Biocurious: Nerve repair champion Orthocell is taking it slow and steady in the US fast lane

News.com.au

a day ago

Orthocell is staging the US rollout of its Remplir device, including 'pausing' enlisting too many distributors at once
In Remplir's first US commercial usage, an Ohioan surgeon has deployed the device successfully
More than 300 investors tuned into Orthocell's update last week
For Orthocell (ASX:OCC) co-founder and CEO Paul Anderson, winning US Food & Drug Administration (FDA) marketing approval is more like a waypoint in the commercialisation path, rather than the endgame.
In early April the FDA green-lit the company's flagship nerve repair product Remplir, exposing the company to a potential US$1.6 billion-a-year market.
The Perth-based Orthocell can't be accused of assuming the biotech gods will serve up commercial success on a platter.
Anderson says Orthocell was preparing its rollout strategy two years ago, including strategic tie-ups with distributors and laying the groundwork with opinion-leading surgeons.
'You don't just get an FDA approval and expected things to happen, you must be ahead of the game,' Anderson says.
A mere three months post approval, Orthocell last week reported the first US commercial use of Remplir, by a surgeon in Ohio for a foot repair.
It's not a race
Paradoxically, management is on a strategic 'go-slow' in the fast-paced, make-or-break US market.
Having appointed 14 east coast distributors, the company has 'paused' the rollout of any more until the current complement is properly trained and supported.
Orthocell has also focused on the parties with what Anderson dubs the best 'domain knowledge' – those who can lead the company to the key hospitals and influential surgeons.
'You can't be scattergun,' Anderson says.
'We have 14 distributors to train and educate, with 100 reps on the ground.
'It's important that we provide them with the best education to support the brand.'
Orthocell is also not ignoring the dull-but-important stuff of obtaining state-by-state licensing, navigating hospital procurement and onboarding day surgery hospitals (a key market).
Stitching up the suturing market
A collagen cuff derived from porcine material, Remplir envelops a severed nerve and helps the healing process.
The device is also approved locally and in New Zealand, Canada, Singapore, Thailand and Hong Kong.
Remplir is the only product that mimics the outside of the nerve, called the epineurium.
Given that, the device requires few or no stitches: a technique unchanged since the late nineteenth century.
'We are actively redefining the way surgeons approach nerve repair,' Anderson says.
'Remplir is the only product in the market that enables surgeons to connect nerves, to protect them from scar tissue and compression; and cap nerves (for amputations).'
Published studies show that patients with no voluntary movement had 85% of their function restored two years post-surgery.
They also had improved strength and range of motion, which Anderson dubs 'outstanding outcomes that represent everything Remplir has to offer".
To date, 206 surgeons in over 166 local and Singaporean hospitals have used Remplir, including plastic reconstructive, orthopaedic, vascular and neurological surgeons.
Better bang for revenue buck
Naturally, a medical product needs to be clinically superior – but that's not enough to ensure financial success in a well-competed sector.
As yesterday's update from US drug entrant Botanix Pharmaceuticals (ASX:BOT) shows, too many clipping-the-ticket intermediaries can spoil the revenue story.
'Unlike other medtechs, Orthocell has no royalty liabilities and as we get into revenue growth, investors will reap the reward,' chairman John Van Der Wielen says.
'Royalty liabilities significantly erode margins in the sector."
He adds that most device makers outsource their manufacturing, resulting in margin erosion.
Orthocell's process is being kept in house.
Revenue growth 'will take care of profits'
Orthocell last week disclosed record June quarter revenue of $2.73 million, 23% higher than the March quarter. Revenue has risen for five consecutive quarters, at a compound annual rate of 9.5%.
However, this annual run rate of circa $9 million doesn't include any US Remplir revenue.
Striate sales in Australia, New Zealand and Singapore grew 28%.
Management won't predict US revenues or when the company achieves profits – but expect blank ink on the bottom line in the 'near future'.
'Our expenses are growing at a lower rate than revenue, so the 'jaws' eventually will cross over and push the business into profit,' Van Der Wielen says.
'Cash burn is reducing, revenue is increasing and I believe we have more than enough cash to take the business forward.'
Over time, Orthocell has invested $80 million in developing its product platform. The company does not have to incur more sunk costs, leaving a largely variable distribution cost base.
'Premium' product at a discount price
Tapping Remplir's cost advantages, Orthocell is pricing the 'premium' product at just below those of US competitors.
'We are making it easy for the hospitals to order our product,' Anderson says.
Orthocell has set its US pricing at parity with what's charged in other countries. This is a poltically sage gambit that should please the Commander in Chief as he ponders his 'most favoured nation' drug policy.
While obtaining US reimbursement is the be-all-and-end-all for most drug makers, Anderson notes a capacious user-pays capacity for nerve repair.
'The take-home message is there is enormous revenue to be gained, even if you don't have US reimbursement,' Anderson says.
That said, hospitals should fund Remplir by a mechanism that allocates a bundle of cash per procedure, rather than for specific items.
Passionately Australian
Around 300 investors tuned into Orthocell's webcast last week – no doubt reflecting the stock's 270% surge over the past 12 months.
As it hones its US push, one thing Orthocell won't be doing is ceding its manufacturing base in Perth, which has the capacity for 100,000 units annually.
Remplir's long shelf life means it's easy to ship elsewhere.
'We are passionate manufacturers of this product in Australia – and that's because it's the right place to make it,' Anderson says.
'We have the best raw material in the world and a great gross margin and economies of scale.'
Judging from his chairman's utterances, Anderson can approach his end-of-year salary review with confidence.
'As a board, we could not be happier with what we have achieved over the last 12 months,' Van Der Wielen says.