BoneChat #27 - Subchondral Solution discussion of technology, business and future funding options

So today we are live with Tom Kender, CEO of Subchondral Solutions. They have a clever implant to delay total joint replacements in, in some patients. Uh, Tom's a relatively new member of Bone Chat, and we're going to do a deep dive into Subchondral's technology, the business model, and talk about future funding options. So I'm handing the mic over to Tom, and you should see his first slide.

Good afternoon, everybody, and thank you very much, Tiger, for the opportunity. I've enjoyed, uh, listening to BoneChat. I've, uh, I've learned a lot. And, uh, uh, so It's been very useful to me. So Subchondral Solutions, um, it's a 10-year-old overnight success, uh, started by a surgeon with the objective to address the failures of OATS and microfracture after whatever period of time. Um, when I say it's a unique approach, it's really, um, we're looking at the foundation and, and then working up to the, to the roof. The bone involvement is a, is a key part of this. That's why it's named Subchondral Solutions. And we feel that that's more important than, than a lot of people get it credit for, even though it's been in the literature for, for 10 years. So I'm gonna go into really an overview of the company and then I've got, I can go into some more deeper dive on the technology. Company's been around, like I said, since the, the first, the first submissions for IP was in 2012. Company was formed in 2010. 2014. And we've had a series of FDA clearances. The implant itself is titanium. So that was our very first grant was with the FDA clearance was with titanium by itself. Did an animal study, showed that we had great type 2 collagen coverage in a short period of time. We went ahead next was to coat it with hydroxyapatite to accelerate the bone remodeling. You know, we found the same thing. We found that the the cartilage generation was faster with, with the HA. And then most recently, I guess it's been about a year that we got the third FDA clearance where we were able to go ahead and use the implant as a, as a basis for a scaffold or an augmentation. And what typically the docs are doing is they're using an acellular dermal graft We provide that. RTI is our partner in that. And so if that's what the doc decides to do, suture that down, it's probably 80% of our cases are done that way. Implant can be used by itself or with this augmentation. The, the part of the discussion or primary part of the discussion today is really funding. And I know everybody's been through that. We've been very fortunate to get where we are in the market with only a $6 million, $6 million raised so far. The $25.5 million was our post-money from our last round. And that's a good thing and a bad thing. And we'll get into some of the details on that. The source of funding has been primarily private investors. The, you know, I've done the startup since '94. And so I've had some successes, obviously some failures is kind of how this goes. But I have a group of people that have made money a number of times with me. So that's my go-to. And luckily, you know, they've seen success, so they continue to come in round after round. We, the managers, the management, the senior guys still maintain control at this stage. We need about $3 million right now to execute our current plan. And that really is expansion in the sales and marketing area, inventory ordering size. Our cost of goods are, you know, we have an 80% margin now, we can approach a an EID margin, which is, you know, pretty impressive by being able to acquire inventory at a— in larger quantities. We do have some clinical studies that we would like to, to get into, as well as expanded regulatory, joint-specific regulatory clearances. And then we have some R&D that we want to do. So that's, that's really just an overview where we are today and where we'd like to go. My team's a pretty strong team. You see me up in the left-hand corner. Cheryl McCoy, she's our CFO. She's actually had 3 exits. Q-Fix was one of the more recent ones that she sold to Smith Nephew. There was a couple others. I think she has a Striker exit and an Inovus exit. And there were— they were earlier stage technology. Matter of fact, they weren't even on the market. So she understands that process. Derek D down on the bottom left, he is the surgeon that started this whole thing. He's a sports med surgeon. He's the one who was seeing these patients come back with failed microfracture or failed OATS. You know, high-caliber guy, good background, USC, Stanford, UCI. And he's been involved with a little, little other development, but this has been his primary thing for a while. Jordan Kean is a 5-year Arthrex guy. He's been with us, been with me for 4 and a half years. He's done a great job. Um, he's kind of walking, running around with one hand tied behind his back. So we just don't have the resources in the field. Chris Maurer, again, uh, um, uh, US Surgical. He's been our chief engineer. He's had a number of things like Tissue Seal and a couple of things that he's been behind, uh, that have been successful. Jim is a QC guy. I won't go into any detail, much more detail on that. And probably a lot of you know Ty Lee, um, uh, biomechanics PhD. So Ty's one of our our founders. We use his lab for a lot of folks. If we can fight off Smith Nephew and Arthrex and some of those guys that are using on a regular basis. Ty's been published about 450 times, so he's been very involved in orthopedics for a long time. So the market, a reason I show this to you guys, all know how big the market is. The, the unique thing about us is it started off as a sports-specific device. You know, again, obviously you need data to really attract sports med surgeons and you, you're going out to the market brand new, you know, you don't have the data. So we came across one of my investors that he has a co-investor, it's a surgical DPM or surgical podiatrist. And he asked me, he said, have you guys tried this for Cartiva revisions? It's like, okay, what's Cartiva? That's how, how much we knew about the foot and ankle market. Well, we were able to jump into that market pretty quickly. Yeah, the barrier to entry, even with limited data, we could proceed. And so we were doing that and that's probably about still about 65, 70% of our business. But it's, you know, the Cartiva revision, that's all first metatarsal products being used for that, lesser metatarsals. The tailored dome repair has been really big for us. That's probably approaching the same size as the MPJ. So when you look at this market, so that's, that's the foot and ankle side. Then we've been able to move into the upper extremity. The implants being used in CMC arthritis procedures. And the thing that's a big advantage for us is we can spare the trapezium. So the implant can go in the base of the metacarpal or at the trapezium. And sparing that trapezium for you that have been in hand and wrist area, maintaining your pinch and grip strength's really key, right? So when patients go through and the, the, the, you remove the, the trapezium, which all the other procedures you need to do, you, you compromise that pinch and grip strength. And then we've talked about the, the sports medicine market a little bit. So it's a big opportunity for us being, you know, being applicable in the, all these different areas is a good thing and a bad thing. So it's kind of like, what are you?, right? And where do you get the resources to, to grow into those markets? We have about 120— this, this is, I think this was done in February or March. We probably have about 150 surgeons. Our total number of surgeries about 650 now. So the, the implant totals, the reason there's a difference is because sometimes multiple implants are used in the, in the procedure. So that number's gonna be different. So it's probably about 750 implants. We're doing it all those different areas. We are getting really good insurance reimbursement. We have a bunch of CPT codes that we can use. And because we are, one of our, sorry, I gotta move this out of my way. One of our basic clearances is on fracture fixation. And, you know, in the subchondral bone, The bone edema a lot of times has trabecular fractures, so the guys can get, get away with billing for fracture codes as well as the, the procedure codes. We, we're in about 120 hospitals plus and surgery centers, and that's kind of individual facilities. We have landed 4 national contracts including the VA, Vizient, MGH, which is not a national, but, you know, plays a big role. It's a— that's a Harvard group. And then we have 3 GPOs that are in process. We are nationwide. We just don't have the service to expand in certain areas. We've grown, we've doubled in size every year. We've been on the market since 2020, May of 2020. So right now we're, you know, 4 years almost exactly out. We've been doubling in size every year. This year versus last year versus prior year, we were 174% in growth. Clinical evidence, 4 years of data, 16 posters, a number of abstracts, peer-reviewed published studies, like there's 3 of those. And then we won a number of innovative awards. So at AEOS, we won the innovation on our use of the implant in VILSAX. We're named one of the top 10 innovations in podiatry today. We got the Vizient contract because we won the Innovative Device Summit, and then we also won an award at the Western Orthopedics for Innovation Competition. So, you know, we're getting recognition out there. Let's see, why is this not advancing? Okay, there we are.

