Titan Spine Eyes Bigger Slice of Tricky Spinal Fusion Market

[Corrected 1/13/15, 3:45 p.m. See below.] It’s hard enough for a small company to jostle for position in a crowded, but booming, industry. It can be even tougher when the sector’s growth slows down, and a company isn’t fighting just against competitors—but also to win over critics who are skeptical that anyone in the industry can deliver a product or service that consistently works.

That’s the challenge that Titan Spine, a Mequon, WI-based manufacturer of metal implants used in spinal fusion surgeries, is up against.

The company, co-founded a decade ago by Wisconsin spinal surgeon Peter Ullrich, makes titanium cages of various shapes and sizes for use in procedures that fuse together vertebrae in the lower back or neck of patients who have degenerative disc disease, an often-painful deterioration of the soft, elastic tissue located between vertebrae.

In these procedures, the surgeon removes the diseased disc and inserts the device between the vertebrae, often securing it with metal screws or rods. The implant acts as a spacer between the vertebrae, and bone taken from another part of the patient’s body can be inserted in the cage’s cavity, in the hopes that it helps secure the titanium device by growing through it and melding with the vertebrae above and below.

The goal is to relieve pain by stabilizing the spine and restricting its motion. But this type of surgery isn’t guaranteed to eliminate the pain, and it carries risks, including the potential for an incomplete fusion with the vertebrae, which could warrant additional surgery.

Titan SpineTitan aims to improve those outcomes by developing titanium cages with a textured surface intended to spur bone formation and coax the new bone to latch onto the implant. The company uses an acid etching process to roughen the outer surface of its devices and provide microscopic spikes and cavities onto which bone cells can take hold. In lab tests, Ullrich says, the surfaces do indeed seem to trigger the production of proteins associated with bone formation better than smooth titanium and polyetheretherketone (PEEK), a plastic material that is also used to make spinal fusion implants.

Now the company is embarking on a clinical trial that it hopes will prove that its surface technology translates into positive outcomes for spinal fusion patients. And the company intends to work with the U.S. Food & Drug Administration to help build a patient database that compares the results of fusions involving Titan’s acid-etched titanium and those that used plastic and other competing implants, Ullrich says.

“We feel the primary advantage of a cage that can participate in the fusion process, compared to cages that act as simple spacers, is that there is the potential for patients to heal quicker,” Ullrich says. “Hopefully, the clinical data that we are trying to develop, in particular the data with the FDA, will bear this out.”

This theory of a rougher surface potentially leading to a better merger of an implant and the body isn’t a new concept. It has been used in dental and joint surgeries, and it’s becoming more prevalent in the spinal industry as well. Some companies, like Pennsylvania-based Aesculap Implant Systems, apply a titanium-based coating on a plastic implant to achieve the desired effect. Other approaches include the 3D-printed implants made by Texas-based 4Web Medical, which feature a roughened surface and a truss-like structure.

Ullrich co-invented Titan’s initial technology in the early 2000s with his friend, Charanpreet Bagga, who at the time was vice president of product development for Pennsylvania-based Orthovita, a spine surgery biologics company later acquired by Stryker (NYSE: SYK). Orthovita developed the implant device and secured FDA clearance to sell it in 2004. Ullrich began using the devices in surgeries, and after a couple of years, he assembled a group of business partners to purchase the rights to the technology from Orthovita.

They formed Titan, and launched the business with seed capital from themselves, friends, and family. Bagga was among the early employees, but later left the company to form another business, Ullrich says.

Titan has since raised an undisclosed amount of additional cash from individuals, plus $2.6 million in debt funding, SEC documents show. The company has not taken any money from institutional investors, co-founder and president Kevin Gemas says, instead opting to move at its own pace to grow staff, develop the surface technology, and sell its devices.

Titan’s sales grew nearly 25 percent last year, and its fourth quarter results put it on pace for $25 million in annual sales, Ullrich says. Today, the company employs nearly 50 people, with offices in Mequon, Germany, and Spain. Its devices are used in about 200 U.S. hospitals, and in about 25 European hospitals. The company has also registered to do business in Australia, New Zealand, and South Africa, Gemas says.

Titan recently received FDA clearance to market titanium implants featuring a more advanced version of its surface technology. “Our next goal is to become a marketing and sales juggernaut and really push into the industry that way and leverage off of what we’ve already done,” Ullrich says.

But while Titan is trying to carve out a bigger piece of the roughly $9 billion per year spinal device market, the pace of industry growth has slowed significantly, says Debbie Wang, a Chicago-based financial analyst with Morningstar. Wang covers Medtronic (NYSE: MDT), the leading spinal device maker, and has followed the industry for more than a decade.

“I think it would be totally fair to say that the 20-30 percent growth rates that characterized the spinal market throughout most of the 2000s have come to a screeching halt,” Wang says, citing Medtronic estimates of low single-digit market growth in 2015.

One factor is insurance companies are reluctant to cover spinal implant procedures, in part because there’s not a ton of clinical trial data demonstrating the surgeries consistently have positive outcomes for patients, Wang says. “That’s honestly a big part of why that entire niche has been under a lot of pressure,” she says. “Some of the best clinical data we’ve got suggests that, over the long haul, physical therapy is just as good as fusion. The payers really don’t want to pay for this stuff. As a result, they’re just making it much harder for any given surgeon to get a procedure approved for an individual patient.”

