The value of Conformis, Inc. reached $497 million on August 3, 2015. Today it is $8 million.
In 2015, when it first sold stock to the general public, Conformis represented the future of large joint reconstruction—in more ways than the company may have realized at the time.
It was the first large joint implant and instrumentation company founded on a series of algorithms, software programs, and an additive manufacturing strategy.
As the FDA approves ever more software algorithms for the musculoskeletal industry (500 and counting as of mid-May), the first and, so far, most consequential software-based large joint reconstruction company is fighting for its survival.
Massachusetts-based Conformis is 19 years old. Until last year, its business model was to develop, manufacture and sell joint replacement implants that were individually sized and shaped—customized to fit each patient’s unique anatomy.
Conformis has sold more than 149,000 knee implants worldwide, including more than 123,000 total knee implants and 26,000 partial knee implants.
The Conformis system of algorithms and software are protected by more than 500 patents.
Conformis’s business model was simple: better implants, less inventory, less working capital, and improved patient outcomes. Win-win.
From 2015 to 2022
Conformis became a publicly traded stock company on July 7, 2015. Its market value peaked shortly thereafter at nearly $500 million. The following table details what happened next.
It is so interesting to look at this table and note that just two years ago, the company nearly hit $100 million in sales and reported only $2.6 million in losses, a massive improvement from the year before. Then everything seemed to fall apart in 2021.
Today, Conformis has about $38 million in cash. For the 90 days ending March 31, 2023, the company burned through $9.8 million. If Conformis continues to lose approximately $10 million per quarter, it will be out of money at some point in the next 12 months.
On May 15, Robert Howe, Conformis’s chief financial officer resigned, effective June 9.
Is this the end of customized large joint reconstruction?
Conformis was founded by Philipp Lang, M.D. in 2004. He had invented the technology that formed the basis for more than 500 patents and patent applications in the United States and abroad.
At the time he started Conformis Dr. Lang was also director of the Division of Musculoskeletal Radiology at Brigham and Women’s Hospital and Associate Professor at Harvard Medical School and Distinguished Weissman Chair. Dr. Lang’s degrees were from the University of California, Los Angeles Anderson School of Management (MBA) and the Albert-Ludwigs University, Freiburg School of Medicine in Germany (M.D.).
Dr. Lang was Conformis’s first CEO and board chair, positions he held until 2015, when the company went public.
Dr. Ian McDermott, an orthopedic surgeon in private practice in London, England, member of The Council of the Royal College of Surgeons and Honorary Professor Associate at Brunel University, has long been a champion of the patient specific approach. “I have been using patient-specific custom-made Conformis knees for over five years now and have never looked back.”
“Conformis knees are designed to fit the exact contours and shape of each individual patient’s knee perfectly. Using 3D-modelling from data obtained from a CT scan, which provides the patient’s exact anatomy, the implant fits the patient’s bone with millimetre precision, which means that the bone cuts are much smaller, which is beneficial on a number of levels: first, there’s more bone left should the patient potentially end up needing revision surgery later in life; and second, less bone removal means a larger surface area for the fixation of the prosthesis, and hence a stronger and better fixation between the bone and the implant.”
“The blood lost during the procedure is also reduced with a custom knee because you can be less invasive, there are less exposed uncovered raw bleeding bone surfaces left in the knee at the end of the procedure (because of the better fit), and the procedure is actually slightly faster.”
Three Studies
One study that supported customized implants over off-the-shelf, appeared in the May 25, 2018 edition of the Journal of Knee Surgery, titled: “In Vivo Tibial Fit and Rotational Analysis of a Customized, Patient-Specific TKA versus Off-the-Shelf TKA.”
Gregory Martin, M.D., with the department of orthopedic surgery at Preferred Orthopaedics of the Palm Beaches, Palm Beaches, Florida, and co-author on the study, told OTW, “We were interested in undertaking this study because many people have persistent pain after total knee arthroplasty using off the shelf implants that could be explained by poor implant fit and/or malrotation. We hypothesized that a customized knee implant would outperform off-the-shelf implants concerning fit and achieving correct rotation.”