Sorry.

So now we get into the discussion. Sorry. Into discussion on funding. So here's how we've gone about it. So at the exploratory stage, when we're really looking, is it solving existing problem? This is primarily done by Derek. What is the market size? Does— is the idea going to make a difference? You know, is it— is it a small difference or a large difference? And then looking at, okay, is there IP that we can wrap around this implant? You know, what is the distribution plan? And what— you know, is this a unique customer? How do we— how do we approach that? You know, is this going to be niche or is it going to have have a much broader application. So, you know, right now I say funding source is you. You got to invest in that. That's what happened with us. We did have some business partners, but it's a pretty small investment to do that stage. Once we got beyond that, you know, when you start to gaining your patents, working on that, your prototypes, regulatory clearances, that's a lot more experience, a lot more expense. Are higher expense. And what we use is we use friends and family, those investors I mentioned early on. And then obviously, you know, you need to be involved with each of these rounds, I feel. And so that's what I've done. At startup phase, you know, building the company structure, the cap table, getting the— securing the IP, adding to that IP, that cost us about $750 grand. And then our pre-market size, you know, we start off with a Series A, You need to have sellable goods. You need to get into the customer launch, your strategy for going to market, and you have to have a proof of concept at least. That was the animal study for us. And our funding sources, again, have been the high net worth guys, colleagues. You know, we have a number of surgeons that have invested and we have some distributors that are investors in the, in the business. Getting them to buy in and have, have some skin in the game helped us.

Tom, what year was Series A?

Series A would have been— I joined in 2019, August of 2019, and Series A was already complete. I'd opened up Series B.

Okay.

So it was right before I arrived.

5 years ago.

Got it. Yep.

Yep. So then we launched. So we did another round of A, A1. Raised, you know, $1.5 during that Series B, raised $1.9, Series C $450 and picked up some debt. The reason there's those increments is we had a lot of interest and we actually had early-stage offers. And so I was trying to bring in just enough money to maintain, you know, try not to loot my cap table, but get to these milestones. There are certain things, you know, Stryker would tell us or whoever would tell us, And so we were trying to get to those things. And at the end of that, you know, was it enough to exit at a valuation that we thought was attractive? Answer is no. With the valuation to get the offers, yes, but the valuation, no. So the growth capital has been primarily equity. So it basically tells you what we've done. We took on some debt and I really didn't want to, but we had to. So We have some debt in the business right now. Again, my funding sources have been, you know, pretty similar. We have a little bit of institutional money, not at the level that you would think whenever you see institutional, but we've had some of that. We have some strategic investment, again, just not a lot. Where we are really looking right now is to take this thing to a a new level, and we've really settled on going to do a reverse merger into a public shell. And so we're racing along that. There's a lot of risk with that, but there's some really good success stories. I've been working on that for about 6 months. We've got a term sheet from a big New York fund, which I think will help us down the line. It helps us right now to really start to build out the the business like we need to. Complicated. We should have that thing closed by probably the middle of July. So we're not that far away. Where we've run into issues along the way is that our valuation is never aligned with the round of funding. And, you know, right now we're at a 25— we've been raising on a 25.5. That's what we closed the last round. You know, the institutional guys really want to get in, you know, when you're 6, 7, 8, 9, right? And, you know, for us, we, we've had a lot of opportunities with that, but pretty soon, I mean, you've had hand over the keys very quickly, and we didn't want to do that. We thought we could build more value before we have those guys come in. So it's kind of chicken and the egg for us to, to continue to raise. We, because we don't have, uh, uh, very much from an institution, our credibility is not there. Question always is, okay, why didn't you go that route, you know, and pretty much what I just said is, is why we didn't go that route. The other thing is it's kind of like, what are you guys? You know, we have broad indications. Are you, you know, a foot and ankle company? Are you a sports company? What, what are you? So I've adjusted, addressed some of that and basically built out 3 different divisions and with products with different descriptions and so forth and different packaging so that we can do a deal. With one of the big foot and ankle guys or, you know, upper extremity guys or sports. There aren't that many companies that have divisions, as you guys know, in every one of those areas. So for us to get proper evaluation, we have to have somebody that's gonna give us credit for all of those, we believe. Let's see here. Why isn't this sliding?

