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.
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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.
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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. Pardo was impressed with the company’s IP portfolio and BionX’ adoption and growth. Gilde’s investment was to support expanding the sales force, bringing new products to market, and expanding overall payer channels. 4 BionX 9-816-702
In October 2012, the company's attempts to address product quality issues fell short, resulting in substantially increased service and warranty costs, ultimately diverting recourses from other aspects of growing the business. In addition, the company faced patent infringement lawsuits that year which were expensive to settle and required some product redesign. VIDEO: Rule number one (1:59) Facing a 55% warranty return rate, the BionX board of directors made strategic changes to the senior leadership team in 2013 and 2014, hiring executives with deep experience in product development, Medicare reimbursement, and startup financing. VIDEO: Doing what needed to be done (4:57) EXHIBIT 2: Management Bios
5. The Reimbursement Challenge While BionX designed its products around the needs of patients, the company sold its products to certified prosthetists, the clinicians who specialized in fitting prosthetic limbs. Prosthetists provided the devices to patients, and then the prosthetists billed and were reimbursed by insurance providers. VIDEO: The path to patients (2:13) EXHIBIT 3: Selling the BiOM Two of the company’s main payer channels were the VA and DOD. When a temporary shutdown of the U.S. Government in the fall of 2013 stalled reimbursement by those two channels, BionX experienced a 42% decrease in revenue (Q3 to Q4). In early 2014, in an effort to preserve cash, the company laid off a number of employees. A few months later, during the transition to a new CEO, much of the sales team left. While the BiOM ankle was gaining traction in the workers' compensation market, company leaders knew that the product needed to qualify for Medicare reimbursement to achieve the growth in sales the company wanted. Historically, one in three prosthetic device fittings in the United States was paid by Medicare, which made Medicare the largest U.S. payer channel for prosthetic devices. What made Medicare reimbursement even more critical for BionX was that at least 20 U.S. states had parity laws which required private insurance companies to reimburse at rates commensurate with Medicare. EXHIBIT 4a: Market Sizing EXHIBIT 4b: Payer Mix BionX worked with the U.S. Centers for Medicare and Medicaid Services (CMS) and the Medicare Administrative Contractors (MACs) to set a new reimbursement code, coverage, and fee for the powered propulsion feature of the BiOM device. Reimbursement for a standard microprocessor ankle was approximately $17,000 to $20,000. The BiOM would require a fee commensurate with the $42,000 fee that Medicare had approved for the Ossur power knee. VIDEO: How Medicare ruled (5:17) VIDEO: A challenge with classification (1:45) The next step for BionX was to demonstrate, in a statistically significant way, the health economics of the BiOM across a broad range of patients in a Medicare population. Management acknowledged that the process would take time. VIDEO: Next steps (1:52) EXHIBIT 5: Medicare Coding Process
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6. Financing Like many early stage companies, BionX needed more capital than originally planned. Between August 2009 and August 2012, the company raised $42.75 million in four rounds of financing. By 2013, the company’s burn rate and cash position were cause for concern for the BionX leadership team. VIDEO: Nearing the end of the runway (:45) EXHIBIT 6: Historical and Projected Income Statements, Balance Sheet, Cash Flow Statement (4 Pages) EXHIBIT 7: Financing Rounds and Associated Valuations In the fall of 2014, with declining revenues for a second consecutive year, the BionX board of directors took measures to extend the company’s runway for another year and reverse the downward revenue trend. VIDEO: Buying more time (2:00) By the end of Q3 in 2015, it became evident that BionX needed an additional $12-14 million to reach cash flow break even. VIDEO: Five alternatives (1:50) EXHIBIT 8: Comparison of Equity Investment Options EXHIBIT 9: Comparable Companies EXHIBIT 10: Board of Directors Bios 7. Looking Ahead Hugh Herr, Chuck Carignan, and the BionX leadership team were committed to creating products that improved human lives and were valued by patients, prosthetists, independent third-party payers, and governmental agencies like Medicare. The team’s first product, the BiOM, was illustrative of the impact they hoped to have. The BiOM had evolved dramatically from its earliest days into a durable, reliable, field-tested product. Over time, as battery and other technologies improved and as scale economies kicked in, company leaders were confident the product would become better and cheaper. They looked to expansion beyond the United States into international markets as a significant growth opportunity. In a March 2014 Ted Talk, Hugh Herr spole about ways to expand upon his founding vision.4 For example, BionX could create devices for patients struggling to walk, that would work with their existing limbs to restore and improve function. BionX could create whole-leg solutions for above-the-knee amputees, serving another large group of patients. By 2015, BionX was developing a platform for human restoration and augmentation that could enable many more life-changing technological innovations. VIDEO: A vision for the future (2:43) Though BionX had made enormous progress and had many possible product extensions, the company needed capital. Indeed, at the company’s most recent financing round, investors were aware that their financing would not enable the company to become financially independent. They had hoped for more data confirming the viability of the BiOM and the underlying business model. That was the task confronting Carignan and his team in the fall of 2015 – earn the right to turn scientific research into successful products, creating an enduring, important company.
