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APRIL 29, 2016Vol. 3, No. 7

MARKET TRACK

Published twice monthly by Innovation In Medtech, llc

TRANSCATHETER HEART VALVES

US Hospitals Prepare for TAVR EXPANSIONinto Intermediate-Risk Patients

Mary Thompson, 27 START-UPS TO WATCH

Vertical Spine:Striving to Lead in

Advanced Spine Biologics Wendy Diller, 34

Advanced Cooling Therapy:

A Physician-Designed Device Advances Patient

Temperature Management Mary Stuart, 38

Smart Instruments Offer Easier Adoption Curve Than Robotics, 24

To Impact Clinical Outcomes, Robots Must Address Key Surgical Variables, 22

ORTHOPEDICS

Can Robotics Enable Precision Medicine in Orthopedics?

A Conversation with Jonathan Vigdorchik, MD

Wendy Diller, 16

LEGISLATIVE AND REGULATORY ISSUES

The State-of-the-State of Medtech— The View From Washington:

An Interview with MDMA’s Mark Leahey

Stephen Levin, 4

Worldwide TAVR Market Forecast2014-2020E*

CAGR: 19.6%

0

1,000

2,000

3,000

4,000

5,000

2014 2015 2016E 2017E 2018E 2019E 2020E

1,557.5M

1,985.8M

2,442.9M

3,206.7M

3,669.2M4,044.5M

4,560.7M

$M

2014 2015 2016E 2017E 2018E 2019E 2020E

THE MEDTECH STRATEGIST © 2016 Innovation In Medtech, LLC. All rights reserved.

34 START-UPS TO WATCH

The Fibrinet System does not require the use of thrombin to deliver concentrated platelets to the orthopedic surgical site.

Bone regeneration is a critical component of spine surgery, but current augmenters almost all lack evidence of efficacy and are made using production processes that destroy platelets, leading to inconsistent results and limiting certain procedures. Vertical spine has a patented technology, backed by studies, that retains the viability of platelets, while preserving handling features preferred by surgeons.

Bone regeneration products and biologics are widely used in orthopedics and spine surgeries. Their efficacy, costs, and potential side effects vary, and none of the current alternatives appear to be as good as or better than autologous bone. This is particularly true in spine, when considering that the success rates of lumbar fusion surgery are still only 65-80% with a complication rate of 2.3-5.6% as reported in the literature.

Human platelets secrete growth factors (GF) that can be isolated and clinically applied in situations requiring rapid healing and tissue regeneration. Studies have shown that concentrated platelets mixed in a demineralized bone matrix (DBM) can stimulate bone healing in animal models. How-ever, numerous variables—the amount of blood required, the different methods of recovery, and the presence or absence of excess exogenous activators used to gel the platelets at the surgical site—have a profound impact on the efficacy of the biologic used to heal bone (see Figure 1).

Around 10 years ago, Nicholas Grippi, a sea-soned orthopedics inventor and serial entrepre-neur, founded Cascade Medical Enterprises LLC (CME) to address the biologic needs of sports medicine and orthopedic surgeons. The start-up had patented technology that smoothed out the variability in platelet recovery and eliminated

the need to use excess exogenous activators (i.e. bovine thrombin) when delivering the biologic to the orthopedic surgical site.

The technology, Cascade Medical Fibrinet Sys-tem, uses a proprietary separator gel and two-step centrifugation process to concentrate platelets into a robust autologous platelet-rich fibrin matrix (PRFM). While many other systems—more than 20

platelet concentration systems are cleared by the FDA—use a centrifuge to separate and concentrate platelets, they all require the addition of thrombin to gel the plate-lets, so that the biologic has the necessary properties for placement at the surgical site. Unfortunately, thrombin activates and ruptures the platelets on contact, with the undesirable consequence that the full

array of growth factors is released at once. Since platelet derived growth factors have a half-life of minutes to a few hours, the desired healing effect is diminished even before the patient leaves the oper-ating room.