All right.

So with that, you know, opening up discussion, I can get into some of the additional technology and give you some, some input on that, or some— just show that to you. But I really wanted to get some input on what you guys have done. You know, you see how we've gone out and raised money. Any ideas, you know, any experiences that you'd like to share? I mean, is that all right, Tiger?

Yeah, yeah, open it up. Let me, let me ask the first question. How far are you from breakeven? Tom, if you were— if you're double sales again this year.

Yeah, the $3 million gets us to break even, and that break even is at the end of 2025, assuming everything works right all over the sales line and so forth. Yeah, um, it could be a little earlier, um, uh, if we got to a little bit higher raise, um, because we could buy that inventory at a at a, you know, a higher volume.

And if you were— do you— you can't see organically getting to break even?

No.

Okay.

Got it.

No need to need the capital. I need people. I mean, I have 2 regional managers trying to cover the entire country. You can only go so far. And if you look where our regionals are, it's where our business is the biggest. No surprise, right? We, we have We've gone through a lot of the distributors, you know, guys that you, you probably all know. And we pay a lot. We have, you know, above market compensation. The value of the product is where our ASP is $3,500. You know, you compare that to a total, I mean, we're above what most of the totals cost. We're about a third the cost of an Oates. Obviously we're more expensive than a MicroFracture.. And some of the new products like CartiHeal and stuff that are just coming to the market will be at, you know, a third or, you know, less than half for sure of the value. But we're, you know, generating, you know, the reps are making a, you know, $1,000, $1,100 in each case. So it's worth their time. But when you get into these distributors, they're already making their money somewhere, right? And this is a little bit of a, of a slog cuz it's, you know, you're teaching docs just a new mindset. Instrumentation is same instrumentation that they're used to. The, the, you know, procedure— nobody gets surprised by the procedure, but it's a new, it's a new, a new product. And so it takes a little bit more effort than what these distributors are accustomed to.

So we previously, we talked about not only selling your own product, but maybe licensing the technology. So you wouldn't have to talk, talk with— talk through that with the group.

Sure.

So I have, I have 2 deals right now, um, uh, really going to a private label. You know, for us that's fine. You know, we get, we get 80, 90 direct reps. It's under somebody else's name. That's fine with us. Um, and so in a sense, that's really a license. Uh, we're trying to keep it in the distribution model, private label, because that, that doesn't give them the license, gives them the license to the, the marketplace basically. Um, so we, we've looked at that. We got 2 deals that I think at least one of them will come through on the private label side, which will answer a lot of my problems. You know, the, the purchase of inventory upfront, the margins for us because they're so high, it's good for both the, the company that's going to do the private label. It makes us money too. So it's a, it's a win-win that way. It's interesting because our, it's the same, same IP for each one of those areas. Right? So, you know, I've thought about pulling all the IP, putting in a holding company. Um, you know, we've done some of that, you know, consideration. Um, I think the, the best way, unless it's somebody that operates in all the divisions and willing to give us the valuation we need, I think this is going to be the way that we're going to need to, to, to go to, to grow the market to where we think it can go.

Okay, who can ask— who can ask the finance strategy questions or answer those. Who wants to go first? You know, he's talking about strategics, he's talking about licensing, he's talking about tapping into the IPO market, but he only needs $3 million.

And that, that public shell brings me to the $3 million plus a whole new group of folks to, to go after as far as the funds. You know, this is a well-known fund that's coming in and funding this shell. Um, that'd be the first tranche that will get us to where we need to get— need to go. So, um, it sets us up pretty nice. This brings on a whole series of new, uh, challenges. You need a public—

public company.

Yeah, that's— it's expensive and it adds a lot of complexity.

And it's— you're at the vagary of the marketplace, right? So you have a lot of control. Somebody needs to get their—

get their money out, and it can really have an impact on you when you're a small company.

Yeah, talked to Therese Medical last week. They dropped 60% in one day or something crazy.

Well, you follow Therese and Paragon, it's, it's one of those things where they're way off of their, um, their IPO, that's for sure.

Yeah. All right, Ted's got— Ted's first one up, and then Alyssa.

