BoneChat #142 - Fastest-Growing Ortho Segments, Reverse Shoulder & Joint Preservation Rollups

So this is going to be open, you know, it's open topic today. It's going to be light. So I'm, I'm teeing up Meok Orthopedics. They'll be, they'll be on, I think, in 2 weeks.

Back with the bear implant.

The bear. It's bear time. Yeah, I, it's a clever, it's a very clever product.

Yeah, I mean, my local high school is the Bears. I got the Chicago Bears. I'm a big fan of anything Bears related.

Do you know what the BEAR acronym stands for?

I do not.

There's a clever acronym. I, I knew it one time. So, hey, Kyle, I was wondering if you saw my article yesterday on The fastest growing segments in orthopedics? It did.

And it's, it's fascinating. And now the challenge with your numbers is they're like, they're, they're harder to parse out.

They're hard to parse out. They're very general numbers. Yeah.

Yeah. Because you've got like trauma and every company reports it different. Right? So some companies, you know, an ankle fracture counts for foot and ankle or it counts for trauma. In other companies, a Proximal humeral fracture plate counts towards arthroplasty and sometimes it counts towards upper extremity and sometimes it counts towards trauma. But I think directionally, that's a fascinating look. And what I think is really interesting about that is for shoulder arthroplasty to be leading the way, there's 2 big factors. First is we are starting to hit the wave of shoulder revision coming into play.

Interesting.

And I think you're starting to see more total shoulders being done gigantically compared to a fracture reconstruction. So repairing a 4-part fracture is becoming almost a thing of the past instead of just using a reverse shoulder. And I don't think that's right, but I understand how it's happening.

Wow, interesting.

So I had, um, Carl— you never knew Carl Basmania?

Yeah.

So way back in the day, I mean, this goes back more than a decade, when I asked Carl about like, why would somebody be going right to a reverse out of a 4-part fracture instead of trying to repair it? He said, look, if the right doctor repairs the right fracture, and puts a 4-part proximal humerus fracture back together, that patient, if they heal right, will have equal function, as good as they ever have. Or it'll go sideways and it'll be an absolute disaster. So instead, what some surgeons will pick is to go right to a reverse where they'll never achieve the exact function that they would have had, but they'll also never fail. in the same way that have failed. So you have a— as a surgeon, you have a narrower band of possibilities to explain to a patient, and that is just an easier path for doctors to choose. And I think that has dictated a whole lot and explains why now 70% of all total shoulders are reverse shoulders.

Wow, that's really— it's— that reminds me of some going back in the '80s and '90s, and Raymond will know this. Is the conservative docs would cement knees. They would cement the tibia and the femur and even the patella, maybe. And the, the guys who jumped on the press fit bandwagon, they would either get a great outcome or it would go south. It would go kind of K-shaped outcome, whereas the cement, cement's gonna hang in there for a long time. That's really interesting. Like, you know, Insul-Bursting, Insul, you know, those things lasted a long time. There was, there's no ligaments left.

And— Well, nobody wants to be on an island, right? Right. So you might have, you might have some of your results better than everyone, but if any of your results are worse than everybody else, now you're in trouble.

Yeah.

It's avoiding mistakes is, is a big, bigger motivator than a, Chasing better outcomes. That that's really interesting, Kyle. I'm gonna stop the share.

Also, I did I did find it to be encouraging that the idea that even markets as gigantic and as established as hips and knees still might be at five percent.

Yeah.

Is that unit based or revenue based?

It's all revenue because it it comes from. Public records, so it's going to be revenue-based. Good question.

So you might have a little, a little bit of price appreciation factored into that, but overall we're doing more knees this year than last year.

I mean, part of that's the population goes up, you know, more people are going, coming into the middle class, you know, more, you know, I don't know. It's got to be pop— it's got to be a population piece.

I didn't read it yet, but is that US data only?

Yeah, it's just US data. It's, and it's an average average. You know, I, I researched all of the publications from the public companies and— hey, Colleen.

I've, I've yet to hear, Tiger, someone give data that refutes that US trends are not at least directionally indicative of global trends.

That's a good point.

You know, so they might not be doing 5% more knees in Europe than they did last year, but they probably are doing more than they did last year.

Yeah.

Same thing goes with, you know, all the other major markets.

I think in Europe, they, they, I mean, my feel is they do totals a little later when you're a little older in Europe because they, they, they don't have orthopedists. They, they have knee specialists. And so they'll, you know, they'll trim your knee and then they'll inject your knee and they'll kind of tease you along until you're 65, 70.

Well, I think any, any country that has any level of nationalized or socialized medicine, there's an element of lifetime treatment limits that they're trying to do and they can string you along. Whereas, you know, if you're in, in our market, any doctor that can charge you and your insurance as much as possible, as soon as possible, they will jump on that. So there's different dynamics at play for that for sure.

Yeah, it's definitely the Wild West of incentives here.

Yeah.

A follow-on topic is what is the, I guess, guesstimate of price increases in the coming years. And historically, with the hospitals basically controlling pricing, but there comes a breaking point both in terms of inflation and the fact that hospitals are narrowing the competition, it would sure seem the economic forces would be towards price increasing, at least in the U.S. I, but that's purely speculative. The question is, what is the, the other bonechatters think? And Colleen, you're on mute in case you wanted to weigh in on that.