The spinal surgery industry has also come under increased scrutiny in recent years over questionable practices. The Wall Street Journal, for instance, has reported that some surgeons have been sued for medical malpractice for performing allegedly unnecessary spinal fusion procedures. The newspaper interviewed spinal surgeons who claimed that some of their peers perform these expensive procedures more often than they should, and in cases where it isn’t effective, because the surgeons and medical device companies stand to make a lot of money.

The federal government issued a fraud alert in 2013 warning about physician-owned distributorships—intermediaries between medical device manufacturers and hospitals. These businesses are controversial because the doctors get a cut of the sale of implantable devices used in procedures that they perform on their patients. (Titan says it doesn’t sell products through any physician-owned distributors.)

All of this is to say that Titan is hoping to grow its business in an increasingly challenging environment.

But Ullrich is still confident that spinal fusion can be effective for patients, if performed based on an accurate diagnosis and using the right technology. He practiced surgery for 19 years at the NeuroSpine Center of Wisconsin in the Appleton area, and retired last summer to run Titan full-time. Early on, his implant of choice was the threaded titanium cage, a device that looks like a hollowed-out screw. Ullrich says he found that using that type of implant was like “putting a round peg in a square hole,” and didn’t always achieve the desired union with the spine.

Once he started using the titanium devices he co-invented, he says, his patients started recovering quicker than those who had received the threaded cages. During his surgical career, he used Titan’s devices in 750 spinal fusion procedures, and says he never once had to remove a cage due to an incomplete fusion. “If you have good stability off the bat, then the bone heals a lot faster, and you can get mobilized a lot faster,” Ullrich says. [An earlier version of this paragraph incorrectly stated that Ullrich never performed follow-up procedures on his spinal fusion patients. In a few cases, he operated again to insert screws meant to reinforce the cages. We regret the error.]

The big caveat, of course, is Titan hasn’t proven any of this in a large-scale clinical trial. To win broad adoption by practicing surgeons, Titan will need a “claim that they can point to that shows definite superior results” compared with competing devices, says Michael Liang, a Chicago-based partner with Baird Capital who previously worked as a director of research and development at Cortek, a spinal fusion products company acquired by Alphatec Spine in 2005.

Titan hopes to bolster its credibility with a 150-patient, multi-site clinical trial that is beginning to enroll patients this month. The study will follow up with patients one year after surgery with a Titan implant, and it will primarily measure the rate of successful fusions and whether or not patients’ conditions improved. The company intends to publish the trial results in about two years.

It’s important to note that the trial won’t directly compare Titan’s products with competing types of implants, though—according to Ullrich, the cost of doing such a randomized trial in the U.S. would be too high. That’s partly why Titan intends to participate in the FDA’s Medical Device Epidemiology Network Initiative to collect data on spinal fusion patients and compare outcomes of surgeries using Titan products with those conducted with other types of implants, particularly plastic, he says. The idea behind the project, whose scope expands beyond spinal implants, is for industry and government officials to share information that leads to better understanding of the safety and efficacy of medical devices that have already hit the market.

Meanwhile, a Titan-sponsored retrospective study published in the International Journal of Spine Surgery in 2013 examined 82 patients who underwent surgery using a combination of a Titan implant and Bacterin’s OsteoSponge bone graft material. The fusion rate for one set of patients was 93 percent after six months and 97 percent after a year for the other group, with no surgical or device-related complications.

Results from a separate prospective study involving 77 patients were presented at an industry conference in 2013, but the full results have not been published in a medical journal. Those patients underwent spinal fusions with a Titan implant and Medtronic’s Infuse bone graft material, which contains a genetically engineered protein meant to stimulate bone growth. The study resulted in a 100 percent fusion rate, and the fusions were still holding strong after two years, according to a spring 2014 article in the Journal of the Spinal Research Foundation by Titan chief medical officer Paul Slosar, a California surgeon and co-author of the study. In addition, a majority of the patients reported decreased pain after the surgery, and there were no reported issues related to the devices, Slosar wrote.

It’s worth pointing out that Titan doesn’t have FDA approval to market its devices for use in combination with substances like Infuse—only for use with a graft of the patient’s own bone taken from another part of the body—but the company can’t control how surgeons use its products, Gemas says. The study involving Infuse was not sponsored by Titan, Ullrich says.

If, however, Titan’s products can demonstrate in humans the ability to coax enough natural production of the proteins like those found in Infuse, that could be a differentiator for the company, Liang says. Infuse’s synthetic protein is expensive, he says, and has been associated with complications, including a possible link to cancer, according to reports in the Milwaukee Journal Sentinel.

Needless to say, there’s a lot riding on Titan’s clinical trial and gathering enough comparative data through the FDA project. Should those initiatives go the way Titan executives hope, they could provide the company the data it needs to stand out in a competitive, contentious field.

“We’re very confident our product will stack up extremely well,” Ullrich says.

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