Oh, Ted dropped out. Hey, no, I'm still here. Can you hear me? Yeah, yeah. Hey, Tom. Great presentation. The public listing, is that via a SPAC? Is it a SPAC deal where you're—

It's a merger into a public shell that's a virgin public shell. There's never been a company in there. It's as two shareholders, one of which is an SEC attorney. They've been doing this for 25 years. So we don't have any of those trailing liabilities and we've got the New York fund that's come in and funded that. So it's not like we're moving into it and taking cash off the, you know, cash that's left in that company. So we just don't have any of the issues with that. You know, when we hit the market, it'll be under our own ticker. So it'll look pretty good. It'll be listed on the OTCQB. So, you know, we— our next thing is if we're successful, we uplist to the Nasdaq. But that's, you know, that's going to be a 3, 4, 5-year timeframe with success. You know, that's going to be the thing. Are we going to be able to hit our numbers and continue to develop the business?

Yeah. No, the reason I asked the question, I mean, just going public, doing an IPO, you know, everything that comes along with that, Tom, at this stage, every company with trying to build revenue and infrastructure scares me. Yeah.

Nice.

And, and how much control, you know, do, do you give up, you know, in that deal to the New York, you know, the existing company? Right. But, but I understand the challenge is, is you're not, you're like a lot of people struggling to raise, you know, angel and private investor or certainly institutional money in orthopedics is challenging. So I understand you have to look at everything to kind of keep the lights on and get, get to where you want to, want to go. It's just the IPO thing.

It's just—

yeah, it's scary.

I mean, look at it this way, Ted. Um, those are really good points. So our current valuation at the close of the last round is $25.5. Getting an institution to come in anything less than $10, right, is pretty difficult. And they're going to knock down that valuation anyway. And then you bring in $10, so you've lost control. Right, essentially, you know. So that the, the public piece is going to be a similar deal, but we're not going to see that— we're not going to see the dilution up front the way this is, is looking. I mean, we'll, we'll control 83% of the entity, um, when this thing, when this thing goes live. So we've been able to maintain that. Now, you know, obviously we'll get diluted as we sell more and so forth and bring in more folks, but it's a pretty good starting point, I think. What do you think?

Yeah, if you keep that level of control and if you're able to get the money, I think execution is going to be key to get, you know, to that breakeven point in today's market to show, you know, that. And ultimately, you know, the question is, you know, what do you and the other investors want to see in an exit? Is it, Stryker or Smith Nephew or someone coming. It's probably not Smith Nephew cuz they just did their Agility, you know, acquisition. They're just trying to, you know, swallow that. But the other question I had was, you know, what are you, you know, you started out and, and presented, you know, a solution to oats and microfracture. And, you know, my mind goes to knee and then you show, you know, foot and lower extremity, upper extremity. You said that 70, 70% of your, your current revenue is lower extremity. Some, some kind of clear focus, you know, on, on that. I think creating the, the, the divisions is good, but I, I think a PR campaign to kind of put, put a crystallized message out about subchondral solutions and how you're focusing. If you're doing so well in, in podiatry, I mean that if, and then that's where the bulk of your sales are, then you really focus your message around that potentially. But those, those are the kind of questions that I have upfront.

Sure. And that's, that, and, and those are really good points. And that's a part of we struggle. That's why I think these, these private label pieces, it's, it's a, the same technology in two of those verticals. It's a little bit different technology in the sports side because it's a, it's a PEEK implant that we, we're getting approval for. And that's one of the things in the knee that, that a lot of the guys like. And want. I lost my train of thought. But it is, the question is, what are you? And that's what we, that's what we run into. Oh, the thing I was gonna point out is the DPM market, high volume, a lot of, a lot of players in that. The challenge with the DPM market is somebody walks into your OR, we were with a big name surgeon using implant in the knee at Cedars about 2 weeks ago.. And one of our surgical podiatrists peeks in and goes, oh, hey, are you using that podiatry product? 'Cause he's also a user. So I was like, ah, that hurts. And so anyway, yeah. So Salomon, those two, they knew each other, so it wasn't a big deal. He was kind of a play. But that is a big issue that the thing that, that we've run into with DPMs, they don't, they don't routinely do MRIs. And when you're looking at bone involvement in any of this osteochondral disease, you really need to do an MRI. So most of these cases are being done off of an x-ray. So in an x-ray, you're not gonna see that bone involvement. So it's really hard. Is a patient, I've been in cases where the patient, when you, you get to the joint, the, the, the cartilage coverage is pristine, but that patient has problems. And that's what you usually do when you look at the MRI, you'll see where that pain's coming from.

Okay.

And it's that, that bone involvement. So that's what we run into in foot and ankle.

Yeah, I think there's a few other questions, uh, in queue. I don't want to let—

let's go to Alyssa next and come back.

Yeah, sorry, I get a little interested. Um, my, uh, first of all, I would highly, highly, highly recommend not doing an IPO, having worked for a company, a smaller company that went IPO. The amount of cost does not— is not advantageous for the amount of effort and the amount of effort and for the money that you're going to get. That being said, I've read two startling statistics. In Q1 of 2022, uh, VCs— we are now down in 2024 95% in funding. Yep. Um, based, um, if we're comparing to Q1 of 2022. The other statistic was VCs are holding on to, based off of a Wharton study, I believe it was $350 billion, the largest in history. So VCs, unless you're extraordinarily lucky, I wouldn't— I would definitely work around it and focus attempts to raise capital outside of those. Which there's nothing wrong with that either. I mean, if you're getting 7% in a money market savings account, you know, you got to be smart with your money and your people's money. Secondly, if you'll switch to the slide, the next slide, I saw a bone slide. I'm interested to see why the— why this is being revised versus Cartiva.