1 BionX, www.bionxmed.com/patients/the-biom-advantage, accessed on 11.05.15 2 MIT Media Lab, www.media.mit.edu/people/hherr, accessed on 11.05.15 3 Hannah Fischer, A Guide to U.S. Military Casualty Statistics: Operation Freedom’s Sentinel, Operation Inherent Resolve, Operation New Dawn, Operation Iraqi Freedom, and Operation Enduring Freedom, Congressional Research Service, August 7, 2015, www.crs.gov RS22452, accessed on 11.09.15, and Defense Casualty Analysis System, www.dmdc.osd.mil/dcas/pages/casualties.xhtml, accessed on 11.09.15 4 For the full TED talk, see: www.ted.com/talks/hugh_herr_the_new_bionics_that_let_us_run_climb_and_dance?language=en, accessed on 02.11.16
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Exhibit 1a: Technology Transfer Process
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`#32(-"(7#32(5221<"35.($&6&5$%)(532(&2#%5<"3/( !"#$%&'()*+',,-."/01-/&2#,%"00#31-4,-$5367&$(
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Exhibit 1b: Technology Transfer Statistics
Q$">$50($&;&3#&(%"3616-6( +$105$1.4("7(-)&($"45.<&6(+512( -"(#31;&$61-4(:4(.1%&36&&6/(( ^"45.-4($5-&6(5$&(-4+1%5..4(8a( -"(8]a("7(b&-(!5.&6O^53>&6A( B1-)(3"$0(:&13>(GOTa/( ( !"#$%&'(U1.0&$c5.&A(dE1%&3613>( D&%)3".">4(`$"0(@3(@%52&01%( Y36<-#<"3'(@(dc"B(D"e(Q$10&$eA(f53#5$4( C]8JA()*+',,13;"/3"$-)B&6-&$3/&2#, 61-&6,2&75#.-,H.&6,H.&6, g2hQ&56&hQ$&6&3-5<"3h]8]\8J/+27( ( D5:.&(6"#$%&'()*+',, BBB/13612&+".1<%6/"$>, :$""M13>6$&+"$-6, R31;&$61-4hD&%)hD$5367&$/+27( (
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Exhibit 2: Management Bios
Charles S. Carignan, MD – Chief Executive Officer
Charles “Chuck” Carignan has more than 20 years of experience in medical device development. As a clinician and med-tech executive, he had the opportunity to introduce a number of healthcare technologies, navigating the clinical, regulatory and reimbursement challenges necessary to successfully launch new products.
Chuck was founder and CEO of Ninepoint Medical, a developer of medical devices that enable high-resolution in-vivo imaging. At NinePoint, he brought together a team that developed and launched its first product within 3 years of licensing the fundamental technology from Massachusetts General Hospital. Chuck was Executive Vice President and Chief Medical Officer of Novasys Medical, Inc., where he was responsible for the successful launch of a device to treat stress urinary incontinence. He was Chief Medical Officer at Boston Scientific, and Vice President of clinical research and medical affairs at Conceptus.
Chuck has participated on committees of the U.S. Food and Drug Administration, Centers for Medicare & Medicaid Services, the World Health Organization, the United Nations, and the U.S. Agency for International Development.
