BoneChat call #34 - Priority Medical: Engineering Horsepower in the heart of the Orthopedic Capital"

All right, welcome everybody to Bone Chat discussion number 34. I'm thrilled to hear from our fellow Bone Chat member Kyle Lappin. So Kyle and I share a unique history. We worked together in R&D at Wright Medical during what I consider the golden years. And today, Kyle's team at Priority Medical is— they're experts in turning fresh ideas into tangible products. So Uh, so this is a conversation. Don't hesitate to raise your hand. And without further ado, handing over the mic to Kyle.

Welcome aboard. Thanks, Tiger Buford. Yeah, Wright Medical was a— I was there for only 3 years, from 2004 to 2006, and it was wonderful and exciting, and I would have never left, but we started a family and my wife said, we are moving back near grandparents with or without you, so find a new job. So I did. That's how it goes sometimes. So I'm gonna have a few slides to share. I'm gonna talk about what Priority Medical is up to. And after I go through a bit of an intro and a couple of stories I think that are interesting, I wanna share with you guys the, the clients that generally we seem to have the best opportunity to serve. And that's an area where this team, I would love to get some input to see if there are adjacent areas that maybe we're overlooking, or are there other needs that are unsatisfied or just met in an incomplete way, to just see what everybody has to say. So as far as background, I've, I've been in orthopedics for over 20 years, Depuy Synthes, Wright Medical, Sonoma Orthopedics, and I've worked in hips, shoulders, trauma, foot and ankle. And I actually decided that I wanted to be a biomedical engineer when I was 16, and I never changed my mind. And so this, this whole orthopedic med device space has been near and dear to my heart for a very long time. So when I started my very first co-op on my very first day, which I won't give you the exact day, but well, I guess I can. It's okay to date myself. This is an established crowd here. So I was January 4th, 2000, 2, and I was in a meeting room with about 25 people. And I heard someone, an engineer in the back, mention some idea to 3 other people and they got very excited. All of a sudden, 4 of them gathered into a little cluster and they started drawing a bunch of things and they got really excited. And then they said, aha, we've got it. And they all signed their name on it and they put a date and they said, this is it. We're gonna go do this. And then he said, "What are we gonna call it?" "We're gonna call it Project Norman." That was actually the birth of the Attune knee in January of 2002. The most recent launch of the Attune knee that I believe brought it to conclusion happened about 9 months ago, more than 20 years later. And such is the way of product development in the gigantic orthopedic companies. Sometimes things take 20 years to get out of the game. Another story I wanna share is the startup company that I joined, Sonoma Orthopedics. When I came to that company, they were working with this really, really neat technology, flexible metal that you can get to bend around a curve or to contour to flexible bone. And they couldn't quite get it right. And it turns out that for a clavicle nail they were working on, that was a really neat product, they actually had released to the field 6 different versions of the clavicle nail. Now, that's not uncommon. Iteration 1, 2, and 3 makes sense if you're going to continue to improve the product. The problem was they had built out an entire manufacturing facility while they were doing this, and the amount of money that they spent to do so was jaw-dropping. You would have thought that maybe spend that money when you've figured out that version 3 is perfect and, and go from there. But I had the hindsight of saying, you know, judging them after the fact. After that, I actually interviewed for a different company that did the same thing to an even greater degree where they were still losing in excess of $20 million a year, had a manufacturing facility that was extraordinary and state-of-the-art, and they had blown through $160 million of investor money. And I learned a lot through, through all of those experiences, and I didn't realize I was learning those lessons at the time, but those are the sort of things that have stood out to me as I've gotten rolling into this new venture working with Priority Medical. So Priority Medical, we are an engineering services firm based in Warsaw, Indiana. Now you guys all recognize why that might be important. Warsaw is and has been the center of the orthopedic world for a very long time. What has worked in our favor is in conjunction with the challenges of the industry, the large orthopedic companies and even medium-sized orthopedic companies have largely gone the way of development through acquisition. Tiger publishes article after article about this, and I think he's absolutely right. But now here's where the advantage comes in, is the orthopedic companies in and around Warsaw keep either neglecting or getting rid of engineering talent in this town, and we are here to scoop it up and then offer it back to them to deliver the things that they need to do. So our talent pipeline is quite exceptional, and there's some reasons behind that. But what's unique to us that I think is really special that we offer is we don't take equity and we're not developing our own intellectual property. We are simply fee-for-service horsepower. So the clients that we serve to this point fall into a couple of different categories. One area is we work with startups where you've got a doctor plus an investor, couple of investors, couple of engineers. You've got people that have an idea. Where maybe they've done some work to prove that idea is somewhat feasible and they're ready to do something with their money. But what they don't want to do is start to build out and spend like some of those examples that I gave where maybe you throw a ton of money at 4 different levels of an engineering or organizational chart. You have to relocate people, you have to hope they come together as a team, and at the end you lose 2 of them. In the meantime, you've washed out a bunch of equity because you got to attract talent. Well, we are an alternative to that model because we are, we are an already preassembled team and we don't take any of that equity. You just pay us a fee for service and an hourly rate or a, or on a retained model to just send us after something to tear it apart. So that's one, that startup space where they don't want to build a team yet. Second is in that large company space, Any of you that have worked with a, a large medical device company, and I assume it works in other industries this way, everybody's got that laundry list of projects that they want. Then project number 1, that's gonna be that billion-dollar project that gets all the resources. Then project number 2, that's gonna be a half a billion-dollar product that gets the scraps of what's left. And project number 3 gets a little bit of effort as you can spare it. And then, then project number 4 through 12, you call them high priority and no one ever does them. Well, that is going to be an area where we can service as well because those are the type of projects where a large company can just say, we know exactly what we want, we can't do it because we don't take the resources to it, or it'll take 5 years for us to develop it even though it's straightforward. You take it, run it through from the phase we have it until it's cleared through the FDA and ready to go commercial, and then hand it back to us so that we can then commercialize it inside of our system. And if they want, we can help them integrate it into their system. We can even do it in such a way that we build it in their shadow following all of their templates that they provide us, but outside of their system. And then the third situation, the third type of client for us is somewhere in between. They're maybe a medium-sized company and they've got an engineering staff, but they have a hard enough time just keeping up with sustaining what they're doing, keeping their, you know, their flagship product going. Maybe they're barely into the black and, and somewhat profitable and they really can't invest in taking their team and building something new, but they know what they want to make. And then that's where we come in because we can be a mercenary type of effort. To throw some engineers at a project that fits right within their pipeline, swoop in, knock it out, and then we move on and they move on with their life. So to give a little more color on the team that we have, we are a team of 6 currently that has been at, all of us together, most of the main players throughout the industry, including some experience outside of medical device. Where we have this kind of special advantage to attract people is the model of what we're trying to do collectively. Certainly we're serving our clients and we want to offer engineering services that are second to none. And with our experience and talent and collaboration, we think we can do that. But also our goal is to give back to this community, specifically to Warsaw. This place is a special place. I've been in and around this town for more than 20 years. And it is an entire world to itself. There is an entire ecosystem. It is 5 generations of people that love this industry, and we want to contribute to that. We also want to help our clients make money, and we want to help our community benefit from that to where even if companies are outside of the Warsaw and Northeast Indiana area, if we are bringing business to this area, because of clients outside of this community. We are doing good things for everyone involved there. And then we believe that what we do has a tremendous eternal impact in a lot of different ways. So the last thing here I have before I take any suggestions or any questions is we've worked with pretty much anything you can think of in med device. DITIG is a instrument kind of salvage and repurposing company that's a couple miles down the road from us. And I had a chance to visit them for the first time in a couple years last year and it's like, stroll through memory lane and seeing all the different clamps here and retractors there and this reamer and that jig. And we've worked and touched thousands and thousands of different pieces and launched dozens and dozens of different products. And that's why when we offer our services as a team to a client, we can draw from experience in all these different areas with a whole wide range of different companies.. And yeah, so we can cover things from the time it's on a napkin until it goes into the OR, or we can do it in pieces kind of throughout. So that's us. That is kind of where we operate in this space and the 3 different types of clients that we work with so far. And again, one of the things that I think is a bit unique to us compared to Tiger, which you were talking about as we got started about a place like Surgical Frontiers or Medicine Lodge. It's very similar business model, but ours is very— we're not, we don't want to take client equity. And one of the advantages that that gives us is it's very easy for us to be a spigot that can be turned off or an opportunity to use a pause button. So let's say we work with a client and we're on a retained monthly fee and it gets to June and their budget update hits. And all of a sudden the end of the year looks real bleak for them and they say, you know what, actually Priority Medical, we need to pause this for the end of the year until the 2025 budget hits. We say, all right, your terms are, we're going to be going for the next 60 days. We'll push the pause button and then when you tell us you're ready to go in January, we'll make sure things are queued up and ready to go. Because we don't have equity stake in it and because it's not our IP, that gives us a lot of flexibility to maneuver. Spaces like that.