Yeah, a good point. So, there's a couple of things. We are a guided procedure and you can do, you can hit anywhere. This is a first metatarsal, so you can go anywhere on this head. You can see this is on lateral, right? Or medial, it looks like. So, you see the lesion, the guidewire's put in the heart of the lesion. So, you don't have, you know, you don't have some of that, those issues. The bone that we resect, you can see there's a large plug in the center. We're only take out enough bone to accommodate the housing of the implant. And when we're doing that, it's basically a circular osteotomy. It's decompressing the bone. When the implant, the implant with the graft is all done on the back table. And so when it's ready to go in, it's, you know, it's a complete augmentation there and it's threaded in over the guidewire. And it's threaded into that, into the opening that we've created. And so it's a, there's a lot of controls. If you look at a Cartiva, obviously it's a material that can change, it can subside, it can piston. And that's what they've found. Also, it's not allowing the blood, when you create that opening, the area around it, the bone really gets damaged. We've seen a lot of that where it's basically dead bone around the Cartiva. In some of these revisions. So we're able to go through, use the coring reamer, go back in, create that, get that bleeding started again. And then the implant is a, it's a titanium-coated hydroxyapatite, so it's not gonna move around. We've done serial radiographs on about 150 cases, never seen migration, never seen cystic changes in the bone. And when it, once it's threaded in, it's not going anywhere. That because you can dial it in, you can control the graft, the level of the dermal matrix to where you perf that, align that with the native cartilage. So at time zero, you've gotta, you gotta a functional repair. And you can see over here is a, this is what it looks like at the conclusion of that case.

So are you supposed to bury the implant?

Yeah, yeah.

Oh yeah. The implant's about 5 millimeters, 6 millimeters below the subchondral plate.

So that— so I get concerned about that. So I worked in foot and ankle for quite a few years, um, and my concern is because it's not a balanced joint, meaning, um, meaning you can get subsidence from the, uh, the PIP, um, because you've overburied it, because you buried it, um, I'm not a big fan of PEEK. There's some studies out there that demonstrate pseudoarthrosis from it, but PEEK might be a better option because it's porous. But are you guys looking at PEEK at all?

We did look at PEEK and I can't remember why our engineers said that that wouldn't be appropriate for us. The implant out of PEEK, it's fully epenetrated on either side. So it's allowing the blood to wick between, you know, through the fenestrations. And it's a HA-impregnated PEEK. Okay. And so where we, reason why, and PEEK won't be applied to these areas. That's not the concern. The area where there's concern is burning bridges and a total joint, right? A total knee, right? And so they're not gonna be able to cut through this titanium. So depending on the depth of their cut, You know, this could be in the way or could not be in the way. And you can't, I mean, you're gonna have to use a trophine to get this thing out. I mean, it's fully integrated into the bone. So that's, that's the real, the real pushback that we get in, in knees at this point. We just haven't spent a lot of time in that because of, because of that. Now we have guys, we have some big, big hitters that have really come along and it's really, it's, it's interesting to me 'cause we just haven't put a lot of effort in that, but Everybody who uses this, they said they'll never do another OATS. And because of this control, they're not taking out, trying to get it, you know, on a press fit, it's hard to get it aligned with the, with the, the native cartilage. And you're able to do that. You can match the curvature of the, of the anatomy and you can dial it in, dial it back out. So it gives them a lot more control. And it's guided, right? So you're, you're running into, it gives you some, some additional benefits. But that's where the peak will come in, is primarily knee.

Got it, for revision. Yeah. Yeah.

Okay.

Just so they can revise if they need to, right?

Yeah.

Elizabeth is up and then Corey.

Okay.

Yeah.

So Thomas, I was wondering, given your concerns about the DPMs, are you trying to perhaps reach out to them less, market to them less, and switch over to more foot and ankle surgeons? And additional question of the roughly 150 foot surgeons you have now, how many are foot and ankle specialists?

Probably 75. It kind of matches our, our revenue model, right? Our mix on our revenue. We have Mike Coughlin, Rick Furcole, Sam Adams. You know, we have some of the big names, Carol Jones. They just— what we've found is the foot and ankle MDs, they don't want to do toes. They really want to do more difficult procedures. And so, you know, in the hindfoot, you know, we're doing the, the Taylor domes and you can do, you can reach about 70% of the head arthroscopically. This is all designed for arthroscopy, obviously it's for the knee. So they can do that and that's where their interest is and that's where they've used the product at this point. But we just haven't— it's just not a wow factor to a lot of the foot and ankle MDs because they don't deal with this.

Okay.

I mean, is that, is that your experience? I mean, I, you know, again, you guys have been doing this a lot longer than I have.

All my MDs did toes.

They did?

Yeah.

Okay. We have a, we have a come across?

They would combine them. Yeah, they would combine them with midfoot triples and so on and so forth, but they all did toes.

Okay.

That's definitely not been our experience. I'm glad to know there's a possibility out there for that.