Chuck was trained in general surgery at Columbia-Presbyterian Medical Center. He earned his undergraduate degree from Yale University and his MD degree from the College of Physicians and Surgeons of Columbia University. Chuck joined BionX in July 2014.
David Reissfelder – Chief Financial Officer
David Reissfelder has more than 15 years of experience building, growing, and operating financial and administrative functions in high-technology environments. His background spans multiple organizations and industries, from privately held venture-backed startups to publicly held large multinational companies.
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David was Chief Financial Officer of Reveal Imaging Technologies, a manufacturer of aviation security systems. At Reveal, he helped build the company from startup into a global player in the aviation security market, delivering double digit annual revenue growth and profitability, until its acquisition by SAIC. Prior to this, David worked at Ciena Corporation, a global supplier of telecommunications equipment, where he was a key contributor in the development and implementation of the financial, accounting, administrative and logistics functions for the company’s international operations, which eventually included over 20 international locations in Europe, Asia and Latin America. He also worked at Omnia Communications, a venture backed telecommunications equipment manufacturer (acquired by Ciena), CBE Technologies, an IT services firm, and at Audax Group, a private equity firm.
David began his career in public accounting at Pannell Kerr Forster. He became a licensed CPA in Massachusetts in May 1997 and holds a Bachelor of Science in Accounting from Babson College. Dave joined BionX n February 2013.
Mark Chiappetta – Senior Vice President of Research and Development
Mark Chiappetta has more than 20 years of experience in high-growth, startup and mid- sized companies. He is an established inventor with more than 30 patents issued and numerous additional patents pending in the field of robotics and automation. Mark is proficient in the design, development, and manufacture of revolutionary products utilizing the latest in robotics technologies. Mark has a track record of building and leading teams to consistently deliver innovative and practical solutions to customer problems, growing business hypotheses into highly profitable organizations.
Mark spent 15 years at iRobot Corporation in a variety of technical and leadership roles including Vice President of iRobot’s Advanced Systems and Technology group. Earlier in his career, Mark worked for Joseph F. Engelberger who is known worldwide as the “Father of Robotics.”
Mark is a former U.S. Navy Officer, with a Bachelor’s Degree in Electrical Engineering from the University of Rhode Island,and graduate courses at NYU-Poly. Mark joined BionX in October 2013.
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Matt Vitale – Vice President of Sales
Matt Vitale has more than 10 years of experience in early market development and strategic planning in the commercialization of medical devices and procedures. Matt has experience building and directing sales and marketing organizations, as well as assessing and developing reimbursement strategies.
Prior to joining BiOM, Matt was Regional Business Director at Bayer/Conceptus Inc. where he led his team to finish 1st in total sales and utilization. He successfully developed his team with a focus on continuous development for all members. Prior to that, Matt was Regional Business Manager at Novasys Medical Inc. where he developed and managed the #1 sales team for 4 years in a row. Matt joined BionX in July 2014.
Tony Tremaglio – Vice President of Marketing
Tony Tremaglio has more 20 years of experience in medical device marketing and engineering, including a track record of sales, profit and share growth in startup to Fortune 500 companies.
Most recently, Tony was Vice President of Global Marketing at GI Dynamics where he led the successful international expansion of the first endoscopic implant to treat type 2 diabetes and obesity. He served as Director of Marketing at Hologic where he successfully launched a gynecology device which captured significant market share, and he introduced a national DTC campaign which produced substantial returns. Tony has held marketing and engineering management positions at WaveRx, ACMI (Olympus), Boston Scientific, C.R. Bard and U.S. Surgical (Medtronic).
Tony holds an undergraduate degree in Mechanical Engineering from Union College and an MBA from the F.W. Olin School at Babson College. Tony joined BionX in January 2015.
Richard Smith – Senior Director of Quality and Regulatory Affairs
Richard Smith has more than 15 years of experience in medical device Quality Assurance and Regulatory Affairs on numerous device types including: Diagnostic Imaging
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equipment (CT / MRI), In-Vitro Diagnostics, GYN surgical devices, orthopedic implants and prosthetics.
