Small Companies, Big Ideas

Small Companies, Big Ideas

Small and midsize firms are driving orthopedic innovation and challenging the big boys.

Jim Stommen
Contributing Writer

The orthopedic sector is dominated by a handful of billion-dollar device behemoths. We know the players well. But, we also know there are countless small companies and thousands of midsize firms in between making names for themselves. Innovation in the medical device industry usually goes from the bottom up, and most cutting-edge R&D isn’t developed by the big boys; it’s acquired. Veteran industry journalist and Orthopedic Design & Technology Contributing Writer Jim Stommen took a look at four medtech firms (that don’t have nine zeros in their revenue lines) with the technology—and the temerity—to take on the orthopedic sector’s largest players. These companies prove that big ideas and big bottom lines are not mutually exclusive.

Alphatec Spine
Status: Public company; $132.2 million, 2009 revenue.
Location: Carlsbad, Calif.
Leadership: Dirk Kuyper, President and Chief Executive Officer
Sector: Spine
Online: www.alphatecspine.com

Alphatec broadens globally with an eye still fixed on the aging patient.

In a crowded sector, and the spine space takes a back seat to no other device segment in terms of participating companies, it’s crucial that players have an easily identifiable focus. For Alphatec Holdings and its Alphatec Spine operating subsidiary, that focus is the aging patient.

Carlsbad, Calif.-based Alphatec touts its Aging Spine product portfolio as featuring a “surgeon-driven design that will help improve the aging patient’s quality of life.” The company says it is poised to achieve its goal through new solutions for patients with osteoporosis and other aging spine diseases, improved minimally invasive products and techniques, and integrated biologic solutions. Alphatec estimates the worldwide spinal implant market at some $9 billion, with a long-term growth rate expected to be between 10 percent and 12 percent.

It’s a high-value and crowded sector, with device behemoths and so-called “little guys” jostling for position. Big competitors include DePuy, Medtronic Spinal & Biologics and Synthes, and when you add the less-than-colossal participants, the full list takes the look of the proverbial “everybody and his brother.”

Alphatec took something of a “join ’em to beat ’em” approach to the crowded competitive picture earlier this year with the late-March close of its $116 million acquisition of Scient’x Groupe SAS, a French-based spinal implant company that was the largest privately held independent spine company outside of the United States. The acquisition made the combined company the third-largest independent spinal company.

At the time the deal was completed, Dirk Kuyper, Alphatec’s president and CEO, called Scient’x “a perfect complementary strategic fit for Alphatec Spine. Besides the significant cost and revenue synergies the acquisition offers, Alphatec Spine will now have the opportunity to reach 50 international markets with our aging spine and core fusion technologies. This transaction moves us into position to be able to become one of the top global spine companies.”

The Scient’x product portfolio includes a full line of implants for spinal fusions, posterior semi-rigid stabilization and a cervical total disc replacement device. Key products include the Isobar family of rods, a semi-rigid rod technology used in spinal fusion surgeries, as well as cervical and lumbar implants, used predominantly in spine fusion surgeries. Outside the United States, Scient’x markets DiscoCerv, a unique ceramic-on-ceramic cervical total disc replacement device.

In their frequent presentations at investor conferences, Alphatec executives emphasize the size of the market—whenever there’s a discussion about individual health, there’s a pretty good chance that back problems are a big part of the conversation. During a cleverly titled “Showing Some Spine—With Innovation” session at a recent RBC Capital Markets-sponsored conference, Alphatec Chief Financial Officer Peter Wulff made the point that the aging spine represents an “underserved” part of the market.
Alphatec is addressing that market with an array of spinal implant products, including the OsseoFix Spinal Fracture Reduction System, which it touts as “the new standard for the treatment of vertebral compression fractures.” The OsseoFix system features treatment results that involve creation of bony channels during implant deployment and retention of bone within the implant, promoting cement “interdigitation.”The company said the implant is designed to maintain fracture reduction throughout cement delivery and “has potential to provide enhanced ability for vertebral height maintenance.”

In February, Alphatec reported receipt of the CE mark in the European Union for the OsseoScrew system and the Guided Lumbar Interbody Fusion (GLIF) System/Arc Portal System. The OsseoScrew provides three points of fixation—at the pedicle, the transverse/superior facet, and the junction of the anterior pedicle and vertebral body—compared with standard pedicle screws, which have only a single point of fixation in the pedicle itself. The company is in discussions with the U.S. Food and Drug Administration toward obtaining 510(k) clearance.

