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Business Observer Friday, Aug. 16, 2019 1 month ago

Bolder shoulder: Prosthetic device fuels big growth for medical tech startup

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An orthopedic surgeon built a better mousetrap. But convincing a skeptical market and outdoing more established competitors took lots of turns.
by: Andrew Warfield Lee-Collier Editor

After years of performing shoulder reconstruction surgeries, Dr. Steven Goldberg of Naples could no longer shrug off some of the permanent effects and lengthy recovery times often associated with the procedure.

So in 2011, the orthopedic surgeon began the two-year development of a prosthetic that would be less invasive, require less trauma to surrounding bone and tissue, and be performed in about half the time.

Although 10 major orthopedic companies liked the idea, Goldberg says, all of them rejected his new concept. Undaunted and determined to secure FDA approval and bring the prosthetic to market, Goldberg entered the competitive health care device market on his own. He enlisted veteran medical equipment executive Brian Hutchinson to found Catalyst OrthoScience in 2014. Hutchison is now chairman and CEO.  

The good news: A two-piece prosthetic that can be simply implanted rather than a physically reconstructed shoulder was a revolutionary new idea, the principals say. The not-as-good news: Major medical suppliers were not prepared to embrace the device and again rejected it. 

“It was an outside-the-box idea, and it does potentially compete with the products they currently have in their portfolio,” says Goldberg, chief of the Division of Orthopedic Surgery for Physicians Regional Healthcare System in Naples, in addition to founding Catalyst OrthoScience. “We just set out to design what we thought was the most efficient shoulder replacement system.”

Five years in, Catalyst has proved some of the doubters and naysayers wrong. For one, more than 1,000 successful shoulder replacement surgeries have been performed with the Catalyst CSR system. More validation came in May, when Catalyst OrthoScience secured $12.7 million in a Series C-1 financing round led by River Cities Capital Funds of Cincinnati, Ohio and Raleigh.

Catalyst principals decline to disclose revenue figures, only to say it's has roughly doubled in size each year since its inception and historically a niche device like this could reach $50 million in annual sales before being acquired. Officials also haven't ruled out an IPO to raise more capital. 

The device's success, even with early obstacles, is notable, say company officials and physicians who have used it. Hutchinson, for example, says in the medical profession disruptive products do not often permeate the market as quickly as the CSR Total Shoulder System has, “and I have been around orthopedics for 30 years." (Hutchinson's career includes 15 years as CEO of RTI Surgical Inc., a publicly traded biologic products firm that grew annual revenue from $55 million to $300 million under his leadership. Hutchison has also held leadership roles at Stryker Corp., and is on the board of the University of Florida Research Foundation.) 

Dr. Michael Wiater, chief of shoulder surgery of Beaumont Health in Royal Oak, Mich., who has been around the profession almost as long, says the device is the most revolutionary product he has ever seen. 

“I have been using it for about three years, and I am very happy with it,” Wiater says. “It is unlike anything else in the market right now. I have been practicing orthopedic shoulder surgery for 20 years and have used all the systems out there, and I have found this one to be the least anatomizing in that it fits the patients much better than the others.”

Faster, faster

In addition to reducing the time in surgery, the system simplifies the procedure for faster recovery and, because it is less invasive, results in a greater range of post-recovery shoulder motion.

“During the procedure, the surgeon does not have to stretch the tissue as much or cut as much tissue,” Goldberg says. “It is a little bit easier to perform, and it’s easier on the patient, which then leads to patients taking a lower dose of pain medication. They are getting out of the hospital faster than national standards and voluntarily stopping medication sooner.”

“It was an outside-the-box idea, and it does potentially compete with the products they currently have in their portfolio. We just set out to design what we thought was the most efficient shoulder replacement system.” Dr. Steven Goldberg, founder of Catalyst OrthoScience

The Catalyst CSR is a single-tray, bone-preserving total shoulder arthroplasty system containing a precision elliptical humeral head and a less invasive glenoid component. The procedure uses specialized ergonomic instrumentation designed for consistent anatomic joint line restoration and glenoid insertion. It can be used in both inpatient and outpatient settings and was cleared for use by the FDA in 2016.

