Kyphon Investor & Analyst Meeting. May 17, 2007

Transcription

1 Kyphon Investor & Analyst Meeting May 17,

2 Forward-Looking Statement Certain matters discussed today or answers that may be given to questions asked could constitute forward-looking statements that are subject to risks and uncertainties relating to Kyphon s future financial or business performance. Kyphon s actual results could differ materially from those anticipated in these forward-looking statements. Forward-looking statements are based on management's current preliminary expectations without taking into account any possible impact from any other future business development transaction and are subject to risks, uncertainties and assumptions, which may cause the company's actual results to differ materially from the statements contained herein. Material factors that may cause results to differ from the statements made are detailed in its periodic filings with the Securities and Exchange Commission, including, but not limited to, those risks and uncertainties listed in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations - Factors Affecting Future Operating Results," which can be found in Kyphon's annual report on Form 10-K for the year ended December 31, 2006 filed with the SEC on February 28, 2007 and in Kyphon s quarterly report on Form 10-Q for the quarter ended March 31, 2007 filed with the SEC on May 10, Please note that Kyphon is under no obligation to update any of the forward-looking statements discussed today. 2

3 Please Note While Kyphon has executed two definitive agreements to acquire all of the spinerelated assets of Disc-O-Tech Medical Technologies, Ltd., neither of the underlying transactions has closed to date. Both transactions remain subject to clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. Unless and until Kyphon is able to close either or both of these transactions, Kyphon will not be able to incorporate any of the Disc-O-Tech product lines and intellectual property assets into its business. Functional Anaesthetic Discography, F.A.D., Discyphor, Aperius and PercLID are trademarks, and Kyphon, KyphX, X STOP, X-STOP, X STOP, IPD, and ST. FRANCIS MEDICAL TECHNOLOGIES are registered trademarks, of Kyphon Inc. Disc-O-Tech, B-Twin, Confidence and SKy are trademarks of Disc-O-Tech Medical Technologies, Ltd. 3

4 Kyphon at A Glance Medical device company focused on minimally invasive spinal market Marketing in > 40 countries worldwide direct sales in 15 countries 1,200 employees Headquarters: Sunnyvale, CA Nasdaq: KYPH Market cap: ~$2.1B as of May 16, 2007 ~2% owned by insiders 4

5 Agenda Reflections on Five Years of Growth Richard Mott Business Update Art Taylor Lumbar Spinal Stenosis: X-STOP IPD and Aperius PercLID Systems Karen Talmadge, Ph.D. Q & A Closing Comments Richard Mott 5

6 Reflections on Five Years of Growth Richard Mott, President and CEO 6

7 Five years ago, we developed a vision and mission Vision Improve patient quality of life through revolutionizing the practice of medicine Mission Become the recognized global leader in restoring spinal function through minimally invasive therapies 7

8 Since our IPO, we ve made significant progress 2002 Successful IPO (May 17, 2002) Company Achieves $76M in Worldwide Sales ,000 Kyphoplasty Patients Treated Worldwide (cumulative) Company Achieves $131M in Worldwide Sales 2004 First Bone Cement Cleared for Use in Kyphoplasty in U.S. 100,000 Kyphoplasty Patients Treated Worldwide (cumulative) Company Achieves $213M in Worldwide Sales ,000 Kyphoplasty Patients Treated Worldwide (cumulative) Company Achieves $306M in Worldwide Sales ,000 Kyphoplasty Patients Treated Worldwide (cumulative) Two-Year Balloon Kyphoplasty Clinical Results Published National Physician Reimbursement Code Established Functional Anaesthetic Discography Launched Two Proposed Acquisitions Announced: St. Francis Medical and Spine-Related Assets of Disc-O-Tech Company Achieves $408M in Worldwide Sales ,000 Kyphoplasty Patients Treated Worldwide (cumulative 1Q) Closed Acquisition of St. Francis Medical Completed Enrollment in Japan Registry Trial 8

