ArthroCare develops, manufactures, and markets products based on their patented Coblation technology. Coblation combines bipolar radiofrequency energy with a saline solution to gently and precisely remove soft tissue at low temperatures, typically 40 to 70 degrees Celsius. Coblation products operate at lower temperatures than electrosurgical or laser surgery tools. Coblation allows surgeons to disintegrate, shrink, cut, sculpt, or aspirate and suction soft tissue, as well as to seal small bleeding vessels. The soft-tissue surgery systems consist of a controller unit, and of assorted specialized, sterile, single-use, disposable devices. Coblation is applicable to many soft-tissue surgical markets, including arthroscopy, spinal surgery, neurosurgery, cosmetic surgery, ENT (ear, nose, and throat) surgery, gynecology, urology, and general surgery, including cardiac uses. The company first introduced its Coblation technology in December 1995 for arthroscopic shoulder and knee procedures. The company has since expanded the approved indications, and today has U.S. FDA approval to market its Arthroscopic System for use in knee, shoulder, ankle, elbow, wrist, and hip surgery. The company also has Western Europe CE Mark-approval for arthroscopic surgery. The Cosmetic Surgery System has been cleared by the FDA, and is CE-marked for general dermatologic procedures and skin resurfacing in connection with wrinkle reduction procedures. ARTC's ENT Surgery System is also CE- marked, and they have received clearance from the FDA for use of the ENT Surgery System in general head, neck, oral, and sinus surgery procedures, including tonsillectomy and adenoidectomy, turbinate reduction to relieve nasal obstruction, and soft palate stiffening to treat snoring. The company's Spinal Surgery System is CE-marked, and has obtained approval in the United States to market this system for spinal surgery and neurosurgery. The company applied for the CE-mark and received clearance from the FDA to market Coblation technology products for use in general surgery, gynecology, urology, plastic and reconstructive surgery, and orthopedic surgery. Today, the company operates through four segments: Sports Medicine (63% of 2006 sales) ENT (23% of sales) Spine (10% of sales) and Other (royalties / fees making up 4% of total 2006 revenues). At the end of 2006, domestic revenues were 80% of product sales, and international revenues contributed 20%.
Coblation technology offers a variety of options for physicians performing soft-tissue surgery. Soft tissue, anywhere in the body, can potentially be treated with, and can benefit from, this technology. Beyond the initial arthroscopic market-offering that is now somewhat mature (growing in the mid double-digit area), the company has focused on showing that use of Coblation in new markets, like Spine and ENT, can address the needs of physicians, and can provide tremendous growth and profit opportunities. ENT revenues grew 30% in Q306, 23% in Q406 and 28% in Q107. While the PROcise XP wand went into high-volume production in late Q207, second quarter ENT revenues grew only 17% owing to tough year-over-year comparisons. Despite physician trialing of a competitor's (Gyrus) product that the company believed adversely affected Q3 revenues by $500,000, strong international sales drove ENT growth to 24% in Q307. ArthroCare has reached its estimated target of 40% penetration share in U.S. tonsillectomies (less than 15% share worldwide) during the fourth quarter 2006, up from the estimated 35% share in Q306. Substantial opportunity remains internationally with international tonsillectomy penetration only in the single-digit range. ARTC has not only expanded rapidly into a new market, but has shown excellent clinical benefits that should establish Coblation technology as the gold standard in ENT treatment both domestically and internationally. With the rollout of the PROcise Wand, the company continues to access new avenues of growth with Coblation in the sinus surgery market. Of potentially large impact with an estimated patient pool of 2.4 million, the company introduced a treatment for snoring and sleep apnea. The company is also looking for access into the 200,000 turbinate procedures performed in the U.S every year. Turbinates are small structures in the nose and sinus that can restrict airflow when they become inflamed because of an illness or allergy. Typically treated with medication in children, the Coblation treatment involves reduction in the size of the turbinate to avoid the need for chronic drug use. Although Spine revenues declined nearly 2% in Q306, spine revenues increased 46% in the fourth quarter, 58% in first quarter 2007, 72% in second quarter 2007 and 95% in third quarter 2007. Positive clinical results and subsequent reimbursement has helped the company's nucleoplasty procedure called Plasma Disc Decompression (PDD), to treat herniated discs, gain traction. For some time, lack of clinical evidence did not support 3rd-party reimbursement, but the company has built a strong base of clinical data for PDD, and believes the reimbursement environment has improved considerably domestically. As well, in the second quarter 2006, the National Institute for Health and Clinical Excellence (NICE) recommended the use of nucleoplasty as a safe and effective treatment option for patients suffering from lower back pain. NICE is an advisory organization and the U.K. National Health System generally follows its recommendations. Ultimately, we expect the UK National Health System will cover the nucleoplasty procedure. Given the better reimbursement improvement, management expects Spine to grow approximately 50% in 2007. The company introduced its microdiscectomy wand in September 2006 and a new version, the MD SpineWand, began a limited rollout in Q307.(Read more at Wikinvest )