The OsseoScrew received its first clinical use in Europe in the same month it was approved. Limited European market release of the GLIF System was anticipated to begin in the second half of this year.
The GLIF technique, achieved with the ARC Portal Access System, is designed to provide surgeons with direct visualization to the intervertebral disc space while allowing the patient to remain in a prone position during lumbar interbody fusion procedures. GLIF, which was introduced in the U.S. in the spring of 2009, is designed to reduce blood loss and minimize tissue disruption while decreasing post-operative recovery time.

Alphatec is among many spinal companies either offering or planning to offer lateral access approaches which compete with NuVasive’s XLIF, the runaway leader in lateral access. The company also is part of the ratcheted-up competition in the vertebrocompression fracture market as numerous firms are seeking to capture a piece of a market dominated by Medtronic’s kyphoplasty procedure.

In the first quarter of 2010, Alphatec posted record consolidated revenue of $38.4 million, up 25.6 percent over the year-earlier quarter and 5 percent more than Q409. It marked the company’s 11th consecutive quarter of record revenues. The company expects pro forma revenues for 2010 of $220 million to $225 million.

K2M
Location: Leesburg, Va.
Status: Privately held; $100 million, 2010 revenue (estimate)
Leadership: Eric Major, President and Chief Executive Officer
Sector: Spine
Online: www.k2m.com

K2M sets a brisk pace with products and a new ownership structure.

In tight economic times, many companies follow such survival-centered tactics as tightening belts, hunkering down and simplifying their operations to the point of near-stagnation. Don’t count young spinal products firm K2M among them. The Leesburg, Va.-based company, which has enjoyed fast-paced growth since its founding in 2004, has taken a“business as usual” approach to the past couple of challenging years.

K2M, which describes itself as a developer of solutions for the treatment of“complex spinal pathologies,” has continued to unveil new products and report on a variety of business developments at a noteworthy steady clip. One of the most noteworthy has just occurred, with the company reporting a new ownership structure in July.

Private-equity firm Welsh, Carson, Anderson & Stowe struck a deal to acquire the outstanding stock and become the majority shareholder of K2M, along with longtime company investor Ferrer Freeman & Co. and members of K2M’s management.

K2M said the Welsh Carson investment would allow it to “substantially scale” its business to meet what it characterized as the “high demand” for its product portfolio by expanding its worldwide sales force and accelerating the R&D of its next-generation technologies.

Examples of the company’s growth are abundant, including last November’s launch of the Terra Nova Minimally Invasive Access System and Serengeti Disposable Kit. Terra Nova is used in conjunction with the Serengeti percutaneous retractor, and according to the company, has the potential to minimize tissue disruption by utilizing a small incision and muscle-splitting technique. The low-profile Retractor Distractor Blade locks down to the screws and provides the ability to hold distraction beneath the skin level throughout surgery.

K2M President and CEO Eric Major said the Terra Nova and Serengeti kit was another milestone in the company’s push to provide more simplified and efficient approaches to help surgeons address spinal surgery through very small incisions.

Also in November, the company reported that it had entered the Japanese spine market via clearance of its Mesa Spinal System in that country. Mesa is a pedicle screw system featuring what K2M calls Zero-Torque Technology, which applies zero torsional loads, or twisting forces, to the spine when locking the screw. Yoshitaka Noguchi, senior director of Surgical Spine (S2i), K2M’s Japanese spine business partner, said the ultra-low profile and Zero-Torque Technology of the Mesa system “are ideal for the smaller stature patient population.”

Just days before the report of entry into the Japanese market, K2M said that it had opened a direct sales/distribution office in the United Kingdom in order to build on its 2008 entry into that market with the CE mark clearance and commercial introduction of its Range Spinal System, Mesa Spinal System, Denal Spinal System, Pyrenees Cervical Plate System, and Aleutian Interbody System.

“Setting up a European base is a clear statement that we are committed to expanding the availability of our innovative technology globally and supporting surgeons treating the most difficult spinal deformities,” said K2M European Vice President Christian Johnson.