Rick was Director of Quality Assurance at ConforMIS, a manufacturer of patient-specific knee implants and surgical guides, where he led and grew the Quality team through a period of rapid scale-up, including a successful FDA inspection. Before ConforMIS, Rick held various roles of increasing responsibility in both Quality Assurance and Regulatory Affairs at Hologic (formerly Cytyc), which included FDA submissions for both PMA and 510(k) products as well as managing the surgical division’s Quality department. Prior to Hologic, Rick was the Quality Assurance manager for Analogic’s medical CT scanner division.
Before entering the medical device industry, Rick served as a Nuclear Submarine Officer in the US Navy. He earned a BS in Physics from Worcester Polytechnic Institute. Rick joined BionX n September 2014.
Source: Company documents
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Exhibit 3: Selling the BiOM Doctor, Physical Surgeon Therapist
Patient Prosthetist Payer • Goes to prosthest for fing • Orders BiOM from BionX • Reimburses prosthest a predetermined • If payer reimbursement does not cover • Keeps difference between device cost and amount; Average reimbursement $48,000 the full amount, paent pays balance reimbursement amount from payer • For BiOM, the Manufacturer Suggested • Provides device adjustments over me Retail Price (MSRP) is $69,000*
Device Payment Manufacturer • Prosthest pays BionX for prosthec - Typical payment terms: net 30 days • BiOM current list price for prosthest purchase is $40,000* • Realized average revenue per unit is $32,000 • Long-term commitment w/ replacements Source: Company data. and repairs *List price
13 BionX Courseware #9-816-702
Exhibit 4a: Annual Market Sizing (Domestic)
$2.0B Potential Addressable US Market: $850M with Current Design
Patients with lower extremity 80,000 amputations and K3/K4* activity level
Addressable with Patients with future designs 53,000 TT amputation and K3* activity level
Patients addressed with 34,000 current build height/ weight *K-levels are defined by Medicare based on an individual's ability or potential to ambulate and navigate their environment. Once it is determined in which K-level Population an individual resides, it can be 29,000 Preference for BiOM Addressable with addressed by current design determined which prosthetic and broad payer components are covered by current BiOM® T2 coverage Medicare. A higher K-Level indicates a high patient ability
Source: Adapted from Current payers- VA, DoD, company documents 6,500 Workers Comp, Cash Pay
14 BionX Courseware #9-816-702
Exhibit 4b: Payer Mix (Domestic)
Historical Breakout of Payment Sources for Prosthetics
3.0% 5.0% 8.0%
33.0% Medicare Private Insurance (Non Parity) Private Insurance (Parity) Military and VA BionX 25.0% Workers Comp Current Payers Self-pay
25.0% b"-&'(Q5$1-4($&7&$6(-"(.&>16.5<"3(+566&2(:4(R/!/(6-5-&6(05325<3>(%";&$5>&("7(+$"6-)&<%6(5-([&21%5$&(7&&(6%)&2#.&6("$(6101.5$(.&;&.6/(Y3(C]8PA(C](6-5-&6()52(+5$1-4(.5B6/( !"#$%&'(@25+-&2(7$"0(%"0+534(2"%#0&3-6(
15 BionX Courseware #9-816-702
Exhibit 5: Centers for Medicare & Medicaid Services (CMS) Healthcare Common Procedure Coding System