You know, my, this is my take and it has nothing to do with my current role as an investment banker, but it seems to me from being in, you know, that space for almost 20 years, It's incredibly difficult as an incumbent to raise your prices unless you're one of the big boys that you're supplying so many different things that you can cut back on discounts or, you know, all kinds of levers that the large players can pull. But as a small independent company, I, I think that's a hard sell. So I think Reducing cost is something that, you know, the companies need to look at so that they can at least maintain margins.

The numbers that you had, Tiger, were pure revenue-based, not units-based?

Yeah, yeah, I think it's revenue-based because it came from public earnings calls. They rarely talk about procedure count on those earnings calls.

The person that actually has data, and it will be a year and a half before we know 2026 data, would be Rick Phillips. And Colleen, you may be right. It's what I've heard for years, and not to hold— but I guess I hold some optimism because, you know, it's a— everybody else is charging more. And there comes a point where the economic factors would justify that. Like, so that's just my counter to what you said.

I think that I'm, you know, my opinion is you can only charge more if you're completely different, if you're a different category or your implant does something that nobody else does, you know. But once you're in, once you're— a knee is a knee and a cage is a cage, man, it's hard to go up.

I'm just going— you've gone to the grocery store. Have you bought hamburger meat lately? Okay, hamburger meat is hamburger meat, yet the price goes up. Okay, Kyle.

No, Raymond, you're exactly spot on. If you are the— and this is more to Colleen's point— if you're the number one beef producer in the country and you already have your distribution set up and you decide We're going up 2.1% for this year, then everyone else just deals with it, whether you launch a new product or not. But if you're trying to be the one competing with them and trying to sneak your way in, you won't get away with that. And there's all sorts of gimmicks and games that go on between list price and discounted price and contracts and kickbacks and rebates and all the fun things. So, yeah, I mean, everybody's got their own game to play with that.

Okay. I'm not gonna get anywhere with this argument. Can I change?

So we all hope implant prices are going up, but I just—

it's—

there's a lot of headwinds. I mean, look at Treece as an example. I mean, Treece's average selling price just got hammered, and that's one of their issues right now. They finally woke up and said, this is a bunion.

I have a different topic totally. Um, I don't know if any of y'all have any guidance on this. First off, is this being recorded?

Either way, Raymond, we can— I can Either way, your choice.

It may be, it may not matter, but has anybody ever dealt with an SPD at a hospital that is overly rigid in the criteria for pass/fail? And if so, what suggestions, ideas, Is out there that might be literature-based in terms of the rejecting things like, well, I won't be specific, but way overly burdensome. Has anybody ever dealt with SPD issues that are overly burdensome?

So what would be, what would they be looking for in test fail, right? Typically with SPD, they're gonna be following Instructions, put it in for this amount of time at this temperature and give it this dry cycle.

And so what I'm talking about is an examination of clean instruments through using a borescope and rejecting for scratches.

Wow.

Yeah, I've never run into that specifically. No, that seems a little bit over the top.

Somebody—

quality inspection is not part of SPD. That's crazy.

That is crazy.

Okay. We're preaching to the choir here. Okay. But I need some meat. Me telling them that's crazy doesn't do a bit of good. And I appreciate it. I'm in the same boat. But is there any kind of data on quality control out there?

Oh boy. I mean, unless you've created some that your particular instrumentation sets function well after X number of uses or years, and that may include, you know, I don't know how to combat that.

Well, we do have our validation, which was actually intentionally made worst case, you know, so maybe our own validation.

Data.

But your data, your validation data is bugs. It's not on scratches.

Well, they're trying to avoid bugs. But what I'm saying is an inoculated validation study would show that even with our worst-case scenario, we, we, we were able to pass that test. But anyway, that's just my daily problem. Of the day. So that's never—

that's, that's pretty wild. I, I would suspect, Raymond, that there is some sort of literature out there that shows that stainless steel tools, as an example, drills, reamers, handles, will withstand 1,000 uses in the operating room and 1,000 autoclave cycles before they have any sort of noteworthy damage dimensionally You can probably dig up something. I'd use Copilot or AI otherwise to try and find it. But realistically, when it's metal versus bone, metal always wins, and that's why we use metal for these parts. So the idea that SPD is looking at scratches or bumps or other things— now, if they were doing your cleaning and washing, and every time they took one of your reamers and there was a bunch of gunk in the middle, Even after they cleaned it, right? They were finding biological problems. Yeah. Now you've got a different thing to deal with. But to be questioning the mechanical characteristics of instruments is—

No, they're saying, if I understand it correctly, that a scratch is a potential risk for bugs getting harbored in the scratch, is my guess as to why they're not worried about it mechanically. They're worried about a site that could harbor bugs just because it's scratched.

Well, it's nice that they're hiring microbiologists in SPD now.

Yeah. Yeah.

Somebody, yeah. Wow. If it's a really big customer, you could redo the validation, you know, with really scratchy old instruments and stuff. But man, I would— It's gotta be a different way to navigate that. Who makes the decisions at the hospital? That's the question.

