by helios » Sat Apr 03, 2010 7:28 pm
From WindHover report:
MAKO SURGICAL: NAVIGATING ROBOTICS IN ORTHOPEDICS
EXECUTIVE SUMMARY
All but dead a half a dozen years ago, MAKO Surgical is alive and well with an innovative technology platform that both embraces robotics and looks past it. Key to MAKO's strategy: a focus on unicompartmental knee procedures that are extremely difficult to do manually but, company officials hope, are significantly enabled by its robotic arm platform. If company officials are right, MAKO's robotics system could help explode the unicompartmental segment of the knee market without cannibalizing the total knee replacement segment. This year's AAOS meeting was a kind of coming out party for MAKO, whose major challenge now is convincing surgeons that robotics is more than just an intriguing gadget-it's a critical part of the surgical armamentarium
by David Cassak
By all rights, MAKO's predecessor company, Z-KAT should never have survived an extraordinarily difficult adolescence, beset by financing woes, CEO problems, and a strategic alliance with a major orthopedics company that nearly killed it.
But the company did survive and, reborn as MAKO, has begun to gain traction in the marketplace with a strategy that combines an innovative robotics technology and a proprietary implant design.
Key to MAKO's strategy: a focus on unicompartmental knee procedures that are extremely difficult to do manually but, company officials hope, are significantly enabled by its robotic arm platform. If company officials are right, MAKO's robotics system could help explode the unicompartmental segment of the knee market without cannibalizing the total knee replacement segment.
This year's AAOS meeting was a kind of coming out party for MAKO, whose major challenge now is convincing surgeons that robotics is more than just an intriguing gadget—it's a critical part of the surgical armamentarium.
Robotics, particularly as it plays out in health care, is an interesting technology space. All but the most jaded people are captivated by its futuristic, otherworldly feel and reality-bending capabilities. But the imaginative appeal just as often masks more than a small degree of skepticism. Many people, particularly the surgeons whom robotics companies target, see the novel technology as fascinating, but largely irrelevant to what they do day to day and in the here and now. It's kind of like, "How cool. No thanks."
Perhaps that's why robotics has taken so long to catch on and why, quite contrary to the conventional medical device development model, robotics companies almost always run ahead of their customers in their ability to conceptualize and develop tools with exceptional capabilities. It's also why, perhaps, robotics companies, for all of the immediate appeal of robotics per se, often wind up redefining themselves, positioning themselves if not precisely against the futuristic qualities of robotics, at least rendering those qualities of secondary importance.
Thus, Intuitive Surgical Inc., by far the most successful health care robotics company to date, talks more about outcomes and procedures than about robots themselves. Few clinical spaces have had as difficult a relationship with robotics as has orthopedics surgery. While many of the early robotics systems targeted orthopedics, where intraoperative tasks like positioning and milling lend themselves naturally to automation, the conservative and pragmatic nature of orthopedic surgeons has left the robotics field littered with companies with great intentions and little in the way of clinical or commercial success.
One company that is bucking history is Ft. Lauderdale, FL-based MAKO Surgical Corp. has begun to gain traction in this vexing field with a strategy that at the same time embraces robotics and looks past it. The company's novel platform combines an innovative robotics technology—one that places the surgeon at the heart of the procedure rather than on the sidelines--and a proprietary implant design, contrary to earlier robotics' strategies that have focused exclusively on the robot. More importantly, key to MAKO's strategy is a focus on unicompartmental knee procedures that are extremely difficult to do manually but, company officials hope, are significantly enabled by its robotic arm platform. If MAKO is right, its robotics system could help explode the unicompartmental segment of the knee market without at the same time cannibalizing the total knee replacement segment.
Indeed, MAKO officials insist they aren't a robotics company at all, but purveyors of important enabling tools to treat one of orthopedics' biggest problems: osteoarthritis. All this from a company with as tumultuous a history as can be imagined—a company that many didn't give much of a chance of surviving just a half dozen years ago.
Smart Machines
The roots of what is today MAKO go back more than a decade to two start-ups from different parts of the country: Visualization Technology (VTI), an early player in image-guided surgery, and Z-KAT Inc., a Florida-based surgical image guidance/robot company that provided much of the early work behind MAKO's technology today.
Maurice Ferre, MD, was a second-year medical student at Boston University in the mid 1980s when he got to know Danny Hillis, a pioneer in massive parallel supercomputers, who had earlier spun out a technology from Massachusetts Institute of Technology (MIT) to create a company called Thinking Machines. Thinking Machines was a start-up player in the supercomputer space—its principal competitor was Cray Computers—and Ferre became intrigued with the potential to apply the computing power of Thinking Machines' technology in medicine. (Supercomputing until that point was used primarily in military and defense applications.)
Hillis wound up inviting Ferre to meet his team and take a couple of years off from medical school to work at Thinking Machines, looking at medical applications of supercomputers. No one was thinking about robots at this time, Ferre notes; "it was all about computation." After spending some time at both Massachusetts General Hospital and Brigham and Women's Hospital looking at a variety of clinical departments, Ferre focused on the OR and computer applications in surgical planning. "The whole idea was to use computers to do visualization, to create images that would map the brain during surgery," Ferre recalls.
In 1989, working with Ferenc Jolesz, MD, and Ron Kikinis, MD, Ferre teamed with some programmers and began to explore the possibility of creating a company around the visualization opportunity. He also convinced Thinking Machines to donate one of its $6 million supercomputers to the Brigham and Women's Hospital Surgical Planning Lab, which separately had been working with General Electric Co. on developing an MRI for use in surgical intervention. Ferre never actually created a company to do the visualization work, though a lot of the early research on mapping the brain of Alzheimer's patients came out of this program, and he eventually returned to BU to finish his medical education.