The Fibrinet System received its first two 510(k) clearances in 2002 and 2006, and was initially tar-geted at sports medicine practitioners through a long-term R&D and commercial alliance with the Musculoskeletal Transplant Foundation (MTF), which distributed the product under the brand name Cascade. In 2012, CME’s Board of Directors decided to sell the portfolio of orthopedic assets and the Cascade brand to MTF for the orthopedic, sports, dental and wound care markets.

The Board held on to the spine applications, believing that the potential partners and acquirers would be different for this sector. For these reasons, it formed a new company, Vertical Spine LLC., to be

Vertical Spine: Striving to Lead in Advanced Spine BiologicsWALL

NEW JERSEY

contactTom Crowley, Chairman & CEO tcrowley@verticalspine.com

who’s behind itTom Crowley (Aircast, SBI), Nicolas Grippi (Becton Dickinson), Tony Dimun (Vital Signs), Cascade Medical Enterprises

year founded2012

unmet clinical needComparatively low lumbar fusion rates and low patient satisfaction scores leave the door open for an advanced biologic supported with peer-reviewed publication in a field that has thus far presented limited data

solutionRobust, autologous grafts with enhanced biologic and handling properties that allow surgeons to deliver concentrated platelets with the full array of autologous growth factors into a spine fusion site

funding to date $3.5 million from founders and family; in the process of raising a Series A of an undisclosed

by WENDY DILLER

APRIL 29, 2016 | Vol. 3, No. 7

APRIL 29, 2016

35START-UPS TO WATCH

headed by Tom Crowley, a veteran medi-cal device executive and entrepreneur who sat on CME’s board.

Life for the company started with a commercial-ready product, which has been used in more than 180,000 ortho-pedic procedures and 900 spine surger-ies. More than 40 peer-reviewed papers had been published on the technology’s efficacy in sports medicine and ortho-pedics. In spine, two retrospective peer-reviewed studies evaluating 19 and 62 consecutive patients, respectively, who underwent posterior lateral lumbar fusion at the Hospital for Special Surgery (HSS) have demonstrated 100% radio-graphic fusion at 12 months without any complications and achieved a sta-tistically significant reduction in Oswes-try Disability Index (ODI) scores. All the procedures were performed by the same surgeon and evaluated by an independent radiolo-gist. These results have been presented at scien-tific meetings.

A third study of 50 patients evaluating single-level posterior lumbar fusions at 12 months, will be submitted for publica-tion this month, and a fourth study of more than 150 patients evaluat-ing multi-level posterior lumbar fusions will be submitted this summer, Crowley says. The com-pany is currently collect-ing data on a fifth study of 60 patients, which will look at the efficacy of anterior lumbar inter-body fusion (ALIF), and expects the manuscript to be submitted at the end of 2016.

The Fibrinet System pro-vides spine surgeons with two types of intraopera-

tive grafts: PRFM and surgeon-defined graft (SDG), which is bone-grafting mate-rial combined with fluid concentrated platelets and mixed via centrifugation to form a putty for improved handling char-acteristics. The company offers two kits; one for standard lumbar procedures and another, slightly smaller, system for cer-vical procedures.

Unlike the other platelet concentration systems, the Fibrinet System does not require the use of thrombin to deliver concentrated platelets to the orthopedic surgical site. The second centrifugation spin converts the “fluid plasma” into a “fibrin scaffold with concentrated plate-lets” says Eric Jania, Vertical Spine’s EVP of Marketing and New Business Devel-opment. “Surgeons are very tactile and like the texture of the grafts,” he adds, noting that the resulting product stays

in place and “does not wash away.” Among its other positive attributes are a high platelet capture rate and the sustained availability of the platelets and associated growth factors for up to seven days. The concurrent 30-minute preparation process can take place in the OR during the procedure.

The advanced spine biologics market is a $1.5 billion opportunity in the US and $1.7 billion worldwide, says Crow-ley, based on figures from BioMed-GPS. Spine surgery, a market of about 700,000 procedures a year, is growing at roughly 5%, and the overall usage of biologics in spine could be even higher if favorable clinical outcomes lead to increased adoption. Unlike some of the largest product sectors of spine, such as implants, the field is not commoditized, with minimal to moderate pricing pres-

Online print subscriptions, reprints, and web posting and distribution licenses are available.Contact Kristy Kennedy at 480.985.9512 • k.kennedy@medtechinno.com

Source: Vertical Spine LLC

Figure 1

Biologic Offerings by Category

PRODUCT CLASS SCAFFOLD

i.e. Collagen, Bone, etc.

