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Will Surgalign Holdings New Acquisition Bolster its Position as a Pure-Play Spine Company?

28 Oct Will Surgalign Holdings New Acquisition Bolster its Position as a Pure-Play Spine Company?

Surgalign Holdings (NASDAQ: SRGA), a pure-play spine company focused on leveraging digital technology to improve spine surgery, announced the acquisition of HOLOSurgical Inc and its revolutionary Augmented Reality and Artificial Intelligence based digital surgery platform named ARAI. The technology has the potential to be the world’s first platform that can segment, identify, and recognize patient anatomy automatically, providing valuable assistance to surgeons.

Image Source: HOLOSURGICAL

Holo Surgical, which has patented the platform as an intelligent anatomical mapping technology, is in the process of attaining regulatory submission. The technology enables surgeons to improve their surgical performance and patient outcomes and is designed to deliver “smart” surgical instruments.

Terry Rich, President and Chief Executive Officer of Surgalign Holdings, commented ,

“The completion of the Holosurgical acquisition brings an innovative surgical platform and world-class team into our organization, enabling us to advance the standard of care by reimagining what is possible through integrated intelligent technology.

The transaction is for a consideration of $30 million in cash and an additional 6.25 million shares of Surgalign’s common stock worth nearly $12 million. Furthermore, HOLO is also eligible to receive up to $83 million in stock and cash contingent to the fulfillment of certain regulatory, developmental, and commercial milestones. The transaction is likely to be completed by Q4, 2020.

Surgalign Holdings (NASDAQ: SRGA)

Market Cap: $156.28M; Current Share Price: 1.92Chart
Data by YCharts

Industry
The growing incidences of posture induced back pain, age related spinal degeneration, rising incidences of spine related accidents, motor accident, workplace injuries, stroke and cancer related motor disability along with hyperextension of the spine and vertebral dislocation will spur the growth in the market. Rapid technological advancements will propel the growth in the Spinal Surgery Products market which is projected to reach $16.7 billion by 2025 from $10.2 billion in 2016, according to a study by Transparency Market Research.

SCI’s alone cost an estimated $40.5 billion annually in terms of healthcare costs; about $158 billion is spent on home care and nursing home services combined, with friends or family members providing care that is valued at $306 billion annually.

According to a report by the National Spinal Cord Injury Statistical Center, the number of people living with SCI’s is estimated to be approximately 288,000 persons, with a range from 247,000 to 358,000 persons, with the annual incidence of spinal cord injury estimated to be between 54 cases per one million people in the United States, or about 17,700 new SCI cases each year.

However, the economic burden of the disease and lack of insurance coverage is a major challenge for those suffering from SCI, making it difficult for them to seek and adapt technological advancements in the field.

Furthermore the industry is facing inordinate time for product approvals and medical device failures. The lack of success in clinical trials is preventing novel treatment ideas from reaching fruition, which in turn is hindering the industry from reaching its full growth potential. However, the industry is in store for some path-breaking innovative solutions that are being developed to overcome the limitations of existing therapeutic and surgical options.

Company
Surgalign, formerly RTI Surgical, is dedicated to offering best-in-class biologic, metal and synthetic implants for application in orthopedic, sports, spine, dental surgeries and trauma procedures. The Company has forged valuable relationships with surgeons worldwide to use innovation and expertise to address the needs of patients.

The product offerings of the Company consist of surgical tools such as coflex® Interlaminar Stabilization® device, the only FDA, PMA- approved implant intended for the treatment of moderate to severe lumbar spinal stenosis; SImmetry® Sacroiliac Joint Fusion System and Fortilink® IBF System with TETRAfuse® 3D Technology to name a few. Surgalign caters to not only the needs of the market in the US but also in more than 50 countries worldwide, through an extensive distribution network.

In July 2020 the Company closed the sale of RTI Surgical Holding OEM business to Montagu Private Equity LLP, a leading European private equity firm for $440 million in cash, besides changing its name to Surgalign Holdings Inc.

Image Source: Company

Surgalign’s proprietary, TETRA fuse 3D technology consists of 3D printed inter-body material featuring a nano-rough surface showing deeper implant osseointergration with antibacterial characteristics uniquely combined in one radiolucent bone-like material. It was awarded the “Best New Technology Solution – Orthopedics in 2019 by MedTech Breakthrough and finds place in the company’s Fortilink interbody fusion (IBF) devices such as the Fortilink-C, -TS and -L IBF systems.

Key Remarks

  • The sale of RTI Surgicals OEM business helped the Company realign its focus on digital surgery. The move not only helped the Company transform into a pure-play company for spinal implants, but also helped pay down its debt and provide much needed cash for its strategic endeavours. According to the Management, the revenue from spine and related products was approximately $118 million in 2019 with an impressive gross margin of nearly 75 percent.
  • The acquisition of HoloSurgical technology will prove advantageous for the company as it offers a highly differentiated technology, improves surgical outcomes, reduces the possibilities of errors and most importantly adds a new revenue stream from the sale and service of the platform.
  • Surgalign aims to introduce double-digit new products in the future, encompassing product line extensions, expansion of the biologics portfolio, application of new materials and manufacturing capabilities, besides acquiring enabling technologies that will provide an impetus to its existing technological capabilities.
  • The Company has established a valuable global footprint, especially in terms of national accounts presence providing GPO and IDN access and has plans to build a best-in-class professional education and sales training program.
  • A world-class management team is extremely crucial for the success of any company. Surgalign is focused acquiring the best talent available for the job, with members such as Chief Commercial Officer, Scott Durall; and Executive Vice President of Research and Clinical Affairs, Bryan Cornwall, having vast experience in spine, coming onboard. The Company also appointed Terry Rich as president and CEO and Jonathon Singer as COO in July 2020.
  • The Company will have to access the full impact of COVID 19 on its performance, as there has been a sharp decline in elective procedures owing to the pandemic. However, the Company is positive of bouncing back from the setback, as it is witnessing resurgence in demand beginning July 2020 and is hopeful of a positive outcome.
  • Reference:

    https://www.globenewswire.com/news-release/2020/10/23/2113769/0/en/Surgalign-Holdings-Inc-Announces-Completion-of-Acquisition-of-Holo-Surgical-Inc-and-its-ARAI-Digital-Surgery-Platform.html

    https://www.globenewswire.com/news-release/2020/09/29/2101018/0/en/Surgalign-Holdings-Inc-Announces-Agreement-to-Acquire-Holo-Surgical-Inc-and-its-ARAI-Digital-Surgery-Platform.html

    https://www.marketsandmarkets.com/PressReleases/spine-surgery-devices.asp

    http://s3.amazonaws.com/reeve-assets-production/8112REPTFINAL.PDF

    https://orthospinenews.com/2018/01/09/spine-surgery-products-market-to-reach-us16-7-billion-by-2025-globally-transparency-market-research/

    http://www.aviseanalytics.com/tag/spinal-cord-injuries/

    https://innovate.research.ufl.edu/2019/06/07/rti-surgical-wins-2019-medtech-breakthrough-award-for-tetrafuse-3d-technology/

    https://www.rtix.com/en_us/news/2020/montagu-private-equity-llp-completes-acquisition-of-the-rti-surgical-oem-

    business#:~:text=On%20July%2020%2C%202020%2C%20RTI,sale%20of%20its%20OEM%20business.&text=Please%20visit%20Surgalign.com%20to,pure%2Dplay%20global%20spine%20company.

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