But Ferre had caught the entrepreneurial bug and back at BU, he connected with Richard Egdahl, at the time BU's academic vice president of health affairs and head of the university's Health Care Entrepreneurship Program (HCEP). After graduating from medical school, Ferre went back to Brigham to take a second look at the mapping research that was being done there. That research, combined with the work done in conjunction with GE, led Ferre to an idea for using electromagnetic sensors, joined with imaging, to enable image-guided surgery for ENT and neurosurgical applications.
This time, Ferre did launch a company, Visualization Technology, in 1993. Nine years later, in 2002, VTI had become a leader in the field, having placed over 600 of its computer-driven navigation systems, serving a number of markets including ENT, neurosurgery, and spine surgery, and the company was acquired by General Electric. Ferre remained for two years after the acquisition as vice president of a newly formed surgical navigation group.
Surgery in the Trenches
At just about the same time that Maurice Ferre was building VTI, Rony Abovitz, MAKO's other co-founder, was developing the technology that would eventually become the MAKO robotic arm system. Abovitz, whose official title at MAKO is SVP and chief visionary officer, was one of four founders of Z-KAT.
A biomedical engineering graduate from the University of Miami, Abovitz as a student played around a lot with computer simulation and CAD implant design. One of his first jobs out of school was with a mid-sized Italian orthopedics company, Lima Orthopedics, a broad-based company with a full line of total hip and knee replacement and trauma products.
At Lima US, Abovitz headed R&D—he was actually its sole US engineer and was basically responsible "for making the changes to the product necessary to be successful in the US market," he recalls. But, as time went on, Abovitz found himself virtually running the US operation and doing a number of things at Lima, including, on one of his earliest assignments, standing with a surgeon in the OR. The procedure was a success, but not before Abovitz emerged from the OR splattered with blood and bits of bone.
Abovitz's experience underscored to him one thing: how low tech orthopedic surgery was, even during its boom times. His early design experience in school had been in minimally invasive cardiovascular devices—part of his research work in graduate school had to do with a design for a AAA nitinol stent—and he figured there had to be a way to bring innovation to orthopedics. "I always thought surgery was this very high-tech endeavor, and here I was experiencing orthopedic surgery like it was the year 1700," he says. "I thought there has to be better ways of doing surgery and I told my boss I wanted to work on computer [applications in orthopedic surgery]."
Abovitz' superiors told him he was free to do whatever he wanted—but on his own time. He started playing around with different approaches and calling up surgeons to get their ideas—he even called Russell Taylor, PhD, a pioneering professor in robotics, who was one of the original developers of the RoboDoc, the first robot designed for orthopedic surgery. Abovitz says he started to create "weird little robotic prototypes," but didn't really know what he was trying to build—"I was just envisioning something better."
Eventually, he ran across an engineering professor at Northwestern named Michael Peshkin, who ran the LIMS (Lab for Intelligent Machines) in Evanston, IL and who had developed an application for spine procedures using a PUMA industrial robot and computer-assisted multi-planar fluoroscopy. "He had developed some software to guide the robot and I had said, 'Can we join forces?'" Abovitz recalls. They did, and Z-KAT was formed in 1997 and soon developed a prototype robot, using a C-arm to do 2-D fluoroscopy, capable of doing navigation in total joint replacement, trauma, and spine procedures. "We were going to do everything you could do in orthopedics," says Abovitz.
Soon after, a connection with one of Z-KAT's founders led to an introduction to folks at the Artificial Intelligence Lab (AI Lab) lab at MIT and to a developer named Bill Townsend of Barrett Technology, which led, in turn, to a major enhancement of the original prototype and the integration of a cable-driven robotic technology with computer-assisted surgery—a similar approach taken earlier by Intuitive Surgical. (Townsend had worked with his MIT thesis advisor, Ken Salisbury, currently a Stanford professor and an early innovator in cable-driven and haptic robotics, who had been instrumental in the design of Intuitive's robot.) MIT's cable-driven robots were capable of an extraordinary range of activities—including throwing and catching baseballs—and Abovitz told the AI lab engineers that Z-KAT wanted one that "could be a doctor," he recalls. "They told me I was completely insane, but that it was a cool idea." Still, Abovitz walked away from MIT with a license to develop a cable-driven robot—days before, it's rumored, executives from Intuitive Surgical had planned to visit the AI lab to talk about licensing the technology themselves.
The Mouse and the Elephant
While Abovitz and his team were developing their robots on the East Coast, across the country, in northern and southern California, two companies, Santa Barbara, CA-based Computer Motion Inc. and Sunnyvale, CA-based Intuitive Surgical, were launching what might be called the robotic revolution. (See, most recently, "Intuitive Surgical: Making Robotics Real," IN VIVO, July 2006 [2006800128].) Abovitz was friendly with Computer Motion founder Yulan Wang and knew the company's Aesop system well. (Z-KAT was beginning to get on Intuitive's radar screen as well, and Intuitive founder Fred Moll would later become an investor in MAKO.)
Z-KAT raised some seed money from friends and family and then from some angel investors and also began to do some deals; in addition to licensing the technology from MIT, it acquired the computer-assisted surgery business from Cleveland, OH-based Picker International (later Marconi Medical Systems Inc., which is part of Royal Philips Electronics NV) in 2000. Though the MIT license formed the basis of the MAKO robotic arm system, Abovitz notes that without the Picker acquisition, "there would be no MAKO, because the Picker deal brought an extensive core IP portfolio and an excellent base of software."
