Innovative Spinal Technologies Jilted, Now Bankrupt, Source Says

1/27/09Follow @wroush

Last night we reported that Mansfield, MA-based Innovative Spinal Technologies, a maker of implants to correct degenerative spinal disorders, had gone dark—the company’s website was down and phone calls were going unanswered. A former employee who recently left the company now tells Xconomy that IST shut its doors on Friday, filed for bankruptcy protection, and let the last of its employees go after a planned sale of the seven-year-old startup to another medical device company fell through.

The source identified the potential buyer as Biomet Spine of Parsippany, NJ. IST was “in the process of selling” but Biomet backed out for unknown reasons, the source says. “They had no more options and were out of money,” hence Friday’s closure.

If all this proves right, IST used up almost $75 million in venture and private equity funding before its demise. That funding included a $6.2 million Series A round raised shortly after the company was spun out by the Texas Back Institute in 2002; a $39 million Series B round in 2005, the same year the company moved from Plano, TX, to Mansfield; an $18 million Series C round last September; and a previously undisclosed $10 million venture debt deal.

Participants in IST’s 2005 Series B round included Boston-based MPM Capital and New York-based Orbimed Advisors. We’ve contacted both firms for comment on IST’s shutdown, with no reply as of this writing. We have also been unable to locate a bankruptcy filing for Innovative Spinal Technologies in online indexes of court documents.

The former employee we spoke with, who continues to work in the medical industry and therefore requested anonymity, says the company shed staffers throughout 2008 in an effort to cut costs. After peaking at over 100 employees in 2007, the company was down to 50 employees by March 2008, 30 by May, and 20 by the fall, the source says, and only about 10 employees remained at IST by last week.

The source attributes IST’s failure mainly to poor management decisions, rather than difficult business conditions or any lack of fundamental demand for its products, which were designed to help people with damaged intervertebral disks by fusing or stabilizing their spinal segments.

“If you look at the spine market, it’s a growing market,” the source says. “There are many thriving companies. The problem was that we were not one of them.”

The company, which had several FDA-approved spinal products on the market, earned only about $5 million in revenues in 2007-2008, according to the source. That was partly a result of problems shifting from an internal sales force to an outside distributor, the source says.

The source also says the company suffered from high management turnover. “Starting in March of 2007, we lost our VP of sales, then one every month or two, until every senior manager had turned over.” To the source, at least, that was an indication of dissatisfaction or difficulty with … Next Page »

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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  • http://www.extentrac.com Maria Cuccia

    Companies that suddenly close their doors may have legitimate reasons. I do not see any real proof of bankruptcy, other than the assumptions of an unknown source. Couldn’t this be a temporary shutdown during a time of transition?

  • http://www.xconomy.com/author/wroush/ Wade Roush

    @Maria: That’s a logical question. We are keeping an eye on PACER (the U.S. courts’ electronic records system) for IST’s bankruptcy filing. But it’s pretty clear that the company has ceased operations. I spoke yesterday with one creditor who has been unable to reach anyone at the company about licensing payments that were reportedly months overdue.

  • ex-employee

    IST has had problems for at least 1 year. I am not suprized the creditors have not been paid in months. They started selling off assets a couple of months ago. It was a great company back a couple of years ago before they tried to expand too quickly!

  • John Nieradka

    During Wall Street’s heyday spinal implant companies sprung up because there was excess capital. Industry professionals became intoxicated with “entrepreneurial fever” a by product of the artificial disc deals. New companies immediately aligned themselves with surgeon champions to create leverage with potential investors. Many surgeons even invested in some of these companies. In retrospect, how much of this so-called technology was sold on futures that really do not exist? Questions must be asked not only about the investors, but also about the quality and experience of the management team and the Board of Directors. Contingent upon whom you listen to in the industry, IST had $3-5MM in revenues in ’08. Having been involved in this industry for over twenty years my question is; how does one burn through $75M based on their current product portfolio? Outside of Axient, at best IST was a “me too” company competing in a zero-sum market. Where was the accountability with the Board? Before ’09 is over many of these companies will either disappear, align themselves with a company that compliments the gaps in their respective portfolios or be sold in a “fire sales.”