Yeah. The cynical thing is, well, it sounds like your hospital damaged it. They better buy a new one. And that's not going to work for you either.

Yeah.

Okay. Well, the one idea that came out of it is maybe my own validation data might be useful. So that was helpful. Thank you.

Like, I was at Wright Medical like a few weeks and Barry came into my office and said, our largest customer in Total Days in Little Rock is about to drop our product because the wrapping is tearing and the SPD people will not use the— will not wrap the product anymore. I got in the car and drove to Little Rock with my new packaging engineer, and sure enough, it was the feet on the bottom of the tray with the way that their racks were configured. When it slid across, it tore.

Yep.

Wasn't Lowry Barnes, was it?

It was Lowry Barnes. Yeah, exactly. That was a big one. And so, man, did we fix those trays in like a millisecond. But wow, brings back bad memories.

Good luck, Raymond. That sounds terrible.

That's a good one, Raymond.

So I have a hypothetical question given that we have a Small audience here. So if I was to consider— so I've got, I've got a couple of interesting ideas in the shoulder space. Worked in that space for a very long time. It's been a love of mine for a long time, coming up on 20 years. And I got a couple ideas that I'm thinking about pursuing. I have some engineering counterparts that I potentially would include, and I'm thinking about how I might dive into that adventure.

Yeah.

Do I include some surgeons? What do I do about doing some financing? I'm starting with an, like, a completely clean slate, but I also can potentially leverage some relationships and some deals that I've been involved in the past, but I don't want to taint the water either. So I'm curious for each of you, if you had a completely clean slate and some ideas that you wanted to pursue, how much you think about attacking that in kind of all the different directions? Who would you involve? How would you structure it? Who would you keep it away from? You're on mute, Kelly.

Can I ask a couple questions, Kyle? So, is this an effort that you would have to involve others in the early stages to raise capital, or is it something that you could either self-fund or? friends and family fund initially to get to a basically proof of concept?

Well, I would prefer to involve some others for the sake of collective ingenuity. So I think I've got some ideas that I think are valuable, but I'm certain that I don't have all the ideas and that most of the time when I've got something unique in my mind, I need to be dialed back from crazy. And brought back into, you know, the proper functional reality. And with a couple of other inputs, I think I can land on some things that are tangibly very meaningful.

Yeah, I mean, what's worked for me is, you know, I have kind of a history of co-founding, you know, companies in various industries. And what's worked for me is, you know, people I've worked with successfully in the past, and there's, it's a very small group, you know, in terms of early stage that can really help vet ideas and bring their own ideas to the table. So, I mean, I find that works best for me. There's maybe less, a handful or less people for me that are in that category. But, but that's who I've relied on that are knowledgeable about what I'm trying to do.

So maybe, maybe if I include anybody, focus on people that I have a trusted history with.

That would be my suggestion.

Go, go with people that will tell you your baby's ugly. That's— it's, it's so easy to go find a surgeon. Oh, I love that. Oh, oh. I'll put in 100 once it's designed.

Yeah.

You, it's so easy to get bad information.

Yeah.

You know, Mauricio Toro, you remember him? He, he famously said that I go, I go, I seek out the naysayers on purpose. I wanna know, I wanna talk to 10 surgeons that hate the idea to try to understand why. And I love that idea. How can you— can you describe the— do you— can you describe the product with sketches, 3D pictures? How do you— how do you convey the idea, Kyle?

Um, that's all in process. That's in process. So, um, conceptually I have some basics, and I know that there's a nice wide-open intellectual property footprint.

So may I ask a question or two?

Sure.

You asked this question because I think you're looking to, how do I avoid pitfalls and/or how do I have the greatest probability of success? And so let me turn the question back on you and ask, well, what What pitfalls are you concerned about? And then secondly, what— how do you define success?

Well, I think as with anything, the first pitfall that you want to avoid is throwing a bunch of money at something or a bunch of effort at something that can go nowhere, right? So having Trusted, intelligent people chiming in on things to help steer the ship is how you do that initially, I think. But I also, I don't want to overpopulate the herd here. I want to keep it thin. I want to think about that. And then what was your second question? Was what?

Well, so how do you define success? Let's say you get it right. And I don't know what your timeline is, but you do what you're planning to do with the right team. And a year and a half goes by and you say to yourself, oh my goodness, that was perfect. I got exactly what— all right, it worked well. So what does worked well mean? Does it mean you've proven the concept or you have a marketable proof of concept like Colleen mentioned? And now you can raise money. Is that what success looks like or an exit? What is your goal for success?

So what I don't think is my goal for success is raise a bunch of money, build an entire company around it, get it into the marketplace. Show it's scalable and exit some time period from now— 2 years, 5 years, 10 years. That's always an option when you've got something that you think can compete in the marketplace. I'm in the process of finalizing a deal where myself and some others created the concept, created some IP, and found an early partnership with an industry partner And as we prepare to launch it, we're gonna push it into their system and exit there. I think that is a recipe that I'd like to repeat.

Okay.

