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As published in Toledo Business Journal - September 1, 2015

Vision: Toledo –
A medical device manufacturing hub

A group of professionals at the University of Toledo (UT) and others have a vision of the region becoming a hub for the manufacture of proprietary medical devices as advanced medical technology being developed and commercialized through UT is forming the basis of this drive to establish the region as a business cluster for advanced manufacturing of proprietary medical devices. The region’s long history of skilled manufacturing and supply chain development adds to the possibility for the development of this new segment for the area economy.

Brian Schlossberg, director, R&D, OsteoNovus

“I want to give credit to Dr. Agarwal as it will be his vision that I am explaining. The foundation for a new medical device manufacturing hub will be our two startup companies, OsteoNovus, Inc. and Spinal Balance, Inc. OsteoNovus is focusing on biomaterials for orthopedic bone repair and Spinal Balance will develop hardware for this same area,” stated Brian Schlossberg, director, R&D, OsteoNovus. He further explained that the new technology startup is currently working to provide a full range of new proprietary products to orthopedic and spinal surgeons for bone repair. The large and growing spinal surgery segment will be the entry point into the orthopedics market for the new venture that hopes to launch Toledo as a hub of manufacturing activity for proprietary medical devices.

Dr. Anand Agarwal, M.D., president and CEO, OsteoNovus and Spinal Balance

“Our vision is to build a medical technology park in Toledo. We have recently had talks with Five Lakes Global and Simon Gao to put a technology park in the Marina District in downtown Toledo. We would need 20 acres of land for this technology park. There is possible interest from other partners to explore this. It would not only support medical device companies, but also other incubation and manufacturing facilities,” advised Dr. Anand Agarwal, M.D., president and CEO, OsteoNovus and Spinal Balance.

Market opportunity

Information provided by Robin Young, publisher of Orthopedics This Week and CEO of PearlDiver, an industry market intelligence company, provides insight into the size of the market for spinal care. Young visited Toledo in mid-July to address an audience on the campus of UT at the formal launch of the two medical device startups.

He estimated that industry sales in 2014 were $1.9 billion. R&D spending for the same period was $129 million, or 7% of sales.

In the last year, the market value of the eight largest publicly traded companies that market spinal care products rose $875 million.

Young provided insight into expectations for the future of the market for spinal care: “The numbers of patients asking for help will continue to increase due to aging, lifestyle, obesity, and, perhaps, an increase in chronic, autoimmune, or osteopathic diseases,” he explained.

“Orthopedics has been very successful at restoring bones below the waist that includes both knee and hip replacements. The same is not the case for spine-related problems. 30% of the people that have spinal surgery wish that they had not had this medical treatment. There is significant room for improvement in this area. The spine is a very complex area and there is still a lot to learn,” stated Schlossberg.

The two startup ventures see significant opportunity in this growing spine care market that needs solutions involving new materials and products, new surgical techniques, and new technology.

Proprietary materials

The first product that will be offered by OsteoNovus will be called NovoGro Putty. It is a breakthrough bone regeneration biomaterial that grows robust bone in just six weeks, with excellent handling properties, according to the company. It is a putty-like material that appears similar to Play-Doh. It was developed by several UT professionals led by Dr. Sarit Bhaduri, Ph.D., director of Multifunctional Materials Laboratory, in collaboration with Dr. Anand Agarwal and Dr. Vijay Goel.

NovoGro Putty can be described by comparing it to a spackling-like compound. It is used in essence, to fill cracks so that bone can grow over it and fuse with other bone. Its properties and performance are critical in the healing process.

A primary option for bone repair is to do a bone graft. Bone graft materials are typically crumbly and can be washed away by surgical fluids such as blood which can be difficult for the surgeon to work with. It is also costly.

In contrast, the NovoGro Putty material is not crumbly as it acts like Play-doh. Water or blood does not wash it away and surgeons find it easy to work with during an operation, according to the company.

Its silica content works to support bone growth for regeneration in a short time period. NovoGro has a neutral pH that is not acidic which could damage cells and hinder regeneration. This is an important benefit vs. other synthetic products on the market, according to the company.

While the properties of the material offer important performance characteristics, NovoGro has additional proprietary features. According to OsteoNovus, it typically takes approximately two weeks to manufacture other synthetic bone materials which become costly as a result of the additional manufacturing expense. In contrast, NovoGro can be produced in just hours resulting in a cost savings that can be passed on to hospitals and surgical centers.

“The cost of healthcare is something that we are extremely conscious of because healthcare in this country is extremely expensive and it needs to be deflated rather than inflated,” stated Schlossberg

Changes taking place in healthcare today are placing significant pressures on cost reduction. According to the company, the proprietary, low-cost process for the manufacture of the NovoGro material will position it well against other materials on the market.

Regulatory process

A critical issue for medical product development involves the long, difficult, and costly regulatory approval process. NovoGro is considered a Class 2 medical device that does not need clinical trials, according to the company. There is, however, a series of preclinical and animal tests required. This involves a 90 to 120-day review process for the clearance to market general orthopedic products. The company anticipates that it will be able to begin selling NovoGro during the first quarter of 2016. Another 90 to 120-day review process would be needed to obtain clearance for special surgery products.