So, so how many clients do you guys have at a given time? And what's the, what's the duration of the projects?

Yeah, so we, we have the capacity for probably 6 different clients at once, but that depends on the structure in which we will take them on. If of the 5 proposals we will send out in July, if all of them say yes, we're going to have to tap into our subcontract contracting network, which is something that we keep fresh and robust. And we want those to be people that are cut from the same cloth as us. They just are more so on the sidelines doing their own thing. And then when we, we raise the bat signal, they can come. The most important thing when it comes to a client is unless we specifically are, are not wanting to do it this way, we want our clients to have a focused team. So we're not going to have one engineer that works with 4 different clients. Certainly, we're not going to have one engineer that works with 4 different clients that have the same sort of product portfolio. Our ideal circumstance is to have 1 or 2 or 3 or an entire team of engineers that work with a client with that have an absolute laser focus.

Got it. And, and durations?

So our preference is to work on a 6 to 12 months auto-renew. Schedule. We'll take some jobs earlier to just kind of tease out the relationship. We have a couple of clients now that are, they're in that early money-raising phase, and our role with them actually will be to say, you know what, we're going to work with you for 2 months. We're going to come up with every concept we can to give you some of the, some of the ways to illustrate that your concept is feasible. And then you can go raise the big dollars. And then when you're ready to really kick this thing in the butt, then we're ready to go after it with you. So there's a couple of examples where we work on a shorter-term basis. More and more frequently there's, there's a bigger picture play to it.