So what that tells me is that for this, this current idea, what good could look like in 12 months is I repeat that. I don't know if I wanna do it that way, and I don't wanna paint myself into that corner, but that could be a way to go of create a corporation, Establish some IP, have a core group of people, prove the concept in some capacity enough that it is enticing for an industry partner to want to get involved.

Okay, thank you. That was helpful. I was blessed to have somebody early on in my company, Nova Approach Spine, that it seems like this type of individual Would be perfect for you, but I could be wrong. So this was an individual, and I'll just say his name because some of y'all may know him. Mike Weifers. Does that name ring a bell to anybody? Spine guy, mainly marketing industry. I think he probably was at Acromed, and then he was involved with some German companies, and then he was involved with the. One of these discs that sold to NuVasive. I always forget the name of it. But anyway, um, probably in his early 50s, very sharp, very intelligent corporate guy that was, um, basically a consultant. Super nice, willing to help basically without having to charge me much. And so He was a perfect fit, very intelligent. And he would— he wasn't the kind of guy that— I mean, he loved to argue. He was not a yes man by any means. In fact, he loved to argue. And, and so he fits the category, the criteria that— yeah, thanks. Well, no. Mike Weavers.

Oh, I messed it up. What— how do you spell the name?

Uh, it's W-E-F-E-R-S, but it's Mike Weefer's. I don't know, I'll look at that. But he, he would get on a, um, you know, I can give you the contact information. I don't know, I haven't talked to him in about 6 months. Um, but he has strong opinions, very savvy on the marketing side. So someone like that, a corporate background, somebody that has connections in the industry that you're in. Um, um, actually, I can think of somebody that might fit the bill, whether his non-compete would allow you or him, but it's probably coming up anyway. Actually, yeah, I actually have someone. I'm not going to say the name, but if you wanted to reach out later, you could see whether— you said it's in the extremities or shoulder area?

Shoulder space.

Yeah.

Yeah. So it's up to you if you want to hear the name. Just give me a call afterwards.

Do it offline.

Yeah. And it's, it's, he does, it's not like, let me see if you, did you find Mike Leafer yet? You want me to find him?

I found it. I found him. He looks like the right guy. Spine, Smith and Nephew. Let's see. Direct Servitech.

Yes. Yeah.

J&J. J&J. He was with Oritec Innovations.

Yeah. Yeah. That's him.

I think that's the guy. Yeah. I'm a recruiter. I can find people fast.

Um, I'm just puzzled by the HA. Okay, well, for some reason your link had a different— for— yeah, that's Mike. Um, and if you want— and now he's the spine guy, so I don't think he's your guy, but that's the, uh, profile.

Yeah.

And I highly recommend Mike. I haven't talked to him, like I said, in 6 months. There's a— if I could go down a little bit of a tangential comment Now, Kyle, I don't know if you want to keep going on it. That's fine. But it's tangential, but I think related. Maybe not. But are you all familiar with Dr. Suddaby up in Buffalo? S-U-D-D-A-B-Y. He does a lot of inventions. He's got lots of patents in the spine space. He has been successful in licensing these patents at various companies. He did a post, I think it was Sunday, And he also does these beautiful posts. I don't know how he does them, but his post was on a topic he called soft shelf. And the point of his article, which, Tiger, you might find interesting anyway, just for your benefit, is He gets frustrated because he's licensed lots of his patents and you have the classic, somebody just buys it and then they park it or shelve it just to keep the competition away. And then you don't end up with anything. So you get more savvy and you put in clauses that say, okay, you got to hit certain milestones or certain amounts. Well, his most recent post is they could still undermine you. And the way they do that is they just barely get just enough sales, just barely. They don't throw any money at it. And then they keep the inventor, you know, from suing them because they've just barely hit the limit, but they certainly aren't investing any marketing or effort to get your product out in front of everybody else. And so it's like in between, instead of parking it or really promoting it, it's like just barely. And that's what he was ranting against. So that's another category that I'd not really thought about. I probably should think more about that. But I don't know, Kyle, the reason I bring that up related to your issue or your topic is, yeah, you go to whoever your partner company is in a year and a half and just be careful that they don't do that.

Well, you know, I had some success negotiating a license agreement with DePue actually on one of the products that ConsenSys developed. And we basically didn't really— we had minimum revenues or minimum royalties that they had to pay whether or not they had any revenue. And, you know, it was substantial. I mean, over a period of years, it was equal to a pretty nice round of funding.

Wow.

You know, so, you know, I mean, it was a product that directly improved upon and competed with Esron. So, you know, they were motivated to not have it on the market, and we were motivated to get as much money as we could. And because they were, you know, a big player, it worked out. Right? But, you know, the other thing, Kyle, I would say, I don't know what you're, you know, obviously don't know what you're thinking, but if the reimbursement path isn't clear, I think getting a reimbursement consultant on board early that's reasonably priced would be a good thing. I know one that I work with that's located in the DC area. It's a one-man band. You know, wasn't too bad. I think his His fee at the time, and this is like 3 years ago, was $2,500 a month, which, you know, okay, it's not zero, but it was well worth it. And there was no, like, you don't have to have a year contract. It could be shorter.

Yeah.

Yeah.

But that was a long time.

Yeah.

