BoneChat #88 - IntraLogic's NexSys RFID Cuts Surgery Waste 80% & Boosts Efficiency

So this is Bone Chat number 88, and my friend Chris Runnels has agreed to join. Chris and I actually work together on the Bone Factory, so we help surgeons move their ideas into prototyping and sort of test their ideas out fast and cheaply. And we kind of have a virtual incubator going and done a few little projects. We're about to get more formal. We're gonna, we're gonna do an LLC and try to raise some money. But, uh, so Chris and I work together. But anyway, Chris is a great guy. He's a venture capitalist. He's been a board member of many startups. He's a serial entrepreneur. He's, he's, uh, he's in our space deeply, a great guy for everybody to know. So, and he's gonna— today he's gonna be talking about Intralogic. So handing over to Chris, and you can just share your slides anytime you want.

Sure, appreciate it. Thank you, Tiger. Yeah, I've been in the med device world for a while now and in various capacities, and, you know, I've really been focused on the implant side. And a couple years ago, I got approached actually by my old peewee hockey coach who said, uh, hey, I have this company that I'm involved in. I'm thinking of investing, but I don't really know much about the space. Can you take a look and, you know, fill me in? So we had a couple sessions of coffee where I talked about the, the space and the effort and what's important. And it's, it's on, it's on a different side than the implant side, uh, but it really intrigued me because there's a lot of connections obviously to the OEMs and their inventory. And I got so interested that he said, hey, what are you doing right now with your time? And I said, well, in the limited bandwidth I have, I can probably take something up and, you know, help you out. So that eventually evolved into me running the company and being a board member as often happens. And I'm, as I'm sure a lot of you have experienced, So I'm going to present on Intralogic, um, and, and would be interested in your feedback, your thoughts. Um, we're gonna start our raise in the next couple of weeks, um, and, um, you know, obviously if, if you see interest or you know someone who might have interest, I would also appreciate connections. That would be great. So let me There. Can you guys see that?

Yep, coming in.

Awesome. Okay, so Intralogic, um, if you look at that instrument, um, just above the, the finger, there's an RFID chip there. So what we do is— and this is an older RFID chip, it's a little bulky, it was for our, our proof of concept/pilot, um, at a Michigan hospital. And what we do is we have a software platform where we track surgical instruments via RFID. And we've all, we've all experienced this with different OEMs or distribution distributors or distribution channels trying to track their trays. And they put some sort of tag on their trays. It could be cellular, it could be RFID, it could be barcode, etc., etc. Um, for me, that was always problematic for two reasons. One, uh, you can track the tray, but you don't know what's in it. That doesn't do you much good. Uh, number two, a lot of the effort to track implants, trays, instruments, etc. is driven by the OEMs and managing their inventory and their capital investment in their inventory. That is— we've seen many companies fail at this, and that is problematic at the facility because the facility very clearly sees that that's for the benefit of the OEM, not for the facility. So what we did was we took it from a different side. We went to RFID. RFID is, you know, a small form factor. Pardon me one sec. I am working. Please get out. Sorry about that. Camp ended early today.

We've all got to get somewhere.