;>RKE?OSFJ'( g5%)(4&5$A(13(-)&(R31-&2(!-5-&6A()&5.-)(%5$&( 136#$&$6(+$"%&66(";&$(P(:1..1"3(%.5106(7"$( +540&3-/(`"$([&21%5$&(532("-)&$()&5.-)( 136#$53%&(+$">$506(-"(&36#$&(-)5-(-)&6&( %.5106(5$&(+$"%&66&2(13(53("$2&$.4(532( %"3616-&3-(0533&$A(6-5325$21I&2(%"213>( 646-&06(5$&(&66&3<5./(D)&(c&5.-)%5$&( j"00"3(Q$"%&2#$&(j"213>(!46-&0(KcjQj!L( j"2&(!&-(16("3&("7(-)&(6-5325$2(%"2&(6&-6( #6&2(7"$(-)16(+#$+"6&/(( ( E&;&.(YY("7(-)&(cjQj!(16(5(6-5325$21I&2(%"213>( 646-&0(-)5-(16(#6&2(+$105$1.4(-"(12&3<74( +$"2#%-6A(6#++.1&6A(532(6&$;1%&6(3"-(13%.#2&2( 13(-)&(:$"52&$(jQD(%"2&6A(6#%)(56(50:#.53%&( 6&$;1%&6(532(2#$5:.&(0&21%5.(&S#1+0&3-A( +$"6-)&<%6A("$-)"<%6A(532(6#++.1&6/( ( !"#$%&'(j&3-&$6(7"$([&21%5$&(532([&21%512( !&$;1%&6A(c&5.-)%5$&(j"00"3(Q$"%&2#$&( j"213>(!46-&0A(E&;&.(YYA(BBB/%06/>";, [&21%5$&,j"213>,[&2cjQj!_&3Y37", cjQj!j9nYb_Q^9jg!!/)-0.A(5%%&66&2("3( b";&0:&$(XA(C]8P( (
16 BionX Courseware #9-816-702
Exhibit 6, page 1 of 4
Historical Income Statement Year Ended December 31 9 Months YTD September 30
Inception - 2009 2010 2011 2012 2013 2014 2014 2015
Units Sold 0 10 160 310 260 210 160 180
$ in Thousands, USD $ in Thousands, USD Total Revenue - $ 410 $ 6,810 $ 11,950 $ 10,410 $ 6,880 $ 5,290 $ 6,270 Cost of Goods Sold - 390 4,310 8,150 6,690 3,750 2,960 2,990 Gross profit - 20 2,500 3,800 3,720 3,130 2,330 3,280 Gross Margin % NM 5% 37% 32% 36% 45% 44% 52% Operating expenses: Research and development 4,250 5,030 4,110 5,810 3,730 3,000 2,170 3,270 Sales and marketing - 1,400 1,940 4,860 5,270 3,470 2,550 3,950 General and administrative - 640 2,840 3,360 3,140 3,120 1,990 2,380 Patent Litigation - - - 1,990 210 - - - Total operating expenses 4,250 7,070 8,890 16,020 12,350 9,590 6,710 9,600
E.B.I.T. (loss) (4,250) (7,050) (6,390) (12,220) (8,630) (6,460) (4,380) (6,320)
Interest Expense (Income)* - - 20 140 440 730 510 1,030 E.B.T. (loss) $ (4,250) $ (7,050) $ (6,410) $ (12,360) $ (9,070) $ (7,190) $ (4,890) $ (7,350)
Revenue per Unit ($ In Thousands) - $ 41.0 $ 42.6 $ 38.5 $ 40.0 $ 32.8 $ 33.1 $ 34.8 COGS per Unit ($ In Thousands) - $ 39.0 $ 26.9 $ 26.3 $ 25.7 $ 17.9 $ 18.5 $ 16.6
* Includes refinancing costs. Effective annual interest rate on current credit balance is 11%. Company numbers disguised. Numbers may not reconcile due to rounding errors.
17 BionX Courseware #9-816-702
Exhibit 6, page 2 of 4 Balance Sheet ($ In Thousands) 31-Dec 30-Sep Assets 2013 2014 2015 Current assets: Cash and cash equivalents $ 7,000 $ 5,670 $ 1,080 Accounts Receivable 1,190 1,000 1,140 Inventory 2,060 950 900 Prepaid expenses and other current assets 230 350 390 Total current assets 10,480 7,970 3,510
Property and equipment, net 1,390 920 710 Other long term assets, net 50 50 60 Total assets $ 11,920 $ 8,940 $ 4,280 Liabilities and Equity Current liabilities: Accounts payable $ 1,060 $ 350 $ 680 Accrued expenses 1,880 1,630 2,340 Deferred revenue 290 140 290 Product warranty liability 1,040 680 510 Debt - current portion 1,010 1,230 770 Total current liabilities 5,280 4,030 4,590 Other LT Liabilities 130 80 90 Warant liability 730 550 530 Debt - long term 4,210 3,510 5,200 Total liabilities 10,350 8,170 10,410 Shareholder's equity1 1,570 770 (6,130) Total Liabilities & Equity $ 11,920 $ 8,940 $ 4,280
