to keep an inventory of implants. Conventional suppliers like Johnson & Johnson have hundreds of millions of dollars worth of implant inventory on their books at any given time, Lang says. Crossing off that part of the equation is part of what allows ConforMIS to sell its devices at comparable prices to existing implants, even though actual manufacturing costs are roughly doubled.
Another unusual part of ConforMIS’s business strategy is that it has delayed the marketing of its implants—all four of which are approved in the U.S. and one of which is also approved in Europe—until well after the approvals were granted. The company’s first implant, for example, was approved in 2003, even before ConforMIS’s 2004 founding as a spin-off of Imaging Therapeutics, a privately held diagnostics firm in Foster City, CA, that Lang also founded. But ConforMIS didn’t start marketing the device until early this year.
Lang says the company made the decision to continue studying its devices in clinical trials even after they were approved in order to make sure surgeons were comfortable with the implants and customized tools, and to make sure patients really did well with the technology. “We wouldn’t release anything unless we’re sure it’s going to be a big improvement for patients—otherwise, why do it?” he says, citing a “very diligent” scientific advisory board comprised entirely of Harvard doctors. I have to say it’s the first time I’ve heard of a company even implying that the FDA-required clinical trials don’t yield enough data to justify selling a new product but hey, more power to ’em.
And with those extra clinical trials under its belt, ConforMIS is now making an aggressive move to grow the company and the market for its devices. The firm completed a $10 million debt financing with Merrill Lynch Capital in August, right around the time it moved its headquarters from Foster City to Burlington (where Lang says it will be easier to manage design and engineering activity, as well as European sales). ConforMIS had previously raised a total of $31 million in three rounds of venture financing from the likes of KGL Investments, Veron International, Aeries Capital, SBG. It is now working on a mezzanine round, focusing on U.S. institutional investors, as a bridge to an IPO that it hopes will come next year. The staff is growing as well—mostly on the sales and marketing side. This time last year, ConforMIS had 11 employees. Today it’s up to 42, and by the end of 2009 the figure will be 150, Lang says.
All of the effort is aimed, and least in the short term, at capturing a piece of the $5 billion market for knee replacements, Lang says. But it would be logical to use the proceeds from an IPO to expand into devices for the hip and spine, he adds. In all of these realms, ConforMIS will face competition both from the device giants (the J&Js of the world) and from fellow startups, all lured by a $20 billion-plus overall orthopedics market. And it might take some doing to sell surgeons on alternatives to conventional joint replacement, given how well established that technology is and what creatures of habit many surgeons are. Indeed, the recent trend toward minimally invasive techniques for knee and hip surgery has been hotly debated in the orthopedics community—and not everybody agrees that fewer cuts is always better. Surgeons, after all, typically aren’t quite as disgusted as I am by the sound of metal chewing through bone.