So.

Got it.

So how, and how are you finding customers today? How is it marketing, word of mouth?

Just, yeah, a little bit of everything. We are, we're finding, we certainly have people from our history. That fit. That's how the company got started. So company was started by a gentleman named Luke White a couple of years ago who relocated back to Warsaw and found that finding a job that he wanted wasn't exactly a good fit. But a couple of people told him, hey, you know, if you were an LLC, I could just hire you as a consultant. Well, I've heard that from a couple of people now. I might as well start a company. And then somebody else said, hey, are you available? And he had to say no a couple of times. And then he finally realized, well, How about I hire some more people to do what I'm doing? And there sprung an opportunity. Now, as that's, as he's learned more and more about it and as more of us have joined the team, some of the tailwinds for us are these engineering firms keep laying off good people and deciding that they're not going to do R&D in-house. And we are now perfectly positioned to not only serve those people as clients, but also to gobble up all of the talent that they are letting go. So it's to, we, we don't, we don't love hearing about Zimmer's gonna have a layoff, but we kind of sometimes like to hear that because it means fresh pool of folks for us to work with. Interesting.

Yeah. The, the companies, this layoff stuff's not gonna stop. I've written about that. The big companies are learning how to do more with less people. And they just, you know, you know, they, they live and die on 90-day cycles and they can always meet their earnings by cutting people. It's never going to change. I mean, look at Stryker, you know, grew, Stryker grew 11% last year and they're what, a $10 billion company? I mean, it's just insane. And they're doing it with less people every year.

Yeah. Well, Arthrex isn't public, but I think they're at a $7 or $8 billion company growing at a similar rate. It's, it's pretty remarkable. And we have some firsthand knowledge of the way some of the larger players are responding to— it's not always just layoffs, it's back— it's lost positions that aren't being backfilled that essentially ends up resulting in a dilution of focus or an overburdening of the people that remain. That is quite interesting. There's a lot of burnout happening. Yeah.

And I, I also see they, they, they grow their sustaining engineer group and they downsize their new product development groups. So that, yeah, people, you're right. They, people have lost the ability to develop new products sometimes in these companies. Interesting. So what questions does anybody have for Kyle and his team on doing anything between idea and launch because they can do it all.

Mauricio.

Hi, Kyle. Thanks, thanks for the, for the presentation. I think what you're doing is pretty interesting. I have basically two questions. One is to Do big— do your customers end up stealing your talent? How likely is that? If your customer hires a team from you or a couple of engineers, you run a project for them, they become tight with the R&D project team from that customer. And then how do you preserve your process if everything you do, you're licensing out basically, you're not keeping the IP, you're basically as a work for hire, but you also have to ensure the quality of the service you're providing. So what are your thoughts on that?

Sure.

Let me answer the second question first. So we operate within the quality system of our client. So there are, well, most of the time we operate within their quality system. So there are brackets of procedures and work instructions and processes that we follow. And our job is to just lean into those, even if they are flawed and execute them the best we can. We do have circumstances in which clients ask us to operate outside of their quality system. We, that's less frequent and we are in the process of partnering with a company that is going to be a competitor to Greenlight Group that I have a lot of personal history with that will, I think, control that for us. So we just take that on a case-by-case basis. And then your first question about stealing talent, we haven't experienced that so far. We're pretty confident that the environment and culture of our small yet growing fast, nimble team is going to offer a different and refreshing, high-intensity, high-reward, constantly changing environment that would make it unlikely that someone would want to go from what we are doing into a large corporation. It certainly is possible, but we find it far more likely that the opposite direction will be much more common. However, we're not going to be in the business of sniping talent from any of our active clients. That would be a bad business practice.

Right. You can also contract— you can write that in the contract that you, you know, can't steal the engineers.

Sure.

Um, and, and the, the reality of the situation is, um, a priority medical engineer is not going to do well at DePew or Smith Nephew or Zimmer. They just, they're not going to be able to function and that tiny little box that they give them, you know, in the big company. So go, go ahead, Mark.

So, pal, I say up front, I do not engineer.

So, Mark, sorry, we're, we're losing your bandwidth here. Try again, Mark.

Can you hear me?

Got you now.

Yes. Okay, I was just saying I don't speak engineer very well. How— but you sort of answered my question a little bit earlier, but how do you measure quality as an engineering firm with a disparate number? But how do you internally measure the quality of your work?

So it did break up a little bit in the middle there, but what I heard you say is how do we measure the quality of our work? Yeah, that's it. Yeah. So part of that is a feedback loop with the client, right? So if we have an engineer that works with Company A, the only contact with Company A is not with that engineer. Our leadership team stays in, in constant contact with the leadership team that was part of the arrangement for that to make sure we have, if, if there are any sort of concerns that those are addressed early on. We do an extraordinary vetting process of the people that we are bringing into our team. The relationship development process we have is what you would say, not the standard interview process. We take months to get to know people as they come onto the team and through that process and essentially a deep dive into a personality alignment and goals and, um, the performance, uh, that we get out of our team tends to fall very much in line with the way that we've gotten to know people and the standards that we set for each other and for ourselves. I don't know if that answers your question great, but our confidence that we are attracting the type of people that outperform the overwhelming majority of their peers is very high.