In fact, Z-KAT's acquisition of Picker was something like man biting dog. Company officials had been talking to Picker for a while because Picker had had a deal with DePuy Inc., a Johnson & Johnson operating company, to develop a computer-guided surgery business and both had been interested in Z-KAT's robot. [199720097] "We had partnered with them because Picker thought they were going to buy us, join up with J&J, and create a whole new computer surgery company," Abovitz recalls. "We were also talking to J&J and they seemed to love us. We thought it was all coming together."
But Picker's fortunes quickly began to deteriorate. At the peak of the dot-com boom, the company's parent had become convinced it should become an Internet company and suddenly changed course, seeking to sell off its military, aerospace, and health care businesses and changing its name to GEC Marconi. But when the Internet boom went bust, so did Marconi's plans. Within months, the stock tanked, and GEC went from an acquirer to a seller.
J&J was perhaps the most logical company to buy Picker's computer surgery business because of its past relationship with Picker. But J&J bailed out as well—in an effort to build up its orthopedic business, it had just spent a lot of money to buy DePuy and, as part of that, had inherited a deal with DePuy's surgical navigation partner BrainLAB AG. Suddenly, J&J didn't need the Picker relationship.
For a while, there was some talk that DePuy, which had an investment in BrainLAB, was going to help BrainLAB acquire both Picker and Z-KAT. But Picker executives balked at being acquired by BrainLAB and, instead, approached Z-KAT about doing a deal. In the end, one of Z-KAT's angel investors helped to negotiate a deal involving equity, debt, and a little cash, and Z-KAT, a company with no revenues and very little money, wound up buying Picker's computer-assisted surgery business, which had nearly $20 to $30 million in technology assets and an installed base driving DePuy spine revenue--not the other way around. Overnight, Z-KAT found itself with an installed base in spine surgery and a revenue stream. Says Abovitz, "We were like a mouse that had eaten an elephant."
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A Debacle on 9/11
Z-KAT's Picker acquisition closed at the end of 2000 and just around the same time, Z-KAT became acquainted with two investors who would eventually steer the company to create what is today, MAKO. Rod Brooks, a prominent robotics scientist, and Christopher Dewey, a former investment banker, had launched a NY-based venture fund called Robotic Ventures, the first fund dedicated to robotics technology. Robotic Ventures would eventually make investments in other robotics companies, including iRobot (famous for the Roomba robotic vacuum cleaner and bomb-clearing robots used in Iraq); but Z-KAT was its first investment in health care.
For all the ups and downs Z-KAT faced in its early days, it's hard to recapture the excitement the company was generating—internally, at least—in the first years of this decade. Though the outcome wound up being very different, the MIT license and the Picker/J&J discussions convinced Z-KAT executives that they were on to something. More to the point, they had developed some very interesting technology, capable of doing complex motions, and the interest shown by Christopher Dewey and Rod Brooks seemed to be the icing on the cake. Brooks, in particular, was a legendary figure in robotics—"at least if you were a geeky engineer," notes Abovitz—and his affirmation was important in both real and psychological terms. "He came down to visit us and there were just a couple of us in the room," Abovitz recalls. "He thought we had a cool application and said, 'Let's fund this.' We had just acquired Picker's IGS business for very little money and were suddenly getting some money, and there was a lot of excitement building."
Robotic Ventures was both an investor in robotics companies and a firm that helped companies raise money, and it was able to find people to fund Z-KAT. Indeed, the company received a term sheet for approximately $15 million financing and was due to put the deal up for a partner vote on September 11, 2001, in New York. When the planes hit the World Trade Towers, the deal was off. "Everything shut down," Abovitz says. "We were basically out of money; I thought we were totally dead."
Even the Picker business didn't help. Under the terms of the deal, the real beneficiary was DePuy, because at that point, the main purpose of the computer system was to position and drive DePuy spine implants. "We had a number of sites generating millions of dollars in implant sales," Abovitz goes on, "but we weren't seeing anything. All we got were service calls.
Z-KAT officials learned one important lesson that they would take to MAKO: to the extent possible, always own the implant as well as the enabling robotic platform. But whether they'd actually be able to put that lesson to good use remained to be seen. Z-KAT's future "literally blew up with 9/11," Abovitz goes on. "We had no money and were about to go out of business."
Poking Around
As its experience with J&J illustrates, as Z-KAT began to develop its first robot prototypes it began to attract the attention of larger device companies, including Big Ortho. "Around 1999, the head of business development of DePuy came down and we did a demo of our robot doing trauma and spine procedures. And the top executives of Howmedica flew us out to meet Pfizer's board," Abovitz recalls. "We thought we were in the money, that we were going to be acquired any minute."
Not quite. "All they were doing was poking around," he says with a sigh. "They had no idea what to do with our robot. That was a lesson I learned the hard way." And it would get worse.
As time went on, the one big company that did more than look was Warsaw, IN-based Biomet Inc. When Z-KAT's financing fell apart on 9/11, Robotic Ventures' Chris Dewey helped to set up meetings with potential investors up and down the East Coast and throughout the Midwest. At the same time, Z-KAT officials, on their end, continued to explore alliances and potential investments from orthopedic companies.
Indeed, Maurice Ferre's own experience, illustrated by the sale of his company to GE, was that computer-guided surgery and navigation systems were beginning to attract a lot of attention at the time. "All of a sudden the orthopedic industry began to think that image-guided surgery and computer navigation was the real deal," he says. Z-KAT executives put their robot prototype in a van and for the next several months, drove thousands of miles, talking to investors and, during a stop in Warsaw, IN, to executives from Zimmer Holdings Inc., which had recently signed an alliance with Medtronic Inc.'s Medtronic Sofamor Danek around surgical navigation, and Biomet. [200220440]
Z-KAT would eventually sign an alliance with Biomet that called for Z-KAT to do technology development in image-guidance systems and orthopedic robotics in exchange for an investment and global sales and marketing rights for Biomet. "It wasn't exactly part of the original vision, but we were out of money and we were ready to do any deal we could get," Abovitz says. In addition, at around the same time, Z-KAT found a new investor, Sycamore Ventures, out of Princeton, NJ, who agreed to put money into the company if it could close the deal with Biomet.
