On September 5, 2023, Conformis, Inc., which had been fighting for its very survival became part of an emerging leader in the field of additive manufacturing of musculoskeletal implants and instruments, North Carolina based restor3d, Inc.
The $17 million purchase, a 96% premium from where Conformis stock had been trading, was approved by both company’s respective shareholders at the end of August 2023 and Conformis ceased being a publicly owned company five days later.
The Significance of Conformis to Orthopedics
When it was founded by Philipp Lang, M.D. in 2004, Conformis represented the future of large joint reconstruction—in more ways than the company may have realized at the time.
As the FDA approves ever more software algorithms for the musculoskeletal industry (500 and counting), it’s worth remembering that Conformis was the first large joint implant and instrumentation company founded on a series of algorithms, software programs and an additive manufacturing strategy.
The Conformis system of algorithms and software is protected by more than 200 patents.
Over its 19-year history, Conformis has sold more than 149,000 individually sized and shaped knee implants based on those algorithms, including more than 123,000 total knee implants and 26,000 partial knee implants.
Conformis’s business model was simple: better implants, less inventory, less working capital, and improved patient outcomes.
The Tortuous Journey to Find a Buyer
Sadly, Conformis couldn’t earn a profit.
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.
By early 2023, management was facing a stark reality. Conformis had less than a year’s cash left—$38 million with which to fund a quarterly $9.8 million burn rate. And, with a market capitalization of just $8 million, the equity markets were essentially closed.
On May 15, 2023, Conformis’ Chief Financial Officer Robert Howe resigned, effective June 9.
And the search for a buyer became a fight for survival.
The following tale comes courtesy of Conformis’ SEC filings.
Conformis’ investment bankers, United Bank of Switzerland (UBS) one of the largest global investment banks, identified 19 potential buyers for Conformis in late 2022. Only five indicated any interest. By mid-December, that number was down to three—none of which was named resore3D.
Just before Christmas 2022, one of the potential buyers said that they would have a preliminary purchase proposal ready by early January 2023–which they did–and they offered $4.30 per share, a 26% premium to Conformis’ stock price, plus 4-6 weeks to wrap up due diligence.
Two weeks into the due diligence, that potential buyer backed out.
UBS went back to shake the prospective buyer tree again and were able to pull together a list of 18 new possible buyers—including restore3D. Of that group, four agreed to hear Conformis’ pitch, but, by late April, only restore3D and, interestingly, the company who had earlier backed out in January, were engaging with Conformis.
On April 20, 2023, both restore3D and the other company gave Conformis non-binding proposal letters.
The company who’d earlier proposed paying $4.30 per share, was now offering $1.91 per share while restore3D offered $2.27 per share.
Conformis checked back with four companies who’d earlier expressed interest, but they all passed again.
Then, the company bidding $1.91 per share asked Conformis to give them exclusive rights to buy Conformis—effectively pushing restore3D out of the running. Conformis said “no.”
On May 25, 2023, restor3d re-affirmed its $2.27 per share cash offer to buy the company. The other prospective buyer also re-affirmed its lower, $1.91 per share price.
By June, restore3D was ready to close the deal and said so to Conformis’ management. Conformis was restore3D’s deal, if they could get to a closing and no other suitors emerged.
That kicked lawyers and bankers into high gear.
By the end of June, not only was a merger agreement done, but the patent litigation between Conformis and Osteoplastics was settled and one of Conformis’ major investors, Armistice Capital Master Fund Ltd, agreed to exercise its warrants.
On June 22, 2023, Conformis formally announced that it was being acquired by a relatively young additive manufacturing company in Durham, North Carolina named restore3D.
Conformis would live to fight another day.
restore3D
“We are extremely excited to complete this important transaction and look forward to leveraging our combined portfolio to deliver personalized orthopedic solutions for the whole human body,” said restor3d CEO J. Kurt Jacobus.
“With the addition of Conformis to the organization, we see tremendous opportunity to deliver clinically differentiated and cost-effective solutions across the orthopedic landscape, including shoulder, foot & ankle, spine, and large joints such as knees and hips.”
restore3D’s vertically integrated workflow and design work is all in-house. Its r3id Personalized Surgery Platform delivers patient-specific planning software to surgeons which allows them to create and track cases while also collaborating upstream with restor3d’s Design Engineering Team for patient specific devices.
restor3d may well be Conformis’s ideal buyer.
“Our work in due diligence revealed Conformis to be a true diamond in the rough. Its portfolio of patient-specific products that have been successfully implanted in over 250,000 patients,” explained Kurt Jacobus.
“Across over 50+ clinical studies and 30+ peer reviewed publications, these implants have clearly demonstrated their superiority over ‘8-sizes-fit-all’ off the shelf implants that cannot address the desire for kinematic alignment that the market is currently thirsting for.”
Jacobus is an engineering Ph.D. from the University of Illinois, adjunct professor at Georgia Institute of Technology, former CEO and chairman of MedShape, which he sold to DJO, former founder and chairman of Vertera, which he sold to NuVasive, and a former McKinsey consultant.
The other three members of the six-person executive staff include four more Ph.D.s, another professor (Duke University) and a former project engineer from Globus Medical and former VP of Product Development from Flower Orthopedics.
What’s the future of Conformis under restor3d?
Business as usual, it would seem—although profitably, this time.
“We believe the main challenge facing Conformis is weak gross margin generation,” explained CEO Jacobus to OTW.
“This is primarily due to the high cost of goods resulting from traditional manufacturing processes and high SKU count coupled with exposure to the more price sensitive market subsegments. At restor3d we have built a world class facility and expertise in 3D printing and finishing of both CoCr and Ti6Al4V metal implants.”
“Every day we leverage that facility and expertise to cost effectively and rapidly deliver complex implants in every part of orthopedics outside of knee and hip. Our facility and expertise will move Conformis cost of goods into a strong position.”
The final point restor3d’s CEO made to OTW was that Conformis, he found, had excellent talent across all the key functional areas. Furthermore, his due diligence team discovered what many of Conformis’ surgeons already knew, that the Conformis software tools that they have constructed to route and automate patient-specific and patient-matched design are excellent.
That, we suspect, pretty much sealed the deal. Conformis plus restor3d’s own systems set the stage for a re-launch of Conformis products at lower SKU and associated costs, streamlined surgical procedures, and the ability to move into more market subsegments.
Since the announcement, scores of US and OUS surgeons have reached out to restore3D. Next year will be the 20th anniversary of Phillip Lange, M.D.’s launch of Conformis in 2004.
Now part of restore3D, the future of patient-specific implants and instruments is both assured and, I think, brighter than ever.