Well, it sort of, it sort of answers my question. I was just this week rereading a book called Zen and the Art of Motorcycle Maintenance, and it's all about quality. And I would say it's, partially engineering speak and, you know, partially philosophy, but it's always something that I'm curious about. Thanks for answering.

Hmm.

Colleen.

Hi, Kyle. I used to run a hip and knee company here in California. And, you know, I'm a big believer in outsourcing when it makes sense. But one question I have for you is, What percentage, roughly, of your clients tend to continue with Priority through the submission process? I noticed you had that as one of the services on your slide.

So, we ourselves are not preparing and writing any submissions. In some circumstances, we are along for the ride, essentially a core part of the cross-functional team of our clients, and they may have an in-house regulatory person, and we would organize all of the necessary design file with that regulatory person and support that submission. In some circumstances, when there's more of a handoff and the client asks us to take over everything inclusive of the 510, we could then bring on one of a half a dozen partners that we have that do focused regulatory work, coordinate with that, coordinate with them, receive the clearance, and then hand that package back to the client where they haven't done either of it. As a general rule, most clients developing product set regulatory clearance as the first and most critical milestone Some think about it in the IP space, but, and we've even had commentary about this on our Slack channel, someone coming up and filing a patent, the likelihood that they're going to receive a payout for that and just hand it off is very, very rare. Most of the time, the larger companies that are going to provide some sort of exit are looking for at least a 510 clearance. Or if you are the type of company that is trying to grow and you're going to outsource some of your efforts, the first milestone to target is getting that clearance before you make a much bigger spend getting into commercialization.

Great, thank you.

How do you deal with, you know, my experiences when you outsource design work, that it's a moving target. So the team says, hey, we want to change the, we want to change the I don't know, the design or some of the design inputs they want to change. There's just change constantly and you get whiplash back and forth. So how do you guys handle that?

Well, I personally have handled that when I'm not outsourcing, but I'm trying to launch a product and turn a company around. I've handled that in the way of being more thorough on the front end. How we have to deal with that is We don't do milestone-based contracts. We do fee-for-service, hourly or monthly. And if the scope is crystal clear and you hand it to us and we go execute it, and then 3 months later you tell us, actually, the scope changed. Can you go change these 5 things? We just say, okay. And that's going to take us a little bit of time to go do that. And we're still staying on that same hourly, monthly, whatever sort of thing. And that, that's the way that we have to protect ourselves because of either scope creep or scope change. Now, that is why our preference would be to be dialed into our client as early as possible because we do have a rather special experience level in that early vetting process of making sure that what we understand the scope of the project is, is inclusive of the problem we're trying to solve and not simply a solution in search of a problem. We've all probably experienced that firsthand. Somebody comes up with a technology, they look for a landing spot, they go and make it, and lo and behold, it's not the right market. It doesn't have the right sort of form or function, or you missed something. So the folks on our team have a maniacal focus on drilling down to user requirements and making sure that we start there and with what the problem is that we're trying to solve to try and avoid that exact problem, Tiger, of some sort of change. And things later on.

That's good.

Yeah.

But things will happen. They always do.

Yeah.

They always do.

Yeah. One of the, one of the things I found is the big companies, the big 5, they don't want to defocus their R&D teams. And when they have a, a harebrained idea to do something maybe not in the current domain, then they, that's when they go outside. They don't even tell anybody. They just, outsource early development to a firm like Priority and say, take this as far as you can and report back to us.

Yeah, which is, which is unfortunate to a certain degree because if you are, let's say you're one of 50 engineers on a team and 10 of you are focused on a new shoulder, that means that one of you is probably really spending the majority of your life focused on brooch handles. So if the company then takes away your opportunity to go do something kind of crazy and wild that some surgeon threw at you, and they give all that fun stuff to an outside engineering firm, and you're stuck with just the broach handle, that, that isn't exactly, you know, inspiring.

So yeah, but that— you're right, that's exactly what they do though. They give away the fun stuff because they don't— they can't upset the apple cart with their current products and their current product maintenance and current product line additions. But Colleen, what— why, why did you outsource? Did you have a lack of resources? Did you have a lack of expertise?

Well, um, really, uh, at that point in time, it was shortly after I joined Consensus Orthopedics, and it was very much turnaround situation. I mean, I, I literally fired the most experienced engineer we had shortly after I joined. So, um, it was really trying to figure out how do we get this done. It was being done for our European business because we knew we were never going to be able to get—

mobile bearing.

Yeah, yeah, yeah, mobile bearing. And so, you know, at the time the company really didn't have the engineering staff to reliably develop a mobile bearing knee. And it was a combination of really expertise and maturity on the engineering staff we did have, their experience level. But I'm, you know, I think we would've probably outsourced it in any case, given mobile bearing knee is a whole different animal than, you know, the fixed bearing knees.

Got it. So that's one place to look, Kyle, is, uh, for companies that are in transition. Um, that's a really good one. Or companies that just got recent funding that may not have a full R&D group. Those are two good places to look.