A Death Spiral
It was soon after the Biomet deal was signed that Maurice Ferre entered back into the picture. Though Ferre came to Z-KAT through its investors, Z-KAT was not an unknown quantity to him. In fact, Abovitz and Ferre had met at an AAOS meeting in the late 1990s, and again soon after, at the instigation of executives from Pequot Capital, who had briefly discussed the possibility of putting VTI and Z-KAT together, a deal that became moot when GE bought VTI.
After leaving GE, Ferre was looking for his next project and started to do some preliminary fund-raising for a small, Baltimore-based company, Image Guide, when he got a call from Joseph Pepper, the former CEO of imaging company OEC Medical Systems, who was running U-Systems, a CA-based ultrasound company that had also been funded by John Whitman of Sycamore Ventures. When Pepper mentioned that he knew a Florida image-guided surgery company looking for a new CEO, Ferre, who was originally from Florida, was intrigued.
Up to that time, Z-KAT's track record in CEOs hadn't been very good. Beginning with the first Sycamore investment, each new financing resulted in a new CEO, some with medical device experience but no sense of robotics, others with no device experience at all. By the time Maurice Ferre got there in 2003 as an advisor—he wouldn't become CEO until 2004--Z-KAT had had four CEOs. "Not one of them had any idea what we were trying to do," says Abovitz. Ferre would be a breath of fresh air, but he, too, was something of an outsider--despite his extensive history in image guidance, robotics per se was new to Ferre. (It was also virgin territory to GE, which Ferre soon brought down to see if the company would be interested in investing in Z-KAT. It wasn't.) But at least Ferre could understand the potential of Z-KAT's robot and got the vision.
In 2003, Ferre found himself at Z-KAT headquarters, getting a demonstration of the technology, and he was intrigued. He soon began to work informally with Z-KAT, advising on business development and strategy, side by side with the investors who were trying to put the company back on a solid footing. Indeed, though Z-KAT continued to develop its robotic system, the company's fortunes kept tumbling downward, with two major problems, a continuing lack of cash and strategic direction, and a Biomet partnership that was growing more and more problematic.
When the Biomet deal stalled in the early 2000s, Z-KAT's investors had begun scrambling. They brought in a new CEO, a former J&J executive, whose primary responsibility was, says Rony Abovitz, to reduce headcount, trim expenses, and prepare the company for another financing round. But the cost-cutting wasn't making the company stronger—just the opposite. "The company was in a death spiral," says Maurice Ferre, of the Z-KAT he would inherit.
In 2003, Ferre was intrigued at the thought of working in south Florida, but he still wasn't certain whether he wanted actually to join Z-KAT when he started talking to the company's board. As Ferre and Abovitz discussed the future of Z-KAT, both had come, strategically, to the same conclusion: that Z-KAT's best strategy lay in pursuing the robotics opportunity. But before it could do that, Z-KAT had several problems to deal with: a Biomet agreement that had to be cancelled, a lack of cash, a CEO whose mission was to cut costs wherever he could, and a lack of clear strategic focus.
The CEO problem was the easiest to solve; by 2003, Z-KAT's interim CEO was himself eager to move on. That had opened the door for Ferre to become CEO, a post he assumed in June of 2004. But the other issues were more difficult, and Z-KAT explored a number of possible options, including even selling outright to Biomet, before the company would extricate itself from the Biomet deal later that year.
Planned Anarchy
As noted, the CEO and Biomet issues were resolved by the end of 2004. To deal with Z-KAT's third issue, strategic focus, Ferre chose an approach he calls "planned anarchy." "We threw every option on the table and said everything was up for discussion," he says. Robotics, neurosurgery, deep brain stimulation--Z-KAT was, strategically if not technologically, starting virtually from scratch. Though most people acknowledge that surgical navigation and robotics are two different things, Z-KAT officials came increasingly to see the two as linked, to recognize that, as Ferre puts it, "the robot is the missing piece in navigation" because the robot would do the cutting and delivery that the navigation teed up.
Just as important, as a combined robotics/navigation initiative moved strategically to the fore, Ferre warmed to an idea that Abovitz had for years tried, with no success, to sell to Z-KAT's investors: that in addition to developing surgical navigation systems, Z-KAT should also develop a line of proprietary implants. "My view was that if you owned the implant too, you'd make a lot more money," Abovitz recalls. "But the response was always, 'No.' Now, with Maurice on board, I had a partner who understood the value of this idea and could present the commercialization value."
Ferre didn't take much convincing. During his time at GE, one of his jobs was to fly around the world, looking at successful device companies. The key, he says, is "to own the therapy." VTI had placed a lot of boxes, but once the box was placed, the company earned only a small amount of money for each procedure performed. There was no other continuing source of revenue. "I always told myself that the next company I was going to do was going to serve a big market with an enabling technology and a recurring revenue stream," he says.
If either Ferre or Abovitz needed more convincing, a conversation with Dana Mears, MD, a prominent orthopedic surgeon from Pittsburgh confirmed their view. Ferre calls Mears "a true visionary." He had been an early user of the first orthopedic robot, the RoboDoc from Integrated Surgical, and even before Ferre arrived, in the late 1990s, he had talked to Abovitz about incorporating a novel knee design into Z-KAT's robotic system. "He'd seen a lot of robotics systems in orthopedics and felt this—the implant—was what they all lacked," says Ferre. (Mears had shown his idea to the RoboDoc designers, according to Abovitz, but soon became convinced that the RoboDoc wasn't the right kind of robot to take advantage of the new knee.)