1 Net of retained earnings and income Company numbers disguised. Numbers may not reconcile due to rounding errors.
18 BionX Courseware #9-816-702
Exhibit 6, page 3 of 4 $ In Thousands, USD Cash Flow Statement 9 months 2010 2011 2012 2013 2014 YTD 2015 E.B.T. (loss) $ (7,050) $ (6,410) $ (12,360) $ (9,070) $ (7,190) $ (7,350) Depreciation 180 220 350 610 380 460 Net Operating Assets (Inc)/Dec (1,540) (2,950) 310 620 (40) 1,070 Cash Flow from Operations (8,410) (9,140) (11,700) (7,840) (6,850) (5,820)
Financing Activities Equity 21,500 - 17,400 - 6,000 - Net Debt Inc/(Dec) - 2,000 (630) 3,820 (480) 1,230 Cash Flow from Financing Activities 21,500 2,000 16,770 3,820 5,520 1,230
Total Change in Cash 13,090 (7,140) 5,070 (4,020) (1,330) (4,590)
Beginning Cash $ 13,090 $ 5,950 $ 11,020 $ 7,000 $ 5,670 Ending Cash $ 13,090 $ 5,950 $ 11,020 $ 7,000 $ 5,670 $ 1,080
Company numbers disguised. Numbers may not reconcile due to rounding errors. Does not include operations prior to 2010.
19 BionX Courseware #9-816-702
Exhibit 6, page 4 of 4 Projected Income Statement Year Ended December 31 2014 2015 (est) 2016 (est) 2017 (est) 2018 (est) Units 210 260 430 940 1,650
$ in Thousands, USD Total Revenue $ 6,880 $ 8,810 $ 14,730 $ 30,990 $ 55,110 Cost of Goods Sold 3,750 4,090 5,860 10,760 17,380 Gross profit 3,130 4,720 8,870 20,230 37,730 Gross Margin % 45% 54% 60% 65% 68% Operating expenses: Research and development 3,000 4,257 5,368 6,105 3,000 Sales and marketing 3,470 5,210 7,390 10,280 3,470 General and administrative 3,120 2,683 3,122 3,305 3,120 Total operating expenses 9,590 12,150 15,880 19,690 9,590
E.B.I.T. (loss) $ (6,460) $ (7,430) $ (7,010) $ 540 $ 28,140
Revenue per Unit ($ In Thousands) $ 32.8 $ 33.9 $ 34.3 $ 33.0 $ 33.4 COGS per Unit ($ In Thousands) $ 17.9 $ 15.7 $ 13.6 $ 11.4 $ 10.5
Company numbers disguised. Numbers may not reconcile due to rounding errors.
