RTI Surgical has grown significantly in the past few years, with a strategy that mixes organic growth and acquisitions.
The company began 2018 by acquiring Zyga Technology, a company focused on minimally invasive sacroiliac joint fusion with its SImmetry Sacroiliac Joint Fusion System. On Nov. 1, the company announced plans to acquire Paradigm Spine for up to $300 million, which will strengthen its innovative spinal products line.
Here, RTI Surgical CEO Camille Farhat discusses how the company will integrate Paradigm Spine and where to expect future growth.
Question: How does Paradigm Spine fit into RTI Surgical's current product portfolio?
Camille Farhat: The RTI strategy is both simple and unique compared to others in our space. We have one part of the business that is an Original Equipment Manufacturer, and that business has moderate growth and predictable generated cash. We deploy that cash into high-growth investments in spine. We are able to make money and keep cash on hand, which enables us to be unique in how we grow.
When I came to the job, we needed to rebuild the research and development pipeline, and we have. Our R&D was focused on the Fortilink series with TETRAfuse Technology, 3D-printed devices that we launched in June. They have been well received in the market place based on demonstrated growth in sales and anecdotal conversations with surgeons.
From an acquisitive growth perspective, our strategy is to invest in differentiated products and build scale. For this,we need to use the cash we have on acquisitions to anchor us in novel therapies. With the acquisition of SImmetry early this year, we entered the small but growing sacroiliac joint market. We recently finished enrollment of a250 patient clinical study evaluating SImmetry. Previously- reported analyses of the data look promising. We are leveraging this clinical data to generate demand, train surgeons, build [the] brand and collaborate with distributors to help differentiate from the pack. .
In the third quarterof this year, we entered into an agreement to exclusively distribute ViBone, a next generation bone graft product, with the hopes that it will grow in the fourth quarter and beyond.
The latest iteration of our growth through acquisitions is coflex. Similar to SImmetry, it is a novel therapy in the spine space. Coflex is a differentiated, PMA-approved device supported by strong clinical data with expanding coverage from payors.It is a minimally invasive procedure instead of fusion. Coflex is a simple procedure, and as we continue to get coverage, we expect to see more adoption and faster growth.
Both coflex and SImmetry are high margin products, so from a business perspective they are worthwhile to invest in. They are diluted early on and we are happy to make the investment and be different from our cohort. If you were to look at our strategy, we don't want to be another 'red screw, blue screw' company. Coflex is a product that has treated 160,000 patients already; there are no safety issues reported to-date and the healthcare economics are favorable. That's how it fits in our strategy; it helps us with scale but a lot more with differentiation and how we can grow going forward.
Q: How will RTI integrate Paradigm Spine into the company? What are the potential challenges and opportunities for synergy?
CF: Most spine deals that people talk about, the first thing they wonder about is the synergies. The synergies exist more among the novel therapies in our portfolio. When we acquired Zyga with SImmetry, we anticipated distributors would be reluctant and challenged to do a clinical sell on a novel therapy simply because they haven't seen enough of those cases. We maintained a SImmetry product specialist role in our organization. When the distributor identifies a doctor, we connect a product specialist with the doctor to discuss the patient clinical data. We already have the infrastructure on product specialists in place, so we will add a product specialist role for coflex. When we do a cadaver lab on SImmetry, we can hold one on coflex too. When hospitals and ASCs are signing contracts with us, they can gain access to both therapies. When I have the infrastructure to help the patient fight for reimbursement, I can do it for both products.
Coflex has a 90 percent margin, so we can make and sell enough of them. There is minimal commercial integration. We have a solid foundation for integrating Paradigm based on our experience integrating Zyga and SImmetry, now it's time to scale and grow.
Q: The coflex procedure can be performed in the outpatient setting. Where do you see outpatient spine surgery headed in the future?
CF: These trends are here to stay. Now the question is, how do we help advance them? Paradigm Spine CEO Marc Viscoglisi has taken action to help with the adoption, and I think this procedure will continue to grow in the ASC space. The procedure tray is inexpensive and simple, and given that ASCs don't want to deal with sterilization and replenishments, Paradigm has also created a disposable kit. Marc has seen more uptick in ASCs performing this procedure, and more payers are making positive coverage decisions.
Q: What does this acquisition mean for RTI Surgical in 2019 and beyond? How do you project future growth and what should surgeons expect from the company?
CF: You will see some products being refreshed. You will see more minimally invasive platforms. We also just initiated a 150-patient study to evaluate Fortilink-C, -L and -TS withTETRAfuse3D Technology and there will be more clinical studies for coflex.
RTI is well positioned to fuel organic and inorganic growth in 2019 and beyond. We believe Paradigm Spine is the right deal at the right time today, and we are going to augment this with more innovation in the future.