Behind the K2M IPO: CEO Eric Major Talks Strategy, Innovation & Future Financial Growth

Spinal Tech

Eric MajorK2M has been the talk of the town since filing its initial public offering earlier this year. CEO Eric Major appeared on the NASDAQ CEO Signature Series podcast to discuss the company's growth.

Piper Jaffray, Barclays and Wells Fargo Securities are the joint underwriters on the IPO and William Blair & Company and Cowen and Company are acting as co-managers. K2M initially planned on raising up to $100 million through its IPO, but raised that number to between $141 million and $159 million. The company closed its IPO with net proceeds of approximately $120 million after deducting underwriting discounts and estimated offering expenses on May 13.


The spine device market is a $10 billion market, split into several subsections K2M hopes to capture as the company grows. Founded as a small company focused on minimally invasive treatment for complex and degenerative disorders, K2M released 11 new products since 2011 and doesn't plan on slowing down.


"Critical to our thesis to success is that we have to innovate," says Mr. Major. "We have a complex innovation team with 60 engineers, designers and product managers. But we have to continue to deliver five to eight new products per year. Those products will span three different areas within spine, with our biggest efforts continuing in the complex spine and minimally invasive markets. We would like to continue to build our presence in the degenerative market because it's an important part of the spine field."


The complex spine segment of the market covers about $1.2 billion annually and includes solutions for scoliosis, trauma, deformity and tumor cases. K2M will focus on minimally invasive treatment there as well as some development in the field for degenerative disc disease.


"The DDD market is larger, but more crowded," says Mr. Major. "There is a lot of push back from insurers denying surgery for DDD patients as well."


The biggest names in the complex spine market are Johnson & Johnson and Medtronic. These billion-dollar companies have dominated the market for years, but K2M is not phased.


"We believe we are making inroads into the complex spine market defined by how many countries we are in and our penetration into those markets," says Mr. Major. "The complex spine specialists only include about 1,500 scoliosis surgeons around the world really focusing on the tough surgeries. There is a global network of surgeons who know each other, making the network very global."


Today, around 50 percent of K2M's unit sales come from outside the United States, and the company has built an infrastructure for international growth in the future.


"We have digested the pricing difference in gross margins for our products because so many of them are sold internationally," Mr. Major says. "We have large offices in the United States, United Kingdom and Germany; Italy is the fastest-growing market for us and we have good distribution partners in Spain and Australia."


However, developing globally has come with challenges. Surgeons in different parts of the world have different desires from their produces and different needs for their patients. K2M gathers input from surgeons around the world when developing products. "We want to make sure we are meeting the needs of local surgeons as well as the global demand for next generation products," says Mr. Major. But if the company was having so much success with its current business model, why go public now? "In addition to the fact that we have raised the capital to allow us to deliver the 14 percent to 16 percent growth on an annual basis and move the company forward to profitability, the IPO will allow K2M to compete head-to-head with other public companies. It speaks volumes to the hospital C-suite executives to show K2M takes business seriously and we are here to stay."


The pricing of the IPO was set at $15 per share and the company will offer 8.8 million shares of common stock. The common stock began trading on the NASDAQ Global Select Market on May 8 under the trading symbol KTWO.


"This is a milestone to allow K2M to really grow and take the company to the next level," says Mr. Major. "Our secret to success is thinking from a global perspective in how we do things and listening to the global spine surgeon base."


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