I, I would add something to that. I'd say companies that either have just finished, uh, Series B, um, you know, they've gotten through the, the seed stage and the Series A, and they've just closed probably a larger Series B, kind of is a, is a good spot because they have cash, they can pay you, and, you know, they're looking to expand their product line. And so that's certainly when, as a CEO at a medical device company, I have, you know, really tried to tackle more projects, and usually through some kind of outsourcing that complemented what we were doing in-house.

Yeah, makes, makes total sense. Dr. Shiroff, I'm sure you've developed products in your, in your time, uh, either as an employee of a company or outside. Give us the, give us the MD perspective.

Well, I was on the periphery of, uh, of the R&D but had close collaboration during my years at a startup. And one thing that is always interesting, and I wanted actually to ask that, I'm not sure it was covered before, I joined a little bit late to the show, my apologies. But the, the consequences, the economic consequences of design and manufacturing, when do they come into play? And are they, are they coming after the regulatory process and review, or are they in parallel, or is that more downstream? I think, you know, those kind of decisions really are important in terms of how to position the device and how it ultimately becomes a success or not.

Yeah, I think the, the best way to explain that is just with some rough, simple numbers, and these are just examples, but we're generally speaking, there's a law of orders of magnitude. If you want to get a product patented, an idea, Probably going to cost you $50,000. If you want to get a 510 cleared, it's probably 10 times that, probably $500,000. And if you want to get it launched in the marketplace, that might cost you $5 million. Now, those are very rough figures. Is it sometimes $15k for a patent, $200,000 for a 510, and $1 million for commercial?

Sure.

But that's a way to think about it. One way that we tend to structure our proposals is to look at it as a Phase 0. Is your concept an IP? Phase 1 is your inputs and outputs, getting your design locked in. Phase 2 is your verification, validation, and your 510 clearance, which is another stopping point. And then you're into that commercialization phase. That phase can take a whole lot of different forms, whether it's testing at an alpha launch, limited launch level, or it's go right into it, or it's international companies that don't require a 510 because you're trying to get in clinicals, whatever.. But I guess that's one of the ways that we tend to frame it in a simple way of explaining.

Yeah, I think—

what?

Go ahead.

What I was thinking about, you know, the cost, the product cost specifically. You can design an expensive and you can design a very inexpensive product. How are those factors, you know, being taken into the design process over time? And that's where I was trying to, to position.

Okay, sorry. No, I love that question. So the first thing, if you're robust in your early investigational work, you should understand what the reimbursement looks like for any product and you should understand what the competitive or similar products have as an asking price and as a selling price. So there's a couple things we're working on now where we were able to get the hospital term sheets of similar products. So you can say, okay, there's the undiscounted price that they've got. Figure a 40% discount probably on average. You can try and look up Medicare reimbursement rates and see what those are, various ways you can look up and do. So you want to start with that end goal in mind of what are we going to sell this thing for. Most big companies want to start with a target of an 85% gross profit. But you, so if you say, okay, we're going to get $2,000 for this device at the end, and we are going to be asked to have a gross profit of 85%. So our target cost up front is $300. And there you go. And ideally what you do is at phase 0, you're exploring that. You're looking at some potential downstream vendors. You're getting some extra quotes. You're looking at offshore work. At phase 1, you're looking at it again. And how much have you deviated? At phase 2, you're visiting again. And You know, you'll have some wiggle room throughout where maybe there's some premium pricing that you can do. Maybe there's some special modifiers because of the type of surgery that you're doing, that there could be extra reimbursement codes, whatever. But I'd say that's really important to start at the beginning. Okay, thank you.

Yeah, he brings up a good point. I mean, some— sometimes in the design inputs, there's some decisions that are made with the design that kind of get your cost of goods out of control. Or way early, way before you file. And it, it creates more complexity to the surgeon sometimes in the operating room. There's too many steps, too many instruments, too much of everything. And that goes all the way back to design input sometimes.

Yeah, yeah, it is okay for a user requirement to have nothing to do with the widget per se, right? A user requirement can be costs the same as a competitive product or costs 20% less or is a bargain price because we're going to try and sell it in an economically depressed part of the world. There are business models in which that works. So a robust user requirements exercise should be considering not only like patient outcomes, the user experience of who's going to be holding the part. It should be considering the people that are delivering it. It should be considering how it's cleaned, how it's costed, how it's manufactured. I mean, you can even have user inputs that say this doesn't have a large carbon footprint. There are— those are things that can come into play.

Interesting.

Niall.

Go ahead, Mark.

Is there a difference between an engineering firm that's run by an engineer versus one that's not?

Oh, the engineers are running it no matter what. That's, that's a joke. I, I'm sure there are. I, I've only, I've only worked in this one, and our, our whole team is engineers here. I'm, I'm sure we'll probably bring in a few marketing folks and totally ruin the family after a little while, but—

So even at places like Zimmer Biomet, they're run— the engineering is run by engineers?

Yes, almost always does. So until you get past a director or senior director that will go to a VP, it's usually there's several layers of engineers. So it's that way for us. It's that, I know that's that way for Zimmer. Most of the time, the engineers even will roll all the way up to the chief technical officer. And that person can be of any background.