A month before that, K2M launched the Natural Bridge Low Profile Transverse Connectors, designed to provide optimal torsional stabilization in the thoracolumbar spine. Natural Bridge LP uses both adjustable and semi-adjustable designs for use with the company’s Range, Mesa, and Denali spinal systems.
In April of last year, K2M launched an injectable polymer, with testing indicating that the polymer may have various applications for treating a variety of spinal disorders. The polymer will serve as a platform for the development of new implantable technologies, such as spinal nucleus replacement, or micro-access surgical approaches for annular decompression and repair.

That was followed a month later by the introduction of an all-inclusive solution for rigid posterior fixation of the cervico-thoracic regions of the spine. The Caspian spinal system provides two different polyaxial screw options, Mini Mesa and Mini Denali, as well as Mini Hooks and 3.5 mm rods.

In February 2009, K2M reported receiving FDA 510(k) approval to market the Cayman Buttress Plate System and Cayman Thoracolumbar Plate System, designed to address the trauma and tumor market in the thoracolumbar, lumbar, and sacral areas of the spine.

A new biomaterials division was formed in October 2008, to focus on bone grafting as a substitute for the metals commonly used in spinal fusions. Biological materials allow for increased cellular activity, growth and differentiation which may increase bone formation and stimulate a spinal fusion. Around the same time, the company expanded its facility in Leesburg to include an additional 13,000 square feet of space, bringing its total there to just under 50,000 square feet.

Last year, Lane Major, vice president of marketing at the company, described the firm’s continuing string of news. “We have such great opportunities that we’re not seeing some of the same challenges other companies [have].”

As is true everywhere one turns in the spinal segment, there is no shortage of competitors, among them Avanta Orthopaedics, Hand Innovations, Seattle Systems and Tissue Genesis.

ProChon Biotech
Status: Privately held, investor backed
Location: Woburn, Mass. & Ness Ziona, Israel
Leadership: Patrick T. O’Donnell, Chief Executive Officer
Sector: Biologics
Online: www.prochon.com

ProChon CEO discusses a technology platform that is generating interest.

ProChon Biotech, an Israeli company whose management team is located in Woburn, Mass., is developing new approaches to the repair of damaged knee cartilage. The privately held company uses modulated fibroblast growth factor for more effective and faster regeneration of articular cartilage. ProChon Biotech CEO Patrick O’Donnell recently sat down with ODT to discuss the company’s product development, including the BioCart System, which is in Phase II trials in the United States and Israel, as well as the expectations of potential patients and how ProChon is making its way through the U.S. regulatory path.

ODT: What is the state of the art in cartilage regeneration today, and how has it gotten to this point from the introduction of the ACI procedure a decade and a half ago?

O’Donnell: The orthopedic industry at large has been talking about this for some time, and has been waiting for the answer, from a technology standpoint, to land in their toolbox. The current standard is a microfracture procedure. But everybody—surgeons, patients and industry— understands that that’s not the best long-term solution. Second to that you have autologous chondracyte implant technology, which is a process that uses expanding cells—and some people are looking at use of stem cells as well—to regenerate articular cartilage tissue. That has met with varying degrees of clinical success, but not really consistent, long-term success, which means there is still an unmet need.

The current technologies tend to be quite expensive, and the healthcare system of the future won’t reward expensive technologies. This is where we come in. Our focus is to provide technology that will provide better long-term results, better clinical outcomes. We do that with a very cost-efficient system that will allow us to be very competitive in this marketplace in the future, both in Europe and the U.S.
We use the fibroblast growth factor as kind of our production machine, whereas other companies might be using capital equipment-intensive bioreactors. So it’s very cost-efficient. But the other thing we do is a very good job of maintaining the phenotype of the patient’s own cartilage cells. You get a very homogenous population of chondrocytes. We believe that does a much better job of generating native hyaline cartilage, which leads to a better long-term result.

Most people who suffer these injuries are 35 or 45 years old, they are extremely active, and they want not just the pain to go away, but they want to go back to the activity they tried to do when the cartilage was damaged in the first place. So their expectations are pretty high. After surgery their biomechanics and activity level is going to take a toll, so you can’t have a fibrous tissue regeneration, which you see with some of the other technologies. You need to regenerate the native hyalanic cartilage, because it is more capable of withstanding the biomechanical stresses these young, active patients put on the joint.

ODT: Can you quantify the market as you see it today?

