Inside Orthopedics: Anatomy of a Startup - Q&A with the Founder and CEO of Augmedics (Podcast 33)

Brought to you by Tiger Buford. Welcome back to Inside Orthopedics. This is Tiger, your orthopedic industry insider and retained recruiter for early-stage orthopedic companies. This is episode number 33. Titled Anatomy of a Startup: Q&A with the founder and CEO of AugMedix. You are really going to enjoy this one. I was thrilled to have the opportunity to interview Nisan El-Melek. Nisan and I have never met. He was in Israel, I was in Memphis. You will be hearing a lot about AugMedix soon. This year AugMedix will be bringing x-ray vision to US spine surgeons. Literally, x-ray vision. Augmedics is truly leading the way in augmented reality surgery for orthopedics, and I believe they will help change orthopedic surgery forever. While the entire industry is focused on large navigation systems and robots, Augmedics snuck in the side door with a seamless heads-up display technology The spine surgeon with the Augmetics lenses has total control in the OR with the superpowers of X-ray vision. Augmetics is also executing famously in 5 short years. You'll see they've used their capital much better than most tech startups in orthopedics or spine. So enjoy this episode. It's always ad-free. Let's get started.

Okay, here we go. I'm live with Nissan Elimelech in Israel. Welcome to the podcast.

Thank you very much, Tiger, for inviting me.

Great, thanks for your time. So I've been following Audimatics for a couple of years, I guess, and, uh, You guys seem to be leading the space in augmented reality and surgery, and it seems so obvious to me. I've been dying to talk to you. So let's just start at the beginning. Tell us, how did AugMedix begin? What was the idea?

So it all started in 2014. I was working in the spine surgery unit in Medtronic for several years. Years before that, I also worked in other spaces of surgery, about a decade before starting OncoMedics. But then in 2014, I noticed that there's a great need for a revolutionary step in surgical navigation space. As you probably know, Medtronic has in their portfolio some surgical navigation systems for ENT, spine, brain. For many years, but these systems were developed about 20 years ago. And now with the technology advancement, it still remains relatively the same as it was like 20 years ago. And the adoption rate of surgeons really didn't— didn't really get higher and higher every year. And spine surgery, still most of the spine surgeries are performed without any sort of surgical navigation.. And it's frustrating to me to see that although Medtronic has very fancy equipment that costs a lot of money, even after surgeons are buying the system, they don't use it so often. So I wanted to do something really revolutionary in this space and to make surgeons comfortable in using this great system that will help them guide their implants accurately. I basically, the vision I had was to give surgeons the ability to be like a superhero that have X-ray vision that they can see through the patient's skin and tissue and look straight at the anatomy of the patient and then guide all their implants very accurately. That's the vision I had, and I thought that if we can make surgeons like superheroes, it'll increase the adoption rate, it will increase the willingness to use this technology. And that's what I basically did. So I left Netronic in 2014 and started to look for technologies who will be able to do that. And that's how it all started. That's like the live That was the lightbulb moment that I had back then.

And were there surgeons that you worked with in the early days that shared the vision?

I worked in Israel while I was working in Medtronic. I worked in Israel and there was no one in particular that I would say that helped me with that idea. I looked at surgeons, I worked with surgeons at the time. But I think I had the understanding what they want and what are the challenges, what are their, you know, what is the pain, right? And then from understanding what is the pain, then I started to think what is the best solution for that pain.

That's fascinating. That's a common tale. Surgeons know the problem, but they really can't jump to the solution. Because they're so focused in their own world. Interesting. So how did you— so 2014, so how did you— take us through the early years developing and funding the company.

