Bionx (Screen Text & Exhibits)
Total Page:16
File Type:pdf, Size:1020Kb
9-816-702 MAY 2, 2016 WILLIAM SAHLMAN ROBERT WHITE RUTH PAGE HUNTER ASHMORE BionX (Screen Text & Exhibits) This document is not the full case. It contains only the screen text and exhibits from the multimedia case by the same title. To complete the case, you must also watch the 17 videos in the online case, with a total running time of 45 minutes. 1. Introduction In early September 2015, BionX CEO Chuck Carignan stayed late in his Bedford, Massachusetts office and contemplated options for raising additional capital. Carignan and the BionX board were pleased with the company's performance in 2015, but they needed another $12 to $15 million to reach cash flow breakeven. BionX (formerly called iWalk and BiOM) was founded in 2007 to provide powered prosthetic devices for people with amputations. The company’s first product, the BiOM ankle, was released in 2011. The BiOM was a bionic foot and ankle prosthetic designed to restore normalized walking function by providing amputees with motorized propulsion, emulating the function of lost muscles and tendons. The BiOM had advanced technological features that contributed to increased stability and control, but it was the product's powered propulsion that provided the most significant advantage over other prosthetic devices.1 Many patients said the BiOM was life-changing and that it allowed them to resume a normal, fully engaged life at home, at work, and in the community. VIDEO: Changing patients’ lives (3:00) Though the response from many users was positive, the path had not been easy for the company. The BiOM, when introduced, was well-received but imperfect. The company made substantial progress in improving the device but needed more time and more money than originally planned. If BionX could raise additional capital and execute on a new plan, management was confident they could deliver a series of remarkable products to customers around the world, helping tens of thousands of patients to walk again. Professor William Sahlman, Senior Lecturer Robert White, Senior Multimedia Producer Ruth Page, and Senior Researcher Hunter Ashmore prepared this case in conjunction with HBS Educational Technology Services. It was reviewed and approved before publication by a company designate. Professor William Sahlman previously served as a director and remains an investor in BionX. Funding for the development of this case was provided by Harvard Business School and not by the company. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2016 President and Fellows of Harvard College. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise – without the permission of Harvard Business School. BionX 9-816-702 2. Hugh Herr’s Ascent In 2015, Hugh Herr was an associate professor of Media Arts and Sciences at MIT and an associate professor at the Harvard-MIT Division of Health Sciences and Technology. Herr, who also headed the Biomechatronics research group at the MIT Media Lab, was focused on creating bionic limbs that emulated the function of natural limbs. In 2011, Time magazine called Herr the “Leader of the Bionic Age” because of his revolutionary work in the emerging field of biomechatronics. One of his innovations, a computer-controlled knee, was named one of Time magazine's "Top Ten Inventions" in 2004; a robotic ankle-foot prosthesis, the precursor to the BiOM, was named to the same list in 2007. Also in 2007, Herr was presented with the 13th annual Heinz Award for Technology, the Economy and Employment.2 In 2014, the Smithsonian Institution honored Herr with an American Ingenuity Award. Biomechanatronics was not on Herr’s radar as a child growing up in Lancaster, Pennsylvania. Instead, Herr dreamed of becoming the best mountain climber in the world. By the time Herr reached high school in 1980, he was considered one of the best climbers in the United States. VIDEO: A founder’s passion (3:50) “I saw opportunity where many would see disability and difficulty.” - Hugh Herr As Herr designed specialized prosthetics to help him climb, he began to imagine computer-controlled limbs for everyday use. He envisioned artificial limbs that were superior to biological limbs – limbs that might utilize robotics, artificial intelligence, and sophisticated sensing systems. It was the beginning of a shift in focus for Herr, who had never considered a future in science and engineering. A particularly motivating factor was the crude nature of his first official set of artificial limbs. Herr enrolled in college and began to study physics and quantum mechanics. He filed his first set of patents as an undergraduate student. Herr earned a BS in Physics in 1990 (Millersville University), a Master's in Mechanical Engineering in 1993 (MIT), and a PhD in Biophysics from Harvard (1998). As a postdoctoral student, Herr went to work at the MIT Leg Lab. In 2000, Herr took over