I think, I think honestly what might be a need to overcome is the fact that it's a dermal matrix on the adjacent bone. The dermal matrix has been, particularly RTI dermal matrix, has been around for a very, very, very long time. I mean, as long as I'm aware of it, probably at least 30 years. And there's a lot of intel about Dermal Matrix and the scarring that results from it. And you— it might behoove you if you want to get into that market is to use a different type of polymer for the end cap.

Gotcha.

Okay, that's good advice. You know, one of the things that, you know, obviously we have to show what's happening to that graft. And we have guys using Prochondrix. We have a— we are, we're agnostic to what they put on top of the implant and we don't care if they put anything on the top of the implant because the studies have shown well and we have about 20% of our cases are done without that. I'll show you, this is a knee and you can see that bottom right-hand side. That's what it looked like 28 months after, after the implant was put in and the graft was integrated. And that's a, you know, that's an Olympic volleyball player, AVP volleyball player. So she's, she actually is 4 years out on May 27th.

So do you have any, so like with CartiHeal, they have their data shows like 85-year-old patients having these same type of results. And a volleyball player who has good bone mineral density, high blood flow, they're, they're gonna be, they're going to be the best you can possibly get. So I, if it were me, I would post, I would show a demonstration of older patients with poorer bone quality, lower blood supply. Um, I think I love the fact that you guys address blood supply because that's the reason why you're getting tumors underneath. These companies are getting tumors underneath their, um, implants, right?

Right.

You know, it's a really good point. So two ways, right? We measure, um, KUHS is our primary, Lysholm, but Tegner, right? So Tegner really applies to somebody like this, um, where it's really high demand. We, our age range is from 14 to 84. And that sweet spot is that 30 to 55. That's really where we see that, that we're doing most of our cases. So we have, we have that, you know, we, we use this. Let me see if I've got any others. This is a different deck. Yeah, that was the animal piece, which I can come back to now. I don't have it in this deck, but, um, I've got things where I can show you what the CT arthrogram looks like with that integration of the graft. Um, uh, and then a whole host of different, um, uh, joints with this, with this, uh, with the implant in. This happens to be a direct view, and we have probably 20 of those challenges is what patient's doing. Well, they don't wanna have you come back in and look at it. So this patient here actually had her other knee done. And so, so that was obviously a vote of credibility, but that's when we were able to take this look.

Okay. Do you have a registry? Sorry, I'm asking so many questions. 'Cause if you have a registry like CartiHeal, 'cause they're having the same results with newer technology and that's where, particularly in the knee, I would be scared as an investor because there's so much new data coming out and there's way less expensive options that are showing the same type of— there's various polymers that they're impregnating with bone marrow aspirate concentrate and HA injections, and they're creating a hydrogel that they're injecting and they're having these same things. So there's a lot of competition in the knee market. In fact, I would stay out of the knee market because there is so much competition in it.

Right.

You know, that's a really good point. The thing about it is there's not— people aren't addressing the bone and we really believe that's a key part of it. So you look at Macy, right? You look at the, you know, all those products are contraindicated for bone involvement, right? And if you look at CardiHill, you know, when they, they get their PMA, what, 2 and a half years ago under Ajili C. The side-by-side to us based on our average coos at this, at the same time, we're more than double the, the, we have better, better numbers by more than double. Right. And so it's going to be a certain group. And I got to believe, and it's not on the market yet, none of, at least none of, we haven't seen it anywhere. But with that technology, that's got to be an $8,000 or $10,000 plug, I would think. Now maybe I'm way off on that. So you look at it and you're, you know, we know how hard it is to get products in and to get the full reimbursement and all of those things, right? The facilities are making money on ours, right? And so that's the area that, you know, again, that's a big benefit for us. The knee is a very competitive market, no question about it. You know, and that's the verticals I'm working on are upper extremity and foot and ankle. That's our main focus on that. The sports will come along and we'll see if we can develop that. But all good input. I appreciate that.

Yeah, good questions. Corey's next and then Patrick.

Yes, sorry, I apologize ahead of time if you've already covered this. My internet was going in and out. So what I would like to know is, so obviously you didn't have a predicate device for this. How long did it take to get through the regulatory process, and where did you do your IDE studies? The IDE was done at UC Davis, um, and then the, um, uh, the first clearance took about 120 days. The second one took, um, probably about the same. The third one only took about 3 months. The— obviously it's our product. And then this, this the fourth one that we're looking for with, um, with the PEEP, um, because it's where we are the predicate for that, we expect that to be, you know, hopefully 6 months or less. And these are 510s, so it's, you know, that, that part of it's pretty easy. We have, interesting enough, um, at Banner Health, you know, you have your, your VAC packet that you send in, and somebody looked at our predicate on one of our clearances and it was a headless screw. Right? That's the predicate. Well, somebody read that and they go like, we have lots of headless screws. It's like, it's not the same. But, but that delayed our, our acceptance into Banner for sure. Interesting. Did I answer your question, Cory? Looks like he's frozen.

He's frozen.

All right, Patrick's up. Thanks, Tom.

Did I hear you right that initially the product was cleared without the dermal matrix?

Oh yeah, yeah. 3— 2 of our clearances was out without the dermal matrix.