Yeah. So RFID, it's well known. It's used in a lot of hospitals. We use passive RFID, meaning we don't need to have any sort of battery pack or anything like that to make these work. It's passive. The scanners excite the chip. The chip spits out information, and that goes to our software system. The reason we chose RFID over barcode is barcode, if it gets scratched, it doesn't read. And the, you know, you don't want to etch a barcode onto an instrument because then, you know, if it gets scratched, it won't read. And a lot of the barcode application techniques with tape or shrink tape or anything like that don't stand up to sterilization in the autoclave. So that's why we chose RFID. So what we're focusing on is for the facility and for the healthcare industry. So significant portion of healthcare spending is wasteful. We know that our original focus was sterile processing. You know, it's an incredible expense for facilities and we're seeing pushback from a lot of facilities, particularly in the ASC setting where a lot of the orthopedic and sports medicine procedures are going. These are, you know, being gobbled up by private equity and they're very focused on spend. So you're seeing a lot of pushback from facilities on the OEM saying, look, you can't bring in 7 instrument trays. I want 3 trays, I want them tight, I want them clean. Um, so there's a real push in the industry to reduce the amount of instrumentation and the amount of material that's going into the hospital. And if you're an OEM and you're bringing a tray in, the cost for sterilizing that for the procedure— you know, the rep brings in these trays, that goes to the facility, not the OEM. So that's all cost that they're bearing. And then What was really critical to us was we dove into the literature and understanding that a significant portion of instruments that are brought into the OR are not used. And every time you bring 'em in, you take the blue wrap off, it's not sterile. You have to re-sterilize it to use it. So, you know, we call that preference card management on the instrument side. There's a lot of companies who do preference card management like Vizient on the soft goods side. But there's not a lot of companies, or very few I should say, focused on instruments and managing the preference card from that standpoint because there is not a data set by which they can do that. It's mostly anecdotal from the physician. So with our platform, the Entrelife platform, it allows us to track, track all of the instrumentation from central sterile So from decontamination through the washer into set assembly or tray assembly and onto the shelf. And with tracking in live surgery, which we do in the OR with a set of pads that are readers and, and the instruments in their trays or on the table, is we can accurately determine which instruments are used and which are unused in any procedure. which allows us to reduce the size of the instrument set going into the OR. Um, and accurately tracking it within Central Sterile means that that tray is going to be assembled properly every time. So, uh, a significant portion, about, um, 35 to 40% of procedures are delayed, um, in the OR due to poor or incorrect instrumentation going into the OR. So there, the main contributors to that are bio burden, not properly inspected when put into the instrument set, the wrong instruments, trying to substitute or not knowing what the instrument is and putting it in an instrument set, or instrument maintenance. You know, last time we had this procedure, the physician puts a sticky note on an instrument and says, I don't want to see this instrument again. Well, that sticky note falls off, and what do you know, that instrument's back in his set, and he's throwing it across the room, right? And hopefully not hitting the rep in the head. So, You know, the ability to know what's going into the OR and know that it's correct every time allows procedures to start on time. And then postoperatively in the OR, if you are counting instruments, we count them live, real time, it reduces your room turnover time. So in our pilot hospital where we did a 6-month pilot with an orthopedic surgeon focused on their hip and knee trays, we reduced the tray by 78% and we calculated on an annual basis, they have 10 ORs, we calculated on an annual basis that we would save them about 2,300 hours in a year, which would be the equivalent of adding another OR. So it's not just time savings and efficiency, but it's also the ability to add on extra procedures. You know, this is all what I went through. One of the big aspects that, that we didn't really focus on or understand was the transient nature of SPD. There's a lot of turnover in SPD. So the cost associated with bringing on a new SPD employee, training them up and retaining them at the initial stages is about $60,000 to just bring someone on and train them appropriately. With our platform, um, and, and we— what we do is we give them a, a, a mechanism by which they can train them easily, get them, uh, familiar with the instrumentation, but also how to properly build sets. And it's active confirmation that the set is built properly. Um, so this, you know, this is the platform we have. An RFID chip. This is our software. And then this is the current form of what we're, we're using, um, in SPD in the OR. Uh, we're transitioning to more flat panel scanners where it can just lay on a table and it's completely passive. It doesn't require hand scanning, um, which is, you know, we want to be as seamless and as, um, agnostic to how any one facility operates in SPD and the OR. Going back to the perfect tray, ensuring that the SPD and the OR work well together. This is all— this is a contentious relationship in any facility, right? There's delays in the OR. I don't have the right instrument. You have, you know, the scrub nurse or circulating nurse running down to SPD pulling trays off the shelf to get— find the right instrument, undoing blue paper. Well, it's not just your procedure instruments that are being affected, it's everything else you're rummaging through to find the correct instrument. So the ability to build a perfect tray for the physician, empowering SPD to do that with very clear direction and confirmation that they have built the, the, the set correctly. Uh, pre-pilot inefficiency. This is from— this is really from our liter— the literature search we did. Um, we wanted to leverage the, our pilot facility to say, we're going to do, you know, an implementation, but we would love some data to understand how you currently operate. And what we learned and kind of what we knew, but we didn't realize the degree to which they didn't have this data. They don't have any data on what's used in the OR or how effective or efficient their SPD teams are. The only thing they have they can really point to is here's our infection rate, here's our on-time starts, they don't really know why. So we did a pretty deep dive into the current literature and really identified leaks where hospitals are just hemorrhaging money. And it's really across the board, not just a central sterile, not just in the OR, but from a supply chain standpoint, redundancy of instruments. Our pilot facility, The CEO said they spent $1 million on instrumentation solely from calls coming from the OR saying, I need a new one of these. They have no mechanism by which to check whether or not they have that down there, where it is. They just go and buy it because their top revenue surgeon is annoyed and wants this instrument right away.

Chris, Vinay's got his hand up.

Yes, sorry. Yeah, hi, thank you. Chris, Pardon my ignorance here, but can you explain what is meant by non-cavity cases active scan versus cavity cases? So non-cavity versus cavity cases. So our first pilot was with an orthopedic surgeon. So, you know, they're gonna be, you know, doing a total knee and the chances of leaving instrumentation in a total knee are, very low. There's just nowhere you can put it. Our second pilot, which we're going to do, is with a general and vascular surgeon. So we're talking about opening up the body, you know, a cavity where an instrument could fall, a sponge could fall, et cetera, et cetera. So the bar, you hate to say it, but the bar is a lot higher when you're doing cavity cases and the repercussions of not knowing where your instrumentation is. So in cavity cases, you know, there's a lot of redundancy when it comes to instrument counting, pre-op and post-op counting of instruments. That takes a lot of time because I have to get it right. With our system and the pad on the back table, you're essentially every second counting the instruments. So, you know, when an instrument leaves the tray/table, goes into the, you know, the physician uses it, and then you know when it comes back. So you are continually doing an instrument count. So post-op, your instrument count is instantaneous, and you don't have to do redundant counts. Does that answer your question?

Yeah, it does.

