Titan Spine ‘turns it to eleven’ (BizTimes)
With a proprietary surface technology and a runway of private equity investment, Titan Spine LLC has, to borrow a phrase from the cult classic film “This is Spinal Tap,” turned its growth up to 11.
The Mequon-based medical device developer was established after surgeon Dr. Peter Ullrich came up with the idea to make interbody spinal implants out of titanium instead of plastic to better encourage bone growth.
It turns out, he was on to something.
Titan Spine launched in 2006 and has since created a sea change in its industry vertical. Over the past 10 years, it has grown at a rate of more than 40 percent per year. More than 70,000 of its devices have been implanted, it has more than 50 patents and the company has grown to $63 million in revenue. Titan Spine recently raised $15 million in a private equity round.
In 2002, when he was working as a spine surgeon in Neenah, Ullrich was seeking a medical device that wouldn’t damage a portion of the spine called the end plate in an interbody fusion procedure, but there wasn’t one. He had identified a problem.
“We were doing threaded cages. They were titanium cages but they were round,” Ullrich said.
“Structurally, it didn’t make a lot of sense to me and the cages would tend to do something called subside, which the cage would work its way into the bone.” He came up with a new design by changing the dimensions of the cage and providing a surface to keep the cage in that didn’t damage the end plate.
So Ullrich contacted his friend at spine and orthopedic biosurgery company Orthovita Inc. (now part of Stryker Corp.) to develop the device, Endoskeleton TA. By 2004, the Endoskeleton had received FDA clearance for use as a vertebral body replacement and Ullrich was using it in patients.
But Ullrich’s product didn’t receive FDA approval at Orthovita as an interbody fusion device.
Ullrich decided to form a new company around his invention, which bought back the business from Orthovita, and Titan Spine was born. He brought on friend Kevin Gemas to manage the business side and Steve Cichy to focus on sales. Ullrich, now chief executive officer, and Gemas went to high school together in Plymouth.
“We became best friends and he went into surgery, I went into football and business, and then we came back together on this idea,” said Gemas, now president of Titan Spine.
Gemas previously owned KWG & Associates Inc., and founded and served as president of College Bound Student Athletes.
The pair started Titan Spine out of an apartment in Sheboygan Falls, putting in their own money, raising money from friends and family, and growing the business organically, investing any profits back into the business for eight or nine years.
While most spinal implants on the market were made of plastic, the Endoskeleton was made of titanium.
“We were like the rebels. Very few people had titanium and we were one of the only ones that (used) titanium and we kept preaching our surface technology years earlier,” Gemas said.
Surgeons were used to inserting a plastic implant, then surrounding it with biologic material, such as a bone graft, that would encourage bone growth at the site. But Titan Spine contends the biologics, which can be expensive, are not needed because the proprietary grooved nanoLOCK surface on the devices it has developed is a strong enough encouragement for bone growth.
“We wanted to make a device that participated in the fusion process instead of just being a spacer,” Gemas said.
With its nanoLOCK products, Titan has been able to reduce the amount of time patients are taking opioids and shorten the recovery time, Ullrich said.
“I never had a patient come to me and say, ‘I want a fusion.’ They come because they have pain,” Ullrich said. “The difference I noticed in my practice was these patients got better much quicker, they needed a lot less opioid medications and they could get back to work much quicker.”
While there are some instances with other devices in which small pieces of titanium medical devices flake off in the patient’s body, Ullrich said that hasn’t happened with Titan Spine products because of the design.
“With all other titanium devices that’s true,” he said. “With ours, we start with wrought titanium and everything we do with it is a subtractive process.”
Shifting the market
Ullrich and Gemas faced an uphill battle changing minds among doctors, because most felt titanium would be too stiff in spinal implants.
Titan partnered with academic researcher Barbara Boyan, world-renowned for bone implant interfaces, to research how to further improve its implants and encourage additional bone growth via biomimicry.
“She was looking for a partner in the spine industry and she thought her research would be awesome for doing interbody fusion,” Ullrich said. “We kind of had an accidental discovery that a certain type of blasting process, a grit, would produce what the cells saw as an osteoclastic pit.”
When cells see osteoclastic pits, they create bone. So the nanoLOCK surface Titan Spine developed is specially grooved to promote bone growth by mimicking those pits.
“He wanted kind of a roughened surface that would adhere better to the end plate itself,” Gemas said of Ullrich’s invention.
Titan Spine’s products are used commonly in cervical spinal fusion procedures, in which herniated discs or degenerative disc disease-affected discs are removed and replaced. The conditions often cause severe leg or back pain in patients.