So was it FDA's understanding, at least at the time, that the implant was supposed to be buried, like countersunk, or did— and they— and was— they just sort of assumed that that gap would just be just space, or someone would just plug in some random bone graft, or—

So this is the study right here.. So you can see at 12 weeks, the coverage was pretty good already, right? At 26, it was fully covered. And that it was stained safranin, stained safranin O for type 2 collagen. And this is only, this, the, the animal was sacrificed after 6 months. This is before I got here. I'd love to have seen what, how that type 2 collagen, what it matured to if it changed, right? Because it could have been that maturation process. It's, it's a lot of, there's a lot of confusion on You know, how do you get to Highland if it's even possible? Right? And so I'd love to see what that maturation process was, but this is exactly how it was designed. And by the way, this, this is with just the titanium. It's not with hydroxyapatite.

And they had no sort of articulation concerns or that, that's what, you know, they, they tend to get very spooked by materials and, you know, when they're, you know, two surfaces rubbing against each other.

Absolutely. And that's, again, we're, we're, we're buried, right? We're 5 to 6 millimeters below the plate. So we're not in that, we're not in that articular space. I mean, it's like, think about it as a, like a microfracture, right? I mean, you're not putting an implant in there, but you're, you're causing damage trying to get that, that blood clot to turn into some sort of fibrocartilage or whatever.

Right.

It sounds like it's a bone edema solution, you know?

Right.

And you can just kind of, if, if you want, you can put a cartilage top on it. That's kind of what it sounds like. But bone edemas are the, what causes all the pain. Yeah. And like, like Tom said, it doesn't show up on x-ray. And if you have, if you snap your ACL, everybody's gonna have a bone edema. You're gonna have a huge bruise. Right. It's not gonna heal.

Yeah.

Yeah.

And that's, and that, that's really what it is, is it's a, it decompresses that bone, gets rid of the pain. That's, you know, patient comes in because of pain, right? And so that patient's pain is relieved. And, you know, we see the, the amount of swelling after surgery is much lower than what you're seeing with these other, other procedures. And our return to activity is about 25% of what you would be doing for an OATS. You don't have to wait for any integration.

Yeah. Once you can put an implant there to share the load.

Yeah. And you have guys that are, you know, coming out of surgery with one crutch and by the time they get to the doctor's office, they're walking and they, and they're getting that range of motion is really good 'cause you have, you know, a lot less swelling.

I think the idea to clear it or to use, to use fracture fixation, you know, what we all kind of think of as fracture fixation devices as the predicates.

Yeah.

That was pretty clever. Whoever thought of that.

Well, that's what, that's part of our clearance.

Yeah, whatever regulatory consultant or whoever thought of that idea, I think that was pretty clever.

Yeah, yeah, thank you.

It makes life in Class II a lot easier in Class III.

Yeah, 'cause most people wouldn't hold up a headless screw and then hold up one of your devices and say these are the same. Most people who sort of know orthopedics would not hold those two products up and say, well, this is just another version of this.

Yeah, but that's a value analysis committee, right? You don't know who's there. I love the presentation that Mark gave is that, okay, the business guys, you talk clinical, clinical guys, you talk business, right? And so you could get that picture, but you're not always in those value analysis committees where you could, you know.

No, but to be, whoever made that argument to FDA, like good job by them, I think.

Yeah, Mike's done a great job. He's a one-man show too, but he's done a great job for us. Good to know.

So going back to funding, any more— here, Mark Maloney's up. Any more thoughts on IPO versus other ways to raise $3 million? Go ahead, Mark.

I had a real good talk. This is not, this is not why I raised my hand, but I had a real good talk with, uh, Ted earlier this year about the potential of crowdfunding for our compliance company because we are sort of having the same challenges. But anyway, so I don't really have any great answers there for you. The, but the first of all, I want to apologize. When you started talking, for whatever reason, my phone called you. So it pocket dialed you.

Oh, is that who that was? I've been having all these calls.

Yeah. Oh, that was a complete, just a weird, I don't know. I, I looked down all of a sudden, I'm calling Thomas.

Why?

I don't know why. Anyway, when I, when I, when I took over Treece here with my other business, the guy that the original distributor had focused on podiatry and had really failed miserably. I focused on orthopedic foot and ankle.

Yep.

And we blew it up. Yeah. And then they bought, they bought us out. The distribution chain between foot and ankle and sports is so different. There's a lot to be, there is, there's a lot to be said for figuring out where the tip of the spear is and just drilling down whatever, whether it's foot and ankle or whether it's knee sports medicine. And then my last question was, do you, are you doing anything internationally or in Canada?

No, it takes too much money and too much time. We're hoping that hits us to somebody's wagon that has all the regulatory people to do that in the legal, right? We do have our patents, we have worldwide patents in most countries. So we're papered up nicely, but we haven't even started any of the regulatory. We, I was really seriously thinking, I've got, you know, I've done a lot of business in Australia and I like Australia because they're, it's a young population that's very active. And so we would fit very well.. And so we actually had a deal set up where we could go through, because they don't accept FDA at all. TGA is a final approval, but they only accept CE. So an FDA clearance, you can go to New Zealand and you do 50 patients there, then they'll take the data. Right. So it's a lot different than when I did this before down there. That's a very attractive market to me just because of the, the, um, it's a good market.

Yeah, it's a good market. It pays well. And as Tiger knows, I'm on the board of a cartilage repair company that does real well in Australia and New Zealand.

