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Orthopedic and Dental Industry News Complete Archive »

SpinalMotion Receives $20 million in Funding BY HUYEN NGUYEN, MAY 2, 2005

In the past few years, we have seen many new spine companies emerge with innovative technologies in the disc arthroplasty market. We did a quick search in our own HealthpointCapital proprietary orthopedic database and found that there are approximately 35 orthopedic companies (worldwide) that have an artificial disc in their product pipe line. In recent years, there have been many start-up spine companies with a single product: an artificial disc, with a single focus: to be acquired. We honestly wonder how far this can go.

Spinal Dynamics was the first well-known case of a disc company with little or no revenues being acquired for an astronomical price. Medtronic, in fact, paid Spinal Dynamics shareholders $269.5 million for the Bryan Cervical Disc. Since then the breadth of the spine market has expanded, and stratospheric multiples have been paid for disc companies and an aggregate of about $1.4 billion has been put to work in the sector not counting venture funding of this nature. Our current estimate of the artificial disc market is that this segment will grow to about $1.6 billion in 2014. So past acquisitions such as Spinal Dynamics represent a nearly 1x revenue purchase multiple - 2014 revenues that is.

In last week's funding, SpinalMotion not only received $20 million in Series B funding from Three Arch Partners and other investors, but also received FDA approval to launch IDE studies on its Kineflex™ lumbar and cervical discs. According to the press release, the Kineflex lumbar and cervical discs have been approved for sale in South Africa. There have been over 375 Kineflex™ discs implanted in over 300 patients, with over 100 cervical discs implanted in 75 patients. The most interesting thing to us about the IDE is that the control for Kineflex™ lumbar is, in fact, J&J's Charite. See our last week's interview with Dr. Fred Geisler who has signed up to participate in the Kineflex™ IDE.

Ironically, the same day SpinalMotion made their announcement is the same day CMS released its draft recommendation for the Charite add-on payment. According to the CMS, the Charite's IDE studies did not prove "substantial clinical improvement over spinal fusion" and therefore, CMS decided initially not to recommend add-on payments for the Charite and will continue to investigate. To investors in the latest SpinalMotion round, this cannot possibly be good news. Many of these companies (below) will now have to fight the same battle as JNJ once their product is approved by the FDA. Perhaps by then, they will have better data to provide to the CMS.

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