The company makes two full lines of implants, each a different shape for different applications and surgical approaches. Its implants are installed between vertebral discs in the spine. Titan’s products are distributed in kits, along with the tools needed to clean out the disc space, so a surgeon can choose the type of implant once they’ve examined the site.
“We’re seeing bone growth in just the first week to two weeks and that’s what makes the difference,” Gemas said. “With that, patients can get out of the hospital faster, get to physical therapy sooner and go back to their lifestyle faster. We’re able to get people back to work a lot faster and save a lot of money.”
Titan received FDA clearance for an Endoskeleton device that included its nanotechnology surface, a feature so small it is invisible to the naked eye, in October 2014.
“That was the first time the FDA ever gave the nanotechnology approval,” Ullrich said.
The company has achieved a total of 10 FDA clearances for its products under the 510(k) regulation for device manufacturers, according to the FDA.
Another milestone was in June 2016, when Titan was granted a purchasing code for a nanotextured surface on an interbody fusion device from the U.S. Centers for Medicare & Medicaid Services, which applies only to Titan Spine’s devices. Ullrich said this was a milestone for Titan because it demonstrated its NanoLOCK technology was unique and differentiated.
“With all the hospitals in the country we’ve got our own purchasing category which CMS gave us, which is very unique,” Gemas said.
“We are at this point the only company that has nanotechnology cleared through the FDA,” Gemas said. “We’re the only nanotechnology fusion device that has (a CMS) ICD10 section X code. What that essentially does is separates us from any other spinal device in the U.S. because of this technology. No one else has it.”
As Titan was able to demonstrate its products’ effectiveness, it gradually saw more competitors using titanium and an industry shift toward accepting the material. But only Titan uses its proprietary blasting process, a well-guarded secret, which is completed at its manufacturing facility in Brown Deer.
“Most of our implants are manufactured at FDA-approved facilities that we watch over and manage and then it’s all brought in here or it’s being brought in to Memphis for distribution and kitting purposes, and we do all our inspection in Brown Deer and Memphis,” Gemas said.
“We really introduced science into what had, again, been pretty much an industry that has not had a lot of science,” Ullrich said. “There was absolutely no science behind trying to use plastic to combine two pieces of bone together.”
Eventually, Titan was achieving a 45 percent compound annual growth rate.
“It grew dramatically and we just kept adding people and then we, for the first time, went out and got some venture capital about a year-and-a-half, two years ago and it was the first professional money we got,” Gemas said.
Titan’s leaders intentionally bootstrapped the company for as long as possible so they would have time to do the research.
“Compared to traditional spine companies, we have had very little funding,” Ullrich said. “Because we were mostly self-funded, I did a lot of the funding myself for a long time, that gave us the opportunity to do the research and find the right surface for cells, rather than try to market something on features and benefits (instead of) science.”
Adam Choe, director of Milwaukee- and Madison-based startup accelerator gener8tor’s gBETA Medtech program, which helps medical technology companies grow, said medical device startups have more nuances that need to be understood and regulations that need to be met to get them to commercialization.
Most new medical device companies take the same path Titan did, Choe said, seeking out government funding or smaller checks before going after venture capital.
“I would say medical device companies generally have longer lead times,” he said. “I really think it does come down to the team, the founder, the opportunity and it sounds very cliché, but good investors can find good deals in the medical sector.”
Cranking it to 11
Texas private equity firm Southlake Equity Group has provided most of Titan’s private equity funding, contributing the entirety of its recent $15 million round.
“We saw in Titan a very disruptive technology in their titanium-based fusion implants that had a very advanced surface technology,” said Tom Keene, managing partner at Southlake Equity. “It was a very disruptive technology in what otherwise was a very mature spinal fusion market.”
Private equity firms began investing in the interbody fusion device space when competitors began switching over to Titan Spine’s titanium material, Gemas said. Interbody fusion devices make up a $2 billion industry, and there are a host of competitors – about 80 of them.
“We’ve got all the names you would recognize from (Johnson & Johnson) to Stryker to Medtronic, but we also have a lot of smaller outfits and even mid-level companies like ourselves,” Gemas said.
“(Titan) really changed the conversation around what is the right product to put in somebody’s spine to promote a successful fusion, which is great for a small entrepreneurial company to have that much of an impact on a very complicated and mature industry,” Keene said.
“When we saw all our competitors switching over to our way of thinking, we thought, ‘Well, this is the time,’” Gemas said. “We need to now really take advantage of that momentum we created. We do not want to get overshadowed or absorbed. So that’s when we sought private equity so we could ramp things up a little faster in the last two years.”
Previously, Ullrich and Gemas had self-funded, raised funding from friends and family, and taken on traditional financing.