So, yeah, thanks.

I'll just chime in and say, uh, avoid crowdfunding. Tom, you know, yeah, to stay away from crowdfunding.

Yeah, Ted, that was such a great presentation. That you did on crowdfunding. You saved me a lot of energy on that.

So thank you.

Speaking of commercialization, I have Australia's— is their distributors over there. They lose product so often because the product gets acquired. Australia is a great place to go. I am talking in talks with UAE. Coordinate, and I'm happy to— and distributor, um, and they may consider an investment in us in exchange for, um, commercialization rights in the UAE. And I'm happy to connect you once we're through this.

That would be great. I put down, um, when the, the Abraham Accords had been completed, so they had this Abrahamic business, um, uh, circle. And so you had the technology coming in from Israel, you had the money coming in from, um, the Arab countries. It was an outstanding meeting. The problem with it is the amount of money I was looking for because I, I had distributorship, I had a bunch of the key docs that were ready to go, but I didn't have the money to do it right. Because what you would do with what they were asking me to do is set up shop down there. You don't have to manufacture anything. So you'd have a— you'd have your entity down there. That's what they're trying to do is for that during that diversification. Great guys, but the guys that I came in with, right, they were looking for $100 million. I'm looking for, at that time, I was looking for $3 or $5 at the time. So it just wasn't that interesting. It was cool though. I gotta, I gotta have a coffee with the Emir. So it was kind of cool. I'll get some pictures of sitting across the way. But also Kuwait. Kuwait was very interesting because it's all Americanized. I mean, you know, when you go there, it looks just like, you know, basically like us outside of the calls for prayer throughout the day. A lot of interest there. And what ended up happening is Kuwait really shut down during, during COVID And, you know, think about it, we launched May of 2020. So right in the heart of that. And so we get down there when I had some investment from Bader Sultan and their guys I've done business with in the past have been perfect for us. But by the time they got shut down, because their funding was going to come in in January or February, everything was shut down. I mean, they're deporting guys. I mean, it was a real mess. And so that's never, you know, I've never really circled back to those guys. It's probably a good idea to reach back out to Ahmad.

And, you know, Barry had it literally, we had the same question that I was going to ask. Are you considering military contracts? Red One Medical? We've talked to them. And then secondly, if having two sales forces, like a foot and ankle person is not going to usually be talking to a knee surgeon. And so if you can license that out and only focus on one, because distributors very often are, are not comprehensive. They're getting more comprehensive, but a lot of times they have divisions within. And they're larger distributors. And so somebody that knows the knee doesn't know the foot and they don't know the other, the contacts. And so they're walking in cold.

Right.

Let's—

and Alyssa, where I was actually going was that if there are military applications for this in terms of repair, whatnot, there is military funding through the DOD. And I have a potential contact for you that I'll send you, Thomas Hoffmeier, where they do, you know, initial investments in startup companies. And then do follow-on investments in the tune of what you're actually looking for. So I don't know if it's a fit, but, you know, certainly willing to make the kind of warm introduction.

That would be great. Yeah, we've had a VA contract now, VA, DOD, and the Indian Health for about 2 and a half years. We've got really good business in Tripler, Walter Reed, Fort Meade, I think. So we've penetrate that market, we need to use a RedOne though. Alyssa, to your point, I mean, those guys are outstanding. The way they had set it up is that when I first met with RedOne, they've got a fixed monthly fee that we couldn't afford and be in, and there was no commitment on the volumes. I think they're outstanding, but I couldn't, you know, it's too risky for us to put in $150,000 with a group like that. Yeah. Without having any volume commitment.

So that was the same thing that we faced as well.

Yeah. But they're great. I mean, their reputation is really outstanding and that's why they charge so much. They know, they know they're outstanding.

I've got, I've got another alternative for you, Tom. Apiary Medical. I'm actually an investor and a friend of mine started the company. Chris Hadzel. So I'll send you his contact info. Very connected with DOD and the innovation group at VA.

Yeah, that would be great. That would be outstanding.

Good.

Well, as usual, this is a, this is a worthwhile meeting, worthwhile hour, right?

A lot of, lot of smart people with a lot of experience. And with 50 people now in the hive mind and we get 20 show up every week, it's pretty powerful.

Yeah.

Yeah.

Anything else, Tom? You, you good?

No, I think this has been very helpful, guys. I, I really appreciate it. And, and I know you've all been through these things. You know, it's, it's hard when you've checked every box, right? And you get to this point and then you just don't have the money to go ahead and, and grow it. And, and back to the, just for one last thing, is that I have divided this business up because these distributors, it doesn't— it has to align with, with the, with their call points. And the problem with the way we have been is that it's the same product for all these different specialties. So you have a distributor bringing in for foot and ankle and you have somebody wants to bring it in for upper extremity. It's the same product. So that has to be delineated. And it doesn't matter if it's the same product, if as long as it's a different package and different SKUs and different product description, it doesn't matter. Right? So you can have those guys fighting over it cuz those specialists don't really talk to each other either. So that's what, that's what we're trying to do and that's where the private label would, would really help us.

So good.

All right, thanks guys. Another good bone chat next week is, uh, Brennan at Osseo. All right, have a great week. Sounds good. Invite your friends, invite your friends. Same price for a week.

I like it.

Thank you, guys.

Okay.

Yeah.