Thank you. Great. So this is the, you know, the pilot savings summary of our initial pilot. So supply chain replacement, instrument reduction, about $1 million a year. Ensuring that you know where all of your instrumentation is and you have a count of it and you know how often it's used. So it's not just can we track it, it's metrics with how often is it used, when was it last refurbished, how effective is it, is it at end of life, do we need to get a new one? And we're not going to be the favorite partner of any of these companies like Asqulab or TAG or anything like that, but that's not our goal. Our goal is for the facility, right?, and I, I live in New Jersey, so I went to Morristown Medical Center, uh, about a year ago, uh, not to pitch this, just to sit down and talk and, and understand the problem better. And Morristown is a, is a top-rate hospital, um, um, in, in certainly in New Jersey and in the country, level 1 trauma. And they said this is a massive problem, and they actually had an ASCULAP in there the previous month asking them to do— they asked Asculap to do a full inventory of the instrumentation they had. They said, we're not going to buy any more instrumentation until we know what we have. And Asculap came in with clipboards and paper. So you might know what you have on that day when Asculap finishes, but as soon as you start operating again, that's obsolete and does you no good. Um, so there's a significant supply chain effect, uh, uh, for this, which we To be perfectly honest, when we first started out on this, we did not account for that. But there is a significant supply chain effect, particularly when you think about these hospital systems and their inability to move assets around to different facilities as well, optimizing efficiency within the facility and their assets across the system. They don't have the ability— they can't do it in a single facility, let alone across multiple facilities. So if you have an ASC across the street, you're buying redundant instrumentation to reside in that ASC where you could probably go through your existing instrumentation and outfit that ASC pretty well with what you have. And then SSI-related costs, the SSI is surgical site infection. That's a very tenuous outcome for us to hit. But if you are, and this was actually asked with the pilot hospital asked us to put this into the presentation because they have an SSI issue. They just had a JCO audit and that was a big issue for them. And, you know, the contributors to SSI are instrumentation with, you know, dirty instrumentation getting into the OR with bio burden, but also the more times you are in and out of that room, you're increasing the chance for infection. So if you don't have the correct instrumentation in the OR, you have someone out going out, try to find it, and that's problematic and that contributes to SSI. So in our analysis, we only, you know, we said we would reduce SSI by 1% as opposed to, you know, the national average is 3 to 5% SSI cost. We say we can contribute to reducing that by about 1%. And then instrument processing reduction. If you reduce the number of instruments you're processing, your cost is gonna go down. You know, your effective cycles increase. And then obviously the big payback for this is in hours, facility hours. So visualization errors are those errors where the instrumentation doesn't go up to the OR correctly., and then recovered due to, reduced instruments and sets. Um, that's a huge number, and we dove into that. And there's, um, quite a few papers out there that say when you reduce the size of the instrument set, it reduces the time of the procedure. So, um, that, that's a little hard to measure, but when you dig into these papers, you start to see, oh, that makes a lot of sense because it, it's a, um, the effect of not having to sort through as many instruments when the physician asks for something. The personnel in the room knowing what instruments are there because there's less to know. And then also the ability to account for all of your instruments pre-op and post-op very quickly. So this is, you know, these are, this is our pitch deck. So it's not really for this forum, but, you know, our model, there's a $3.5, $4 billion addressable market. And every facility we've spoken to, this is a huge issue. Inventory management and asset management and increasing efficiencies through these mechanisms. The competitive landscape, there's just not a lot out there doing this. And I think the reason there's not a lot of people out there doing this is if you take a step back and you realize how many instruments a facility has, it's unbelievable. At our pilot facility, they process 200,000 instruments a month. So that's, that's a massive number annually, and that's a subset of all of their instrumentation. So the, the scaling challenge that we have as a company is how do we tag all of those instruments? That's, that's a massive effort, and it's expensive. You know, for a facility to tag all of their instruments, if they have 10,000 instruments, that's a couple million dollars potentially. But what we've done is we've gone through an iterative process. The old chip I showed you, where was that?

All the way up here.

This chip we welded on and then we cover with an epoxy adhesive, kind of belt and suspenders, all able to go through the autoclave, all all materials known by the FDA, so there's no burden there. But what we've done is we've found some new chips that go straight, that go straight on with a little abrasion and epoxy. So our ability to tag instruments in high volume has increased significantly, which is going to help our scaling efforts.

What, what's the business model, Chris? Is it a user fee or SaaS?

Yeah, so it's a SaaS. So it's a subscription model. A monthly per OR fee. So if you have 7 ORs and you want to outfit all 7, you're going to pay X number of dollars per OR. And then we have an implementation fee, which includes onboarding, shipping instruments, getting the, you know, appropriate scanners and hardware in there to run the system. And right now we are running independent of any other system. So whether we plug into, you know, EMRs, et cetera, et cetera, we're not contemplating that yet. We're running independent cloud-based solution that they can just type a URL in and be in their facility.

So it looks like if I'm reading your chart right, it's about a little over $1 million per customer per year.

Is that right?

Yeah.

Yeah.

Yep.

That's about right.

Yeah.