So do you all know Meredith May? She is someone I highly would— I highly recommend. Do you all know— do you know her? Anybody know her?

I don't.

She's an engineer that went to work for ETC as a regulatory consultant, did that for years. Then she got her law degree. Um, so she gets her law degree, but she was in practice with some group. That then decided to get out of medical. So she's hanging her own shingle. So she's got excellent technical background in the orthopedic industry for 25-plus years, engineer, regulatory expert, and now lawyer. So it's a— and now she's looking for work. So if you're looking for somebody, I highly recommend Meredith May. Let me make sure I got the, her last name right because she just, so hang on a second, I'll put that up. But Tiger, did you see that soft shelf?

Yeah, yeah, I see your LinkedIn posting here from, yeah.

Satabi. He, Dr. Satabi's an interesting guy in the first place without any, without a doubt. as an inventor. Interesting.

I think it's just harder and harder to partner with a big company and sell your device early. Just, they just want to eliminate all risk nowadays. I mean, I—

And it's, and it's, they can't win. Like nobody internally gets to be the one with the trophy in the case.

Yeah.

If you license it, that's, that it's just so hard dealing with the human dynamic of If it's not an acquisition that business development can't, you know, be a pelt on the wall, if it's not some sort of invention that internally comes out, if it's something you brought from somebody else, there's a lot of, there's a lot of competing incentives there.

Yeah.

So, like Colleen said, a lot of times they just want to take you off the market for the least price. Yeah. Anyway, okay, go ahead, Raymond.

Last name is Vanderbilt, or I guess prior name was May, but it's Vanderbilt, and that's the— and I highly recommend her also.

Okay.

Yeah, the name of the firm I worked with, which was really one guy, was called the Omega Group, located in the DC area. We found them— I think we found them actually Trial and error. We had sought out reimbursement advice from lots of different people. We finally hit this guy who was really good and, you know, gave us some, some really pertinent and good advice. So, wish we would have met him sooner.

Yeah, you just want to get, you want to get real objective people. That's so hard to do. You know, I think I love what you're doing, Kyle. Most people don't test the idea. Test the product concept early enough, you know. Um, I mean, just, just today there's, there's kind of, there's a lot of, there's a lot of news going on. I just heard through the grapevine that Proprio Vision is going out of business. So they can't get any more funding. They raised $180, $100 million. They refused to listen to the market and they froze their design too early. And they're gone. I mean, we're gonna see more of that. You gotta be flexible. You gotta test the idea before you build anything.

Well, I think a thing that we're gonna see continue that is currently a trend is it is extraordinarily hard to create a startup and bring one product to market and to survive. with that in order to then scale it and have it be, um, attractive enough to exit. There's just so many things that stand in the way for that. So either you've got to think about having a platform all along and have a cadence of things, or you've got to try to find a way to be appealing with your one product before you go that far. And gosh, some of the companies that come to mind that are in this space right now. Reach Orthopedics, X-Bolt, OrthoExcel, uh, Endeavor, uh, CurvaFix. There's dozens more that have got this one thing and they've raised tens of millions of dollars trying to build a market and a company around one singular thing. And man, it's so hard. And most of them, it just won't work out and they'll sell it for pennies on the dollar at the end of some long runway or it'll go by the wayside. I don't want to do that. I definitely don't want to do that. So, I think I have some stuff that lands in the space of— let me keep it relatively vague. I'm generally by nature contrarian. And so, if everybody's going to zig, I want to zag, and I think I've got some ideas that fit into the type of thing that can be a portfolio update that land within existing reimbursement, but represents a let's call it a biomechanical advantage that nobody's thought of yet. So what that potentially means is the landing place for that. can be with anyone. It can be agnostic to and applied to anyone. I just got to think about how I bring it to life to make it attractive to someone to get in early on it, because I'd rather go that route.

Yeah. You know, what you just said early on, I think, is one of the challenges, right? You know, if you've got the larger strategics in mind as far as the landing place for what you're envisioning. They're so risk-averse these days on anything early stage that doesn't, you know, it has to kind of pass the technology hurdle, the regulatory hurdle, the reimbursement hurdle, and then the market commercialization hurdle. And so I think that's why you see so many companies, you know, raising tens of millions of dollars, just to get to that point. Um, it seems like a, you know, a cycle that is gonna have a really small percentage of success.

The other way to do it, Kyle, is just to keep your burn really, really low and get to profitability within the first year or 2. And then, then you control your destiny. I mean, there's, there's a lot, there's been some one-product companies that just have like 2 or 3 employees. that are doing great. I mean, one of OsteoRemedies is probably one of the great little companies nobody's ever heard of. But I mean, they did $40 million in sales with 25 employees.

And, you know, which the math would tell you that instead should be over 100 employees. So that's a great metric for sure.

Exactly.

Yeah.

If I could insert something. So do you remember The, uh, Eric Mueller, our talking about the Venture Village at NASS, uh, coming up in a month, month and a half.

Yeah.

