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Funding

Investors Shy From Start-Up Risk, Continue to Back Growth-Stage Companies

By Carolyn LaWell

Investors continue to back growth-stage device companies and those at the intersection of medical and information technology, as opposed to start-ups—a trend that is expected to endure in 2016.

The investment community’s opposition to regulatory risk and longer terms for returns has created challenges for young companies’ pursuit of traditional devices. Investors at AdvaMed 2015 stressed that funding opportunities have shifted to focus on diagnostics and smart devices that communicate and drive transparency through data. Disease prevention and the consumer market offer greater opportunity for investors.

Apple, Google, GE, Samsung, Verizon—and most of their competitors—have launched healthcare divisions in an effort to improve delivery models and engage patients in their own treatment. While partnerships between an orthopaedic device and a tech company might not result in a new implantable, it could yield solutions that serves surgeon needs in the OR through imaging and navigation and serve patient needs beyond the OR, extending companies’ abilities to impact episode of care.

IBM announced partnerships with Johnson & Johnson for pre- and post-op patient care in joint replacement and spinal surgery, and with Medtronic’s diabetes business in early 2015.

The opportunity tech companies bring to device companies is money and an appetite for disruptive innovation. The strengths that orthopaedic companies bring to these companies is knowledge of the regulatory process and relationships with payors, surgeons and hospitals.

 “I’m concerned that in the medtech industry, we’re slow adopters of macro trends like consumerization of medical devices and how data is being incorporated,” says Rick Anderson, Managing Director of PTV Healthcare Capital, which has counted BioMimetic Therapeutics (purchased by Wright Medical), LDR, OsteoBiologics (purchased by Smith & Nephew) and Ortho Kinematics in its investment portfolio. “We understand physicians and surgeons, and we design our products with them in mind first. The democratization of delivery of care is happening. The question for us as med device folks is whether or not we’re going to be part of the problem or the solution.”

Anderson says new entrants in healthcare could also shift the funding model over time. He sees a future where venture capital firms invest in a company at idea inception, then a capital arm of a major corporation backs the young company through commercialization to acquisition.

These predictions have yet to extend to the orthopaedic industry. Funding initiatives in 2015 mimicked the list from years past. Investors remain focused on growth-stage device companies with innovative ideas.

The number of orthopaedic financing deals closed during the first ten months of 2015 kept pace with 2014, but total funds raised is down nearly 13 percent.

A notable difference lies in the number of deals that closed over $20 million. Only five non-publicly raised rounds of funding over $20 million were announced this year; nine were announced in 2014. Conventus Orthopaedics and SI-BONE secured funding over $20 million in 2014 and 2015.

The less-mature spine and orthobiologics segments continue to be bright spots for private investments and IPOs. In 2H15, Aperion Biologics and Ellipse Technologies filed IPOs—following K2M, LDR, Amedica, Aurora Spine and Histogenics in 2014 and late 2013.
 

Here, we summarize funding activity from July to mid-November. Funding for 1H15 was recapped in the July issue of ORTHOKNOW.


Amedica
Plans to raise up to $15MM in concurrent registered direct offering of common stock and Series B Warrants and private placement of Series A and Series C Warrants

  • Posted revenue through first three quarters of $14.3MM, -18% vs. 2014
  • Seeks 510(k) clearance for Valeo C Interbody with CsC Osteo-Conductive Scaffolding
  • In 3Q15, introduced Valeo II™ LL interbody fusion device and launched Scorpion™ articulating inserter
     


Aperion Biologics
Filed with SEC to raise $20MM in an IPO

  • Z-Lig® product cleared for sale in EU as a knee joint anterior cruciate ligament replacement in revision and multiligament procedures



ConforMIS
Closed IPO of ~10.4MM shares of common stock at $15/share for ~$155MM

  • Reported 2Q15 revenue of $19.2MM, +81% vs. 2Q14; 3Q15 revenue of $13.5MM, +17% vs. 3Q14
  • Full launch of iTotal PS knee slated for AAOS 2016



Conventus Orthopaedics
Completed $23.5MM equity round of funding

  • Proceeds to support launch of Conventus Cage™ treatment for proximal humerus, distal radius and proximal radius fracture repair, as well as R&D for new indications in lower extremities
  • Received 510(k) clearance for Conventus Cage proximal radius and proximal humerus systems in 3Q15
  • Raised $24MM in equity in 2014



Ellipse Technologies
Filed with SEC to raise $75MM in an IPO

  • Posted 2014 revenue of $25.7MM
  • MAGnetic External Control (MAGEC) magnetically-adjustable implant systems to treat early-onset scoliosis and limb length discrepancy has been used to treat >4,000 worldwide
  • Pipeline products to target applications in trauma, knee osteoarthritis and degenerative spine



