Spinal fusion is a complex procedure that requires a surgeon to navigate through muscle, nerves, and organs before reaching bone. TranS1, a Raleigh, NC, medical device company, developed an alternative: a minimally invasive medical device that can fuse the lowest spinal joint in less time, at less cost, and with faster patient recovery.
TranS1, named for the S1 segment of the spine that the company’s AxiaLIF device targets, spent 15 years trying to turn its new approach to spinal fusion into a commercially successful product. But the financial obstacles proved to be too much. The company, renamed Baxano Surgical, filed for bankruptcy a year ago, leaving the future of its device in limbo.
But AxiaLIF now has new life under an old name. Snapped up at auction, AxiaLIF has become the lead product of a Denver, CO, medical device startup that also took the TranS1 name.
“It was on our radar prior to the bankruptcy,” Jeff Schell, CEO of the new TranS1, says of the device. “We knew that it needed to be preserved.”
AxiaLIF’s journey from North Carolina to Colorado shows how medical technologies sometimes can get a second crack at the market. The financial struggles leading up to the device’s sale are also instructive about recent changes in healthcare economics. At one time, FDA clearance was enough for a device to secure insurance coverage. Now, drug and device companies are drumming up new strategies to improve their chances for commercial success.
Spinal fusion has become one of the most frequently performed musculoskeletal operating room procedures in both men and women, according to the Agency for Healthcare Research and Quality. The procedure involves removing damaged disc material, replacing it with bone graft to promote growth of new bone, and inserting screws and rods to hold the joint together while the discs fuse. The surgery is intended to alleviate the lower back pain that can come from age or injury. But stabilizing the joint by fusing two vertebrae also restricts some of the patient’s normal range of motion. Spinal fusion accounted for 450,900 operations in the United States in 2012, according to AHRQ. That’s up from 316,000 procedures in 2003. And these procedures are becoming more expensive: The agency’s analysis of patient discharge data shows that the cost of spinal fusion averaged nearly $100,000 in 2012, up from $48,674 in 2003. Spinal fusion patients average hospital stays of 3.6 days.
Traditional lumbar interfusion, or LIF, reaches the spine from the patient’s abdomen, back, or side. But these surgeries can take as long as four hours, and can require months of rehabilitation afterward. AxiaLIF’s innovation is in its approach. The minimally invasive surgery accesses the spine through a small incision by the tailbone. The procedure targets the L5/S1 section of the spine—a site that’s difficult to reach with other surgical techniques because the pelvis blocks access, Schell explains. The entire AxiaLIF procedure is done through a small tube that accesses the damaged joint. The old TranS1 said that its clinical trial results showed spinal fusion procedures with its device averaged 42 minutes and in many cases, patients stayed just one night in the hospital.
Despite AxiaLIF’s apparent advantages, the device had a tough time building market traction. The old TranS1, founded in 2000 and based in Wilmington, NC, for most of its history, secured FDA clearance for AxiaLIF in 2004. Marketing approval in Europe followed shortly after. TranS1 launched the device in 2005. Two years later, a TranS1 initial public offering raised $82.5 million, most of which was pledged to commercializing AxiaLIF.
The company grew its sales at first. But revenue peaked in 2009 at $29.8 million, and sales steadily declined thereafter as the company struggled to convince insurance companies to cover the product. In some cases, payers said the surgery was unnecessary. Other payers declared AxiaLIF experimental.
Reimbursement struggles have spread across the entire healthcare sector in the last decade, says John Doyle, senior vice president of advisory services for Quintiles (NYSE: Q). Though Quintiles is widely known for providing clinical trial services for pharmaceutical companies, the Durham, NC, firm also serves medical device companies. Doyle says the days of securing insurance coverage with only regulatory approval are long gone. Healthcare reform’s emphasis on patient outcomes has led payers to call on medical device companies to clear a second hurdle—demonstrated value.
The FDA makes its decisions based on safety and efficacy, but payers look for value as compared to the current standard of care, Doyle says. Clinical trial data are not enough, in part because patient studies typically select those who are younger and healthier than those doctors treat in real life. Before covering a new device, insurers want to see real-world evidence of better patient outcomes and lower healthcare costs.