So what do engineers do for fun?

I coach football.

Okay, great.

Thanks.

Good question. A lot of them do carpentry and, you know, they like to do mechanical things. They have, they have giant workshops in their garage.

Yeah, a lot of our guys work on a lot of cars, a couple of motorcycles that they're pretty into. I like, uh, yelling at children about an oblong-shaped ball.

Yeah, he's— when I used to hire engineers in from inside the company, I always— I could care less about their resume. I would always ask them, what do you, what do you build? What hobbies do you do? What, what do you build on the side? And if they were, if they were re— re— you know, rebuilding their transmission, that was a huge Plus, uh, yeah, interesting. Do you do any 3D printing, Kyle? I know you don't do it inside, but do you outsource 3D printing?

Yeah, we actually, that's, that's something we do on site and we've got other options in town. But yeah, we do that on site.

Plastic, but probably not titanium.

Yeah, we're not gonna, we're not gonna mix with metal yet.

Yeah. If you, well, Mauricio can help you if you ever need to print titanium.

Got it.

World, world class. Got it. Interesting. So what's, um, can you give me a success story and a disaster, um, if you can? It may not be from Priority, uh, but okay, so Here and here.

Maybe I'll give you something from inside and from outside of Priority. So when I, so when I joined Sonoma Orthopedics, it was one of those, so I left the Pusynthes in a gig that was going really well to just kind of take, take a leap, try something new. Moved my family to Chicago. I had 4 young kids at the time. Went to go join this startup. It was gonna be a wild adventure. Our kids were little, so we thought, what the heck? And within a couple of months, I realized, my goodness, this is— what in the world did I get myself into? They had spent a lot of money and they were trying to build an entire company around the Clavicle. Well, the Clavicle device was very cool and it provided the solution to a problem that was very real in a market that was 10 times smaller than they thought it was.. And I found that out by being, I'm a bit of a honey badger when it comes to the do your own research piece. You know, my wife once told me something about a certain medication. I said, that doesn't sound right. And I came back to her with studies and papers and market reports. And she never said something like that to me again without, she doesn't use the phrase, well, studies show, because I, I'll go find them. So that was a bit of an adventure to learn that Sonoma was behind the 8-ball there. However, pretty quickly thereafter, I was able to use the same sort of methodology to find the opportunity to make a similar product in the ankle fracture marketplace for the fibula. It's an area where there's not a lot of skin, prominent hardware is a big problem, patients get infections like crazy. And I was able to bring on a new team and we moved at lightning speed. We launched a fibula nail in 12 months. The project cost was about 300 grand. Within 3 months, it was the best-selling product Sonoma had ever had. It absolutely exploded. And a year later, the investors were saying, all right, what do you got next for us, Kyle? And so the team that I had, we worked up 5 other areas we wanted to go after and they said, okay, that looks great. Now go sell this company. So the 2 alternatives were give us money and we'll go do that again, or why don't you see if you can sell it? And we talked to most players in the marketplace and landed on a ton of interest from Arthrex. And because Sonoma's investors had looked bad to that point because they'd lost a lot of money, the moment they had a chance to exit and look good, they took it. So Arthrex acquired Sonoma, and unfortunately, I didn't make a ton of money out of it. It was all washed out by the time I got there, but still a tremendous success story because that ankle nail that came out of the experience of holy crap, we can't build a company on the clavicle is now like a $50 million product for Arthrex and is kind of a game changer. So still pretty proud of that even though I wish I were getting a 10% royalty. Well, and then on the failure side, one of the things that I did at the Pew was I was working on a, a shoulder device that was really unique and really cool. And they brought on a new director and I did a terrible job of including him in the details. And one day he showed up in the middle of a cadaver lab and it didn't work perfect. I didn't have a chance to explain it to him because I hadn't taken the time to invest in his onboarding. And he said, well, that didn't work perfect. This project is canceled. And it was absolutely heartbreaking because it took like 2 years of my life and threw it away. And it told me, Oh man, I gotta remember that every relationship and every new person I gotta connect with and follow through with that. So those are a couple experiences before Priority Medical. Now I've only been around about a year, so I don't have a great, you know, success or failure story yet. I do have one that I think is going to be a success story in the coming months in that we're working with a company that is about to make a production location move. And they have no idea what they're in for and they didn't hire us to be part of that, but we were looped into it. And I've moved a production facility twice and we're going to just happen to be perfectly in the right spot to say, you got to think about an inventory transition and have you built a ramp-up plan and have you moved your QMS? And that's going to be one of those where us just being around to be in service of our client, even when there's a scope creep, even when things change, that we can just be there and use our experience to leverage that. So sorry, that wasn't a great example for more recent times, Tiger, but—

Oh, that's good.

Let's talk in a year and I'll have a few more to share with you.

That's good. So going back to the fibular nail, how do you find those unmet needs in the industry? Because there's— what I— when I talk to people every day and there's more ideas than there are people executing on the ideas. There's probably 1,000 great ideas in orthopedics that nobody's doing right now. Yeah.

It's also more ideas than we need probably.

Right.

Yeah.

