Archus Orthopedics, Spine Device Maker, Cuts Jobs Amid Financing Squeeze

5/18/09Follow @xconomy

Archus Orthopedics, the Redmond, WA-based company developing spinal implants to help people remain mobile after back surgery, has laid off most of its 45 employees and significantly scaled back its operations to conserve its remaining cash, Xconomy has learned.

The news has surprised many in the Seattle medical device industry, because Archus has a strong management and investor pedigree. Archus has raised more than $63 million in equity since its founding in 2001 from a group of big-name venture firms—MPM Capital, InterWest Partners, Polaris Venture Partners, and Johnson & Johnson Development Corporation, as well as a loan from GE Capital. Last month, Archus’ investors put in another $2.3 million through a bridge financing, although the company was aiming to raise $19.5 million, according to a regulatory filing.

Archus is sponsoring a study of 450 patients with its spinal implants, although it’s no longer recruiting patients, according to a posting on clinicaltrials.gov.

“Although Archus Orthopedics has been performing very well, we have the unfortunate luck to be a relatively mature, but still pre-revenue company, in need [of] sustaining capital in an extremely challenging financing market,” said Archus CEO Jim Fitzsimmons, in an e-mail. “Outside funding for companies at our stage is particularly difficult to obtain these days. We recently closed a bridge financing with our current investors. We also made the difficult decision to substantially reduce our headcount and scale back operations in order to reduce our burn rate and extend the runway provided by our current cash.”

The company’s board is “confident that we will be able to engineer a successful outcome for the company,” Fitzsimmons said. When asked if that means more financing, a partnership, or an acquisition, he added, “We are looking at all options going forward to maximize shareholder value.”  He wouldn’t say how many employees remain at the company.

Fitzsimmsons is a highly-regarded medical device entrepreneur formerly with Scout Medical Technologies, Guidant, and EndoVascular Technologies. Archus has already won approval to sell its device in Europe, although it doesn’t generate revenue there yet because the company needs a marketing partner, Fitzsimmons said in an interview at his office in September. Archus’ artificial spine joints have $1 billion annual sales potential in the U.S., although the company needs to complete clinical trials before it can win FDA approval to start selling them in the U.S. That key milestone isn’t expected to happen until 2012, Fitzsimmons said last September.

Archus is focused on developing artificial facet (fuh-set) joints in the spine; its technology is called the Total Facet Arthroplasty System. These facet joints—not to be confused with artificial spinal discs—play a role every time we bend forward, bend backward, or twist laterally. These joints typically get fused together when people have back surgery, because conventional wisdom says cutting down movement will reduce the pain. It also greatly cuts down on people’s mobility, and puts extra pressure and twisting movements on the non-fused parts of the spine, Fitzsimmsons said.

The Archus technology is supposed to allow patients to retain greater range of motion after back surgery, and reduce the post-operative pain that often comes with people who have back surgery. Archus has two competitors—Hopkinton, MA-based Facet Solutions, and Princeton, NJ-based Impliant. Archus was thought to be about one year ahead of both companies in development, Fitzsimmons said last fall.

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