So we have a managed service fee, tagging fees and, you know, that combination. We think the SaaS model is the best model. We contemplated many different models and changed our projections a lot, you know, Being coming from the venture world, this, you know, everyone has a hockey stick. Ours used to be a lot steeper. I'd like to think I provided a little bit more rationality to this. But, you know, after year 5, you know, I'm anticipating the question among potential investors after year 5, why do you only have 1% penetration? And that's because, A, we're rational and B, it— the, the, the lift in the beginning is not insignificant to tag the instruments and, and get it implemented and get them using it. Um, but the return, uh, is significant. And we built the model so that they realize a return in year 1, not year 5, uh, when implementing this. Um, because as we know, cash flow tends to be a, a significant issue, not just for medical device companies, Tiger, but also for hospitals. Um, so talking about that earlier.

Yeah.

So, um, That's— and I kind of rushed through that, and I obviously need to work on my pitch a little bit. Um, but, um, you know, what, what we're anticipating is also growing the product. Um, uh, you know, evolving it as we go. So right now we're really central sterile in the OR, um, and, and understanding on an instrument level, uh, instrument asset level where they are, what they're doing, and how they're being used, and how we can optimize the use of other instruments. It's not a stretch of the imagination to also understand that you can really transition central sterile to real-time inventory management. You know, central sterile is, it is archaic in how they build and how they manage their inventory. If it comes down from the OR, they sort, you know, they decontam, sort it, put it in trays and throw it on the shelf. So there's a lot of redundant instrumentation. They don't know where it is. A lot of it's mothballed. They don't even know it. Um, with this system, you can eventually evolve to real-time management and build the day before knowing your, your procedure schedule. Trauma, the other side of it. But, um, other than that, you know, scheduled procedures, you should be able to build real-time the night before, uh, and deliver that. And eventually, um, you know, if, if and when we ever get to that point, it would make sense too to test a model of outsourced instrument supply for facilities, meaning you, you, you take that cost off of them. You do all of the decontam, sterilization, packing, and you deliver real time. The reason we're not contemplating that and not pitching that is that you're now a logistics company, and that's not what we're focused on. But, but that could come with, with this. And I do think that at some point, a portion of the industry is going to go there, particularly with, with a lot of procedures going to the ASC versus the hospital setting.

Yeah.

Kyle?

Yeah, if you're going to get to this, please just tell me to shut up and wait for it. But I'm curious to know how you've built your, like, your execution model here. Is this somebody parked nearby the hospital for a month taking waves of instruments and burnishing them and sticking parts on and trying to do it in part? Or how does that execution happen?

Yeah, so we cherry-picked that early, Kyle. We picked a facility that's close to our contract manufacturer and where our founder is. So we use a contract manufacturer for the chipping. It's kind of an odd marriage, but our contract manufacturer is a supplier to the RV industry. They build motherboards for RVs, and so they do high-volume management of small pieces and putting them together. So, and they're the ones who know about, you know, they're the experts on RFID and the tracking and the pads and everything like that. So what we did is we partnered with them and said, we need to come up with a process to put these chips on that is reliable, repeatable, and can handle high volume. So What our deployment model, Kyle, is that we have a resource called an ATE, and that's at the elbow in med device world. And so, you know, traditionally that would be the rep, you know, in the procedure helping the physician with the implant. With us, it's really, you know, it's going to be someone who is a former SPD manager or a rep or someone who understands how to move within the facility and how instruments move within the facility. And really they're there to be our advocate and help them implement. So they'll be saying, they'll be the ones who are responsible for staging which instruments leave the hospital and when to be tagged to ensure that there's no procedures missed due to instrumentation being tagged. That being said, our turnaround time for tagging instruments is pretty quick. We can do about 1,000 instruments in a day., from a tagging standpoint. So that allows us to quickly cycle through, instruments and, and develop a, a plan for when we're going to take instruments out of the facility, get them tagged and bring them back, you know, put them, put into the database and brought back to the facility and back into circulation. Does that answer your question, Kyle?

Yeah, Kyle's good. Yeah, there definitely is some manual, part of this business. But once you're set up, once the customer's set up, it should— they should be good. Uh, go ahead, Cope.

Hey, Chris, this is a really cool project.

Um, hold on a sec, let me turn you up a little bit.

Yeah, you need to talk louder.

Yeah, that's not usually a problem. Uh, this is a cool project. I, I was an old longtime OR rep and sold into sterile processing for 12 years. So I've seen sort of both the, we call it the up, the clean and dirty elevator. So yeah, you're talking about, I'm very familiar with. Is this, is this at the elbow employee you were describing, are they on site just during implementation or are they there? They're there full-time.

They're part of, that's part of, yeah.

So yeah.