Intelligent Implant Systems
Closed undisclosed amount of financing

  • Funds to support ongoing launch of Revolution™ Spinal System, which features a single disposable instrument tray and  7 instruments
  • Received 510(k) clearance in January 2015



ISTO Technologies
Awarded grant of up to $1.2MM

  • SBIR grant to fund pre-clinical research for InQu® biosynthetic scaffold to repair chondral defects
  • Raised ~$30MM in funding to date



K2M
Closed offering of shares of common stock, raising ~$16.3MM

  • Proceeds to support working capital and general corporate purposes, including global distribution expansion and purchase of inventory
  • Proceeds may support acquisition of or investment in complementary products, technologies or businesses
  • Reported revenue of $161.1MM, +19.2% for first three quarters of 2015



Kuros Biosurgery
Closed financing round of $15.3MM

  • Funds to support Phase III clinical studies of KUR-111 orthobiologic product, under development as  replacement for autograft with application in treatment of tibial plateau fractures
  • KUR-111 met primary efficacy endpoint in a Phase IIb trial



LDR
Closed offering of shares of common stock, raising ~$86.5MM

  • Proceeds to support sales and marketing, including continued U.S. launch of Mobi-C® disc, R&D, potential acquisitions, debt repayment, working capital and other general corporate purposes
  • FDA approved Mobi-C labeling update to include 5-year clinical results
  • Reported revenue of $119.9MM, +23% for first three quarters of 2015



Medicrea
Raised ~$3.9MM via private placement

  • Funds to support U.S. market penetration, establishment of marketing subsidiary in Germany
  • Expects to launch first 3D-printed implants in EU in early 2016
  • Reported revenue of $23.7MM, +18% growth for first three quarters of 2015



NanovisSpine
Awarded significant research grant

  • NIAMS/NIH grant to investigate FortiCore™ implants plus nanotube surface to be used in spinal fusion
  • Launched FortiCore™ cervical and lumbar devices with PEEK center and porous titanium scaffold in 3Q15



PONTiS Orthopaedics
Closed $2MM in Series A private funding

  • Proceeds to support sales and marketing of hand and foot/ankle surgical product lines



Providence Medical Technology
Closed $12MM in financing

  • Proceeds to support commercialization and portfolio expansion of DTRAX® cervical fusion products
  • Received CE Mark approval for DTRAX spinal system, cervical cage and bone screw in 1Q15
  • Commenced U.S. launch of DTRAX Bone Screws in 2Q15
  • Introduced Cavux™ micro- and nano-textured surface technology for DTRAX in 3Q15



SI-BONE
Closed $39.2MM credit facility

  • Received $35.2MM senior secured term loan and a $4MM line of credit
  • Funds to support marketing of iFuse Implant System
  • Closed a $21MM round of growth capital financing in 2Q15 to support U.S. and EU expansion



SPR Therapeutics
Awarded $1.6MM NIH grant

  • Funds support clinical research of SPRINT™, peripheral non-narcotic pain management system for use following knee replacement
  • FDA approved an Investigational Device Exemption to study safety and effectiveness of SPRINT



TheraCell
Raised $1.75MM in oversubscribed financing round

  • Funds to partially support development and 510(k) clearance of Oxygenated-DBF™ Demineralized Bone Fiber technology



Tyber Medical
Received $1.25MM in funding, including $0.5MM state grant, $0.75MM in job creation tax credits

  • Funds came as part of economic development proposal to relocate headquarters from New Jersey to Pennsylvania



Vertebral Technologies
Raised $3.5MM in Series B Financing

  • Proceeds will support commercialization of VTI’s expandable modular interbody devices, including expansion of manufacturing and inventory capacities
  • VTI has sold >6,500 InterFuse modular interbody fusion devices worldwide.



Woven Orthopedic
Raised $6.6MM of an $8.6MM equity financing

  • Developed a biotextile to enhance screw engagement during fixation by increasing the bone/screw contact surface area and distributing load transfer to support bone healing/remodeling



Xtant Medical’s Bacterin subsidiary
Awarded $0.1MM grant

  • Funding from Montana Board of Research and Commercialization Technology to support product development and pre-clinical studies
  • Developing next-gen demineralized bone matrix allografts anticipated to produce faster, more complete bone healing vs. current therapies, supporting improved clinical outcomes



Zyga Technology
Completed $20MM in financing round

  • Proceeds to support sales and marketing, as well as expansion of clinical studies for SImmetry® Sacroiliac Joint Fusion System
  • Financing comprises $15MM in debt and $5MM in equity
  • Since 2012, Zyga has raised ~$50MM



Carolyn LaWell is Content Manager at ORTHOWORLD. She can be reached by email.