9 Three Platforms for Growth: Innovative Treatments for the Aging Spine Kyphon Mission Become the recognized global leader in restoring spinal function through minimally invasive therapies Spinal Fracture Management & Repair Disc Disease Diagnosis and Therapies Spinal Motion Preservation Osteoporotic and Cancer- Related Fracture Treatment Traumatic Fracture Fixation Recalcitrant Fracture Reduction/Repair Sacral Insufficiency Fracture Augmentation* Degenerative disc disease diagnosis Discectomy* Nucleus Replacement* Annular Repair* Minimally Invasive Fusion* Interspinous Process Decompression Lumbar Spinal Stenosis (LSS) Expanded Future Indications * Potential future treatments 9

10 Kyphon Today: A Transforming Company Prior to Pioneer with single product focus InnoSpine acquisition St. Francis acquisition Proposed Disc-O-Tech acquisitions Multi-platform global leader in minimally invasive spine surgery 10

11 Business Update Art Taylor, Chief Operating Officer 11

12 Business Update - Agenda X-STOP IPD Product Balloon Kyphoplasty Japan Clinical trials Infrastructure investments Proposed Disc-O-Tech transactions 12

13 Business Update: X-STOP IPD Product Integration largely complete US selling activities by Kyphon spine consultants SFMT distributors retained internationally 390 US surgeons trained in Q107 ~1,800 trained to date; targeting 3,200 by Q407 Reimbursement progressing Physician coverage confirmed in 49 states 2008 CMS proposed rule for hospital inpatient designed to replace add-on payment 13

14 Business Update: Balloon Kyphoplasty > 1 million diagnosed VCFs per year US + Europe + Japan Significant opportunity as ~ 80% are conservatively treated Key Initiatives Penetrating existing markets Global sales force expansion. 500 now, targeting by 12/31 Training clinicians. 6,300 now targeting 6,700 by 12/31 Securing & maintaining adequate reimbursement Entering new markets Asia Oncology in US; Est 50,000-75,000 VCFs per year Targeting high decile referring PCPs in US Japan 14

15 Business Update: Japan Substantial market opportunity >500,000 VCFs per year Conservative care only approved treatment 81 patient registry trial enrollment complete Working closely with MHLW & KIKO to secure regulatory approval Possible to supplement with 1-year FREE data Targeting commercialization by 2009 First mover advantage 15

16 Business Update: Balloon Kyphoplasty Clinical Trials TRIAL FREE CAFE BEST JAPAN KAVIAR Condition Focus Type Osteoporotic Fractures Cancer-Related Fractures Traumatic Fractures Osteoporotic Fractures Osteoporotic Fractures BK vs. NSM BK vs. NSM (1) Single-arm Single-arm BK vs. VP (2) (1) Study Registry Study No of Patients ,234 Follow-Up 2 yrs 1 yr 1 yr 2 yrs 2 yrs (1) Balloon Kyphoplasty vs. Non-surgical Management (2) Balloon Kyphoplasty vs. Vertebroplasty Plan to submit 1-year follow-up data from FREE trial by end of

17 Business Update: X-STOP IPD Procedure, Aperius PercLID & F.A.D. Procedure Clinical Trials TRIAL SODA OUTLAST COAST INCA TBA Condition Focus Discogenic Pain Mild to Moderate LSS Moderate LSS NIC due to LSS Moderate LSS Type Pilot Observational Single-arm Study Single-arm Study X-STOP vs. Lami RCT No of Patients Up to 100 Up to Follow-Up 6 mos 5 yrs 5 yrs 1 yr 2 yrs 17

18 Business Update: Infrastructure Investments Neuchâtel, Switzerland Facility Opening Q307, 3 months ahead of schedule Mfg, Distribution, SFSC, R&D for Int l Operational & tax advantages Implementing global ERP software system Go live Q108 18