So the, so the way we, we envision the ATE, is right now we have modeled that they can handle 4 facilities, you know, in a kind of local region as we're starting up our— we're going to have one ATE and they're going to be on a plane a lot. But depending on where we roll out. Right. But we don't want to take a shotgun approach and go all over the country. That's inefficient and that's a good way to burn a lot of cash. So we're going to focus our areas. You know, we're going to try and go deep in several areas. So, you know, where we're doing our pilot in central Michigan, there's Henry Ford, there's McLaren, there's a bunch of systems where we can go and implement this. And the ATE, we think at this point, and it'll probably depend on how large the geographic area is and the facility penetration, but we believe an ATE should be able to handle 4 facilities. So at the beginning in implementation, they'll be there all day every day, right? And then once everything's tagged, and the implementation has been finished, their job is to communicate back to the company what's working, what's not working, customer feedback. You know, we think this would be a cool new functionality to add, or can we get a different report? Because a lot of, a lot of the value we bring is reporting. We're providing a dataset that's never existed before. So, you know, if they want different reporting or unique reporting, and then really a lot of it's also internal selling. You know, if there are certain disciplines or indications in a facility that want to do this, that's great, but there might be some resistance to it. So the ATE is also responsible for working internally at that facility to drive deeper adoption of the technology and get into more ORs. But we are also cognizant of the fact that the ATE you know, these kinds of assets, human resources, they tend to get a little conflicted because they're at the facility every day, right? They become their friends. They're going out to drinks with them. They're doing that. So you want that collegial aspect to remain. We're here to help. We're not here to sell all the time. So the selling will be soft and it'll be more driving adoption, but it's really to be an asset that we pay for, but that is a benefit to them to get the most out of the system.

Good question. All right, Raymond, and then Maloney.

Okay, thank you so much, and I commend you for trying to take a stab at something that has not been attended to at all and charting new territory. Two questions. Number one, is the intent to do this on only hospital-owned instruments or hospital-owned and loaner instruments?

That, that's a great question. So right now it's hospital-owned only. In the, I would say in all the conversations we've had in any procedure, about on average 80 to 85% of the instrumentation is the hospital instrumentation. When you get into orthopedics or other procedures where, you know, a rep or an OEM is bringing in instrumentation, that affects, you know, that's on the other side of the curve and that's what drags down that number a bit. Right now it's hospital-only instrumentation. Obviously, we would love to get this in the hands of the OEM, but you have that constraint, or excuse me, that tension of to whose benefit is it to track this stuff? And the reality is if we can get to the OEMs, you know, one of the ways we will speak to them is, look, it's not just about managing your inventory and making sure that the, you know, you're not bearing any additional capital expenses by losing instrumentation, but you have a chance of losing a customer if your rep shows up with an incomplete tray. So we would love to go to the OEMs, but we can't do that now. We're focused on the facility and we're— and we're— we are having conversations with potential partners here and there, but we're really focused on executing and getting it done at the facility first to prove its value. And then hopefully we can push out to the OEMs and demonstrate the value to them by what we've done in the facilities.

And the second question, real quick, and this could be a little bit, uh, delicate. I am saying this for your own benefit. Maybe you have considered this, maybe you haven't, but what regulatory considerations this may have. Have you gotten some opinions on whether you're, uh, become— going to become known as a manufacturer by applying these, uh, with epoxy?

Yeah, we are not regulated at this point. We've done a lot of work with some very smart regulatory people and we are essentially a software system. We are not modifying the function of the instrumentation in the OR, so we are not regulated and we are not a manufacturer. That being said, we have developed and maintained a quality system that will stand up to a Class 1, you know, as instrumentation is Class 1 regulatory compliance. So, you know, should the FDA make a pivot and say, we want to start regulating this kind of stuff because it is coming, you know, they're, we're putting, you know, smart implants in, you know, the whole hospital is becoming smart. I don't want to say AI because that's so beleaguered, and abused, but it's just increasing the rate at which we get new sets of information. So if the FDA wants to regulate us, we're in a position from a company standpoint where we can stand up to a Class I rigor.

Thanks.

Yeah, great questions. Go ahead, Milani.

Yeah, the difference between the back table and the mayo stand, like in France or Germany and the United States, is amazing. Mm-hmm. You know, you'll see 200 instruments on the back table in the Mayo here, and you'll see 12 there. Yeah. Uh, so really it's a different philosophy apparently. I never really thought much about it except I didn't notice it immediately. So I got 2 questions. Uh, the, um, the, the frequency for the chip, is it ultra high frequency or high frequency?

It's high frequency. Okay.

So that's a shorter range and then that's all you need apparently, right?

That's it. Yep. Yep. We're not, you know, we, when we were first thinking about this, Mark, we were, you know, we were thinking, oh, you know, we can tag doors if someone walks out of the OR with an instrument, or, oh, if it falls in the trash, you know, we'll be able to— we can get there, but we don't need to be there right now. We need to demonstrate that we can do our core competency very well.

How big a hospital, uh, do you have to be to save at least $1 million a year?

Um, about 5 ORs.

Okay.

That's pretty modest.

Yeah. And, and I mean, I think, I think the, the average, uh, ORs per facility in the United States is 6. So, you know, it's pretty average facility. Um, something we need to dive into a little bit more, admittedly, as a company is we're focused on the larger facilities and systems. Okay. But the CEO of our pilot hospital opened up an ASC across the street and she said, I absolutely need this in the ASC tomorrow.

And is that Morristown?

No, no, no, this is the one in Michigan that we did. And I need to get a better understanding of why she says that. But the reality is, is she— the basics of it is she has physicians operating over at the ASC and in the hospital, and they are transferring assets, and the ASCs become black holes for assets. And she wants to be able to track them in the ASC and in the hospital to know how each one is operating.

