The former general counsel for a group of struggling hospitals in Michigan bought TranS1’s assets and has resurrected AxiaLIF—literally overnight.
Jeffrey Schell, who spent two years keeping Michigan’s most vulnerable hospitals from going under during that state’s economic collapse, saw a similar undervalued asset in TranS1’s AxiaLIF and decided buy it out of bankruptcy in February 2015.
Two months later he turned a profit. By March 2016 (13 months later) TranS1 recorded its largest monthly sales since coming out of bankruptcy.
Who is Jeffrey Schell? Why AxiaLIF and TranS1?
The Patron Saint of Battered Assets
Jeffrey Schell is an Eagle Scout. From Bay City, Michigan.
And he can recite the Scout Law by heart. “…trustworthy, loyal, helpful, friendly, courteous, kind, obedient, cheerful, thrifty, brave…” but pauses when he gets to “reverent.”
“The one I disagree with is reverent. To be successful as an entrepreneur you can’t just defer to the way things have been done. Irreverence is the quality you want to espouse. Otherwise you’re going to go with the flow. You’ll be swept away.”
And to be swept away in Bay City, Michigan, in the 1990s meant to succumb to an economic collapse of epic proportions. Jeff Schell, if nothing else, has a spirit forged in that struggling General Motors town.
“My high school had a high dropout rate. As a kid, I didn’t know any other place. Among my high school classmates, college attendance was not necessarily expected.”
Schell, however, did go on to college—landing at Northwestern University—later DePaul for his law degree and post-grad studies at Harvard University, University College in Dublin and Beijing Foreign Studies University.
But Bay City drives Schell. More specifically, the hidden value and merit of economically depressed places, people and technologies. He came back home to Michigan to be general counsel to a hospital system.
“What really motivated me was to give back to Michigan and contribute to the economy. Much of the state has experienced an economic nightmare, its own depression for 35 years.”
“Specifically, I wanted to find ways to save hospitals that were caught up in a terrible Michigan economy. Hospitals were failing and they were often the last economic engine for some of those communities. We tried to save a bunch of these hospitals and hold on to hundreds of jobs, keep those emergency rooms open and serve those hard hit communities. We did save many hospitals and we did it by convincing specialists to come to these struggling hospitals, commit to one surgery day per month, for example. No special payments or incentives.”
“…trustworthy, loyal, helpful, friendly, courteous, kind, obedient, cheerful, thrifty, brave…”
Other Eagle Scouts in history include Neil Armstrong, Senator Lloyd Bentsen, Mayor Michael Bloomberg, Senator Bill Bradley, Supreme Court Justice Stephen Breyer, Dr. William DeVries (first heart transplant surgeon), Speaker Tom Foley, President Gerald Ford, Robert Gates, Dick Gephardt, Senator Paul Lugar, J.W. Marriott, Robert McNamara, Ross Perot and former Goldman Sachs CEO Henry Paulson.
Rocky Mountain Patent
Schell holds a master’s degree in Medical Informatics from Northwestern University. After a couple years in Michigan—now married with one child and another on the way—Schell decided to open an intellectual property (IP) practice in one of the United States’s hotbeds of data innovation—the front range of the Rocky Mountains.
Today, Rocky Mountain Patent is one of the few U.S. patent firms with particular expertise in medical data informatics. It is a go-to IP house for data innovators.
Then, in 2014 Schell learned that TranS1’s AxiaLIF patents might be available.
TranS1
TranS1, which had acquired Baxano Surgical, Inc. in 2013 in a stock transaction valued at about $23.6 million and then changed its name back to Baxano, filed for bankruptcy in 2014 and put its assets up for auction in November 2014.
TranS1’s, primary revenue driver had been AxiaLIF, which received FDA clearance in 2004 and was launched in 2005. Revenue reached $29.8 million in 2009, but steadily declined each year as physicians had problems getting insurance reimbursements.
In March 5, 2012, TranS1 announced that the American Medical Association’s CPT Editorial Panel voted to approve an application for a new Category I CPT code, 22586, for L5-S1 spinal fusion. The CPT Panel also voted to establish a new Category III CPT code and elected to adopt minor revisions to the company’s two current Category III codes.
The new CPT codes, and the revisions to the existing CPT codes, became effective on January 1, 2013.
But that wasn’t sufficient to convince enough payers to cover the procedure. And the long, painful descent to bankruptcy started.
Two years later, when Schell looked at AxiaLIF, he saw not just a medical technology, but a passionate group of surgeon champions.
“Fortunately, there were more than 150 surgeons who’d been trained to use AxiaLIF. Among those surgeon users there is real passion for AxiaLIF.”
AxiaLIF – Combining MIS With a Novel Corridor Approach
There are three basic ways to surgically effect an interbody fusion (arthrodesis)—anteriorly, posteriorly or laterally. Or…the fourth approach…going in percutaneously via the anterior surface of the sacrum. The pre-sacral approach. Brand name: AxiaLIF.
Going in from the bottom (pre-sacral), otherwise referred to as a trans-axial anterior lumbar interbody fusion, is a minimally invasive alternative to the three more traditional techniques.
The surgery requires a surgeon to make a small para-coccygeal incision to create the pre-sacral corridor for access to the anterior lumbosacral body and, subsequently, to the L5 – S1 intervertebral space.
It is one of the least invasive fusion procedures and it can deliver:
- Less scarring
- Less blood loss
- Less risk of infection
- Quicker return to work and other activities
- Outpatient surgery
In a 2015 Journal of Neurosurgery Spine literature review (J Neurosurg Spine. 2015 Sep;23 (3):314-9) titled, “Axial interbody arthrodesis of the L5-S1 segment: a systematic review of the literature”, authors Schroeder, Kepler and Vaccaro reviewed 15 articles (13 case series and 2 retrospective cohort studies). They found that the overall pseudoarthrosis rate at L5-S1 was 6.9%, and the rate of all other complications was 12.9%.
Fourteen percent (14.4%) of patients required additional surgery, and the infection rate was 5.4%.
But what really stood out from this review was the very high fusion rate (93.15%).
Complication rates were not out of line, said the authors.
Another study, this time from the 2014 issue of the Journal of Managed Care, authors found that AxiaLIF, because of the post op care, had the potential to save hospitals between $3, 400 and $3, 500 per procedure.
The New TranS1
Schell acquired, he estimates, approximately $100 million of R&D investment plus millions of dollars of inventory—for less than $1 million. Since then, he and his team have added about 40 new patent applications, a key European distribution deal and, now, more than 50 surgeons are routinely using AxiaLIF.
“Our biggest challenge right now, ” says Schell, “is case coverage. And that says something about the company, I think.”
Following the lead of his surgeons, Schell is passionate about AxiaLIF. “We’ve had lots of studies done about the risk of bowel perforation—less than a 1% risk. Less nerve injury with AxiaLIF. There are so many advantages to AxiaLIF.”
And Schell is starting to think about next steps.
“We’re not in the me-too game. By that I mean we’re looking at ways to minimize the tissue trauma associated with access to the intervertebral space. Also looking at things like lateral mask fusion. We’re looking at radically different ways to do the lateral surgery. Employ an oblique lateral approach. We’re also trying to create ways for physicians to use the infrastructure that we’ve built and develop new technologies with that infrastructure even to the point of creating a joint venture.”
Like other Michigan orthopedic visionaries before him—Homer Stryker, John Brown and Tony, John and Marc Viscogliosi—Jeffry Schell appears to have that special quality of being able to spot orthopedic diamonds in the rough, uncover their facets, their brilliance and apply drive, discipline and smarts to transform products, companies and markets.