SIGNALS

i.e. Platelets, Growth Factor(s)

CELLS

Host or Allogenic

SyntheticCeramics (i.e. TCP)

AllograftBone

Demineralized Allograft Bone

BMP2 or Platelet RichPlasma

Autograft Bone*

Allograft Stem Cell Products*

Fibrinet System(PRFM & SDG)

Biologic Offerings By Category

BMAC

PRFM PRFM SDG

or BMAC

Adva

nced

Bio

logi

c Pr

oduc

ts

*Baseline: bone, growth factors & cells+Concentrated platelets and their associated growth factors without the use of thrombin

+

THE MEDTECH STRATEGIST © 2016 Innovation In Medtech, LLC. All rights reserved.

36 START-UPS TO WATCH

sure. The Fibrinet System fits nicely into hospitals’ DRG paradigm and is competitively priced compared to other biologic products.

In general, advanced biologics are a long-term revenue driver for spine companies, with surgeons spending on average about $75,000-$300,000 per year. Cross selling also has potential, because sur-geons frequently prefer biologics offered by the same manufacturer as their implants. Crowley cites the former CEO of NuVasive Inc., Alex Lukianov, who observed that when surgeons select an implant, 70% of the time NuVasive also gets their biologics busi-ness. While Vertical Spine does not sell instrumenta-tion or implants, its system’s ability to enhance the existing product portfolios of other companies makes it attractive for distributors and potential strategic partners, Crowley says.

To date, the company has raised $3.5 million from founders and family investors. The go-to-market strat-egy is typical for small companies and allows for a manageable burn rate: it will sign up outside distrib-utors, starting with a regional focus, in this case the Northeast.

Because of the mixed results of spinal biologics (see Box), one of the company’s biggest challenges is con-vincing surgeons that its technology is truly differen-tiated from relatively similar systems; many of them are understandably skeptical. To fund additional com-mercial activities and expand its geographic reach, the company has embarked on a Series A venture financing round with an undisclosed goal. The money will be used to build a distributor network in larger markets, to add to the commercial and regulatory affairs management team, and expand training.

Over the next three years, post-market studies that are already underway should generate data to allevi-ate some of the concerns and bolster sales. At an aver-age price of $2500 for the lumbar kit and $1600 for the cervical kit, the company could achieve revenue targets of $15-20 million in a few years. And given the comparatively low cost of goods, the product has a +85% gross margin, Crowley notes.

The company plans to look for strategic partners. Large spine companies “are looking for fast growth and differentiated technology that is accretive to sales and gross profit,” he says.

THE IDEAL SPINAL GRAFTScientists have demonstrated in vitro and pre-clinical studies that the ideal graft contains three essential components: a scaffold for osteoconduction, signals for osteoinduction, and cells for osteogenesis. In difficult lumbar spine cases, surgeons have traditionally relied on autologous iliac crest bone graft (ICBG), which has all three properties but also comes with significant drawbacks. These drawbacks, which include donor site morbidity, the potential for a second surgical site infection, and a drop in efficacy based on age, have prompted surgeons to look for alternatives.

Three companies dominate the field of biologics in spine, holding a combined 45-50% market share: Medtronic Inc., NuVasive Inc., and Orthofix (see Figure 2). The rest of the market is highly fragmented, with large companies such as Zimmer Biomet, and Terumo holding single-digit shares. The most widely used and efficacious bone enhancer to date has been Medtronic’s problematic Infuse, a bone morphogenic protein (BMP-2). Sales of Infuse, which has an average ASP of $3500-$4500, peaked just at almost $900 million in 2011, but after an FDA “black box” warning about serious adverse events that occurred in certain off-label uses, fell to $500 million.

Source: Vertical Spine LLC; data in pie chart from BioMedGPS

Source: *BioMedGPS – 2014

Source: *BioMedGPS – 2014

Figure 2

Advanced Spinal Biologics Market Estimates (US $000)