Yeah, the guy I was talking about at the very beginning of the hour that we're going to have as a guest, he's one of many that will say that if I can't move the needle, save at least $1 million a year, preferably $3 million, I don't even wanna talk about it.

Yep.

Yeah.

No, and that, and that's fair. I mean, there has to be some sort of, of return there, right? So when you go back to this, I mean, supply chain reduction at this one facility, 10, 10 ORs, supply chain reduction of $1 million. SSI-related costs. You can throw that out if you want.

I don't care.

Instrument processing reduction, you know, 1 to 1.5. So there's 2 right there. And then really the operating room and time recovered. We put a dollar value to that and they said, don't put a dollar value to that. We don't do minutes per OR anymore. Just give us total time you're saving us. And the real value there is you're getting more efficient and You're not asking people to stay, you know, later in the evening to finish your surgical day and they're missing their kid's game or they're missing dinner. But it's also incremental revenue, right? If you're picking up that time, you're adding more cases. So it's not just savings, but it's also incremental revenue provided by time savings in the OR.

Thanks.

Yep.

Kyle.

So yeah, Chris. It's good to hear you talk about your awareness of the resistance that the OEMs, ortho companies, will have around you modifying their instruments. And so you're aware of the challenge with that. What I'm curious to see as you progress here is if you have a hospital that's adopting it for everything else and that becomes the push outward to the OEM to say, hey, the next project you launch, can you please put these tags on it? We're trying to, we're trying to move to this for everything. That might be your way in. And because it's hard once something is launched to make that change, adding something like this during the process would not be hard.

You're absolutely right, Kyle. And you've come to kind of the crux of what will be our inflection point as a company. A significant inflection point in the future is we modify existing instruments, but that's a very manual process and capital intensive. A great, great solution would be to, with the OEMs, to embed these RFID chips. These chips can be overmolded, you know, they can be done during the manufacturing process. So you're not, it's not a post-processing event. Of course, the other issue with that, and you hit it right on the head, Kyle, is that requires a significant change in how they do development. So for their existing instrumentation and implants, that's gonna be difficult 'cause it's modification of of existing drawings and of existing manufacturing processes. Now, if they're contemplating, you know, a new knee system with all new instrumentation, you need to address whether or not you're gonna put RFID tracking in that instrumentation at the outset, put that in the design inputs. And that's— that'll be a very different design and development process for them to do that. But that being said, RFID tracking is very well known even within facilities and even in the OEMs. That's how they manage their warehouses and their inventory. So it's not, it's not an intellectual leap for them, but it's more of an execution leap for them and adding it to their manufacturing processes and design input.

Yeah. So when I was at J&J, I was part of a big project trying to address the same sort of challenges you were, and they were working with 5 or 6 different companies with very different solutions than you have, you know, pucks that go into a supply room and barcode scanners and stuff that, you know, big chunks of things that have a battery embedded that go into the tray. I like the elegance of a very simple solution that can be modified. Of course, there are downsides to that that you've brought up. You know, if you were developing— if I were developing a new system right now and I said I want this thing to be tracked, I'd want to have two categories of it. I'd want the tray to have the ability to be tracked So it's probably a little more functional than the individual instruments. And where I would say that you're gonna find the most traction if you start pushing into OEMs is products that will be loaner heavy, which is stuff that they're gonna float all over the place. And I've, the range of that that I've seen at different companies, some companies try to operate almost exclusively on loaners, which is crazy. But if you care most about top line and not about bottom line, I understand that. But anyway, but you're, you seem to have the right sort of things in mind here. This is fascinating. And I don't think that even if you have a project that is near completion, if it hasn't been released yet, finding somebody to stick it on it is not too difficult of an ask. Yeah, biggest thing that you'll run into with resistance in the field of modifying something is that's not an update to the part, that is a new part. And should have a new part number. And if you don't, you've created a logistics nightmare for sure and a guaranteed recall.

Yeah, you're absolutely right. You know that, you know, the SKU management and inventory management change significantly when you're modifying these instruments for sure. And that's an important factor to remember. Absolutely. And I think the loaner-heavy stuff, I agree. And, and even contemplating models. I, when I first started with this company, I did a, a small thought exercise and I looked at different facilities and a significant portion of the, the surgical facilities in the US had a strip mall within 5 miles of the facility. So what could you do there? All of a sudden, your rep no longer has inventory in their car or in their garage. They have a cage at a small shop in a strip mall and it, and all of your inventory is managed, you know, by a, by a cage that has RFID readers and you know exactly what inventory or instruments are leaving that cage in the loaner model or going to the facility, et cetera, et cetera. So you have the ability to track, you know, your distribution channel a lot better. That's one of those kind of long-term potential benefits of a system like this. But as, you know, to your point, Kyle, You know, the loaner-heavy model is one that particularly a lot of smaller companies tend to employ. And it's a huge weight on cash and, you know, the capital you have out there that no one really is going to take as good care of as you are, not even your rep. Right? That's a problem. And all of these efforts that these OEMs try to implement to manage their distribution channel, particularly when it's not direct, it's through a distributor model, fail because these reps and distributors want their autonomy. They don't want an iPad. They don't want you tracking them. And really the only way to track their performance and their behavior is to track you know, your assets as they move around with your distribution, Jim. Interesting.