Right, so as soon as we, you know, we founded a company— when I say we, there were 3 of us, 3 entrepreneurs. But then it quickly became only me. To be an entrepreneur is a very hard thing to do. You need to sacrifice everything that you've done so far. So I was really, you know, stayed by myself relatively short after we started Augmedics, but I started to look for investors who can fund us. In the early stages. And one incubator in Israel that is called TerraLab wanted to invest in us, and that's what we did. Eventually we got $800,000 as seed investing in a company, and it sustained the company for about 2 years. With 5 people on board getting minimum salaries and working really on a limited budget. But still, we were able within these 2 years to build a proof of concept and to actually get a very early version prototype of the system. Within those 2 years. After that 2 years, we went to Series A and we raised additional of $7, I think close to $8 million Series A fundraising from AO Invest, which are our lead investor. It is a VC arm of the AO Foundation, which is for whoever knows the organization—

Sure, household name. Yeah, yeah. Simplicity is part of Simplicity now.

That's correct, that's correct. So AO Foundation decided that our technology is novel enough to invest in, so their VC arm led the Series A. And now we have a very close connection and very connected to the AO Foundation activities and meeting groups and everything, which is very helpful. And then we work additional 2 years more until we reach that point that we are speaking now on the phone. And we are still fundraising at the start of your fundraise. We are now seeking for Series B fundraising. And we already closed half of that, so $10 million is already in the bank now from bridge investors. So that's what funding looks like for a company as ours. But I think that now we're getting very close to commercialization with our product, so it will be— We will soon not be needed for any more investing in the company, you know, as soon as we start ramping up the sales.

Right, right. So, yeah, so this is probably a good segue. So tell audience about the technology and kind of how it works and maybe even how it started and how it's different now than it was, you know, a few years ago.

Right, so as I mentioned, I mean, I was trying to make surgeons superheroes with x-ray vision. That's the vision I had. Yeah, we obviously cannot give them real superhero powers, so what we did is we built an augmented reality headset that projects directly to their retinas all the imaging information that requires for the surgery. We take pre-op or intra-op CT scans. We do a 3D reconstruction of the CT scans, and we project directly to the retina the 3D model of the anatomy that we want to navigate on. And we start with spine surgeries, so we construct the spine in 3D, and we project it in a very good, or I would say, precise registration with a patient lying on a surgical table. And we also add the 2D conventional views that the surgeons are used to see when working with traditional navigation systems, such as the axial and sagittal cutting planes. So that's what we are projecting to the surgeons. The headset itself that projects all these images is a wireless headset, personalized headset to each surgeon, very lightweight, very comfortable, that has— it's a self-contained navigation system basically on a headset. That's what we did. There's no cameras, no bulky workstations around. It's only a headset. That encloses all the components of traditional navigation system. And the best thing is that because it's so small and light and simple to even manufacture, it costs only a fraction of the price of traditional navigation system.

Wow, that's incredible. So the headset itself is— you said it's wireless. I'm sure it's light. Similar to what they're using today, a lot of surgeons wear loops, other kinds of magnification.

Yeah.

Interesting.

That's correct. This is a headset. This is not glasses because we still need to have the computing power on it and the display and the tracking unit as well. Unlike other consumer products such as the HoloLens or Magic Leap that you might have heard trying to, you know, some people, some startups even, or big companies trying to embrace for medical applications, consumer products are not navigation systems, are not guidance systems. They can visualize, they can project the images to the eyes of the surgeons, but they cannot serve as a surgical navigation system. We have developed During the 3 years of work, the first 3 years of work, and most of our money was spent on developing the surgical tracker, which is light and small and is built in the headset. So this is what differentiates us than all the noise around us with all the consumer products that you probably see. Seen or heard about.

Right, right. And so there's markers on the instruments, I guess, that, that, that project where you're going? That's correct.

Yeah, that's correct. That's correct. We use the same fundamentals of any other navigation system. The fundamentals remain the same. We use markers that we mount on the circle instrument, and we have a reference frame that we place on the We fixate it on the patient, and we have an infrared optical tracker that is built inside the headset, which tracks the markers, and that's how we navigate.

And the vision field, you see bone, you see nerves? Ligaments? What do you see in the vision field?

We see everything that we can see from the raw data. So the raw data that we currently use is the CT scans. The CT scans can come from an intraoperative scanner such as the O-arm, ZIM scanner, Aero, etc., or it can come from a pre-op CT scan. Currently, we support only intraoperative CT scans, but in a year from now, we will be able to take a pre-op CT and register it with a patient using a 2D fluoroscopy.