20 BionX Courseware #9-816-702
Exhibit 7: Financing Rounds
Venture Capital Investments in BionX and Associated Round Valuations
Financing Round Date Amount Raised Post-Money Valuation Series A & A-1 Aug 2009 $4.25m $7m Series B Feb 2010 $6m $25m Series C Dec 2010 $15.5m $75m Series D Sep 2012 $17m $102m Series E Dec 2014 $6m $56m Total Raised $ 48.75m
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21 BionX Courseware #9-816-702 Exhibit 8: Comparison of Equity Investment Options )ST@DR'(,).( )ST@DR'($).(3$@NA?F>YHA()ST@DR(.gA?DFE7( )?DH>NA(,FHABNQAFN( +ABR?DLYOF( Y31<5.("V&$13>("7(&S#1-4(:4(+$1;5-&(%"0+534(7"$(.16<3>("3(5( D5M&6(5(%"0+534(+#:.1%(:4(5(%"0:135<"3("7(-B"(610#.-53&"#6(-$5365%<"36'( j"0+531&6(6&..(&S#1-4(13(5(+$1;5-&( +#:.1%(&=%)53>&/((Q$"%&66(16(2"3&(13(%"3s#3%<"3(B1-)(53( t(5($&;&$6&(0&$>&$A(B)&$&(5(+$1;5-&(%"0+534(0&$>&6(B1-)(53(&=16<3>(+#:.1%(d6)&..e(%"0+534( -$5365%<"3(21$&%-.4(-"(13;&6-"$6( #32&$B$1<3>(:53M(( t(5(%5+1-5.($516&(-)$"#>)(5(Q$1;5-&(Y3;&6-0&3-(13(Q#:.1%(gS#1-4(KQYQgL(
%>LDN>@(!>DBAJ( C]8J([&2153(9V&$13>'(p8]][8( C]8J(@;&$5>&(`1353%13>'(pP[(C( C]8J(@;&$5>&(n&5.(!1I&(KQgiljL'(pGG0G( 2DQA(NO(%@OBA( JOT(0"3-)6A(:#-(%53(-5M&(";&$(5(4&5$/((["6-(<0&(16(6+&3-("3( !)"$-'(56(.1*.&(56(G]OJP(2546/((["6-(<0&(16(6+&3-(12&3<7413>(532(+#$%)5613>(5(+#:.1%(6)&..( D4+1%5..4(6&;&$5.(0"3-)6A(2&+&3213>("3(17( $&>#.5-"$4(5++$";5.(+$"%&66A(5#21-(+$"%&66A(532(13;&6-"$($"52( %"0+534(532(+$&+5$13>(5(CO4&5$(5#21-("7(-)&(+$1;5-&(%"0+534( 3&B("$(&=16<3>(13;&6-"$6/((["6-(<0&(16( 6)"B/( 6+&3-(12&3<7413>(13;&6-"$6(532( 3&>"<5<3>(-&$06/( %OBN( D4+1%5..4(8]a("7(>$"66(+$"%&&26A(+$105$1.4(7$"0(#32&$B$1-&$( Q.5%&0&3-(5>&3-(7&&6(K"?&3(PaO8]a("7(+$"%&&26LA(+$1%&("7(6)&..(%"0+534(K;5$1&6A(-)"#>)( Q$105$1.4(.&>5.(7&&6(Kp8]6("7(-)"#65326L/( 216%"#3-A(&S#1;5.&3-(-"(6&;&$5.(01..1"3(2"..5$6/((!1>31H%53-(<0&( -4+1%5..4(#32&$(pP]]MLA(.&>5.(532(5#21-"$(7&&6(K"?&3(";&$(pC]]M(%"0:13&2L/((@221<"35..4A( !1>31H%53-(0535>&0&3-(<0&($&S#1$&2( 6+&3-(:4(0535>&0&3-(2#$13>(-)&(+$"%&66(532(13;&6-"$($"52( "B3&$6(532(0535>&0&3-(-4+1%5..4($&-513(Pa("7(-)&(&S#1-4("7(-)&(6)&..(%"0+534/( 2#$13>(7#32$51613>/((( 6)"B/( #=>?A=O@JA?( E5$>&(3#0:&$("7(216+&$6&2(13;&6-"$6( Y31<5..4(%"3%&3-$5-&2(B1-)(136<-#<"35.(13;&6-"$6(K;15(QYQgLA(:#-(:&%"0&6(216+&$6&2(";&$(<0&( [5s"$1-4("7(&S#1-4()&.2(:4(5($&.5<;&.4( %OFRAFN?>YOF( 605..(3#0:&$("7(2"01353-(13;&6-"$6( ,FDY>@(4D@DFE( !O8'(@(2&-51.&2(+$"6+&%-#6(%"3-51313>(05-&$15.()16-"$4("7(-)&( d!#+&$(ZOme'(&66&3<5..4(:5%MH..6(137"$05<"3(-)5-(B"#.2(3"$05..4(:&(%";&$&2(:4(-)&(6)&..( `"$0(n'(3"