Um, so Dr. Jeff Rowe invited me, or, uh, to be on a panel, um, at the Venture Village. So because I, I did decide to go to the NASS meeting and have a booth, not at the Venture Village, but Just a regular booth. But the title of the panel that I've been asked to be on is right up the same conversation alley, and the title is Raising Capital Without Losing Control. Um, Alyssa Huffman's part of that with Dr. Rowe. And what, you know, Colleen's comment or somebody's comment, maybe it was Tiger's comment about keep your burn down, is really at the end of the day how you do that. You first monitor, you establish what percentage of the company you own based on your own IP and value. You then have to sell to investors the vision, and that's usually at a valuation higher than what other people might believe. And then you got to execute. That's— and then put more of your own money into it to maintain your percentage. I mean, it's not rocket science. It's— but it's really harder and harder because the bar keeps getting higher and higher. The only hope, in my view, I'm an optimist. is because Colleen's right, it's almost impossible nowadays. That's going to mean these companies are going to fall apart like the one that Tiger mentioned, and then the competition for new technology will go down, um, and then valuations will go up. It's supply and demand. The question is, can you be a survivor? Um, I mean, Nova Approach Spine Is a 3-employee company. We raised to date $10.9 million. Our revenue last year was $1.4 million. Are those great numbers? I don't know. We're not quite at profitability. We're getting closer. I think we should be doing better, but at the end of the day, I don't think we're doing terrible. And I think there's a real good potential. I need to take this because we're also dealing with some good opportunities.

Thanks, Frank.

Yeah.

Yeah. So, Colleen, I, I, there's no question and no any sort of counterfactual to your comments about big strategics and their risk aversion. In fact, I had a manager at Depew Synthes— oh gosh, it's got to be almost 15 years ago at this point— he said, look, J&J is happy to take risks on anything as long as you've eliminated all risks. That's the way, that's the way that they work, right?

Yeah.

That is the way that it works. And so when I think about any sort of partnership, my region of focus is those middle players, probably, where they're a little more into what can we do to make ourselves known in the marketplace and to make waves. They aren't so risk-averse because they've got, you know, 10 or 11 digits in their revenue line, but those are still an uphill climb to get in there because of all the infrastructure associated with it.

So, you know, reflecting on this for a couple minutes, I've run into a lot of companies over the last, I know, couple years that actually have been successful at getting J&J development division actually writing checks and on their cap table. Now, I don't know how big all of those checks were, But I will tell you that to the extent those companies actually ended up engaging with us on a capital raise later, or for whatever reason, that played well in others' eyes that, you know, J&J was willing, you know, to invest. So just, just a piece of information for what it's worth, but they seem to be a little bit more aggressive on early stage Opportunities they really believe in.

That's a good, that's a good point. Yeah, their venture group, they have to look at deals. They have to, they want to have a lot of deals in the bucket. And if they can add you, then it's good for them. It solves their problem and it solves your problem. It gives you an endorsement that you can take to other companies. We tried that at Active Implants. We just tried to get Zimmer to invest $1 million, $5 million, anything. And we brought her— I mean, we brought them down. Their due diligence team was bigger than our company and we couldn't get it. We just wanted their endorsement because we knew it would give us momentum in raising money. So yeah, I like— as long as the J&J terms are fairly open, non-exclusive, and, you know, That's man, that sounds like a win-win.

Great suggestion.

Yeah.

Well, thank you guys for thank you for walking through.

Kyle, let me ask: Does your does your idea does it create? Do you have to build implants? Is there like implant and instrument cost, or is it that's high because?

So I would envision what I'm thinking about being a line extension to any existing system.

Oh, okay. Interesting. It's an augment. Well, here, let me— I'm a big fan of this, and I've talked about it many million times because I worked for 3 startups where we did our first cases outside the US on purpose. Can you take your thing to Brazil or Czechoslovakia or somewhere and do get regulatory clearance, build a limited amount of, and, and do some cases.

Yeah, I mean, that's step 3, and I'm talking about step 0.

Okay, got it.

But I think the first, the first thing is, as I, as I bring the idea to life, I think Um, the initial biomechanics will tell us a story. An initial cadaver experience will reinforce the story. And then it's a matter of what you want to do from there. Uh, I don't think there's a difficult regulatory pathway. Um, not terribly expensive, just again, something contrarian that perhaps everybody has missed. And I apologize if that sounds egotistical, but like I said, I've been madly in love with shoulders for 20 years. I dream about it. So I think I've got something very curious there.

I'd love to talk this contrary. Yeah, go ahead, Colleen.

This is not on topic, but it kind of related. So Kyle, if you heard from a physician that you should get a shoulder replacement, Would you, um, would you be open to that, or would you just live with restricted movement and a little bit of pain now and then?

I would go under the knife any second that my lifestyle has changed.

Really?

Wow.

I would have my head cut off my body and put onto a robot if it slowed me down from doing something that's important to me. I had spinal fusion when I was 38.

Wow.

Yeah. I just—

Lumbar?

Just one level, L4, L5.

Okay.

From an old injury when I was a kid. But, I believe in our industry and I've had— now, my experience is jaded because I have a father and a father-in-law that have avoided knee surgery like the plague and it essentially has made them chair-ridden, bed-ridden for the past 20 years. And I'll never— I'd rather have my leg amputated than to be not moving around. So I'm in a different world than most. Most people want to avoid surgery at all costs. I don't care. I'll sprint to the operating room.

