Creating A Medical Device On The (Relatively) Cheap

Capital efficiency is key for venture-backed start-ups, especially those health care companies engaging in costly clinical trials. SpineAlign Medical Inc., which has launched a medical device in Europe on just $13.6 million, shows that a lot can be done with relatively little capital.

SpineAlign, which is developing a treatment for vertebral-compression fractures that commonly occur in osteoporosis patients, has kept outlays low by minimizing fixed costs, contracting out many services and keeping headcount low.

For example, SpineAlign, whose investors include Hatteras Venture Partners, MedFocus Fund and Wexford Capital, works with suppliers and service providers that take care of most of the jobs that would have been more costly to perform in-house. One key to this strategy is having good relationships with machine shops and other service providers so that they will take on your work promptly – even if you don’t have the money to pay them right away, said SpineAlign Chief Executive Paul Chirico.

Start-ups also waste money when hiring initial employees, according to Chirico, who said he avoided recruiting fees by bringing aboard people he knew well. Today, SpineAlign has about 15 employees.

“Time is money in a start-up environment,” he said. “If you waste three or four weeks looking for the right person, it’s more costly than the person itself.”

These efforts have helped Chirico avoid the fate of many start-up executives who build up infrastructure more than needed early on, thinking it will impress investors.

“They want to look good,” he said. “They want to be able to walk people around and show them great facilities. That’s not what moves the ball forward – why have a clean room that sits idle three weeks out of the month?”

When the company started four years ago, “We were dealing with a blank sheet of paper,” said Chirico. SpineAlign, which doesn’t yet have a working Web site, has just launched U.S. clinical studies that could lead to 510(k) clearance in 2010.

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