Terrific. Wow. So how much time does that add to the case?

We haven't measured real cases and the time that it saves or adds So I cannot answer on that, but I can assume that eventually it will save a lot of time, a lot of OR time, because as you know, in spine surgeries, sometimes you need to reposition screws that are placed incorrectly. So, and it takes time to do fluoroscopy to guide the screws to the correct place. So all this time-consuming process will be eliminated once surgeons will choose to use the X-Vision.

Yeah, I mean, not only are you taking away the rework, but you're increasing safety dramatically.

Oh yeah, for sure. Yes, we've demonstrated, and that's one of the tests that we submitted to the FDA, that our system is highly accurate with 99 of clinical accuracy achieved in labs. So our system can increase the safety of the procedures.

Yeah, definitely. Yeah, interesting. Yeah, most surgeons exaggerate how active they are with pedicle screws, but they're not. Uh, so tell us about the— what's the product? What is the hardware software product? And what's the business model? I'm trying to wrap my head around what you're actually selling.

Right, so, um, so we're selling everything that I just said. I mean, we're selling the headset, we're selling the software, we're selling the monitors, we're selling the universal adapter set. We own everything. We develop, we manufacture and we sell everything in-house. We don't have any off-the-shelf products that we buy and resell. We developed everything from A to Z, and that's what we sell. We have a full team of engineers. Some of them are computer vision programmers, some of them mechanical engineers. We have a manufacturing line in Israel. And we sell, like I said, from the headset to the markers to the software, everything.

And is everything disposable or is there a piece that's reusable?

No, only the markers are disposable. So the marker set needs to be opened— a surgeon who wants to use the system needs to open a new marker set every surgery. Other than that, everything is reusable. The headset is reusable. The universal adapter set is reusable. The computer, of course, is reusable. If there is a computer, we can sell computers, but we don't have to because we have interface software that can be installed on any computer. So if in OR you have like smart OR with flat panel PCs, we can just install our software to control the headset. But if not, we can also sell a computer. That's not a problem, but it's only a computer.

Got it. And so there's no latency at all as you move your head or move the instrument. It's pretty much real time, and you don't need 5G for that?

So we do have a minimal latency, that's right, but any system, any electronic system has some latency, of course. We do have a minimal latency, but the feeling, I mean, no one will feel that it has a latency, right? It looks real-time for the user, very comfortable. It looks like you're seeing through the patient's skin. You move your head, everything is very highly responsive. So it feels natural. It feels like you really have an X-ray vision.

Yeah, that is really cool. And surgeons are not making any quick moves anyway, so it's not like you're driving a car. That's fascinating.

Yeah, but even if they do, even if they do, because we have a minimal latency, you still feel very comfortable. You don't see You don't feel the lag. You don't see any latency. I mean, a person would not feel the latency. I wouldn't say that— to say that we don't have any latency will be wrong because we do have it. But the human being will not notice this latency so much because it's really, really fast.

Right, right. That's really cool. So why did you guys attack FIME first? Why spine?

Because, uh, first of all, it came from the need. I, I was working the spine surgery unit, right? And, uh, and, uh, and I, and I just, uh, and I just noticed that there's a need in spine, so I wanted to address that first. You know, that's my— that, that was my pain.

And, uh, and the mostly pedicle screw placement?

Yes, yes. So, but it's, I mean, I think that overall, I think that's the market that we should start with nevertheless. I mean, it doesn't really matter if I started, if I was working in spine or not. I think that's the right market to start with because first of all, it's a huge market. There's about 1 million spine surgeries every year in the United States. That's first.— it's the low-hanging fruit because most spine surgeons don't use any navigation system for spine surgery. Right. So that's why we need to start there. There's a huge opportunity. Hundreds of thousands of cases in the United States every year are done without any sort of navigation or guidance. So there's a huge opportunity for the X-Vision to start there. Once we start with spine and get the market and be successful with that, we will move forward with other applications.

Right. It seems like trauma is natural. I've been in a lot of trauma cases and there's fragments of bones all over the place and it's a three-dimensional problem. Yes.