You gotta, obviously there's screens and a lot of ideas are gonna fall out, but there's, you know, there's things like, and here's my analogy. You go back to, this will just blow your mind. Until 1989, nobody put wheels on luggage. So when we were traveling, Before 1989, we were carrying our, carrying our bags and it was like, why didn't somebody put wheels on luggage before 1989? It seems like a no-brainer. And there's things like that in orthopedics. I mean, Treece Medical, you know, they, they bunion recurrence rate with bunions was 25%. It was terrible. And everybody just lived with that. And then all of a sudden, Treez comes up with, I don't know what their retention rate is or what their reoperation rate is, probably 2 or 3%. But it's a big improvement. So what are, what are those things in orthopedics?

Yeah. So to me, there's 3, you gotta look for the convergence of 3 things. Do patients hate it? Do doctors hate it? And is there a market to be addressed? And if you can find all 3, there's something to be had there. And even if you're not the first there, if you're offering something that is less common with high value, then you could do something there. So let's make up an example. Let's say that patella pain post knee arthroplasty is something that is the most common patient complaint. Okay, great. So the patients don't like it. And let's say most patients don't get a resurfacing because the doctors don't like doing it. It's all risk and no reward. And there's a truckload of knee procedures done annually. Well, okay, if you've passed those first 3 tests, now the trick is, is to look at what's the landscape of IP and what are the landscape of products. And you might see, all right, there's a bunch of companies that have an all-poly device. There's some companies that have a poly device with metal pegs. Somebody's doing a resurfacing. But you know what? Nobody's got a biologic. So you know what? If I can find a window to do some sort of biologic on the patella only that's indicated for use in every knee arthroplasty, now you've got something. Now, I just spun that off out of nowhere. I don't know knees as well as I know hips or shoulders or foot and ankle, but hopefully that's an illustration of, of the type of exercise that I would go through. And we do that sometimes for our clients. We're, You know, they say, hey, we're operating in space A with these technologies. Can you help us think about where we can apply those other technologies? And we would use the same methodology.

I, I love those questions. That's, that's really good. Unhappy patients, unhappy surgeons. Yeah, one of my startup friends is Osteo Remedies. Most people never heard of them. But, they, you know, if you, if you're doing a two-stage joint, revision, so you have an infection around a hip or knee and you gotta, you gotta rip the implants out. And then you gotta mix a big batch of, bone cement with tobramycin on the back table and then they jam it down into the ice cream cone. And then the patient's gotta walk on that for 6 months, 9 months. They just grind on it. It's just, barbaric. And then they come back 6 or 9 months, they rip all the cement out and they put in final revision implants. I mean, that was, that's been going on for decades. And OsteoRemedies said just a few years ago, there's gotta be a better way. And so they created, cement, they created hip and knee implants that look like hip and knee implants made out of bone cement and antibiotics. And it come in different sizes. It fits the patient. The patient can walk on it and it, it eludes the antibiotics at a better rate. It kills the bugs better. And I mean, they went from nowhere to, I mean, they're all, I think they did $40 million in sales last year with 15 employees. That's awesome. I mean, I mean, that is like, why, why were people putting up with these barbaric two-stage revisions for decades.

Perfect example, right? Do the patients hate it? Yes, either because it hurts or there's multiple stages. Do the doctors hate it? There's no, there's no heroes in revision and they've got to do it twice, right? Is there a market? Market is gigantic for infection. And what does the competition offer? Nobody's doing that. It's perfect. It's an awesome story.

Yeah, there's so many of those and you don't see it until you see it. You know, once, once somebody does that, you go, what? Heck, why didn't I think of that? Um, but yeah, it's, it's an interesting—

yeah, go ahead.

Operate—

most of the companies are operating in a very me-too reactive place, right? First reverse shoulder comes out and then 75 more of them are what's launched over the course of the next 10 years, you know. Although there is a reverse hip coming apparently.

Wow, that hard to see what— hard to even think what that looks like.

That's okay. Yeah, means the dual mobility shoulders coming after that.

Interesting. Yeah, the big companies are incremental, you know, in their product development. That's pretty obvious. And the startups have to, have to do everything. Good.

Maurice?

Yeah, I was gonna, I, I was gonna say there's this industry, especially in the, the bigger players, there's a lot of risk aversion. I think they're— the name of the game for them is risk transfer. So they want to— that's why when, when a new idea comes along, they'd rather fund a startup and have them run all of the, the regulatory, the market risks and everything, and then acquire them once they're ready than actually to invest in a technology when it's early. And I think that's where a company like yours probably fits in very nicely because it falls within that ethos of risk aversion.

Yeah, I had a previous manager used to joke when I worked for J&J, he'd say, listen, J&J loves to take risks as long as nothing can go wrong.

That's so true. I love that. Yeah, that's a really good point Mauricio says. So one of your, uh, marketing, uh, messages may be that we're going to take your risk away from you and we're going to make you look good. We're going to rather than make the R&D director look foolish, we're going to make the R&D director look like a hero. Because let's face it, a lot of these management people in the big companies, they're really trying to avoid risk and get promoted. They're trying to not make mistakes so they can go from director to VP to C-level.

Unfortunately.

That's true.

Interesting. That's a good— that's an interesting messaging, Tiger. I think you're right. It's— I think you're on us.

