OrthoCor Medical Inc.

Status: Angel financing-backed
Location: Minneapolis, Minn.
Leadership: John Dinusson, President and CEO
Sector: Osteoarthritis pain relief
Online: www.orthocormedical.com

Reimbursement a Key for OrthoCor

OrthoCor Medical’s Active Knee System is a knee brace that uses electromagnetic pulse therapy to alleviate pain and speed healing, and users seem to swear by the results.

John Cretzmeyer, a 63-year-old dentist and Minneapolis, Minn.-area resident who gives new meaning to the term “avid runner”—he has logged about 67,000 miles and 62 marathons in his lifetime—is an enthusiastic user of the system. Cretzmeyer, who has suffered the to-be-expected degenerative damage to his knees—has had his right knee replaced, with the left due for replacement soon, told the Star-Tribune in Minneapolis recently that the Active Knee System’s combination of pulse therapy and heat helps him stay active. He bought one for each knee.

“I have used it. It has helped my recovery from all the various surgeries,” he told the newspaper, adding that he is on the tennis court four days a week and works with a personal trainer three days a week. “I have worn it at work. I’ve worn it at night, sleeping. I have worn it during some activities. I am always looking for some way to get to the starting line and whatever allows me to do that, I am going to look at.”

Area orthopedic surgeon Mark Dahl, M.D., told the Star-Tribune that he heard about the device from one of his patients. He later bought one for his wife, who has arthritis, and she liked it. Then he wore one, easing his knee pain. As temporary pain relief, Dahl said, “It’s a good augment.” While emphasizing that it isn’t a “miracle” cure, he was impressed enough to become an investor in the company and now serves as OrthoCor’s medical adviser.

But the newspaper story wasn’t all sunshine and flowers. It noted the OrthoCor device has proven safety and effectiveness and has received U.S. Food and Drug Administration approval. The company also has gathered an impressive amount of angel investment and has a growing roster of impressed orthopedic doctors and happy patients. But, as the Star-Tribune’s James Walsh noted, “There remains a speed bump along the way … Medicare and widespread insurance company reimbursement. Until that comes, OrthoCor lingers on the verge of becoming big.”

Walsh quoted OrthoCor President and CEO John Dinusson: “We are right on the cusp. We are basically educating [insurers] on why they should be covering. If we get reimbursement, the patient population is huge.” Until then, patients bear the freight of $695 per unit.

Reimbursement plays a huge role in whether a new medical product makes it or not. Thom Gunderson, a Minneapolis-based medtech analyst with Piper Jaffray & Co., said “reimbursement is the third leg of the stool for any successful medical device—one that sometimes gets overlooked. Payers are historically and notoriously slow in paying for new technologies. You have to show them it’s in their best interest to do this.”

So that’s what Dinusson and company are fighting. Even with less-than-ideal reimbursement to date, he says the device is selling—2,000 of them in 2011. It is in about 150 clinics nationwide. The Active Knee System has gotten a lot of media attention, including an endorsement by Mehmet Oz, M.D., of “The Dr. Oz Show” fame.

Dinusson has said the national market for the device, which he describes as the first product to combine two established methods of alleviating pain—pulsed electromagnetic field technology and heat—is worth a potential $370 million, and anticipates much larger sales as reimbursement kicks in more broadly in 2013.

OrthoCor has done very well on the financing side. In May, it closed on $2.4 million in angel investment, bringing total financing to about $5 million since the company’s 2007 launch. Its genesis goes back to the following year, when Dinusson asked the University of Minnesota for help in developing and identifying a market for the device. A group of graduate business and engineering students got involved and found there was a vast potential market, with the American Academy of Orthopaedic Surgeons reporting, for instance, that 12 million patients visited physicians for knee pain in a normal year. University of Minnesota doctoral student in electrical engineering Kin-Jo-Sham led the design effort and has since become OrthoCor’s chief operating officer.

With the announcement of its latest round of angel financing, the firm named Patrick Carroll as national sales director. Carroll previously was eastern regional sales manager at Exos Corp.

Aside from the knee brace, OrthoCor has diversified and now also makes heat and cold wraps under the Alleva brand name.