Deal To Watch: Internal Bone Fixation Devices
Summary
Bridging Medical Group has been selected as a “Deal to Watch” by KingsCrowd. This distinction is reserved for deals selected into the top 10%-20% of our due diligence funnel. If you have questions regarding our deal diligence and selection methodology, please reach out to [email protected].
Medical surgeries are often thought of as high-tech procedures that utilize the latest in advanced technology. This is not always true, however, as some technologies employed in the medical industry have not been altered materially in years or even decades. This lack of advancement creates attractive opportunities for individuals or firms who can spot archaic devices that can either be improved or that can be replaced with newer technologies altogether. One company attempting to do this is Bridging Medical Group LLC.
Problem
Broken bones are painful, and the road to recovery, depending on where and how bad the bone has been damaged, can be long and difficult. It can potentially leave patients suffering from negative side effects for the rest of their lives, especially when orthopedic trauma is involved. Screws and other technologies used to keep broken bones compressed can lose their effectiveness over time. This degradation leads to a variety of negative side effects, including improper or no healing, implant failure, joint stiffness, long-term and short-term cases of shortened tendons and ligaments, deep vein thrombosis, and more. To address these shortcomings, the founders of Bridging Medical Group have been working on technologies aimed at not only replacing what solutions are out there, but doing it without breaking their patients’ banks.
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Solution
Surgery is a stressful and arduous experience. Besides the pain often leading up to and including the procedures, the recovery time can put a major hamper on patients’ lives. With a broken bone, procedures can sometimes involve piecing it back together using screws, sutures, or plates. While this process is simple and may sound foolproof, the fact is that there are flaws in it. As an example, it’s impossible to maintain the compression created with screws when they are initially put into place. This issue is what Bridging Medical Group looks to address.
As compression weakens, a patient’s early weight bearing and ability to exercise may forcefully come to a stop or be severely limited. Weakened compression can cause the fracture’s healing to be majorly inhibited due to either mal-union (the bones not aligning and not fusing appropriately) or non-union (the bones not aligning and not fusing at all). Prolonged rest, brought about due to weakened compression, can also result in atrophy in the patient’s musculoskeletal system. Atrophy brings about whole new set of health issues, including a shortening of tendons and ligaments, joint stiffness, deep vein thrombosis, and others, which must then be resolved in addition to the broken bone.
The response that Bridging Medical Group’s founders came up with, and that the company was founded on, is simple: springs. The firm has designed springs that go onto the screws, allowing them to be tightened and enabling continuous strong compression. Other technologies either fail to sustain the interfragmentary compression level or are more invasive than Bridging Medical Group’s solution. Management does plan to dive into other solutions such as sutures and plates as well.
This internal fixation hardware has major positive ramifications for patients and practitioners alike. However, innovating in the medical space is always an expensive and time-consuming process. The company has already raised $412 thousand that it has used toward design, testing, and other early-stage concepts. With its current raise, it hopes to embark on the long journey towards turning their product into a fully-viable offering.
Within the first several months after a raise, the company plans to submit their 510k application. This application will allow them to start testing their products on animals. Towards the end of the first year, the business hopes to enter into the veterinary market, and shortly after that, it plans to begin human testing. To get there, Bridging Medical Group is hoping for an additional raise of $4 million to $10 million. By year three, the company hopes to receive approval from regulators and to subsequently enter into the market for human orthopedic procedures.
An Important Market
The market that Bridging Medical Group is playing in is niche in nature, but important for a wide swath of society. Anybody who has experienced orthopedic trauma is a potential end user. Specific data on the screws, sutures, and plates subcategory of the internal fixation market could not be found. However, there is enough data to conclude that this is an appealing market to play in.
One source for our analysis is Wright Medical, a company that Stryker announced plans to buy in late 2019. Wright’s business is separated into three major categories, two of which are relevant to the products that Bridging Medical Group is working on. The first of these is the Upper Extremities piece of the orthopedic market. This market’s size, globally, was estimated to be about $2.7 billion in 2018. It’s forecasted to grow by between 7% and 9% per annum until, in 2022, it has reached $3.7 billion in size. The Lower Extremities piece of the market was about $1.7 billion in size in 2018. It should grow between 8% and 10% per annum until, in 2022, it achieves a size of $2.3 billion.
There were more specific estimates we dug up. One of them suggests that the global market for trauma fixation devices is worth about $7.2 billion. Between 2019 and 2025, it’s forecasted to grow by 4% per annum, eventually hitting $9.5 billion by 2025. The US’s share of that market is over $4 billion, but rapid growth is occurring in both China and Japan. Over the forecast period, demand in those countries should expand by 8.2% and 6.6% per annum, respectively. Drilling down a bit deeper, that source suggested that the internal fixation market alone is about $4.2 billion. A second source says that the market is $7.7 billion in size and should grow 6.4% per annum before finally reaching $12.7 billion by 2025.