Yeah, I, I mean, I talk to— unfortunately, I get to talk to the big company and the startups every week, and it's just like Venus and Mars. I mean, they're completely— they're upside down from each other. And the big company people are just trying to not— they want to just survive another few years, get more stock, not get fired, and maybe get a promotion. You know, they're trying to not make waves. It's like the Japanese saying, the nail that sticks up gets hammered. So they're trying not to be a burden on the company. And then you go to the other extreme and the startups are just trying to disrupt everything. They just, let's break things and try things and see if it works. You know, the only advantage that the startups have over the big companies is they have an ability to embrace risk like crazy every week and try things and say, well, that didn't work. And then, I mean, my last startup, the CEO, the CEO said, if you're gonna be status quo here, you, we're just gonna fire you. He goes, I want to see people that bring fresh ideas, and, and, uh, try test the ideas on a weekly basis. And I want to see everybody fail and learn from the failings every week.

And that was, you know, Tiger, that's something every employee we get at Techfit, I give them a pitch on our values, and one of them is fail early, fail often, fail systematically. And that's one of the things I tell them, like, you have to try stuff just learn from the failures and don't fail in a way that allows us to get us in trouble. But you have to try, you have to always try new stuff. And yeah, and I always, if you want to get me angry, tell me it's always been done that way.

And as an answer, yeah, you can fail without, you know, hurting the company, you know, you can fail without screwing things up. I mean, one of the best examples is Richard Branson. When he started Virgin Airlines, he started with one plane, and he went to Boeing or something, and he rented a plane for a year. And if the business had failed, he had the contractual right just to give the plane back. So, he had very little downside risk. And he tried it, and it worked, and he started an airline company. So, do things that have very little downside and a big upside, you know, asymmetric risk. This is good stuff. So, Mark, are you familiar with sort of behind-the-scenes design inputs, design outputs, verification, validation, and all that stuff that's got to be connected together? No. Okay, here, Kyle, why, why don't you walk through— this will be good for everybody, but, um, you know, the regulatory agencies and the quality system, uh, there's a, there's a very disciplined system behind the scenes with every design.

Yeah, so when you hear the term design control, what that is meant to convey is that For a given product, you've established that there are a series of customer requirements or user inputs, and you've taken those user requirements and translated those into design inputs. You've taken those design inputs and the resulting design output meets those. And in order to demonstrate that you've accomplished that, you will do a design verification to prove that your outputs match your inputs. And then you'll do a design validation to improve that your outputs match your customer requirements. So to walk you through what all of that gobbledygook meant is customer requirement is a device that seats a broach in the femoral canal. The input is a metal thing with a handle that a surgeon can swing. The output is a hammer. The verification is you put a doctor in a lab and you hand them your hammer and you put a broach partially into a femur and he hits it and it goes into the femur. Your— I'm sorry, that's your, your validation is you put the doctor in a lab. Your verification is that you hand this hammer to someone that has no idea what it is and they can pound the nail into the deck if they want. You know, there's, there's all sorts of different ways to do the different verification and validation. Validation activities. And that's just a very simple off-the-cuff illustration. But that systematic methodology is the way in which designs are meant to be captured and documented throughout the whole process. All of the documents associated with demonstrating that are part of the package that goes into a regulatory submission, and they're part of what's called a design history file that the companies, the manufacturer of record, is required to keep for whatever it is, 20 years plus after the lifecycle of the product, to demonstrate that they've done it in accordance with various regulations.

Very good.

Thanks.

Yeah, it's a lot.

I can bore you to death with a million other elements. I've gone through that process a lot, a lot.

It's a lot of paperwork, but it all starts with customer requirements. You know, it weighs, it weighs less than 10 pounds, it delivers, you know, 50 pounds of force, it, it does this, bang.

See, the problem, the thing that makes that, that systematic approach really important is, Mark, what's most common, especially for doctors talking to engineers, is they come to you with the solution. They say, make me a 10-pound hammer. And we say, okay, well, here's a 10-pound hammer. And then they go and they break a femur. The problem with that is they brought you the solution instead of the user requirement. The user requirement in that case might have instead been, had instead been, I don't wanna swing the hammer so much. And they jumped at the solution and thought bigger hammer when really the solution might have been make better cutting teeth on your broach. Right? That's, and a lot of mistakes get made and not, not making the proper translation between those things or not working your way back to the beginning.

It's a great analogy.

Yeah.

People tend to jump to the solution. They see it in there. They see a, a concept in their head. Give me this. Yeah, it's hard. It takes a lot of discipline to go back to requirement. And Mark, these are— there's like hundreds, hundreds of customer requirements. It is, it's complicated. And each requirement has to be met by the design, and then it has to be measured in a lab somehow. Well, anyway, this is great. Thanks, Kyle. This is, uh, Yeah, behind the scenes of engineering expertise. So, uh, yeah, yeah.

Thank you for the great questions.

Yeah, good luck. Um, you guys have a great team. You're just going to go like gangbusters. The only issue is just how do you find the next customer and the next customer. That's right. Yeah. All right, thanks. See you next week.

Thanks.

Thanks, PhoneChatter. See you on Slack.