In fact, Mears and his new knee were instrumental in shifting Z-KAT's focus from spine to total knee replacement. So, too, was a collaboration around the same time with John Reppici, MD, a Buffalo, NY-based orthopedic surgeon and a pioneer in unicondylar knee replacement and, interestingly, a surgeon with a long relationship with Biomet. Soon Z-KAT was on its way to developing not just a robot, but a proprietary implant as well, and it was working with two leading orthopedic surgeons in doing so.
A New Name, A New Story
Having settled on a strategic direction, Z-KAT still faced more challenges, most notably, raising the substantial cash it would need to execute on its new strategy. "Accuray, Computer Motion, and, most importantly, Intuitive Surgical had showed the type of funding needed to develop serious medical robotics technology platforms," says Rony Abovitz. Z-KAY itself was generating some revenue from licensing deals, but nowhere near what it needed to realize its robotic dreams. Maurice Ferre recalls sitting back in mid-June of 2004 and suddenly coming face to face with Z-KAT's cash problems. "All of a sudden I realized, there's no more money. And all I could think was, 'I said "yes" to this?'"
Company officials were able to raise a quick $1 million licensing the IP in its DBS/neurology program, which it sold to Image-Guided Neurologics Inc., and which, in turn, was eventually sold to Medtronic. But Z-KAT could no longer raise equity itself and the company needed to create a subsidiary to do so. It was at this point that company officials decided to create an entirely new entity.
With the help of Chris Dewey, the company was able to raise another $2.5 million from two well-known New York-based hedge funds and other investors in the new company's Series A financing. But along with the new entity, they needed a new name, a fresh identity. Ferre and Abovitz worked with Fritz LaPorte, now the company's CFO, and Menashe Frank, a legal consultant to Z-KAT who became general counsel, to create the new entity and give it a new name: MAKO.
Z-KAT's logo had featured a butterfly, to suggest the light touch of the robotic system. But, says Ferre, "We felt we needed to outgrow the butterfly image." A mako, a shark, conveys the exact opposite image. And in fact, company officials played around with an acronym with the name SHARKS, which would stand for something like Surgical Hip And Robotic Knee System. CFO LaPorte, a fisherman, suggested the shorter MAKO.
The name MAKO had several connotations that company officials like: the fastest shark in the ocean, it lives in deep, uncharted waters and is one of the most sought after catches for deep sea fishermen because it has the sweetest meat. But while MAKO officials liked the name—and the images it evoked—would investors respond? In late 2004, Maurice Ferre and his team found themselves in Palo Alto, walking up and down Sand Hill Road, talking to any VC he could get an appointment with in an effort to begin to raise the $50 million he thought MAKO would ultimately need to develop its combined robotic/navigation system. (MAKO officials figured that Intuitive Surgical had, in both public and private rounds, raised between $100 and $150 million and thought they would need $50 to $75 million, at a bare minimum, though it might come in several tranches.
But the West Coast VCs all said no. "I got kicked out of everywhere," he recalls. "They all said it would never work." Ferre's track record, starting VTI and selling it to GE, opened doors, but all of them shut when the VCs heard the robotics pitch. Not only was $50 to $75 million a lot of money, especially for a device company, but, as Rony Abovitz notes, "No one had ever done anything like we were trying to do." Moreover, MAKO was, fundamentally, a capital equipment play, even with the implant, and one that wasn't fully developed yet. Indeed, much of the money would still go to some major technology development milestones the company had to reach. "We still didn't have a system that could be brought into the OR, any clinical studies to support our claims, FDA clearance, or even an implant," says Ferre. "It was all about a vision."
What MAKO did have was a prototype and a fascinating demo, but the prototype wasn't transportable—all they could show to investors was a video that featured Dana Mears and John Reppici promoting the MAKO system. And, says Ferre, "people weren't buying it."
Making matters worse were the high-profile struggles that previous robotics companies, particularly Integrated Surgical Systems (ISS) and Computer Motion, had run into. Intuitive Surgical was, in 2004, still in the early stages of becoming an example of a robotics company that had created real investor value. But the fact that Intuitive hadn't yet gone public or seen its dramatic stock run-up of 2006-2007, dulled any positive impact. Of the problems faced by ISS, Abovitz says, in an understatement, "That didn't help at all. It made it a very hard sell."
A Blessing of Angels
Maurice Ferre says he went to the West Coast "thinking I'd raise the money in a New York minute and came back thinking, 'This just isn't going to happen.'" As for Z-KAT's earlier investors, Sycamore Ventures wasn't going to put any more money into the company and the team at Pequot had broken up and gone elsewhere. (Actually, MAKO did receive one term sheet from a group of investors in California, but they insisted that the company move to the West Coast and bring in a new CEO, an offer MAKO's board turned down.)
And then MAKO caught a break. The company found a venture investor, Tony Natale, formerly of MDS Capital (now Lumira) out of Toronto. Natale was a former physician who had actually used the VTI system. When he and Ferre sat down, Ferre's pitch was no longer about robotics but about addressing osteoarthritis. Natale got it, and MAKO had finally found an investor who saw the vision.
Not that MAKO had gotten rebuffed everywhere. Even before MDS invested, MAKO had begun to attract the interest of some people whose endorsement would be valuable in giving MAKO's technology credibility. One was S. Maury Blumenfeld, PhD, an executive who had worked at GE for 31 years and who had launched both its MRI and CT product lines as well as developed the double-doughnut MRI. Ferre and Blumenfeld had worked together years earlier, and Ferre brought him down to MAKO to see what Blumenfeld, who appreciates the capabilities of advanced technology, thought of the company's robot.
