The MX Q&A: AxioMed Spine’s Patrick McBrayer

A former U.S. Army officer, Patrick McBrayer understands the value of both leadership and teamwork. A strong backbone is another trait that the president and CEO of AxioMed Spine Corp. (Garfield Heights, OH) might well appreciate. So it’s appropriate then that the device manufacturer he joined in 2006 has had recent success with a medical device designed to restore the spine’s natural functioning.

In May 2009 AxioMed’s Freedom lumbar disc received CE mark approval after the Notified Body reviewed the manufacturer’s European clinical study as well biocompatibility and biomechanical testing data. Now available for the EU market, the lumbar disc is a one-piece, viscoelastic, one-piece replacement with a polymer core, McBrayer says. The data also supported FDA investigational device exemption (IDE) approval, he notes.

The lumbar disc uses a patented polymer that is licensed exclusively to AxioMed, which developed the device with a team of experts in biomechanics, pathology, spine surgery, and polymer science, according to the company. The combination of the polymer’s capabilities and the device’s implant design should allow for three-dimensional spinal motion and provide a better medical alternative to patients with degenerative disc disease than traditional disc fusion and first-generation artificial discs. The lumbar disc is still a few years away from approval for a U.S. launch, McBrayer says.

The worldwide market for lumbar disc replacements was estimated at $176 million in 2009, an increase 43% from 2008, according to report by P&M Corporate Finance (Southfield, MI). AxioMed is also developing a cervical disc replacement, and P&M, a mid-market investment banking firm, estimates a potential target market of $900 for that device. Currently, the device manufacturer is in a Series C investment round.

McBrayer brought a range of relevant experience to AxioMed when he joined the company four years ago. The recipient of Thomas Alva Edison Patent Award in 1998 for a bone repair implant, McBrayer was CEO of Xylos (Langhorne, PA), a medical biomaterials company, before joining AxioMed. In addition to other executive positions, he is the founder of Transave (Monmouth Junction, NJ), which makes inhaled pharmaceuticals for treating lung diseases, and also served as president and CEO of Exogen, which was bought by Smith & Nephew in 1999. The company makes an ultrasound system for healing bones.

In this interview with MX, the former infantry officer company commander touches on the key elements for attracting venture capital investment, the differences in the EU and U.S. regulatory paths, and what he learned from his previous executive experiences before joining AxioMed.

MX: You have extensive executive experience in biotechnology at companies such as Xylos and Exogen, and you founded Transave. What did you learn from your experience that proved helpful when you came to AxioMed Spine Corp.?
Patrick McBrayer: Hire good people and let them do their jobs. Design, test, build, and launch products for your ultimate recipient—the patient—who could very well be a friend or family member.

AxioMed has received $34 million in venture capital from at least seven investors, including companies such as CID Equity Partners and Primus Capital. How would you characterize your reception by the VC community?
AxioMed has a strong investor base that has remained supportive throughout this difficult economic climate in the U.S.

What questions or concerns do investors have, especially in this economy? What are the key elements for successfully courting VC suitors? What role do the device, its application, and the level of competition or activity in the market segment play in investors' decisions?
New investors are concerned about the cost and capital required for clinical studies and potential regulatory pitfalls. AxioMed is already in an IDE study and has CE mark on the lumbar disc in the EU.

What is the investment round status of your company at the moment?
Series C $18.5 million round with $6.5 million already funded.

How would you characterize the path to receiving the CE mark and introducing the Freedom lumbar disc in the EU with the multicenter pilot study? Were there any surprises along the way? How does the European regulatory path compare with the U.S.?
The CE mark process is much more rapid than the U.S. FDA process but is getting more difficult. EU notified bodies are now asking for more in-depth clinical support for CE mark approvals. In most cases, it is not as extensive as FDA, but it is changing to be more rigorous. Fortunately, AxioMed conducted a multicenter pilot study with well-selected endpoints that met the existing Notified Body standards, and would still meet a more rigorous review if necessary.

What challenges did you face in entering the European market? Are there plans to move into other markets overseas?
The most difficult challenge is balancing the capital requirements for a marketing effort with that required for ongoing pivotal and clinical studies. AxioMed is also evaluating the Australian market, which could be a platform for expansion into this region. This expansion must be balanced with priorities on resources and capital. Our primary priority is completing the pivotal lumbar study and getting the CE mark for the Freedom Cervical Disc.

You tapped the expertise of patients, surgeons, third-party payers, and reimbursement experts in designing your clinical study. What did you learn during this process, and what advice would you give to other companies designing similar studies?
In the current environment, it is very important to consider economic endpoints as well as safety and efficacy.

What regulatory or technological issues are involved in getting the device into the domestic market? When do you expect to introduce the disc in the United States?
We expect to file a PMA for marketing approval in 2012. A two-year post-implant follow up is required on all patients, which is the key time constraint.

How much differentiation is there between a lumbar disc and a cervical prosthetic?
There are different biomechanical loads in the cervical spine. Our experience with the lumbar disc enhances this cervical project significantly.

A few years ago, AxioMed moved manufacturing of its spinal discs from Berkeley to its HQ in Garfield Heights. How did the transition go?
The state of Ohio’s assistance in funding coupled with proximity of excellent support vendors in our area made this project very efficient.

Speaking of the manufacturing change, I assume that AxioMed and other companies would have a good talent pool of manufacturing employees or technicians to draw from in this job market? Is that the case?
We have an excellent pool of employees given the Cleveland area’s medical prowess and superb engineering schools.

How did you go about securing the $750,000 loan from Ohio’s Third Frontier Project? What did you use the money for?
The state worked with us in every step of the way on this loan, and this was the main driver in building our Ohio facility in the Cleveland region. We hope that there is further funding opportunity from the Third Frontier program, which provides an excellent augmentation to venture funding and drives development, growth, and jobs.

Speaking of money, what's the price point for the lumbar disc and how did you arrive at it?
We are priced competitively with other total spine discs in the EU. This price point is primarily established by the payer in the EU.

Going forward, what effect, if any, do you think the new healthcare bill will have on AxioMed?
It is difficult to say at this point. On one hand there may be more patients, but if reimbursement for new technology diminishes it could have a negative impact.

AxioMed uses a patented polymer for the disc. How does the company handle materials costs? Have they held steady over the past few years? Do you sign long-term contracts for your key materials?
Yes, we have a long-term contract with our suppliers, which provides material cost stability, and maintain a “safety” inventory as well as back-up plans.