Yeah, this is— this was a question motivated from my husband's issues. He's had bilateral knee replacements. He's on his second right ankle. So he's not averse to surgeries. You know, I don't know a lot about shoulders, so I don't— I can't help him a lot. But—

Shoulders is almost always sleep. It's— so every joint has a thing that sends you to the doctor. With knees, it's maybe you stop gardening, maybe you don't get on the ground to play with your grandchildren. For hips, it's usually you can't get into a car because that deep flexion, and now you've lost your independence with the car. With shoulders, it's usually sleep. You cannot lay on your side anymore without being just riddled with pain. Shoulder surgery is awesome. Just find a doctor that does it 300 times a year.

So, Kyle, isn't there also an additional consideration that if you don't attend to it, you increase your risk of getting to a frozen shoulder state? Or not? I don't know. I mean, I know.

Yeah, all arthritis is progressive. That's every joint in the body. Your bones remodel to force. And so, you start to get osteophytes and remodeling when the cartilage is gone. The shoulder's no different. In the shoulder with arthritis, you get what's called a goat's beard on the humerus, and it starts to restrict motion. And then you can start to destroy your ligaments and cartilage and rotator cuff. But that's the same deal in the ankles or the knees or the hips. It's a cascade. And you, I mean, yeah, it all follows a similar pattern, just a little bit different, whether you're walking on it or whether you use it to sip coffee and brush your hair and wipe your butt.

Okay, I noticed that we have an additional member of the Bone Chatters here.

Yeah, yeah, Hindra is a venture guy. Hindra, tell us who you are.

Yeah, sure. Hindra with Novellus Ventures. We're an early-stage venture fund focused exclusively in the life sciences. I mean, I've been following this pod or whatever, Bone Chat, for quite a while and I just Trying to see what I'm trying to learn more about the ortho industry because we do have some exposure to that space and just trying to see where all the puck's going.

Yeah, where everybody is. Well, tell us what ortho-related things have you invested in?

We're looking at joint repair. There's a company called OrthoPreserve that we're looking at. They're in essentially meniscus repair using some kind of hydrogel. And again, that's the extent of what I know about it right now. It just recently crossed our desk. So I'm just trying to get more space, understanding of how it works and whether or not this is a well-known area or if this is novel technology that we're dealing with.

Well, Kyle is an expert in shoulders and he's about to launch something. You guys may want to talk at some point.

What type of requirements or expectations does your firm have in terms of candidate companies that you invest in? Uh, 10x, 15x in 2 years, 5 years? Uh, what— give us a little better understanding of what your investment thesis is.

Usually it's in the 5 to 10x's. For I would say like three to five years is where the fund gets comfortable. This is a brand new emerging fund manager who's running the the fund, so they want to run things relatively safer. So what they're really indexing on more is: Are there strategics interested in this? Is this an area where there's a buyer? Do they have some way to do that? A lot of the companies that we have invested in usually there's already some kind of strategic buyer on the cap table. And we're following along with those investments. That's a big piece of confidence for the fund manager. From a technical perspective, usually we like to see some kind of human data. It doesn't have to be US human data, but it does have to be something resembling that. And also from a payer side, we need to think about, all right, well, what's the coverage pathway? What's the site of service looking like? Is this going to be a high-cost claim area or is this more in that diffuse spend area. And that's kind of how we look at everything is just trying to figure out what's the strategic buyer's perspective on all these issues.

Well, I wouldn't be doing my job if I didn't say there's an opportunity, I think, for you, even though it's not your 5x, but it's potentially a 2x in 2 years with actual clinical data and a 73% growth rate '23 through '25. I'd be happy to share that opportunity with you if you're open to consider, um, a spine company.

I mean, if they have credible exit opportunity, um, I do, I do say that we've looked at a company that was at that 2x range And the GP didn't quite go for it, but I feel like that was more down to them not feeling the buyer was going to be purchasing it, not the 2x itself. So like what I would ask is, do we feel very good that the strategic buyer wants that? Because I know spine as an area is interesting, but again, I wouldn't know. Sure.

So the— we have been in discussions with strategic buyers in the past, as recently as 2 weeks ago. So, but you never hold your breath. And so sometimes these take a while, but I'd be happy to share more information about it offline.

Yeah, by all means.

Okay, cool. So, Hendra, I met Jonathan and Ortho Preserve as they were part of The, what was it called? The thing in Warsaw, the plug and play, the startup pipeline. Is that how you got connected to them?

We knew them through a group called Portal Innovations. They were up in Houston for a little bit and that's just how we came across them.

Yeah, well, I mean, they're going into a market that is just gigantic, like pre-knee surgery, So, you know, treatment is— there's a lot of different ways and nobody's figured it out yet. And there's going to be a lot of opportunity there. I'm glad you guys are in that space. I think there's a lot of opportunity there.

I see. And as far as kind of what the people are gravitating towards from the patient side of it and from a clinician side of it, is there anything that's coming out? Are there venues I should be checking just to kind of See where that is moving?