Some physicians have taken the initiative to move the needle on insurance coverage. John Glaser, an orthopedic surgeon at the Medical University of South Carolina, co-chaired a committee for the North American Spine Society that spent three years developing reimbursement recommendations. Glaser says the effort was spurred by coverage denials received by a growing number of the group’s 8,000 members. The evidence-based recommendations are rooted in peer-reviewed studies examined by the committee.
The coverage recommendations include spinal fusion, but not minimally invasive spinal fusion, which Glaser expects will be addressed in future recommendations. The document makes no references to particular devices. Glaser, who has experience performing spinal fusion using AxiaLIF, does not recall receiving any coverage denials for the procedure. But he says AxiaLIF presents an additional reimbursement hurdle.
“The doctor has to show that spinal fusion is indicated,” Glaser explains. “Then the doctor has to show it’s worthwhile doing it with AxiaLIF.”
TranS1’s need to grow sales was one of the drivers for its 2013 acquisition of San Jose, CA-based Baxano Surgical in a stock deal valued at $23.6 million. Baxano brought to TranS1 surgical instruments used in spinal surgeries, which broadened the TranS1 product portfolio. But the combined company, which took the Baxano name, ran out of cash. In September 2014, Baxano disclosed that it had hired an investment bank to explore “strategic alternatives” for its spine business. Two months later, Baxano filed for Chapter 11 bankruptcy protection.
Baxano completed the auction of its assets in February. Pieces of the company were acquired by Marietta, GA-based Amendia; Choice Spine in Knoxville, TN; and San Francisco-based City Surgical. Schell, through his Denver company Quandary Medical, bought Baxano’s highest profile asset—AxiaLIF. Quandary also acquired a second Baxano product, the Vectre facet screw system. The company paid just $860,000 total for both.
Schell did not originally come from the medical device industry. A patent attorney, Schell’s experience includes work on intellectual property matters for startups—some in healthcare. He also founded Quandary, a medical device company developing spinal products. The new TranS1’s main marketing strategy is to let spine surgeons know that AxiaLIF is still available. Schell says he renamed his company TranS1 because that was the name most surgeons associate with AxiaLIF. The company’s vice president of sales is a former sales executive with the old TranS1. In addition to selling the device through its own sales force, Schell says, TranS1 is exploring sales partnerships in Europe.
Ten years after the old TranS1 secured FDA clearance for AxiaLIF, Schell now says payers are coming around on reimbursement. The Department of Health and Human Services no longer considers AxiaLIF experimental, and Medicare covers the device. Schell adds that some private payers are following Medicare’s lead. He won’t disclose specific sales figures but says that sales have doubled the company’s initial projections over the last six months. Nor will Schell disclose details about his company’s financial backing, other than to say that privately held TranS1 has multi-million dollar debt financing from a third party.
The new TranS1 is building a product portfolio beyond AxiaLIF. Schell won’t go into detail about those devices, but he says that the key problem with spine surgery is the trauma it produces, which can exceed the injury that called for surgery in the first place. He sees AxiaLIF as “a foundational procedure that can be built upon.” Since acquiring the former Baxano products, Trans1 has filed 14 patent applications that Schell says involve minimizing tissue trauma in spinal surgery.
More than 14,000 procedures have been performed in the United States to date using AxiaLIF, according to Schell. He also points to growing awareness of improved outcomes, along with cost savings associated with the device. A report published a year ago in the Journal of Managed Care Medicine concluded that AxiaLIF surgeries cost about $3,500 less than traditional lumbar fusion, and also result in shorter hospital stays, which further reduces healthcare costs.
An emphasis on real-world data is changing how insurance companies structure reimbursement agreements with companies. As an example, Quintiles’ Doyle points to Harvard Pilgrim Health Care’s recent deal with Amgen (NASDAQ: AMGN) for the cholesterol-lowering drug evolocumab (Repatha). The pay-for-performance pact grants the insurer a discount if the drug’s cholesterol reduction is less than what was observed in clinical trials. Doyle expects that medical device companies will strike similar deals with payers. He adds that medical technology companies that make the effort to understand and gather the information that payers are looking for will “get a better return on innovation for their devices.”
“You have to start very early,” Doyle says. “You have to understand what are the hot buttons in the customer base to improve outcomes, save money.”