The premise of Aperion Biologics’ business is a bit of a no-brainer: Provide the market with a product used to repair anterior cruciate ligaments of the knee, because there is demand and not necessarily enough supply.
The way the San Antonio, TX-based company does that is a bit more complicated. Aperion uses a patented process to make pig tissue such as tendons, which are readily available, usable for human ACL reconstruction. Normally, the human body rejects animal tissue that doctors try to use surgically.
The cells of most mammals , including pigs, contain a carbohydrate called alpha-gal that human bodies lack, according to Aperion. When animal tissue is placed in the human body, the immune system responds and tries to attack that carbohydrate, rejecting the tissue. Aperion solves the problem by treating the pig tissue with an enzyme (called alpha galactosidase) that makes it compatible with the human body, while still keeping the tissue intact, the company says. The company also uses a process to help “humanize” and sterilize the implants, the company says.
Last year, Aperion received regulatory approval in Europe to sell the treated tissues for use in ACL surgeries—which it is starting to do—and now the company has plans to seek approval in the U.S. with a pivotal trial it hopes to start in 2016. But first, Aperion is looking for funding and is using a lesser-known option of approaching the public markets.
A week ago, Aperion filed documents with the Securities and Exchange Commission under what is known as Regulation A-plus, an option for selling up to $50 million in stock through the public markets. It hopes to raise as much as $20 million through the offering, and may list itself on the NASDAQ Capital Market if the deal goes through, according to chief financial officer David Cocke. The company hasn’t yet said how many shares it would sell or at what price it would sell them.
Regulation A public offerings have been possible for decades, meant to help small businesses raise funding in the public markets, though companies could previously only raise as much as $5 million. In March, the SEC amended the rules of the tool, allowing for larger offerings and requiring companies to provide certain disclosures, such as two years of audited financials and details about the business.
Now, Aperion plans to use the funds it will raise to pursue a 300-person, two-year pivotal trial to seek class III approval for its product, which is called Z-Lig. The company’s founder, orthopedic surgeon Kevin Stone, led a Phase 1 safety trial in the Bay Area before the company was moved to San Antonio in 2009, says CEO Daniel Lee.
The current management team led a 66-patient, Phase 3 trial in Europe in 2011. Half of the patients received allografts (transplants from a cadaver) as a control, while the rest received a Z-Lig. The latter patients have had the Aperion implant for as many as four years, Lee says.
The Z-Lig would compete with those allografts, which can be in limited supply, and autografts, which are tissues taken from the patient’s own body, Lee says. That the Z-Lig is readily available and doesn’t use a patient’s other body parts are benefits, as are the durability and the body’s acceptance of the device, the company says.
“Having an off-the-shelf graft is very appealing,” he says. “Our whole plan is to address the global need for tissue-based products.”
Around 800,000 people receive ACL procedures globally each year , which, at a cost of about $2,500 per procedure, means it’s a $2 billion annual market, according to Cocke. Aperion may also use its process for other ligaments and tendons, as well as for bone replacement and wound healing, the company says.
Founded in 1996, Aperion began trying to market the tool when Cocke and Lee joined the company in 2008, the executives say.
The company expects to use some of the funds raised in the IPO-like offering to make 10 to 15 hires in the next year for sales management, marketing support, engineering, production, quality, and accounting.
Aperion had considered raising money through venture capital, but chose instead to seek funding through the public markets after the new rules went into effect in June, Lee says. The Regulation A-plus offering is less costly and burdensome than a traditional initial public offering, which typically requires more details of the business, such as five years of financials, Cocke says.
“In a public market, you’ll have enhanced liquidity, better visibility for the company,” he says. “For the investing public, it’s a chance for them to invest in deals that heretofore were funded by a select few private investors.”
Investors who aren’t considered accredited—accredited investors are typically considered those who make more than $200,000 in annual income or have a net worth of $1 million—are restricted to investing 10 percent of their annual income, according to the SEC.