so far and looks forward to a favorable ruling from the FDA so that other patients -- outside of clinical trials -- can enjoy the benefits as well.

Meanwhile, Kathy Machado wishes she had never participated in a clinical trial, either.

Five years ago, Machado received an artificial disc -- known as the AcroFlex -- that Johnson & Johnson had been banking on before major problems led the company to focus on the Charite instead. Machado, who says she has lost her ability to work and most of her assets after undergoing expensive treatments, now feels like a forgotten casualty of the company's success.

"Johnson & Johnson just wanted to get a disc on the market first," she says. "And I was an easy target. I was the perfect victim."

To be fair, Johnson & Johnson has won praise from others for its conduct during clinical trials. Like Kennedy, however, Machado feels misled about the risks involved with her artificial disc and -- even worse -- worried that her poor results have been excluded from the already scarce reports available on her device. She now looks at studies of the Charite with skepticism as well.

Machado is hardly alone. Critics believe that Johnson & Johnson carried out a flawed study -- using guidelines that better suited the company than the patients themselves -- and has since plowed forward with the Charite despite clear evidence of poor outcomes. For its part, Johnson & Johnson has readily portrayed Charite operations as complex but has also launched an extensive surgeon training program to help make sure that the procedures ultimately succeed.

In the meantime, however, even the medical journal Spine has published an editorial citing multiple concerns about the clinical trial that led to the disc's approval in the U.S. TheStreet.com first highlighted similar problems seven months ago.

For starters, the Spine editorial noted, Johnson & Johnson simply set out to prove that the Charite worked at least as well as a competing procedure that -- because of its high failure rate -- has been abandoned by most surgeons. It also excluded pain relief, a primary goal of back surgery, from its definition of success. Moreover, it fell short of proving that the disc successfully preserves motion even though it promotes the product -- with catchy slogans such as "natural motion is back" -- as an attractive alternative to spinal fusion for that very reason.

In the end, the editorial concludes, Johnson & Johnson simply managed to show that just 57% of Charite recipients -- carefully chosen and treated by highly trained surgeons -- met "modest" measures for success.

"If well informed, how many patients will accept an improvement chance no better than a coin toss?" back surgeon Sohail Mirza asked in the editorial. "Contrary to optimistic marketing, the data provided to the FDA and published in this issue of Spine argue for caution by patients and surgeons. Hopes for a cure of back pain and a marketing bonanza must be held in check by principles of fairness and responsibility, and by the end results."

Walking Advertisement

In the meantime, big fans of the Charite -- such as Emerson Thompson of North Carolina -- serve as walking advertisements for the discs.

Before his Charite implant earlier this year, Thompson struggled to walk very far at all. An old back injury had caused a painful bulge in his natural disc that, ultimately, made his right calf muscle shrivel and left him unable to climb stairs, let alone enjoy the outdoor activities he so enjoyed. He, like Ms. Amodt, wanted a Charite disc so badly that he felt willing to pay for the surgery on his own.

Thompson fared much better, however. He wound up convincing his insurance carrier to cover the new procedure and now has regained more than an inch of muscle in the leg that hobbled him before. As a civil defense attorney -- who focuses on back injury cases - he feels he did his homework on the disc, recognized the risks involved and would still choose the same route again.

Indeed, he highly recommends the Charite for others and praises Johnson & Johnson for making it available to patients here in the first place.

"My hat is off to Johnson & Johnson for taking the risk and bringing something like this to the very conservative medical community," says Thompson, who offers such endorsements without any compensation from the company. "I think this is going to pay off for everybody down the road."

But the New Jersey-based law firm of Bagolie Friedman, which is currently reviewing cases from disappointed Charite recipients, would classify Thompson as lucky.

"This is a technically demanding operation that very few -- if any -- surgeons are qualified to perform, and the correct sizing and positioning of the device is critical for best functionality and lowest chance of failure," says partner Ricky Bagolie.

"The margin of error is so small, and the chance of misplacement so great, that these artificial disc replacements should be recalled to protect the public."

Charles Rosen, founding director of the University of California-Irvine Spine Center, officially asked the FDA to withdraw the discs from the market months ago. He first aired his concerns about the Charite in an article published by TheStreet.com back in early May. He noted that the Charite had been tested against a failed operation, that it still had weak results and that it required life-threatening revisions in the case of failures -- and, ultimately, he questioned why the device had ever won approval in the first place.

Others have since highlighted similar concerns. Meanwhile, Rosen has never backed away from his warnings despite some attacks from those within the close-knit spine community.

Rosen says he even watched, in shock, as he saw his own name flash up on the screen -- as a warning about "airing dirty laundry" on the industry in public -- during this year's meeting of the North American Spine Society. He portrays the convention as "surreal," with participants banned from recording any sessions and literally escorted out if they tried.

He says that scientific debate, normally a hallmark of the gathering, seemed absent when it came to artificial discs this year.

"Medicare had put up this issue of non-coverage, and people were so on edge that they didn't want any negative comments or press to come out of the meeting," Rosen says. "So there was no dissent at all. I felt like I had been transported to Communist Russia or something."

High Stakes

To be fair, UBS analyst Wales did portray the prospects for artificial "lumbar" discs -- particularly Synthes' ProDisc, the next one set for FDA approval -- as less than encouraging after attending that same conference. He noted that one study recommended against using the ProDisc for patients over 60 and that another showed no advantages over fusion surgery, "even in range of motion," for back patients in general. Moreover, he added, at least one surgeon stressed that artificial discs should not be considered substitutes for the fusion treatments that so many had expected the devices to replace.

By now, however, several companies have already placed their bets.

"Realizing this as a lucrative market opportunity, a burgeoning number of companies continue to invest heavily in research and development of artificial disc implants as well as other motion preservation technologies," the health care experts at Millennium Research Group wrote in Medical Industry Intelligence just ahead of this year's big convention. "Motion preservation technologies thus represent the most significant advancement in spinal implant technology to emerge in recent years and are regarded by many as the next evolutionary phase in the treatment of degenerative disc disease."

Disc developers certainly hope so. However, Bagolie believes they could pay a steep price in the end.

"Back surgery is a multibillion-dollar market, so all of these companies are throwing their hats in the ring," he says. "We're already getting calls about the Charite from all over the country; it got approved first. But there are problems with the other discs as well."