19 Business Update: Proposed Disc-O-Tech Transactions* Innovative treatments for minimally invasive fusion and vertebral augmentation B-Twin Expandable Spinal System Confidence Cement System SKy Bone Expander System Disc-O-Tech IP provides scope and breadth to existing Kyphon IP portfolio * Both transactions remain subject to clearance under the Hart- Scott-Rodino Antitrust Improvements Act of 1976, as amended. Unless and until Kyphon is able to close either or both of these transactions, Kyphon will not be able to incorporate any of the Disc-O-Tech product lines and intellectual property assets into its business. 19

20 Business Update: Proposed Disc-O-Tech Transactions* Growth platform in minimally invasive fusion B-Twin Expandable Spinal System first interbody device suitable for percutaneous stabilization of lumbar & cervical spine during a fusion procedure stand-alone implant or in conjunction with posterior stabilization can be performed entirely posteriorly; does not require anterior approach Initial clinical data published improvements in back pain and function similar to open procedure, but with less surgical exposure, reduced time and blood loss 13,000 B-Twin devices implanted outside the U.S. CE Mark; investigational status in U.S. 20

21 Lumbar Spinal Stenosis: X-STOP IPD and Aperius PercLID Systems Karen Talmadge, Ph.D., Chief Science Officer 21

22 Impact of Lumbar Spinal Stenosis (LSS) Narrowing of passageways for spinal nerves Causing nerve compression Leads to back pain, leg pain and weakness, walking difficulty 8-11% of the population has LSS in the U.S. 1 Most common reason for spine surgery in older people 2 Financial impact and lost work hours reaches billions of dollars each year in this country 3 1. Murphy et al, BMC musculoskeletal Disorders, 2006, Jennis et al, Spine Murphy et al, BMC musculoskeletal Disorders, Szpalski, European Spine Journal, Knowledge Enterprises, Inc. 22

23 LSS Symptoms Caused by Nerve Compression Soft tissues and bone surrounding nerves degenerate and get bigger or more lax Example: Normal nerve passageway Narrowed nerve passageway Normal Stenotic 23

24 Classic Symptoms of LSS Standing provokes symptoms Pain/weakness in the legs Patients lean forward while walking to walk more comfortably Sitting relieves symptoms in mild, moderate disease 24

25 Symptoms Standing but Not Sitting: Area Around Nerves DECREASES while standing 25

26 Symptoms Standing but Not Sitting: Area Around Nerves DECREASES while standing INCREASES when sitting 26

27 Conventional LSS Treatment Options Non Operative Care Physical therapy Injected painkillers Other drugs Lifestyle modification Low success rate longterm Surgery (Decompression) Open or Minimally Invasive (MI) Remove bone and soft tissue to make space for nerves Greater success long-term but with nerve and other complications, even MI 27

28 X-STOP IPD Procedure Option Fills the Gap Non Operative Care Physical therapy Injected painkillers Other drugs Lifestyle modification Low success rate longterm X-STOP IPD Implant Surgery (Decompression) Open or Minimally Invasive (MI) Remove bone and soft tissue to make space for nerves Greater success long-term but with nerve and other complications, even MI 28

29 X-STOP IPD Procedure Relieves Nerve Compression Without Removing Bone or Soft Tissue X-STOP Device 29

30 X-STOP IPD Product Provides Mechanical Relief: Moves the Vertebrae Apart - Reduces Passageway Narrowing - Without Altering Spinal Alignment Standing without X-STOP Implant Standing with X-STOP Implant 30

31 Summary: Key Clinical Articles Clinical Outcomes Radiographic Outcomes Article Zucherman Spine 2005 Hsu J Neurosurg Spine 2006 Anderson J Neurosurg Spine 2006 Kondrashov J Spinal Disord Tech 2006 Siddiqui Spine 2006 Description IDE 2-year outcomes: X-STOP IPD procedure vs. Non-op QOL 2-year outcomes after X-STOP IPD procedure X-STOP implant device in spondylolisthesis (Grade 1): subset of IDE 4-year outcomes in subset of IDE MRI data: X-STOP IPD procedure and change in canal and foraminal areas 31