the lab, which eventually became the Biomechatronics Group within the MIT Media Lab. VIDEO: The birth of bionic prostheses (:53) 3. Technology BionX’ first product was a computerized ankle and foot system called the BiOM. The product comprised several advanced technologies including onboard computers, microcontrollers, sensors, and a motor and tendon system. Company leaders said the motor was one of two key features that distinguished the product from other prosthetics on the market. The motor, which operated on battery power, was designed to propel the user forward, mimicking the calf muscle. The second unique feature was a fully articulated ankle joint designed to move and flex like a biological ankle, allowing for a more natural gait. 2 BionX 9-816-702 Hugh Herr and a team of researchers at the MIT Media Lab developed the technology using a biomimetic design process. According to Herr, the first step was to understand how a normal leg functioned. This required a deep understanding of the complexities of the biological processes that control walking. The team researched the role of the muscles, tendons, bones, and joints of the leg, and they studied how the spinal cord and central nervous system controlled muscle movement. As the team began developing the prototypes that would eventually become the BiOM, “they took those scientific principles,” said Herr, “and essentially embedded them in the synthetic structure and how that structure is controlled computationally.” The resulting technology represented an integration between human physiology and electromechanics. VIDEO: Merging technology and physiology (2:50) The BiOM’s technological features improved safety and stability on variable terrain and were designed to help amputees climb stairs, ramps, and hills more easily, giving them the stamina to walk farther, faster, without the type of fatigue they would typically experience using a passive prosthetic device. VIDEO: Farther, faster, better (4:26) Comparison of Prosthetic Device Technologies The BiOM versus other prostheses *Source: Case writer estimates and company interviews. ** Based on Workers' Compensation and VA reimbursement. The BiOM was not eligible for Medicare reimbursement as of 2015. 3 BionX 9-816-702 4. History The early development of the BiOM was funded by the United States Veterans Administration (VA). More than 1,500 U.S. servicemen and servicewomen lost limbs in the Afghanistan and Iraq wars between 2001 and 2011. 83 percent of the amputees lost one or both legs, mostly from the detonation of improvised explosive devices.3 In 2003, the VA granted $3.5 million to Hugh Herr and the MIT Media Lab to support the research and development of new prosthetic technologies. In 2007, Herr formed the company iWalk (now BionX) to bring the BiOM to market. It was not Herr’s first experience in commercialization. VIDEO: From bench to bedside (1:37) In founding iWalk (BionX), Herr had to take MIT research knowledge, and the intellectual property associated with that research, and make it accessible to the company. VIDEO: The IP portfolio (1:42) EXHIBIT 1a: MIT Technology Transfer Process EXHIBIT 1b: Technology Transfer Statistics The newly formed company spent much of the next three years investing in engineering to improve the BiOM’s reliability and durability. The company began selling the product commercially in 2011. Many of the first devices to ship were purchased by the U.S. Department of Defense (DOD). The Walter Reed Medical Center in Bethesda, Maryland was a primary customer, as wounded soldiers returning from the Middle East underwent rehab, and the DOD sought to provide amputees with the most advanced technology. The VA also developed into a payer channel, as prosthetists fit the device on veterans who lost limbs in prior wars or from diabetes and vascular disease. Despite the company's early success with sales, the transition from laboratory prototype to commercial product was challenging. As veterans began wearing the device in their day-to-day activities, the company experienced product performance issues including durability shortfalls and problems with battery life. Purple Heart recipient David Bronson lost his leg when VIDEO: Early setbacks (4:24) a roadside bomb detonated near his tank in Iraq. In addition to the $3.5 million grant from the VA, the company raised an equity round of $4.25 million in August 2009 and $21.5 million in two rounds in 2010. After the 2011 commercial product launch, 2012 sales increased substantially. In September 2012, Gilde Healthcare (a private equity firm that invested in fast-growing medical technology companies) made its initial investment in BionX by leading an equity round of $17 million to support the company’s expansion. Gilde partner Geoff Pardo recommended the investment because he believed the company’s technology was transformative and would have a major impact on patients’ daily life.