Blumenfeld liked the concept enough to invest his own money in the company, and so did Fred Moll, a pioneer in robotic applications in health care and founder of Intuitive Surgical and Hansen Medical Inc. Ferre had met Moll several years earlier when he teed up what would eventually become an alliance between Hansen and GE, an alliance seeking to put together Hansen's navigating catheters and GE's fluoroscopy systems. Moll, too, was impressed and not only encouraged MAKO executives, but he also invested as an angel in the company. (See "On the Frontiers of Surgery: An Interview with Fred Moll, MD," IN VIVO, November 2008 [2008800171].)
Lumira led MAKO's 2005 Series B, which raised $20 million, along with angels such as Blumenfeld and Moll and a NJ-based VC fund specializing in orthopedics, Ivy Capital. [200530315] Flush with cash, Rony Abovitz wanted to take some money and build an entirely new system, but Maurice Ferre cautioned against it. Instead, he wanted to take the prototype MAKO had used in its demonstrations and as quickly as possible get it into the OR, where future iterations would be done in collaboration with surgeons.
MAKO officials were conscious of one thing: no one had ever built a robot specifically to be used in orthopedics. RoboDoc had been an industrial robot that was converted to an orthopedic application, whereas MAKO's first system had been developed in the AI lab at MIT. Even Abovitz concedes that the early nonclinical prototype raised questions about its reliability and accuracy and had never been properly tested. Most importantly, if the key to MAKO's system was the combination of navigation and robotics, the company's engineers had to make sure that the robot could do the kind of precise cutting that navigation would enable. "The whole goal was to cut really nice shapes in bone through incisions we thought would be somewhere between one and two inches, which meant it was pretty much a blind cut with the surgeon's hand on the robotic arm," Abovitz says. (Other robots, used in open procedures, don't require the same degree of precision.)
MAKO officials had hoped to do their first case by the end of 2005, though that was put off until June of 2006, as they wrestled with design issues and completed an extensive rework of the system to meet quality and regulatory standards for safety and efficacy. The extra time paid off when the company received FDA clearance of its 510(k) in 2005, sooner than it had anticipated. In June 2006, the first MAKOplasty procedure was performed by Martin Roche, MD, at Holy Cross Hospital in Fort Lauderdale.
One important difference between MAKO's robotic arm and other robots, both medical and industrial, is that although the company's robot helps make the surgery more accurate and precise, the surgeon is in control all along the way—an attribute that should help significantly to win over surgeon acceptance. Other systems that, after a push of a button, turn all activities over to the robot, have run into trouble in the past—both because the FDA isn't comfortable with the notion of robotic autonomy and, more importantly, because surgeons aren't either. The MAKO robot also allows both controlled sculpting and a degree of what Abovitz calls "surgeon interactivity" that other robots don't.
Perhaps most importantly, MAKO officials made one other important strategic decision: influenced by John Reppici, the company decided early on to focus their system, initially called the called the Tactile Guidance System (or TGS), not on a full knee replacement, but on a partial or unicompartmental procedure—a robotically-enabled knee resurfacing procedure that would be proprietary and would be called MAKOplasty.
Dana Mears had helped convince MAKO of the importance of having a proprietary implant; but he had been talking about a total knee. Reppici steered the company to a unicompartmental knee. The choice wasn't at all obvious: unicompartmental procedures are difficult to do and, done manually, represent only about 5% of all knee procedures. Because they require both extensive and intricate sculpting of bone that is highly patient-specific—to maintain range of motion and eliminate wear, the implant has to fit just right--many surgeons believe unicompartmental knees are simply too difficult—hence the low adoption rates. But Reppici, who practices in Buffalo, with a population of 1.5 million people, does 800 uni procedures a year. He convinced MAKO officials that its system could, in fact, be an enabling technology, allowing surgeons who would otherwise turn away from uni procedures to do them efficiently and with excellent outcomes.
Indeed, if one of the early criticisms of robots was that, while they're interesting devices, surgeons really don't need them, by focusing on unicompartmental knees, MAKO had identified a procedure that surgeons wanted to do more often, but felt they simply couldn't. "We wanted to pick a procedure that was so hard, surgeons would feel they needed some help," notes Abovitz. "And accurately sculpting bone is hard."
More importantly, if MAKO can convince surgeons to adopt its system, it could explode the unicompartmental market well beyond the current 5% or even the 15% that most industry executives believe is the upper limit of uni penetration. That's not to say that MAKO officials don't believe that there are robotic applications for full knee replacements. "But it has to be staged," says Maurice Ferre. "We started with the unicompartmental and then moved to the bicompartmental." By focusing on a resurfacing approach, Rony Abovitz adds, "we believed we could address one or multiple compartments, but preserve tissue and all of the anatomic functionality. The key is to preserve the natural knee."
A Coming Out Party
As noted, if the robot is truly an enabler, MAKO's target market will turn out to be much larger than most people assume. MAKO officials estimate that although the number of unicompartmental procedures is relatively small, the combination of uni- and bicompartmental procedures should be able to address 30 to 40% of the entire knee market, if not more. MAKO has already released its bicompartmental implant, which it calls its MAKO Restoris MCK, or MultiCompartmental Knee System, and because of the anatomy-preserving nature of resurfacing, company officials argue that the bicompartmental knee can get closer in feel and functionality to a natural knee than a total knee replacement does, which rarely feels the same as the knee you're born with. Says Abovitz, "There are a lot of patients today with bicompartmental damage who are getting total knee replacements, even though they don't really need full knee replacements."