O’Donnell: Looking at 2007 figures, there are 2.7 million knee arthroscopies done each year in the U.S. and Europe. Of those, there are 1.8 million cartilage procedures. Of those, there are about 450,000 microfracture procedures and another 50,000 autologous chondrocyte implantation procedures. So our two internally developed products are focused on those 500,000 microfracture and autologous chondrocyte implantation procedures. We also have a licensing agreement with the Musculoskeletal Transplant Foundation, an investor in ProChon, where they will be using our fibroblast growth factor (FGF) in combination with allograft tissue to develop products for orthopedic applications. And we have a research collaboration with a synthetic bone regeneration company that will involve research on use of our FGF in combination with their synthetic bone graft material to compete against BMP II (bone morphogenic protein).

ODT: One of the things you talk about in moving knee-related orthopedic medicine from a metal implant base to biologic treatments is earlier treatment. Could you give an overview of the process?

O’Donnell: There are two products. One is a matrix-assisted microfracture technology, which we call CartiMate, and that is to augment microfracture procedures. It helps contain the cells at the site of the injury, so they can better do their work, if you will, to heal the wound and regenerate the tissue. And that same product can be used in conjunction with the expanded cells in our BioCart product to deliver the patient’s own expanded cells. That’s a two-step procedure. So we have a microfracture assisted-matrix technology and we have an autologous chondrocyte implantation technology.

ODT: BioCart is available commercially in Israel and Greece. How many procedures have been done to date, and what is the extent of your follow-up data on those patients?

O’Donnell: It has been done in more than 85 patients commercially, and some of these patients are more than four years out.

ODT: In the ones that you have the longest data on, has it held up well?

O’Donnell: Yes, in fact we have a two-year MRI study of 31 commercial patients, minimal of two years out, some closer to four, and we have demonstrated very strong correlation between the MRI images and the clinical functional scores.

ODT: Your Phase II study of the BioCart System is under way. Could you update where the trial stands as of mid-year?

O’Donnell: We have seven in the U.S. and three in Israel. We have 25 patients enrolled in a 40-patient study as of today. We should be finishing this study in terms of enrollment this fall. We will be submitting our interim data, as required by the FDA in Q4, which is essentially the 10th patient to receive the BioCart implant, six months out.

ODT: Everyone in this business seems to be up in arms over their dealings the FDA. What has your experience been thus far?

O’Donnell: We’re going through an investigational new drugstudy toward a BLA [biologic license application]. Here’s what I can say about a BLA: It’s not a 510(k) and it’s not a PMA [premarket approval application]. And that’s the good news, with all that’s going on at the FDA. Compared to the stories I’m hearing from my colleagues on the device side, we have had nothing but a great experience with CBER [Center for Biologics Evaluation and Research] at the FDA. They have been extremely responsive, available and collaborative. A BLA is somewhat of an arduous path, but not that much more arduous than a PMA, and the degree of certainty and predictability around what is expected of us as a company seems to be a lot more stable at this time than what my colleagues on the device side are reporting in other areas.

ODT: It sounds like you’re finding that the process is much more predictable.

O’Donnell: I think the big thing is that we’re able to get to a point of clarity. We might not necessarily get the answer that we really want, but we get an answer so we know which direction we need to go. I think the greatest degree of frustration with the 510(k) and PMA route at present is that it’s tough for companies that are trying to raise money, like us, to get clarity. An investor will not invest in you without a high degree of certainty as to what the FDA path is. We’re able to say, “This is what the FDA said, this is what we’re going to do.”

ODT: Do you have a target date down the road that you are anticipating U.S. clearance?

O’Donnell: We hope that we can introduce CartiMate, depending on the regulatory path that we choose to follow, by 2013, and we hope to introduce BioCart in the middle of 2014.

MAKO Surgical
Location: Ft. Lauderdale, Fla.
Status: Public company; $34.2 million, 2009 revenue
Leadership: Maurice R. Ferré, M.D., President, Chief Executive Officer and Chairman
Sector: Orthopedic robotic surgery and related implants
Online: www.makosurgical.com

MAKO is taking a robotic bite out of the knee replacement market.

In almost any endeavor, proper planning is the key to success. Take MAKO Surgical’s approach to minimally invasive knee procedures, for example. The Fort Lauderdale, Fla.-based company’s Robotic Arm Interactive Orthopedic System, or RIO, provides patient-specific, 3-D modeling for pre-surgical planning. RIO provides inter-operative visual, tactile and auditory feedback, enabling what the company says is “a high level of precision and optimal positioning of the implants.”