According to a recent 110-patient study published in the Journal of Shoulder and Elbow Arthroplasty, the Catalyst group of 55 participants demonstrated a significant increase in the precision of restoring the native anatomy with 18 of the 55 to a change of less than 1 millimeter as compared to only two of the 55 in the non-catalyst group. 

Numerous studies, the report states, have linked poor clinical outcomes to poorly positioned shoulder implants. The Catalyst system not only allowed for an increase in accuracy based on change in anatomic center of rotation, but there was also a significant decrease in variability in restoring the native anatomy of the shoulder.

“The Catalyst technique uses cutting guides to achieve a consistent, calibrated bone resection that matches the thickness of the humeral head component,” Goldberg says. “Additionally, the nonspherical design of the humeral component better replicates the natural shape of the humeral head.”

Although Goldberg built a better system, he and the Catalyst team had to persuade his colleagues to use it.

“The best way new orthopedic products get marketed is surgeon to surgeon, when they talk to each other about their experience,” Hutchinson says. “They will listen to a sales person or an engineer, but they really like to learn from each other. They tend to be honest about their experience, and that's typically how it goes. It’s all organic growth.”

Hutchinson says the shoulder market is the fastest-growing market in orthopedics because companies have been heavily investing in new products that are an improvement over older generations. The Catalyst system is uniquely better, he adds, because of the resulting range of motion and the simplicity of the procedure, which results in predictable repeatability.

“It is faster; there is no modularity, meaning there are not any parts that need to be assembled,” Wiater says. “There are some where you have different components that make up the whole replacement, and you may need to pick from a bunch of different sizes, have the nurse open the packaging in a sterile environment and then have to assemble a lot of the parts together during surgery. There are only two pieces with this system, and it makes the operation go quickly. The instrumentation to put the prosthesis in is better designed, so there is a lot less time spent in the operating room.”

Less time in the operating room, Wiater adds, means a reduction in the risk of infection resulting from surgery.

“The longer the patient is in surgery and the longer the wound is open, the higher the risk of infection,” he says. “Also recovery is faster because we don’t have to make larger incisions or as much force to retract muscle and ligament out of the way to do the surgery.”

Fuel for growth

Although Catalyst OrthoScience holds a portfolio of 10 granted U.S. patents with several more pending both nationally and internationally, for now, the CSR Total Shoulder System is its only product. And with its 1,000-plus successful procedures by orthopedic surgeons nationwide, the system is its own catalyst for growth. The proven, nationwide case study and the recent capital investment are bonuses on that road. 

Hutchinson says the company will use the capital to hire more staff, to increase inventory to match growth plans and to build out its clinical database with results of procedures performed to date. “That will be important for the last piece, which is research and development because we have a couple of new ideas we are trying to accelerate,” he says. "And if we get FDA approval, we will add them as well."

Hutchinson declined to elaborate on those new ideas but says the company will remain focused on upper-body orthopedics focusing on the shoulder area. Those plans require adding 21 sales and administrative staff positions over the next 15 months.

“History shows these kinds of devices grow to between $25 million and $50 million in sales, and they get noticed by larger orthopedic companies and get sold," Hutchinson says. “That’s one pathway. Private equity is also very interested in this space, so there are a number of different avenues. We will also keep the IPO option on the table.”

The shoulder market is the fastest-growing market in orthopedics because companies have been investing in new products that are improvements over previous generations. “The Catalyst product is uniquely better and has features that are extremely interesting to doctors," Hutchinson says. "And those are better range of motion and the repeatability of the procedure.”

The appeal of the Catalyst CSR system is in its simplicity, Wiater adds.

So why didn’t someone think of this sooner? And why did the company face initial resistance? Hutchinson says companies have already heavily invested in their current technology and inventory in their pipeline. Wiater says shoulder orthopedics are a specialized field, and practitioners seldom delve into other parts of the body.

Goldberg, though, hasn’t worked in that vacuum. He also has experience in knee replacements, expertise that allowed him to apply some aspects of knee replacement devices to the shoulder.

“This borrows from a lot of principles of total knee replacement,” Wiater says. “Dr. Goldberg was in the unique position to make that connection.”

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