From The Editor | December 1, 2015

The Ideal (If Uncommon) Way To Launch A New Medical Device Company

By Jim Pomager, Executive Editor

CEO Corner - Keith Valentine, SeaSpine

A conversation with SeaSpine president and CEO Keith Valentine

Why in the world would the president of a well-established, $2-billion spinal device powerhouse leave his post to join a yet-to-be-launched challenger in the same space?

This was one of the many questions I put to Keith Valentine, president and CEO of SeaSpine, during a recent phone call. From January 2001 until January 2015, Valentine served as president and COO of NuVasive, where he helped grow the company from a startup to a major player in the spine space — one with more than 1,500 employees and annual sales of over $750 million. In May of this year, he took the reins of SeaSpine, a company that Integra LifeSciences was planning to spin-off as a new player in the competitive spinal device market.

In the Q&A that follows, Valentine discusses his motivation for joining SeaSpine, the experience of navigating a spin-off (which was recently completed), the novel titanium-on-PEEK implant that SeaSpine just launched, the company’s R&D efforts in orthobiologics, top market opportunities in the spine space, and many other topics.

Med Device Online (MDO): You joined SeaSpine earlier this year after a very successful tenure at NuVasive. Why did you make the switch?

Keith Valentine: Last year, I had a great dialogue with then-CEO Alex Lukianov, whom I had worked with for nearly 14 years. He was aware that I wanted to take on a new opportunity and that I was looking at a couple of smaller organizations in the medical device space, including some that were spine-related. We discussed it for about six months and then started putting some plans in place for a January 2015 announcement and an April departure.

Soon after that conversation with Alex, the SeaSpine opportunity was announced. I threw my hat in the ring, and things really started heating up from a due diligence perspective, as we got to know each other. That was in the first quarter of 2015.  The deeper I got into discovering what SeaSpine would be — three different companies from Integra LifeSciences that were brought together — the more excited I became.

I've been in spine for over two decades; in 1992, I started at Danek, which became Sofamor Danek, which was acquired by Medtronic. During my time in the space, I’ve learned that it's important to have biologics as a bigger part of your portfolio. It gives you an edge, not only with your distributors, but also with hospitals.

SeaSpine is a diverse business from a revenue perspective, with half of its revenues in orthobiologics and the other half in spine implant hardware. So all these factors combined to make it a great opportunity to innovate and build a unique spine portfolio.

MDO: SeaSpine officially spun off from Integra in July, just a few months after you joined. How has that transition process gone so far?

Valentine: Integra made sure that SeaSpine had strong legs to hit the ground running. We came through the spin with a very clean balance sheet and a $47 million cash position.

We still have a good deal of hiring to do and infrastructure to build out, but the reality is that Integra really set us up for success. I'm fortunate that they were so thoughtful in making the spin one where SeaSpine has the ability to innovate and grow. Our success in the marketplace is really up to us now, from an execution perspective.

So, the transition process has gone very smoothly. Integra had very good leaders that made sure to map out all the different transition points. As is often the case with a spin, we also inherited some robust processes and systems — from a quality and regulatory perspective, for example — that were developed by the larger company. Now, we have to streamline those processes and make sure that they are spine-focused. That's where our next steps will be as we grow.

MDO: SeaSpine recently launched its first product as a standalone company, the Ventura NanoMetalene transforaminal intervertebral body fusion device for treatment of degenerative disc disease (DDD). What factors led to the development of this device?

Valentine: The most common surgical treatment for DDD has been lumbar fusion, which involves pedicle screws and some sort of interbody graft. Over the past decade, we have witnessed a proliferation of PEEK (polyetheretherketone) interbody devices, and there are many good reasons why that is the case.

First of all, the FDA is now very comfortable and receptive to PEEK. It is a very strong material, enabling engineers to create really good anatomical devices that can withstand the demands of the human body. Also, it's easy to machine — you can use it to make devices in many different shapes and sizes. In addition, PEEK has a really good imaging profile. You don't see it on X-ray, MRI, or CT, so all these options are available post-surgery. Surgeons can actually see the fusion taking place, as density changes occur within that interbody space over time. There are a lot of benefits to PEEK.

One of PEEK’s biggest disadvantages, however, is that it is such an inert material. The human body doesn't recognize it, so the first response to PEEK — as has been presented in studies out of Europe — is that the body tends to encapsulate the device, before that bone fusion can take place.

Using our proprietary NanoMetalene technology, we have fully coated PEEK implants with commercially pure titanium at a sub-micron level. This coating is so thin that the very same instruments that are used in the standard PEEK set can be used in the corresponding NanoMetalene set. The titanium is applied using a proprietary low-energy atomic deposition process, as opposed to more traditional coating processes that require heat, which is important because you're dealing with a plastic.

We know that the human body, and bone in particular, has a strong affinity toward titanium. As a result, you get a better fusion environment, a better orthobiologic environment, immediately after surgery. Our animal work has shown that bone apposition occurred up and onto the NanoMetalene device, whereas the regular PEEK (control) device demonstrated an encapsulation response.

So, the Ventura NanoMetalene device combines all the benefits of PEEK — from an imaging, strength, and machinability standpoint — with the orthobiologic-friendly qualities of titanium.

In fact, all of our current PEEK products will eventually be relaunched with the titanium coating. Most of our existing PEEK interbody line was included in our NanoMetalene 510(k) submission that was cleared by the FDA. We plan to introduce a NanoMetalene device for cervical applications later this quarter, and we will continue to roll out NanoMetalene products over the next year.

MDO: Any plans to expand the NanoMetalene platform beyond relaunching existing devices?