And I want to put Cope on the spot here and ask you two questions. First of all, is this going to go through VAC committee process? And even if it doesn't, how would you pitch this, Cope? Because you, you, you do a lot of economic analysis for for new products, new things going into hospitals?

Well, he's number one. It will go through VAC, but not the same way a new implant does. Right. Because this is, this is coming from surgical services, perioperative services, and they're at the meetings. They know to an extent what's required. And what's required, despite so many implant reps not understanding it, is exactly what Chris has here, right? Like, he's modeled a business case out with a return on investment that he is saying is 1 year, not 5, and it's meeting Mark Maloney's buddy's requirement of $1 to $3 million before he wants to burn a calorie. So it will But if he does what he's showing, it'll, it'll fly through it. So we should— and, you know, it's funny, Mark, when you're— when you get your buddy on here, we should scrub the name on this and just say, hey, this, this would do this. How would you guys look at this? But it's like, this is less of— it's odd, despite the supply chain name on his slide. This is not a supply chain thing as much as it is a, you know, uh, it's almost CFO. Just looking at it, just sort of thinking about it because you put me on the spot. I can tell you this, if this thing does what Runnels is pitching, this is not a very difficult sell. It's a difficult— I shouldn't say that— it's a difficult implementation. It's a difficult belief that you can actually do it. And I think like you might be, Chris, I'd be curious to hear if you guys, like, you'll have people question the epoxy from an infection prevention standpoint to, um, there's just so many things that you're bringing to them that almost are A, too good to be true, and B, not close to anything they've ever done. And I don't think Steris does this. I don't think Asculap does this. Cleveland Clinic tried— did this. I talked to the woman who ran Cleveland Clinic's instrument reduction program, and she told me it— they wildly successful, saved them $5.2 million in instruments the first year. Um, And I interviewed her. She didn't— she— we never published it. She didn't want to be on. She said it took her 12 months. It damn near killed her. A direct quote. And she said, I never— I had to use my psychology degree from college to get surgeons comfortable that we were removing one single instrument from their tray because nobody takes instruments out of trays. Yeah, right. So it was just funny to hear this. So yeah, I think the headwinds you face are not the ones people might traditionally think of. But look, I've been looking for and following things like this for years because this is— it's not Kyle's implant price. I literally wrote a post about this last night that it's going to go out in a couple of weeks. It's the implant price is not what's killing hospitals. It's this. Yeah, this is what's killing them. So I applaud you for even tackling this and frankly hanging out in sterile processing because nobody wants to do it. And I did it. I did it. And the things I learned were— I'm still astounded by. So yeah, I really applaud you doing this.

Yeah, it's down in the basement. It's the boiler room. The guys are throwing coal into the furnace.

It's just— Tiger, did I answer your question?

Perfect.

No, that's great. I really trust your vision on this.

This is absolutely what's needed. Totally. Absolutely what's needed. Now the smart guy, Dion, gets on.

I would get rid of you.

Right. We're all waiting for Jesse.

I always bring in the rear. A couple of questions, Chris. I mean, I came in a little late, so I apologize. I, I'm more— I'm an OEM, so I'm trying to think how I can implement this in the first place. Yeah, I mean, with respect to a hospital, so there's other companies out there that have done similar, especially on implant tracking. Yeah, I mean, I've been honest with them. It's like, unless the hospital mandates it, we're not doing it. We're not— we're not going to spend the money to, to do— to make our trays more expensive if the hospital isn't going to force us to do it. But I mean, from the inside out, I mean, it is something that would be very beneficial for someone who runs their own logistics in-house to do, to manage the trays going in, like the loaner-heavy stuff. Um, uh, before I ask my other question, it's like, I would probably suggest for you, if you wanted to actually tap the OEM market, I think your first customers you should be hitting is the 3PLs, the third-party logistics providers, because they, they are always looking for something as a value-add that they're trying to sell to their people. So if they have something that they can— and I work with a 3PL that has something, a different mechanism, but they do something like this where they're trying to find a way to show that going in and going out, they can track it efficiently without having any kind of manual errors. So there's that aspect. My question is actually just a simple product. Would this be something that could work on a power device?

Oh yeah.

So I mean, like if I had like a, I mean, even something simple like a power screwdriver or I mean, I'm thinking of like, if like a, like just a drill bit, we implement it on drill bit. You can use it as a chip, something to track chargeables and stuff like that.

Yeah, absolutely. I mean, the, these, these RFID chips come in many form factors. You know, some of them just epoxy on, you know, some of them have sticky tape on 'em. But you know, what's critical is that it, it stands up to, to the, to the autoclave and sterilization. So we've honed in on a couple of 'em, but these chips are specifically designed for, designed for the medical device environment.. And so we went, when we went to our, our chip supplier, we said, why are you, why are you developing chips for medical devices? And who are your other customers? And they said, we see a need, but no one's really using them right now. They're using them in, you know, like IV drip poles and all that sort of stuff. RFID tracking is being used, but the smaller form factors, they can be used on anything. You just have to be damn sure that it's not coming off. And that's, that's part of our process is ensuring that as we apply the chips, we are doing shear testing, we're doing impact testing. We have a fully validated manufacturing process that'll stand up to the rigor of, you know, as I say, Class 1 device regulation. Okay, fair enough.