CEO and President Maurice Ferré, M.D., said at the time of the RIO system’s introduction to the orthopedic surgical community during the 2009 American Academy of Orthopaedic Surgeons (AAOS) annual meeting that the system’s passive robotic arm meant “you can truly introduce minimally invasive surgery” to the knee-replacement sector.

While noting that the orthopedic space has seen“a lot of progress with materials and implant design,” he said there has not been“a lot of progress in terms of delivery systems.” But MAKO’s system brings robotics to the unicompartmental knee procedures that carry with them a higher degree of difficulty for surgeons.“Now, with robotics, they can do it,”Ferré said.

He said a strong intellectual property portfolio—more than 250 licensed or owned patents and patent applications relating to computer-assisted surgery, haptics, robotics and implants—gives MAKO an opportunity to make gains in a space prowled by such big orthopedic players as Biomet, DePuy, Smith & Nephew Orthopaedics, Stryker and Zimmer. “We hold the key patents in orthopedic robotics,” Ferré said in making his case.

At that AAOS meeting in Las Vegas, Nev., Ferré declared that robotics “has come of age.” He said MAKO believes it can address 50 percent of the existing total knee replacement (TKR) market. Touting its benefits as being especially apparent during a period of economic travail, Ferré said, “With the kind of resurfacing approach we offer, the recovery period is much shorter,” so patients undergoing a MAKOplasty procedure as opposed to more traditional TKR procedures miss less work.

He said the RIO system targets a market of 15 million persons with osteoarthritis of the knee. Of that market, only 10 percent were being done as unicompartmental procedures. “We feel we can address 350,000 procedures,” Ferré said.

Noting that older patients in particular often are reluctant to have a TKR done because of the lengthy recovery period, he said, “That’s a great potential patient population for us, with an implant to make rehabilitation not as difficult for them.”

MAKO has made substantial progress in a pretty short period of time. Founded in November 2004, the company received clearance for the first version of its Tactile Guidance System (TGS) a year later. Two enhanced versions of TGS were released in 2008, then came the Restoris Unicompartmental Knee System, cleared by the FDA in June of that year.

The RIO system and complementary Restoris MCK MultiCompartmental Knee System were approved by the FDA in December 2008 and made their bow at the aforementioned AAOS meeting, which Ferré termed the company’s “coming-out party.” The combination of the delivery technology and the new generation of implants meant that MAKOplasty partial knee resurfacing could now be done on both the patofemoral and medial portions of the knee, either singly or both, greatly expanding the potential patient population of persons suffering early to mid-stage osteoarthritis of the knee.

In December 2009, MAKO reported the U.S. commercial availability of the Lateral Unicompartmental Knee Resurfacing Application for the RIO system. Dr. John Velyvis, a surgeon at Eisenhower Medical Center in Rancho Mirage, Calif., said, “MAKO has again taken a difficult, heavily instrumented procedure and made it much simpler to perform with accurate and reproducible results. The lateral application is a promising addition, especially in the minimally invasive treatment of women, who are more prone to this deformity.”

In June of this year, MAKO reported a plan to conduct clinical studies of the RIO system in Scotland, marking the first time the technology would be used outside the United States. The procedures will be conducted at the National Health Service (NHS) Greater Glasgow and Clyde’s Royal Infirmary and the University of Strathclyde.

The company joined forces with orthopedic surgeons from NHS Scotland and scientists from the university to establish the multidisciplinary MAKO Centre for Surgical Robotics, which officially was launched in early June. Over the course of the next three years, the center at the university’s department of bioengineering, together with the participating surgeons at the NHS, will engage in randomized clinical trials of the RIO system.

MAKO went public via a $91 million initial public offering in February 2008.

The company’s financial results reflect its momentum. For full-year 2009, revenues grew to $34.2 million from $2.9 million in the prior year. Some $14.7 million of the 2009 revenues represented the sale of 19 RIO systems during the year, while $11.3 million was from the upgrade of 17 of the company’s first-generation TGS systems to RIO systems. In Q1 this year, revenue nearly doubled to $7.2 million from $3.7 million in the year-earlier quarter.