Valentine: Yes, we have some new interbody products in development that will skip the PEEK-only step and go straight to NanoMetalene-on-PEEK. You could start seeing these new devices as soon as next year. And, we will continue to explore other applications, as well, because I think this nanocoating technology promises to offer significant advantages for implants.

MDO: Turning to the orthobiologics side of SeaSpine’s business, are there any recent developments or plans to report?

Valentine: We feel we have a unique advantage with our orthobiologics platform, because we do the processing and portions of the manufacturing in our facility in Irvine, Calif., which was part of Integra’s IsoTis acquisition back in 2007. This enables us to produce a number of different combinations of demineralized bone matrix (DBM). For instance, we have a proprietary formulation called Accell Bone Matrix (ABM), which involves further processing steps on DBM.

A good analogy for the difference between DBM and ABM is comparing sugar to cotton candy. When you put sugar on your tongue, it dissolves slowly, and the sweetness taste lasts longer. With cotton candy, there is an immediate burst of sweetness, but it dissipates very quickly.

That's similar to the principle behind DBM and ABM. DBM is dense and takes longer to break down, which provides a longer-lasting effect but also slows access to natural bone proteins. ABM, on the other hand, is an open-structured, dispersed form of DBM — this allows it to quickly excite cells and start the osteoinductive cascade, but the effect is much shorter-lived. Combining the two gives you the best of both worlds: the initial burst of ABM plus the sustained effect of DBM.

This has been a great product line for us, and it’s getting greater and greater play because of the cost pressures surrounding orthobiologics. However, we also want to invest in a next-generation product. That will be something you'll see in the pipeline sometime in 2017.

We feel the same way about synthetics, which still have an important role to play in the orthobiologic market. We feel strongly about working on a next-generation product in that area, as well.

MDO: What challenges does SeaSpine face in bringing these new products to market?

Valentine: The real challenge will be turning our current innovation mentality and process around. Integra was the first to say that it slowed down innovation in certain areas of the business due to the need for investment.

Innovation is often misunderstood in the spine field. It can certainly be expensive, especially if you have to conduct a clinical study for regulatory approval. But for a 510(k) product, research and development are not the greatest expense. The biggest cost is in launching the product thoroughly and completely, because you also have to invest in instrument sets and implant trays.

Those are substantial investments, especially if you want to launch a product nationwide. There are many examples of good spine technology that couldn't get traction because the company couldn't afford the step from alpha/beta-type work — which is the early stages of understanding how the implant and instruments will be used — to really fully launching it across the country.

That's where we stand right now. We have to make sure that we not only execute on bringing 10 to 12 new products through the innovation pipeline over the next four to six quarters, but also get the right amount of implant and instrument sets out to the field. Thanks to the spin-off, we have already initiated the innovation process in our R&D group, but more importantly, we have to use that $47 million wisely to invest in the right quantities of implant and instrument sets.

So, it’s really a challenge of execution. We have to be ready to make that commitment to our distribution team, which is very excited about what we’re promising from an innovation perspective. However, they will be watching very closely to see if we launch on-time and with enough sets. Excitement can quickly turn to frustration if our development and operations teams don’t execute on our timeline commitments. 

MDO: What do you see as the biggest opportunities in the spinal treatment space?

Valentine: There are a lot of different pressures being placed on the healthcare industry and the delivery of care. Less-invasive surgical options have a great deal of merit for getting patients back on their feet more quickly and reducing complications.

Going forward, all medical devices — and I think we will be tested on this across the spine industry — will have to not only deliver innovation, but deliver innovation that demonstrates tangible economic benefits. You can introduce a new technology and still maintain a price premium, but you have to show how the device will change the cost of healthcare downstream. There are a number of great examples over the past decade of less-invasive procedures that from a cost perspective were still at a premium, but they could show significant cost savings to the health system over time.

So we have to be stewards of that change. I'm excited because I think our NanoMetalene technology does provide benefit to that fusion environment. It will be up to us to prove that our innovations lead to tangible and better patient outcomes over time.

MDO: Is that the message that you're taking to payers?

Valentine: Payers have an interesting view of innovation and technology. They don't always have the same focus on outcome-based information as the hospitals or surgeons do, since the insurance provider often is signing a global reimbursement deal with the hospital.

The hospital is more concerned about outcomes, because it owns the patient for a longer period of time — and sometimes it owns the complications. So, it's actually the hospital or surgeon that is now becoming painfully aware of how technology can get people back on their feet with fewer complications. They are more accountable to the cost of complications or the cost of resurgery.

From an interbody perspective, almost everything in our portfolio is covered under existing contracts that hospitals have with their current payers. The real opportunity for us to spread the word, though, is in orthobiologics.

There is a great deal of cost containment on biologics. As I mentioned earlier, we have the strategic advantage of having our own internal orthobiologic processing, and we can innovate within that processing group. It's a strong message to say that you can offer alternatives to the premium orthobiologics. That's why use of DBM and synthetics has been growing so quickly, taking market share from the super-charged biologics such as cellular grafts and bone morphogenetic proteins (BMPs).

Again, we have to be stewards of innovation. Whether it’s for our interbody devices or orthobiologics, we have to demonstrate results and get to the podium to talk about it.

MDO: Any final thoughts?

Valentine: As I stated previously, SeaSpine is in a great situation. We are really fortunate that we spun out with not only a diversified business, but also one with a clean balance sheet and $47 million in cash. This gives us the flexibility to invest in innovation and launch it properly.

Having grown up in the NuVasive organization, where we were a startup company that had to search for cash and get greater investment to launch products, I’m really excited about how SeaSpine is positioned. We weren’t just spun onto our feet — we were already walking. Now, we’re getting to a jog, and soon we will be starting to sprint. I find that to be a very motivating part of what this team of almost 300 employees is most enthusiastic about, and that is charging forward, because we have the financial wherewithal to do so.