And because it's a minimally invasive procedure, MAKO officials believe that not only will surgeons opt for more uni procedures, so will consumers, particularly those in the Baby Boomer generation: people from their late 40s to late 60s for whom mobility and range of motion and a quicker recovery and return to work are every bit as important as pain relief. "These people don't want to get a total knee replacement, but total knees are still 95% of the market," notes Abovitz. Current total knee replacement is a kind of endgame, MAKO argues, removing healthy tissue and bone as well as damaged parts and offering few options later. Unicompartmental resurfacing buys time with a tissue-sparing, less invasive procedure that pushes off, if not totally obviates, a total joint replacement. Twenty years from now, we may be treating damaged knees not with metal implants, but with stem cells and other biologics. "People believe in the biotech future," says Abovitz. "If you take out their whole joint, they're not going to be part of that future."
Moreover, for some patients, the minimalist approach inherent in resurfacing may even allow for relief sooner: patients who put off a total knee replacement because of its traumatic nature and are forced to live in pain can now choose a less invasive, smaller incision procedure earlier in the game, getting relief from pain and preserving later options as well. Focusing on a unicompartmental knee and developing a new procedure around it also enabled MAKO to pursue the other part of its MAKO strategy: designing proprietary implants. The company hired senior implant designers from other orthopedic companies and put them to work to develop an implant specifically for its second-generation robotic arm system, the new RIO system. "The idea was to design the first implant based on the capabilities of our system," says Abovitz—an implant that MAKO introduced at the AAOS meeting in Las Vegas this year.
Indeed, this year's AAOS was a kind of coming out party for MAKO, the meeting at which the company showcased both its new implant and its new RIO system. "A lot of people said we'd never be able to develop our own implant because they thought we're only a robotic company," notes Abovitz. "But we've built a world-class implant design team." So much so, he says, that surgeons who came by the MAKO booth at AAOS were attracted as much by MAKO's implant as by its robot, though the two are obviously linked.
The reception at the MAKO booth—company officials say it was enthusiastic—is important because MAKO's early track record suggests it's been successful placing RIOs not just among high-volume early adopters, but at community hospitals as well. To date, MAKO has trained over 60 surgeons on its TGS and RIO units and has sold 20 systems; over 1,000 patients have received a MAKOplasty procedure.
Maurice Ferre says that MAKO's goal is to get to 125 installed systems as quickly as possible, a figure analysts following the company believe it can achieve by 2011. Once it does that, MAKO's robot goes from being a technological curiosity to a clinical standard. And Maurice Ferre believes that in time, MAKOplasty will become a standard of care, at least for patients who don't require a total knee replacement, rather than just an interesting niche procedure. "What we've been doing, in a very methodical way, is building credibility," he says. MAKO has been aggressively publishing peer-reviewed articles in top orthopedic journals—the company has 22 clinical studies underway and is trying to create a US-based patient registry, which would compile x-rays of all unicompartmental procedures, focusing on implant placement, a registry that MAKO officials believe will show the company's procedures to great advantage over total joint replacement. Other studies and registries will track patients over different periods of time—three months, six months, two years, five years--and look at more functional outcomes, and not just degree of pain relief, but postoperative mobility as measured by the patient's ability to play golf or tennis or to resume work—all measured against outcomes of total knee replacements.
In late 2007, MAKO hired a new director of clinical research to oversee these studies. But the company faces an interesting challenge: while it would like to pioneer new kinds of studies for what is a new technology and new approach to knee repair, it has to report its results in the kind of clinical language that surgeons are most used to hearing at meetings like AAOS and the Hip and Knee Society. All of these efforts are designed to demonstrate that the MAKO procedure leads to more accurate procedures and better balanced and positioned implants, reducing the risk of mis-aligned implants and the problems they lead to, such as implant failures and early degeneration. "The whole idea," Abovitz goes on, "is to prove that we can do a uni really well." And not just that, but that the exceptional outcomes are linked directly to and a result of the combination of an efficient cutting robot and the company's proprietary implant. "I think surgeons are beginning to realize that they can't get that [result] on their own, that doing it by hand would be impossible," he concludes.
Gaining Adoption
Having a proprietary implant not only enables the MAKOplasty procedure, but it should also drive significantly more revenue for the company. And there's a third benefit: helping drive adoption for an advanced technology, particularly among orthopedic surgeons, a notoriously conservative group where new technology adoption is concerned. Indeed, as noted, many surgeons have looked at robots in the past and, whatever level of interest they may have had, believed they could achieve the same results without one. MAKO's argument is that, particularly when it comes to uni- and bicompartmental procedures, they really can't. And the development of the implant at least gives surgeons a way to get a handle on the new procedure. Maurice Ferre notes that even if surgeons don't immediately grasp what RIO does, "they do understand implants and the designs and materials that go into them. And they understand the benefit of a well-designed implant being accurately aligned in the patient's body."
Having created a robot that works and with early clinical studies suggesting positive clinical results, MAKO's next challenge clearly lies in gaining market adoption. Company officials note that 18 months ago, at MAKO's first AAOS meeting, the company's reception among surgeons was much different than it was this year. The company had just gone public and had only four or five systems placed, and many surgeons simply didn't know who MAKO was or what the company did. This year, they say, MAKO's efforts focused less on talking about the company and more on bringing in surgeons who could talk to their peers about their experience with MAKOplasty.
Indeed, coining the term "MAKOplasty" was as much a branding exercise as anything else—in addition to its sales reps, the company has a number of what it calls "MAKOplasty specialists," who, particularly at this early stage, help surgeons work through the procedure and guide the staff in the OR. MAKO officials won't say whether or when they will develop a robot for hip replacement, though Rony Abovitz notes, "What we've always said is, this is a platform for orthopedic surgery. We're not stating what's coming next, and we focused on the knee first because it's such a huge opportunity, but we have a platform to expand beyond the knee at some point." But first MAKO has to prove its system works as well it claims it does in knees, both uni- and multi-compartmental.