“We really liked the fact that the management team were significant owners of the business and had invested heavily to grow it to the point at which we invested,” Keene said.
Sometimes a company’s growth outstrips its profitability, and in order to grow faster it brings on private equity, Keene said.
Because Titan has been growing at more than 40 percent per year for 10 years, the company needed resources to sustain its growth rate, he said.
Titan Spine’s executives declined to comment on whether the company is profitable.
According to SEC filings, Titan Spine’s earlier funding rounds included an initial equity round it expected to raise “between $750,000 and $1.5 million” in 2009; a 2011 round expected to land between $1 million and $1.6 million; and a $2.6 million debt round, also in 2011. The company declined to discuss those rounds.
Attracting that capital while based in Mequon, Wisconsin meant Ullrich had to travel to find investors.
“I talked to a lot of people,” he said. “People take notice of a company that has a (compound annual growth rate) of 45 percent over the last 11 years.”
Titan Spine has grown from three employees when it was established to 110 now. It has multiple locations worldwide, including a new 20,000-square-foot distribution center in Memphis and a small sales and distribution office for a separate entity, Titan Spine Europe Gmbh, in Laichingen, Germany. Titan established the German company to sell its products in Europe, where the titanium implant technology had been embraced, Gemas said. It now has two product lines: The original Endoskeleton line, and the newer NanoLOCK line with enhanced surface nanotechnology.
Titan’s founders and investors have poured their funds into commercializing the products, and the company has grown to $63 million in annual revenue.
Now, the company is working to grow its product offerings and persuade surgeons, hospital boards and other decision-makers in the health care industry to use them. It’s also converting all its products over to the NanoLOCK surface technology.
One of Gemas and Ullrich’s next goals is to expand the technology and apply the nanoLOCK surface to other orthopedic implants.
“Eventually, we’re going to look at orthopedic implementation,” Ullrich said. “It’s a real natural fit.”
“What we really want to do is use our surface technology … and apply it to other orthopedic applications like small joints, foot and ankle, knees and hips,” Gemas said. “There’s all kinds of types of applications that we can apply in just general orthopedics where this surface can help stimulate bone growth and then we can help some organizations to get some clearance for themselves, too, on let’s say a finger joint, which would be cleared for nanotechnology.”
Titan would either form a licensing agreement and process other companies’ devices with its NanoLOCK surface or begin designing other types of devices itself, Gemas said.
“We would control the technology, we wouldn’t give that up, but we would apply that technology for them and then one thought was license, one thought is there might be some opportunities to design our own, eventually,” he said.
The leaders at Titan Spine are also evaluating the company’s possible next steps financially, be they raising more private equity, selling the company, making an initial public offering, or something else.
Titan is currently converting from an LLC to a C Corp, which will provide flexibility, whatever it decides. The advantage is the company is doing well and doesn’t immediately need additional funding, so it can take its time on a decision, Gemas said.
“We’ve got other options, definitely. We’ll probably look at some more private equity options,” Gemas said. “We’re preparing ourselves to go either way. That next level, we don’t really know what that’s going to be.”
Southlake Equity is on board to contribute follow-on funding if needed, Keene said. He described Southlake’s investment horizon as “theoretically infinite” and said the firm is willing to remain a patient owner without seeking an exit anytime soon.
“Certainly it could be just continue to invest and grow the business, it could be take the company public, it could be something in concert with a larger company, but we’re not in any rush,” he said. “We’re always evaluating new products that we could introduce to broaden the use of the nanosurface technology and to the extent that new capital is required, we’re ready, willing and able to support the growth of the company.”
“Our ultimate goal is to run the best company in the industry,” Ullrich said. “What happens otherwise, that’s immaterial to what we’re doing.”
Ullrich’s drive to make Titan the best in its vertical has been noted by others in the biomedical industry in Wisconsin. Lisa Johnson, chief executive officer of biohealth industry organization Bioforward Wisconsin, said Titan serves as a shining example for other area startups.
“It took an individual that understood the problem and had to keep doing variations and he was able to get to sales then that attracted the necessary funding,” Johnson said. “I think that’s a message we need to send here in Wisconsin is that so often we talk about how there’s not enough money in this state. That’s a good model for a lot of entrepreneurs, startup companies to hear. It’s about getting to sales, and that attracts further investment.”
Johnson said Wisconsin is a good place to develop a medical device because of the strong manufacturing supply chain and the pipeline of engineering talent coming out of its universities.
“In the medical device industry, investors, they know that the Midwest is very strong in medical devices,” she said. “They’ve really done just an outstanding job of growing that company.”