Yeah.

Thank you.

Yeah, thanks, Justin.

I interviewed QMed, um, on, on a podcast years ago. They, they've got a big battery pack thing that looks like a deck of cards. It sits on an instrument tray and talks to cell towers.

Yeah.

And so like you said earlier, you know where your tray is in Melbourne, Australia, but you don't— you have no idea what's in the tray. Um, go ahead, Cope.

I actually had a question, Chris. I, I may ask Jesse a question that your system can't currently do, so permit me. Jesse, would you use something if you could— let's say you had instruments, a specific type of instrument that you find your guys are constantly losing, constantly. If, if you could put something on that would you start there? Like where you could say, well, at least we know when this is being used and where it isn't because this thing's killing— like this instrument is killing us. You know, it's more expensive or I don't know. I'm just curious how— I'm curious how OEMs look at this. And you— I thought you made a great comment about you're not going to do it till the hospital makes you do it, particularly when they RFP and drop you by 40%. Like, oh my gosh, can I pick? 'Can I pay more too? That'd be awesome.' Would you— would like— would you— if— and I don't know that Chris's does this because I think you still need the mat to read it, but if it helped you track an expensive instrument of which you have 100 out in the field, would you look at that any differently? And I don't know, I'm literally asking.

Yeah, I mean, we're a bad example because, I mean, our, our instrument— our systems are designed to be very compact, so the whole reducing complexity aspect to it is we're, you're, we're doing cases with 4 or 5 instruments and it's essentially screwdrivers and drill guys. So, uh, I asked him on the power, or Chris, the power question, just because the one, and this, I mean, Mark knows, if anybody that's repped anything in the OR, especially in the orthopedic side, the one thing that's gonna, a rep is gonna burn you on that they didn't check the tray is the darn drill bits.

Yeah.

If I don't know my drill bits are in the tray, that is the one thing that you cannot do the surgery without them. And that's the one thing that no one thinks of because they're used every time.

Yeah.

So unless the drill bits are in the tray, that's, like I said, that's a red flag. I can't— if I don't have a drill bit, I definitely can't use the system at all, much less a screwdriver. I can use a different company screwdriver handle, I can use something else, but the surgery is a disaster if that's not in there. That's why I asked. And that's something that, I mean, if its cost is not prohibitive and it could be incorporated in a drill bit, now I can use it for charging purposes or for billing purposes as well. And besides the tracking, So there's, there's, there's a lot of little side paths you can take, but I mean, it might, that was a selfish question with respect to orthopedic trauma.

No, and, and that's, that's a good point is, is, you know, we could very easily do a drill bit. It's just where do we put the chip so it doesn't interfere with, you know, the procedure or interface with, with the drill, right? That's, that's a easy problem to solve for us. And you're gonna know, you know, which sizes you have. Do I have the correct curve of sizes in here? But also, you know, there is an aspect of this and optimizing the instrument sets for OEMs to understand what their usage is. You have to build, you know, the middle of the curve and the tails for all sizes, be it, you know, sizers, implants, or drill bits or whatever it is. And, you know, you have, you know, kind of what the curve is, but now you're going to get, if you put our tags on your instruments and you track them, and you know what's used in a procedure or not in procedure, you have a real dataset now of usage. And that's gonna affect how these OEMs, what they build and how much they build of it, and will allow them to be a lot more critical with how they allocate capital for instrumentation and implants. And then Mark, to go back to your point, we're using mats in central sterile set assembly, both on the decontaminant set assembly side and mats in the OR. And that's the form factor of scanners and readers that we're using because it's completely passive. You know, if you go down into central sterile, how many Steris machines do you see and how many of the handhelds do you see, right? So we're trying to be a little bit different and more passive. That being said, with these RFID chips, we do have a functionality called SmartFind. Where you can walk around with a hand-powered thing and basically say, I want to exclude every instrument that could be read with the exception of this one. And you can go around through your instruments and find that specific instrument that you want to find because you're basically— what you're doing is you're serializing your instrument inventory. It's not lot-identified, it's serialized. And, and that, that's, that's the only way you can get this dataset. Um, for, for the use of, of instruments.

Well, that's interesting. All right, we kind of hit the top of the hour, so, uh, Chris and everybody, write this date down. Um, September 11th is when we've got Mark's friend Joe Colonna on, and, uh, we're all looking forward to that. He's— I just got a note that he's signed up for September 11th. It's easy, easy date to remember. Cool. All right, thanks. This has been, this has been great, man. You really struck a nerve. Everybody gets it.

Well, and, and I, I appreciate the opportunity, Tiger, and I appreciate all the feedback and the great questions. Um, you know, we're going out, uh, as I said, to start our raise soon, and you think you anticipate all the questions, but you don't. So it's good to have forums like this where I can, uh, show you, show you what we're pitching and get some really good questions and, and some good thought what we're doing. I appreciate it. Thank you.

Yep, thanks, thanks everybody. See you next week.

Thanks, Chris.

Take care.

Thanks, thanks Tiger.

Thanks, Chris. Thank you.