Well, the hard part is going to be defining what space a company like OrthoPreserve lives in because they're not technically in orthopedic joint replacement, but they're also not sports medicine, right? They're not just arthroscopy and you're putting in sutures and maybe some graft. They're in this intermediate interventional medicine space. So My guess is that that lands in the orthopedic space because you'll probably have knee surgeons that will be the adopters of it and they'll probably follow that reimbursement pathway to some degree. But, maybe sports medicine is a place to keep because this OrthoPreserve thing, this cartilage meniscal replacement stuff, it lives in this undefined middle ground. between orthopedic joint replacement and between sports medicine. And it's fertile, but it's also not very well mapped out.

Yeah, because the technology itself seemed like it could go in a lot of places. And for me as a venture guy, I mean, specificity helps a lot in coming up with the evidence plan that you need to get a buyer's interest. And that was sort of the concerns I had when we were looking at it at the time.

Yeah, I mean, it's, it's also very transferable, the stuff that they're doing. They're starting with knees, but it's completely obviously conceivable that it goes to the hip and it goes to the shoulder and it goes to the ankle afterwards.

Yeah. Well, hey, we'll keep looking at it and then we'll see how that goes. It's, it's been a good time looking at all the deals we have. We're still trying to fill out the investment window and just really make sure we get a good spread of companies. So Sure. Anyway, thanks for putting this together, Tiger. And again, keep doing what you guys are doing.

So out of curiosity, you, you talked to Raymond a little bit about— he's got a company that has— he's built and cultivated, and they're, they're generating revenue. That's, that's kind of one end of things. Now there's the other extreme of things where things are very early on. What, what is your sweet spot that you're looking for as far as stage of company? where you guys are looking to invest?

So the way the fund manager likes it is really, do they have some kind of proof of human data work? So like for a lot of devices, a lot of the deal flow we're looking at is it's already in human. We've got some human data they're in, and that's just the competition that you guys are up against when you're pitching to us. It's like, it's not really you guys in isolation, it's what other deals I have access to. And currently the standard is they have some kind of human data. Once upon a time, there were— all we had were preclinical things. Okay, fine. That's what our PUC is. We're going to look at that and we'll figure out what criteria are there in. But right now, that's what we have. People are getting to the clinic without venture funding, which is crazy to me. But, you know, it happens.

Interesting. Well, yeah, and the upside there is that there is a level of risk that will have been taken out of the equation because you will have moved through— that company will have moved through regulatory clearance, moved through building some sort of infrastructure, and your reimbursement pathway is all mapped out in order to get it into market. The downside is, is any company that gets there probably will have had to use a couple million dollars in capital to get to that very first-in-human.

It is.

Yeah.

The thing that's interesting is if you're, if you have any experience in the pharmaceutical world, is that usually means billions before you get to that first one. Thankfully, in the orthopedic space, it only means millions, but it still is a long road.

Yep.

That's why I became a med tech guy and not a pharma guy.

Me too. Me too.

So, so, Hendra, the, the space that Kyle is talking about is, it's really hot right now. We all see it bubbling up is What we call joint preservation.

Sure.

So it's the, it's the 40 to 60-year-old range. You know, they're, they're, they're too old for biologics replacement like a meniscus trim or augmentation, but they're too young for total knee. And so they're in this no man's land for 20 years.

Sure.

And today in orthopedics, we, all that we have is palliative care. We have You know, braces and injections and trims and things like that. You come back when you're 65, and I'll give you a total knee. There is a huge opportunity. And there's a couple of our BoneChat members you haven't met yet that you should meet that are starting a joint preservation consortium. They're trying to roll up a bunch of little companies into something big enough to attract a sales force and they're raising money right now. Yeah. So Mark Maloney and Dennis McCullough are the two. So you could send me an email and I'll introduce you to them. But yeah, that may be a good fit if that's a space you're interested in.

Is it kind of like a PE-style roll-up of like a whole bunch of different Yeah, I mean, there's—

these are orthopedic executives that have been around a long time, and they— and we all see this trend where it's just disjointed right now. If you need a meniscus augmentation or whatever, you go to Ortho Preserve, but they're not big enough to have a sales force.

Sure.

You know, and So they're trying to roll up enough to attract a sales force, basically, and to have a full bag of solutions for the orthopedists. That's, that's the idea.

Okay.

And so then this consortium would then just sell into the hospital systems as part of the procurement, or how's that going?

Yeah, it would just be like, it would be like Joint Preservation Inc. And, you know, there's a sales rep that goes in the hospital and says, you know, we've got 10 different products for your knee before you get to reach a total, a total knee candidate. And that's the idea.

Okay.

I mean, I'm happy to look at them and see what's going on.

Yeah. Send me a note. We got it. We're running out of time and Raymond had to back off. So, yeah, thanks. This has been, this has been interesting. Thanks for joining, Indra. You should, you can be a permanent member. Just by going to bonechat.com and signing up.

Yeah, for sure.

OK.

Thanks.

Hendra, typically when we have these calls, you might have 15 people on here with 300 years of cumulative experience in orthopedics. So this is a place to learn some things if you want.

Yeah, by all means. Thanks, guys.

Thanks.

Nice to meet you. All right.

See you.

Bye-bye.