“The most important result was that with off-the-shelf implants there is a serious compromise between tibial sizing and tibial rotation, both known sources of pain after total knee arthroplasty. This compromise is basically eliminated with the use of customized implants.”
“With approximately 20% of total knee patients not satisfied after the procedure, customized implants need to be taken seriously as a means to reducing persistent pain and improving patient satisfaction.”
“These results just make sense. We wouldn’t wear a shirt or a pair of shoes that doesn’t fit right, so why would we accept any less for our patients when we are implanting a medical device in them!”
Another study, this one from the August 2021 edition of Knee Surgery, Sports Traumatology and Arthroscopy Journal, by a team of Swiss, German, Dutch, and French researchers, looked at 15 articles comparing customized knee implants with off-the-shelf (OTS) implants of which 9 were case–control studies reporting on 929 custom versus 998 off-the-shelf total knee arthroplasties and 5 were case series reporting on results of 587 custom total knee arthroplasty (TKA), and 1 was a cross-sectional study reporting on results of 44 custom versus 132 OTS TKA.
The research team found that custom TKA demonstrated no significant benefits compared to OTS TKA in terms of pooled clinical outcomes but had considerably higher early revision rates.
Two years later, January 19, 2023, that same journal published a study which came to a different conclusion. This research team from a single site in Lyon, France, collected patient-reported outcome measures (PROMs) and satisfaction rates for computed tomography (CT)-based custom TKA at minimum follow-up of 2 years.
The team was able to collect data from 140 patients who’d completed pre- and post-operative PROMs (Oxford Knee Score (OKS), Forgotten Joint Score (FJS), Knee injury and Osteoarthritis Outcome Score (KOOS), Western Ontario and McMaster osteoarthritis index (WOMAC)) as well as overall level of satisfaction.
At mean follow-up 33.5 ± 4.5 months, 94% (135/143) of the “personalized alignment” patients were either satisfied or very satisfied. The percentage of OTS patients who were similarly satisfied with their surgery were 89% for OKS (120/135), and 85% for FJS (118/139).
Can Conformis survive?
In its initial stock prospectus in 2015, the company did say, “We have incurred losses in the past, expect to incur losses for at least the next several years and may never achieve profitability” in its.
That, it turns out, was both accurate and prophetic.
For the first quarter ending March 31, 2023, Conformis’s reported loss was $16 million vs $11 million for the same quarter a year ago.
Sales, however, rose 12% from year earlier levels, reaching $15.6 million vs $13.8 million for the same quarter in 2022.
CEO Mark Augusti, president and CEO told Wall Street’s investors; “We had another good quarter of progress on our Imprint and Platinum Services rollouts. Surgeon interest and feedback continue to be favorable, and we are positioned well to benefit as elective arthroplasty procedure recovery takes hold in hospitals and ASCs over the coming quarters. Traction on our topline and recovery of procedural levels will benefit our gross margins, which have been under pressure the past two quarters. We are acting decisively to reverse this trend and get back to our expected gross margins.”
Will a buyer emerge for Conformis?
In 2019, Stryker Corporation agreed to buy certain of Conformis’s assets which relate to the company’s patient-specific instrumentation technology and to develop, manufacture and supply patient specific instrumentation for Stryker’s proprietary knee implants. That deal brought $14 million in cash and $16 million in milestone payments to Conformis.
Could Stryker buy Conformis? Wall Street’s analysts asked that question during the Q1 conference call and CEO Augusti is non-committal.
Finally, Augusti and his CFO (until June) Howe offered these comments about the company’s near-term prospects: “We expect our second quarter product revenue to be between $11 million to $13 million. This expanded range reflects the reduced predictability due to our business model transformation, greater uncertainty given our operational challenges and the fact that adoption of Imprint and Platinum Services is taking longer than expected.”
Bottom Line: The company is clearly struggling and its new business model is whatever it takes to survive.
Stay tuned for sure.