32 X-STOP IPD Procedure: IDE Pivotal Trial Design Zucherman Spine 2005: Prospective, randomized, multi-center clinical trial Lead to approval of the X-STOP IPD Implant in U.S. X-STOP IPD procedure vs. non-operative care 191 patients (100 X-STOP IPD Implants, 91 Non-op) Non-op was mostly epidural steroid injections Primary outcome measure ZCQ (Zurich Claudication Questionnaire) Validated (Stucki - Spine 1996; Pratt - Spine 2002) Secondary outcomes measures SF-36 (Quality of Life) Radiographic measurements 32

33 X-STOP IPD Procedure Significant Improvement vs Non-operative Care % of patients with clinically meaningful improvement X-STOP Device N=73 Non-Operative Care N=66 64% 66% 73% 56% 54% 17% 17% 24% 6% 6% Symptom Severity Physical Function Patient Satisfaction ZCQ Success Overall Success (all 3 criteria) Zurich Claudication Questionnaire (ZCQ) Criteria Pivotal Trial Results: 2-Year Follow-Up for Indicated Patients (patients most likely to benefit) Zucherman Spine

34 SF-36 Score SF-36 Outcomes IDE Study: X-STOP IPD Procedure Group Pre-Op 6 weeks 6 months 1 year 2 years 20 0 PF RP BP GH VT SF RE MH PCS MCS PF = Physical Function RP = Role Physical BP = Bodily Pain GH = General Health VT = Mental Vitality SF = Social Function RE = Role Emotional MH = Mental Health PCS = Physical Component Summary MCS = Mental Component Summary Hsu J Neurosurg Spine

35 SF-36 Outcomes IDE Study: Control Group SF-36 Score Pre-Op 6 weeks 6 months 1 year 2 years 20 0 PF RP BP GH VT SF RE MH PCS MCS PF = Physical Function RP = Role Physical BP = Bodily Pain GH = General Health VT = Mental Vitality SF = Social Function RE = Role Emotional MH = Mental Health PCS = Physical Component Summary MCS = Mental Component Summary Hsu J Neurosurg Spine

36 X-STOP IPD Procedure Has Low Complication Rate: Operation Is Not Near the Nerves Back Back Spinal canal, where nerves reside, exit Abdomen 36

37 Low Complications IDE Study: X-STOP IPD Procedure Group* Operative-Site Related (post surgery/discharge) Incisional pain (1) Hematoma (1) Wound swelling (1) Wound dehiscence (1) Implant Related Implant dislodgement (1) Implant malpositioned (1) Spinous process fracture (1) Resulted in a secondary intervention * See X-STOP IPD Device Instructions for Use for complete listing Zucherman Spine

38 Radiographic Outcomes IDE Study No significant difference between control and X-STOP IPD procedure groups at 12 and 24 months in: Disc height Curvature of spine Angulation of spine Degree of spondylolisthesis X-STOP implant maintained distraction in 96% of all levels measured (defined as loss of 4 mm in interspinous process distance) No Difference - Sagittal Alignment! Zucherman Spine

39 X-STOP IPD Procedure Success Outcomes May Be Similar to Laminectomy % of patients expressing satisfaction with improvement X-STOP Device N=96 Laminectomy N=197 71% 72% 58% 63% 55% 59% 47% 47% Symptom Severity Physical Function Patient Satisfaction ZCQ Success Zurich Claudication Questionnaire (ZCQ) Criteria (all 3 criteria) Retrospective Study (Dr. Katz): 2-Year Follow-Up; Data Derived from Non-Concurrent Comparison. Comparative Safety Not Established. 39

40 Patients with Spondylolisthesis IDE Study Sub-analysis Anderson J Neurosurg Spine year follow-up of 75/191 patients in IDE study with 5-25% spondylolisthesis (Grade 1) X-STOP IPD procedure group had better QOL 40

41 Long-Term Disability Improvement IDE Study Sub-analysis Kondrashov J Spinal Disord Tech year follow-up of 18/23 IDE study patients at inventor s site Conclusions Mean 30-point (67%) improvement in function Measured by change in Oswestry Disability Index (ODI) Baseline ODI: 45 4-year ODI: 15 14/18 (77%) of patients experienced at least a 15 point drop (improvement) in ODI Nearly every patient (94% or 17/18) had improved function and only 1 patient s ODI score remained unchanged 41