Spinal Balance

The Spinal Balance products involve a pedicle screw system used to stabilize the spine or reduce deformities. A rod is implanted that connects the screws. The screws have a tulip-shaped end attached to a long metal screw. The tulip end has a proprietary locking cap on which Spinal Balance has obtained a patent. The screw is sterilized after production and encapsulated in a plastic package that is encapsulated in another plastic package.

This unique system has been designed so that it can be shipped from a production facility and implanted by the surgeon without ever being touched by human hands. The current surgical practice involves sterilizing a large number of different screw sizes in the hospital prior to surgery. These are then put together on a tray that is taken to the surgery unit. According to the company, the risk of infection at the hospital represents a critical issue for the patient’s health. It also represents significant additional cost for the hospital that does not get reimbursed by the insurance carrier in the event that an infection occurs and the patient has to be treated and the surgery redone.

“While the hospitals have a system to sterilize things, it is nowhere near as risk proof as the system that medical device manufacturers go through to make sure that there is nothing on their products when they get into the operating room,” explained Schlossberg.

Spinal Balance is calling its product line the No Touch system.

Currently, distributors handling competitor’s products deliver heavy cases of screws to the hospital for sterilization for each scheduled surgery. This delivery approach and sterilization is a cumbersome and costly process. According to the company, the Spinal Balance system will eliminate the need for this work effort and its extra cost as the screws are sterilized in a clean room environment and encapsulated in the proprietary plastic packaging system before being sent to the hospital.

Joint ventures

The new startups are looking for alternatives and resources that will enable them to speed their market entry and development and have already begun to identify joint venture partners. One potential partner is PTI (Plastics Technologies, Inc.), a plastics technology firm in Holland, Ohio. Principals Tom and Betsy Brady are exploring the possibility of manufacturing the plastic capsule system that is part of the Spinal Balance screw system. PTI helped with the initial design of this unique packaging system. This joint venture approach would put a local supplier in place for an area of the product system where the two new venture businesses do not have expertise.

Suppliers

The two startups have worked to identify critical suppliers, putting effort into finding companies that are in close proximity. One supplier that has been identified is NAMSA. The two startups will need a significant amount of testing and this Northwood-based company has already begun to work with the new businesses.

Another company, Precision Environments, Inc. located in West Chester Township, Ohio has provided important support. The two startups have put a clean room production facility in place. The business invested about $350,000 in the construction of this facility and used Precision Environments for this work. Plans anticipate additional investment in this area.

Distribution

In an effort to speed their market entry, the two startups are looking for additional marketing partners. In particular, they want to find medical device distributors who will benefit by adding the OsteoNovus and Spinal Balance products to their offerings to customers.

Future opportunities

OsteoNovus and Spinal Balance have high expectations for the market demand for their products and the growth of these businesses. While employees of these startups are focused on getting the current products to market, leadership of these businesses is already working on identifying and developing additional opportunities for the future.

A large and growing orthopedic market involves knee and hip replacements. The aging population in the US and abroad will continue to need medical support in these areas. The two startups have identified potential opportunities in these areas for the young company. They have even started using the name, OrthoBalance, for the potential products that they are looking to develop in this area.

Another area of potential opportunity involves a medical device product line designed to detect infections. Currently, to test for infectious disease, a physician needs to see a patient, take blood or other samples, have these samples tested, and then work with the patient concerning the results. It typically takes one, two, or more days to go through this process.

“We have a technology that we are calling an infection sensor that allows us to get point of contact information to detect many types of infections. It gives you information immediately instead of taking a day or two. It will significantly lower the cost of testing for infectious diseases,” stated Schlossberg.

While OsteoNovus’ unique NovoGro bone repair material and Spinal Balance’s proprietary screw system will be the focus of commercialization efforts in the coming months, the two new startup companies are already investigating business opportunities from new technologies that are moving toward development.

Funding

The NovoGro technology was initially discovered at the University of Toledo with support from The University of Toledo research funds, and was supplemented by a State of Ohio Third Frontier TVSF Phase 1 ($50,000) and Phase 2 ($100,000) grants matched by the University of Toledo ($50,000). This grant funded proof-of-concept work, and subsequently OsteoNovus, Inc. was formed to commercialize the technology through an option agreement with The University of Toledo.

OsteoNovus is actively pursuing investments to support the development and FDA regulatory clearances (pelvis / extremities and spine) of its NovoGro technologies. Within the last year, OsteoNovus received $150,000 of seed funding from three private investors, two of whom are local spine surgeons, highlighting the confidence of the community in the company’s products. The University of Toledo Innovation Enterprise (UTIE) has invested another $250,000. OsteoNovus has recently closed four private investments totaling $1,050,000 and there are ongoing negotiations for another $1,200,000.

Investment needed

OsteoNovus, Inc. and Spinal Balance, Inc. are each actively offering shareholder and convertible note investment opportunities to support the development and regulatory clearance of their technologies. Dr. Agarwal and his team are working to find additional funding to support the development work being done by the two entities.

 

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