Innovative Spinal Technologies Jilted, Now Bankrupt, Source Says
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 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.