Another way to look at this space is to examine the larger market it inhabits. Johnson and Johnson is one of the largest medical device companies in the world. Management there believes that the global medical devices market is about $26 billion in size today. Last year, its sales of medical devices totaled $8.84 billion, and of that total, the orthopedic trauma market was about $2.72 billion. This amount was separate from the $1.48 billion knees category and the $1.44 billion hips category. These categorizations can create some ambiguity over where the lines can be drawn, especially when looking at Bridging Medical Group’s value proposition.
Terms of the Deal
The management team at Bridging Medical Group is approaching this raise in a rather interesting manner. Their filing page says that they are issuing a SAFE, but what the page describes is actually a convertible note. There is one big difference between the two: A SAFE never carries an interest rate with it while a convertible note always does. In addition, a SAFE often converts at a discount to the next round’s valuation, while a convertible note may or may not. In this case, the company is trying to raise money with a SAFE that carries a 5% annual interest rate, but has no discount upon conversion. At this time, Bridging Medical Group is looking to close a transaction of between $10,000 and $1.30 million. So far, it has $165,375 committed to its round.
In reviewing the firm’s filings, there was another interesting disparity between its raise and the raise of most other firms. Generally speaking, the conversion of a SAFE or convertible note to stock is done subject to a valuation cap. That is not strictly the case here. The valuation of the firm will not necessarily be based on the next equity raise. Instead, it could be based on the ‘success’ of its R&D, with four different scenarios being possible. One of these results is open-ended, where the valuation could be just about anything. The others are subject to caps of $2 million, $4 million, and $22 million. All of them must occur no later than October 21, 2021, but may happen more quickly if the company achieves its milestones sooner. The specifics are rather convoluted, and investors would be wise to look closely at those details.
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An Eye on Management
There are seven members on the Bridging Medical Group team at this time. Three of them, though, should be discussed in some detail given their history with and role in the business. The first of these is Robert Patty. He is the primary inventor of the company’s technology. He also currently serves as President and co-founder of the firm. Patty has a Ph.D. in CEng, an MBA, and a PE. He is a former Purdue Professor of Practice with experience in US, international innovation, and operational excellence. Additionally, He also brings past experience in engineering and corporate operations at the Senior VP level. Next is Cameron Field, the firm’s Chief Medical Officer and a co-inventor of the technology underpinning the company’s existence. He is also a co-founder of the business. Previously, he served as a Practicing Podiatric Surgeon, with over 5,000 surgeries under his belt. He is double board-certified in foot and reconstructive rearfoot/ankle surgery. He was also a US Air Force Academy contract podiatric surgeon. The last key member is Andrew Enke, the company’s Director of Engineering. He, too, was a co-inventor of the firm’s technology and is recognized as a co-founder. He has experience as an Orthopedic Mechanical Engineer, CAD, and Finite Element Analysis (FEA) Expert for Spine implants. He also has experience involving total knee replacement procedures.
The Rating: Deal To Watch
After careful review and consideration, Bridging Medical Group has been rated a “Deal To Watch”. The company’s technology is interesting. It’s also logical and simple in its design. These factors make it easy to understand, and it would be surprising if, for some reason, it does not work or cannot be approved. If it does achieve approval from the relevant regulatory agencies, the firm has tremendous upside potential. Indeed, a potential buyout by a larger player at some point in the future should not be discounted.
Obviously, there are risks here though. For starters, until the technology is approved, there’s always a chance that it won’t be. The firm holds little to no value while it plays the waiting game. Another issue is the time to market. While it could get to market in the animal space within a year (if all goes according to management’s plans), the big revenue opportunity would still be two to three years away. Not only might it run out of capital during that time frame, it could also be forced to raise more money in the future, reducing investors’ interests if progress is not enough to warrant a high valuation. The final big concern is all of the uncertainty involving its capital raise. Its SAFE is odd, and while that could work out for investors, it could also harm them depending on the firm’s conversion. All in all, the upside here at least warrants significant consideration by investors, even with all of these downsides taken into account.
About: Daniel Jones
Daniel Jones is a graduate of Case Western University with a degree in Economics. He has spent several years as an equity analyst writer for The Motley Fool where he focuses primarily on the Consumer Goods sector but also likes to dive in on interesting topics involving energy, industrials, and macroeconomics, in addition to contributing equity research to publications such as Seeking Alpha.