42 X-STOP IPD Procedure Studies In Progress or Planned Condition of Approval Studies - United States OUTLAST: Follow-up IDE study COAST: Post-market study of 240 additional subjects X-STOP IPD procedure vs. laminectomy* Sweden Netherlands Norway UK Some randomized, some not X-STOP IPD procedure for facet pain UK, Germany *Some are company-sponsored 42

43 X-STOP IPD Procedure Summary Mechanical relief of major LSS symptoms now possible Proven to achieve superior outcomes to non-operative care Associated with a low rate of complications Negligible intervertebral angle changes - i.e., no evidence of kyphosis Procedure is reversible - does not compromise further surgical options X-STOP IPD procedure superiority over non-operative therapy consistent and sustained at two-year follow-up 43

44 Next Generation Treatment Option for LSS: Aperius PercLID System First PERCutaneous Stand-Alone Lumbar Interspinous Decompression System Ability to treat two levels of spine with single small incision CE Mark and available in Europe 44

45 Next Generation Aperius PercLID System Percutaneous access and implantation using image guidance Series of four access tools matched to four implant sizes Stabilizing wings deployed in situ via actuation mechanism Undeployed Deployed 45

46 Aperius PercLID Percutaneous Access Access Tools Preloaded Implants 46

47 Standing Spinal X-Ray Before Aperius Implant After Aperius Implant 47

48 Standing Spinal MRI Before Aperius Implant After Aperius Implant 48

49 Aperius PercLID Procedure Summary First percutaneous extension limiting device 1-cm incision Over a hundred cases to date INCA clinical study ongoing in Europe single-arm, multicenter clinical follow-up study designed to evaluate the safety and effectiveness of the Aperius device in 40 degenerative LSS patients We believe the availability of the Aperius System, combined with the X-STOP IPD Device, will play a key role in establishing and maintaining our leadership position in LSS symptom treatment 49

50 Question & Answer Session 50

51 Closing Remarks Richard Mott, President and CEO 51

52 Thank you for attending 52

53 Reference Slides 53

54 Sources & Uses ($ in millions) St. Francis and Disc-O-Tech: Acquisition Financing Sources of Funds Amount Uses of Funds Amount Cash on Hand $215.0 Purchase of St. Francis Equity $525.0 Revolver Draw ($250M) $70.0 Initial Purchase of D-O-T $100.0 Convertible Notes $400.0 Transaction Fees $25.0 Net Cost of Call Spread on Convert Notes $35.0 Total Sources $685.0 Total Uses $685.0 Pro Forma Capitalization as of 12/31/06 ($ in millions) Amount % of Total EBITDAx Cash & Marketable Securities $50 Revolver Draw ($250M) $70 Convertible Notes $400 Total Senior Debt $470 58% 4.0x Shareholders Equity $345 42% Total Capitalization $ % 54

55 Financial Summary $ Million Q Net Sales $ $ $ % Growth vs Prior Period 43% 33% 40% (over Q1 06) Ratios to Net Sales Gross Profit 88% 88% 85% R&D 8% 9% 8% Sales & Marketing 47% 45% 48% G&A 12% 12% 14% Operating Expenses 67% 66% 70% Operating Income 21% 22% 15% Above Excludes: Purchased R&D / License Agreements $ 21.0 $ --- $ 21.3 SFAS 123(R) Impact --- $ 27.6 $

56 Balance Sheet $ Million 3/31/2007 Inc / (Dec) vs. 12/31/06 Cash and Investments Accounts Receivable Inventory All Other Assets Total Assets Liabilities Stockholders Equity Liabilities + Equity A/R DSO Inv DOH AP DPO Cash to Cash Cycle $ 80 $ 89 $ 20 $ 737 $ 926 $ 622 $ 304 $ $ (122) $ 16 $ 8 $ 596 $ 498 $ 539 $ (41) $