Building Surgeon Relationships, Post-Settlement
As MAKO rolls out its system, proper patient identification is key to both driving adoption and making training easy. MAKO says that most surgeons can be trained in half a day and are proficient after five to eight cases, compared with a figure 10 times that for Intuitive's DaVinci robot. Right now, MAKO's goal, says Abovitz is to get to "neutrality" in both time and outcomes quickly—so that within the first half dozen or so cases, surgeons are doing procedures that take no longer than and get equivalent results as the cases they have done without the robot. But in time, MAKO believes RIO should enable cases that are faster and that produce better outcomes. And unlike other MIS procedures, such as two-incision surgery, Abovitz goes on, where "the first couple of cases are risky and surgeons had to go through 40 or 50 cases to get comfortable," for most surgeons, the first MAKOplasty case shows "no difference in outcome" from the surgeon's subsequent MAKOplasty cases, he says.
Interestingly, MAKO's coming out in 2007-2008 followed soon after the recent US Justice Department's settlement with the major orthopedic companies regarding surgeon conflict of interest, and company officials insist the settlements—and the debates and discussions they raised—have all been to the good for a new player such as MAKO. Far from freezing or constraining relationships between surgeons and MAKO, the settlements did just the opposite: they liberated both sides to explore new relationships within, of course, the settlement's guidelines. Maurice Ferre argues that, in the past, the very close relationships that the DOJ investigated locked surgeons into tight contractual agreements with the ortho giants and put companies with innovative technologies, like MAKO, at a disadvantage. "What was the last start-up in adult reconstruction?" he asks rhetorically. "Wright Medical--and that was a long time ago." And while those close relationships certainly helped Big Ortho, they cramped smaller, newer companies that might have benefited from relationships with surgeons otherwise committed. "Doctors are looking for something new," he says. But because of the historical relationships, "there's been no innovation, and they're all tied up."
As those ties loosen post-settlement, MAKO officials say they've seen more and more surgeons show interest, not just in the MAKO robot, but, just as importantly, in working with the company and in being willing to talk about the robot with their colleagues. Rony Abovitz says the DOJ investigations and subsequent settlements were "incredibly positive" for MAKO. "We're a new company and have none of the history of the major players, he says. "We're attracting surgeons through clinical innovation and technology." Both the investigations and the settlement have led to the severing of relationships between Big Ortho and many surgeons, and now "everyone's a free agent," he goes on. "They want to set up new relationships and are looking for the companies with differentiated technologies to work with, because they're not getting a check [from the Big Ortho companies] anymore." More to the point, surgeons who once focused their efforts on developing new products at the behest of companies like Zimmer or Stryker Corp. are now free to explore their own technology interests. As a result, Abovitz says that MAKO has been able to attract key opinion leaders much sooner than they had ever hoped. "Surgeons I never thought we would be able to reach this fast are knocking on our door," he says.
Winning Over Community Hospitals
Perhaps for these, and other, reasons, one phenomenon MAKO might have expected to see hasn't really materialized, say company officials. Rather than finding quicker adoption among a younger generation of surgeons—those raised on Star Wars and Xbox 360s—RIO is attracting the attention of surgeons in all age groups, says MAKO. "I thought this would be mostly about the young lions," says Abovitz. "But the amazing thing is, the chairmen of the departments, the seasoned podium guys—they're as enthusiastic as the younger guys." As much as the younger surgeons, he goes on, "they get the vision and they want to be known as the guys who made this happen." And, as further validation of MAKO's strategy, company officials say it's not just about the robot, but about the implant as well. Says Abovitz, "The ability to design new implants and surgical techniques is really exciting to them." MAKO officials say they do see a quicker up-take among high-volume surgeons, but as hospitals adopt the system and low-volume users begin to use it and become adept, their case load is likely to grow as well, expanding in both uni- and bicompartmental procedures.
But it is the adoption at the local, community hospital level that is most encouraging for MAKO. As noted, company officials believe there will be enormous pressure from patients to move toward the minimally invasive, resurfacing techniques MAKO enables. Some surveys suggest that only about 10% of the patients who are advised to undergo total knee replacements take their surgeons advice because although the procedure helps relieve pain, few patients experience a return to normal function. Their pain is gone, but their lives have changed forever. That's why so many of them say no to their doctor and instead wait, going to physical therapy and taking medications, hoping that the pain goes away. The ability of community hospitals in particular to attract this large pool of reluctant watchful-waiters to a procedure that addresses many of their concerns makes MAKO's robotic system a potential revenue generator for many such hospitals at a time when these institutions are looking more than ever for new revenue sources. (The uni procedure can even be done on an outpatient basis, making it both lower cost for payors and more profitable for providers.)
MAKO says that doing as few as 70 MAKOplasty procedures a year, most hospitals will recoup the cost of a RIO within two to three years, and the model is based not on converting total knee replacements MAKOplasty, but on bringing in people who wouldn't otherwise have been treated, so hospitals don't cannibalize their existing total knee business. In fact, argues MAKO, some patients who come in for a MAKOplasty are likely to be helped only by total knees, so most hospitals will see their volumes of both procedures go up. In effect, the system is a "market maker," says MAKO, not a replacement.
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Today, i learnt that we have another robotic company (in the med tech space) that markets robotic arm interactive orthopaedic surgical platform for minimally invasive orthopaedic knee procedures. Their RIO robotic arm interactive orthopaedic system that allows surgeon to perform a precision, consistently reproducible tissue-sparing, bone resurfacing procedure ... hey, this company has 41.4% profit margin, compared to Intuitive Surgical of 71.4% ... ... 