22 BionX Courseware #9-816-702
Exhibit 9: Comparable Companies: Medical Device, Orthotics, and Prosthetics Manufacturing Companies
8>?KAN( 2ON>@( !AHAFSA((3]8G( 0AN())d"(i( 0k%(i( 5?OBB(8>?EDF( ";,2(8>?EDF( !AHAFSAB(V(6?( !AHAFSAB(\(6?( %OQL>FP(#PQTO@ %OQL>FP(+ABR?DLYOF %>LDN>@Dh>YOF( 0AN(+ATN(3]87 "FNA?L?DBA( ";,2(3]87 "1(i(";,2 "1(i(!AHAFSA -287 !AHAFSA !AHAFSA 3jG(-287 3jG(-287 5?OeN=(j( %$5!(j( 3]87 1>@SA(3]87
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U1..150(n&053-(c".213>(@,!A(5()&5$13>()&5.-)%5$&( U1..150(n&053-( %"0+534A(2&;&."+6A(053#75%-#$&6A(532(6&..6(+$"2#%-6(532( c".213>(@,!( &S#1+0&3-(2&61>3&2(-"(512(-)&()&5$13>(532( (JA\X\( (8AJ8\( (JJG( (PAJCX( (CJ]( (]/8J( CC/TT G/ZC ]/C] XZa Ca Za \a KjQ!g'UncL %"00#31%5<"3("7(1321;12#5.6(+$105$1.4(13(g#$"+&A(b"$-)( @0&$1%5A(9%&5315A(532(@615/
U$1>)-([&21%5.(_$"#+( U$1>)-([&21%5.(_$"#+(b/l/A(5(0&21%5.(2&;1%&(%"0+534A( b/l/( 2&61>36A(053#75%-#$&6A(05$M&-6A(532(6&..6("$-)"+5&21%( (CAC]C( (G8Z( (P8( (CAP8J( (K8]\L (]/GG( OCC/\Z X/\] ]/]X XPa OGJa 8Ja O\a Kb5625S_!'U[_YL +$"2#%-6(13(-)&(R31-&2(!-5-&6A(`$53%&A(532(13-&$35<"35..4/(
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c53>&$A(Y3%/(+$";12&6("$-)"<%(532(+$"6-)&<%(K9iQL( c53>&$A(Y3%/( +5<&3-(%5$&(6&$;1%&6A(216-$1:#-&6(9iQ(2&;1%&6(532( (PPG( (8A]T8( (JPZ( (8A]ZZ( (88\( (]/8C( \/8G 8/]G ]/CT TGa 8Ta Pa Za KbW!g'c_^L %"0+"3&3-6A(0535>&6(9iQ(3&-B"$M6A(532("V&$6( -)&$5+&#<%(6".#<"36(13(-)&(R31-&2(!-5-&6/
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23 BionX Courseware #9-816-702
Exhibit 10: Board of Directors Bios
l16-5Q$13-(E-2/A(!-"$5>&b&-B"$M6A(E56&$-$"3A(Y3%/A( )>S@(4@>F>E>F( [535>13>(n1$&%-"$A(!1>05(Q5$-3&$6( g$36-(i(W"#3>(EEQ(
!+$54(l&3-#$&(Q5$-3&$6A(`5%&-(!".#<"36A(j5$2135.( 5AOV()>?JO( Q5$-3&$A(_1.2&(c&5.-)%5$&(Q5$-3&$6( Q5$-3&$6A(!43-)&6(R!@( g3-$&+$&3&#$(13(^&612&3%&A(_&3&$5.(j5-5.46-( Mike Ellenbogen `"#32&$(532(jg9A(g;".;(D&%)3".">4(( Q5$-3&$6A(^&;&5.(Y05>13>(D&%)3".">1&6A(Q&$M13g.0&$( n&-&%<"3(!46-&06( Director and Principal Investigator, k1"3tA(c5$;5$2O[YD(n1;161"3("7(c&5.-)(!%1&3%&6(532( Dr. Hugh Herr MIT Biomechatronics Group D&%)3".">4(
Q$&612&3-(i(j)1&7(g=&%#<;&(9F%&$A( b13&Q"13-([&21%5.A(k"6-"3(!%1&3 !"#$%&'(j"0+534(U&:61-&A(@%%&66&2(b";&0:&$(C]8P( 24