Innovative Spinal Technologies Jilted, Now Bankrupt, Source Says

1/27/09Follow @wroush

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CEO Scott Schorer, a former Army Ranger and Olympic rower who had been with the company since its founding as a research incubator in 2002.

Whether or not personnel issues were part of the problem, the money seems to have turned over quickly at IST. “To go through $75 million in 41 months is quite a burn rate,” the source says. “My personal opinion is that the money wasn’t spent wisely or effectively.”

Multiple voicemail messages for Schorer requesting comment on the situation—left at his IST office and with a business partner at Roosevelt Ridge, a Boulder, CO, real estate development Schorer founded—had not been returned as of this writing. We were able to reach Victor Polk, an attorney at Greenberg Traurig who represented IST, but Polk said he could not speak for the company and referred all questions to Schorer.

The medical device company that had reportedly been courting IST, Biomet Spine, is a subsidiary of Warsaw, IN-based Biomet, best known as a manufacturer of synthetic replacement hip and knee joints. We contacted Biomet this morning to get its side of the story, but Barbara Goslee, Biomet’s director of corporate communications, said the company had no comment on the matter. “It’s not our practice to respond to this type of report or request,” she said.

IST’s attractions to potential buyers may have been dimmed by quality-control issues that earned it a warning letter from the U.S. Food and Drug Administration in 2007. “In this case there was no action by the FDA—it was purely a warning—but those don’t happen very frequently, and I think it speaks to some of the management issues we had,” our source says.

The former employee claimed to have contacted in Xconomy in order to preempt potential misinformation about the reasons for the company’s failure. “I’m sure the spin will be that the spine market is tough, and raising money is tough, and all of these things prevented a company like IST from begin successful,” the source says. “That is clearly not true. Companies are still raising money and even thriving in the spine market. But we did do some good things, and I hope these products eventually find a good home at a well-managed company.”

Update, Feb. 3, 2009: We’ve now published a third story looking deeper into the causes of IST’s shutdown. It includes responses from IST CEO Scott Schorer.

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.”