Friday, September 4, 2009

Archus, The Anatomy of a Meltdown

As the news broke that Archus was filing a certificate of dissolution, many questions were running through my head, some that made sense and some that did not. Yet, our readers have to be wondering, how does a company that had the ability to raise $63 million, plus another $2.3 million as recent as this summer, meltdown?

Having had the opportunity to look at this device in detail, I always wondered who was willing to invest in this product, and who would want this product implanted in them? Maybe my later observation is based on the fact that I have never had back problems. The question that needs to be answered is; whom are these investors listening to when they are making their decisions to infuse an incredible amount of capital into a potential emerging technology? A surgeon who had hit a grand slam with a previous product? What ever happened to the X-Stop? A medical device consultant? A certified financial analyst? I know that there are no guarantees, it's a crap shoot! Yet, as investors become conservative from The Spine Industries Roadkill Tour of '09, will they have learned their lessons when it comes to investing in "fools gold!" As it stands, there still are investors willing to take a calculated risk, but the trend seems to be going away from hardware ventures. I would suspect if surgeons resect enough of the structural elements (tricomplex) of the spine and replace them with hardware, they should eliminate pain.

In today's market the average financial outlay for a 450 patient IDE is an estimated $15-18 million dollars, and that's not including associated training cost. So what happened to the other $50 million dollars? Based on what we learned from some of the other meltdowns, it probably resulted in nice offices, beautiful artwork, marketing expenditures, sculptures in the lobby, and senior management paying themselves an incredible salary, smoking Cohiba's, and drinking Cristal, all on pre-revenue dollars! If some of these investors would see the way their money is being managed, they would probably pull the plug themselves on their investments.

So as we wind down The Spine Industries Roadkill Tour of '09 here is our list of headliners:
  • VERTEBRON
  • INION
  • INNOVATIVE SPINE TECHNOLOGIES
  • PEGASUS
  • ARCHUS
Who will be next? Will it be an Impliant, Facet Solutions, Disc Motion Technologies, Hydrocision, Life Spine, U.S. Spine, Custom Spine? The word on the street is that some of these companies are hemorrhagging cash, and some are using unscrupulous methods to deleverage themselves. Recently, we heard from former employees from some of these companies, informing us that they have terminated distributors and replaced them with scrub technicians and cut commissions. Others are using their consulting surgeons/medical advisors as public relations spokesperson's to generate interest from private equity or investment banking. Do these investors understand that there is a conflict of interest when your medical advisor is the person selling the snakeoil? The problem that we see with our industry, is that many of these companies don't know how to manage themselves and their money conservatively. I am sure Mr. Fitzsimmons is a nice person, unfortunately, he wasn't that good at managing the money. Hopefully, he will be able to sell the product in an auction or fire sale for at least $15 million and repay some of his investors. The Spine Blogger wants to know what its readers think?

5 comments:

  1. The TFAS concept was one of the better facet replacement/augmentation concepts out there, so I'm a bit surprised. When it comes to pre-revenue companies in the long FDA pipeline it's race between getting the studies done and running out of money. A race they apparently lost.

    It does make me wonder if there was some trouble with outcomes. I would tend to think that if the device was doing great, one of the majors would have rescued them.

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  2. My bet is on Disc Motion or US Spine. For what it's worth the word from the field has not been good for either of these companies. I have spoken to a few surgeons with experience with the US Spine device and they were not impressed

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  3. I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.


    Patricia

    http://forextradin-g.net

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