Yeah, you're definitely right. There are challenges in that as well, like any other application. Right? In any application there's challenges, but yeah, you're definitely right.

Good, good. So are there other competitors kind of on the horizon? Are you guys leading the way?

I tell you honestly, I think we're the only company who truly developed and manufacture a fully contained surgical navigation system on an augmented reality headset. Now there are other competitors who will have augmented reality glasses or headsets, but they will not have the tracking system and the full navigation system inside the headset. There are good products such as the HoloLens and Magic Leap, some even partnered with big companies. That will offer to their customers the augmented reality lenses and provide them with the same x-ray vision that we have. However, I don't know of any other company who truly took the complete navigation system and put everything on the headset. In order to use a consumer product such as HoloLens or Magic Leap, you still need to own or buy, right, a separate navigation system that costs half a million dollars. And you can add to that the glasses, but it's still not going to be only glasses.

Right, right. There's a giant refrigerator in the corner of the operating room. That's right. Yeah, yeah. That's right. Huge. Huge capital equipment and it's disruptive to the flow. Well, that's awesome. I mean, it's amazing somebody hasn't come up with this before. And I don't know if you follow American football, but that was the first time I ever saw augmented reality when they put the first down line on the field that you could only see on your television. And that was in 1998. When the first down line appeared, uh, to the viewers.

I actually spoke with someone who said that he invented this.

Wow.

Time ago.

Yeah, that's what he claims. Yeah, it's fascinating. And then other sports tried it. They tried to highlight the hockey puck. That didn't quite work. Um, but yeah, I mean, that's— think about that. That's 21 years ago, and you would have thought somebody would have, uh, but it took you guys, um, oh, '88 you said, or '98? 1998. So 20—

oh, '98. Yeah, yeah, 20 years ago.

Yeah, yeah, 20 years ago. Um, well, uh, so where is Augmetics going in the next year, the next 3 years? Where do you see vision for the company?

So, uh, I think we're gonna— I think we're gonna disrupt the market of navigation systems for surgery. Like I said, I mean, there's only a few surgeons in the world that can afford buying a navigation system or want to use a navigation system. Even if they have it, they don't use it so often. So I think that our solution will really be the standard of care for navigation. We start with spine, but then I see it also catching up with brain surgeries, all the chronic surgeries, joint replacement, trauma that you mentioned, that's right, ENT, you know, everything that requires high precision when treating a patient. That's what I think we will be the standard of care.

Yeah, I can see oncology. Anytime you surgically remove a cancer, that would be a great tool.

Yeah, but that— keep in mind that there is a process of registration that is needed before using a navigation system. We currently are focusing— we are currently focusing on anatomy that can be fixed, rigidly fixed to a marker to reference so we can track it. Because after you register the anatomy to the markers, it cannot move relative to that. So soft tissue tends to move all the time unless it is enclosed inside the skull such as the brain. So that's why we can navigate on the brain because it doesn't really move much inside the skull. With other soft tissues such as liver, kidneys, or the GI—

Colon, yeah.

It's going to be much more challenging to just register it to fix the reference frame.

That makes a lot of sense. Interesting. Bones are, bones are your friend with augmented reality.

That's correct.

That's right. Well, that's been great. I really appreciate your time. Tell the audience where they can go to find out more about AugMedics. The videos are fantastic. Once you see the video, you understand it. Where should people go?

I think the best, the best will be to just follow us on LinkedIn. That's where we tend to post most of our news and updates. So LinkedIn is a great platform. They can follow me personally or the company's LinkedIn profile. Our website, www.ogamatics.com, that's also one of the We keep it very fresh and updated all the time, so it's a good source of information. Excellent. We have an active Twitter account.

Yeah. Okay. Well, thanks for your time. This has been terrific. I'm sure you'll get a lot of new interest, and good luck with your Series B and We'll see you in the operating room, you know, soon. Excellent. Of course.

Thank you very much, Tiger. Thank you for your time. It's been a pleasure.

Thank you, Nason. So that's a wrap. Appreciate it.