Deal Details
Startup: Monogram Orthopaedics
Security type: Common stock
Offering Maximum: $34.9 million
Valuation: $89.9 million
Price per share: $7.52
Minimum investment: $250.80
Where to invest: StartEngine
Deadline: To be determined but likely in 10 to 12 weeks
I first presented Monogram Orthopaedics to First Stage Investor members a little more than two years ago. The company has made such compelling progress since then, I’m doing it again.
The first time around, Monogram’s superior robotic technology hooked me. No startup was doing what Monogram was at the time. And that’s still the case. The legacy companies have not stepped up. And Monogram has only increased its lead on its smaller and younger competitors.
Monogram is innovating the joint replacement space, which badly needs updated robotic solutions. Here’s how I described what Monogram is doing in my original article:
Doctors take a series of CT scans to get an ultra-high-resolution “map” of the patient’s hip or knee. Next, advanced AI software analyzes the scans and sends precise instructions for generating a titanium implant to a 3D printer. Once the implant is ready, it’s time for surgery. The company’s robotic device is fed the same detailed instructions to make a precise cut to insert the implant into the patient’s affected area.
It’s hard to see Monogram’s technology NOT being widely adopted. Surgeons will love it because it eliminates much of the risk involved in making precise cuts. They will particularly appreciate Monogram’s 3D-printed implants, which are designed for superior fit and healing.
The hospitals will love it because it drastically cuts down on the 100,000 failures that occur every year (10% of all knee replacements and 15% of all hip replacements). Hospitals lose a lot of money because of those failures. And the technology makes surgeries faster, so they’ll be able to do at least one to two more per day. More surgeries means more money.
And the patients are the biggest winners. For the first time ever, they get customized fitted implants. The healing process is faster and better. And the chances of a full recovery are much higher.
Monogram’s success comes down to three questions…
- Is it taking steps that bring it closer to commercialization?
- Does it have a clear path to FDA clearance?
- Are its current and potential competitors making meaningful headway?
Let’s take them one at a time.
Progress toward commercialization. There’s a reason why robots haven’t taken over the world yet. Developing robotics technology is really difficult. So we should not take for granted that Monogram has faced no technological setbacks.
Monogram is still on track to produce the best surgical joint replacement robot in the world.
Monogram ran its first fully integrated system test this past July. It came away with some valuable lessons and is now working on optimizing performance in several areas.
Monogram’s new cadaver lab will help its 20-strong team of engineers (plus 10 more overseas working on a contractual basis) clinically validate its technology. The team is led by a highly experienced robotist who worked for Think Surgical, among others. Think Surgical is one of the companies most responsible for trailblazing orthopedic robotic surgery. Monogram CEO Ben Sexson calls this group “one of the best engineering teams in the world.”
Monogram has also signed two distributors, filed eight patents, and welcomed five surgeon advisory members to its board. They will help guide product development as well as introduce Monogram to some of the largest hospitals in the country.
FDA approval. Monogram needs 510(k) approval from the FDA before it can commercialize its robotic knee replacement system. But that’s not a terribly high bar. The certification for class II devices is based on technology equivalence. In other words, the tech is already in the marketplace, operational and proven safe.
Monogram expects to submit its own implants for FDA approval within the next few months. In the meantime, it has licensed proven and widely used technology from a distressed company to accelerate its commercialization efforts. And it has already started generating sales from some of these products.
Monogram hopes to file an application (along with the results of the testing) in 2023. FDA approval should be relatively straightforward.
To sum up, Monogram has three different go-to-market timelines. First is the implants from the distressed company. That’s happening now. Next is Monogram’s novel press-fit total knee implant in early 2022. That will be followed by its surgical robot in 2023. The company expects to have a comprehensive knee offering to compete with Mako SmartRobotics technology — robotic arm-assisted technology that targets total and partial knee replacement — soon after its robotic launch.
The competition. No other company has a CT-based, navigated robot that actively executes bone cuts without user-initiated movements.
The newer entrants have come up with “interesting” solutions (like imageless registration and portable equipment). But they don’t offer much of a threat to Monogram.
But how about Stryker? As the legacy joint replacement robotics company and the producer of the Mako SmartRobotics system, Stryker has a whopping 87% market share. Monogram is doing everything with Stryker and Mako in mind.
Stryker’s robotics system immediately became the gold standard of joint replacement surgery when it came on the scene two decades ago. But its technology — based on 1980’s and 1990’s robotics science — has aged. By today’s standards, it’s slow and inefficient. It has only four joints with many clunky features.
It took Stryker all of five years to make $100 million in revenue and capture 20% of the partial knee market. And amazingly, Mako still dominates the robotics space. But its days are numbered. As Stryker’s technology becomes more outmoded with every passing day, Monogram is setting itself up to be the next Mako. Monogram has been handed an incredible opportunity — years in the making — to plug a gaping hole in the market.
A Large and Growing Market
The joint replacement market is currently worth $19.6 billion. The knee replacement market is worth $8.7 billion. About 1 million knee replacements take place per year. Some analysts expect the number to grow to 3.5 million by 2030. That’s 3.5X growth. That would put the total knee replacement market at more than $30 billion by 2030. If Monogram can duplicate Stryker’s revenue growth trajectory, its fifth year of revenue generation would bring in $6 billion.
Now, admittedly, that’s a big “if.” But here’s how Monogram can pull it off.
Monogram’s founder and chief medical officer, Dr. Doug Unis, does about 300 joint replacements a year. The hospital where he works has 20 orthopaedic surgeons. Let’s be conservative and say they collectively do 5,000 replacements a year. If insurance pays $4,000 for each usage, that’s a $20 million account (with the bulk going to Monogram). So they’d need to sign up 300 hospitals over a five-year stretch. That’s 60 hospitals a year.
I’d consider that an ambitious stretch goal. But it’s certainly not an outrageous number. If Monogram aims for $3 billion revenue in five years, that’s only 30 hospitals a year. That’s still very ambitious. And it’ll depend on how effectively Monogram can push adoption. But 30 hospitals a year is feasible.
That’s down the road. Right now, Monogram would like to start with a geographic focus, prove out its technology to the surgeons in those hospitals and expand methodically to reach a bigger community of surgeons. They’re the key advocates. It’s the surgeons who would be recommending Monogram’s faster and cheaper robots to the hospitals.
With Stryker’s help, the market is setting up perfectly for Monogram. And the opportunity is enormous. By 2027, 50% of all knee procedures will be robotic (up from 11% in 2019). Furthermore, surgical practices are rapidly shifting to the kind of cementless knee surgery that Monogram does. The cementless knee segment is projected to grow by an estimated 400,000 procedures from 2020 to 2024 ($1.2 billion). Monogram is stepping into this fast-growing market segment with a highly differentiated product and a significant intellectual property moat.
Based on my conversations with them, it’s clear that both Doug and Ben understand what’s at stake. Monogram seems more than ready to grab this once-in-a-lifetime opportunity.
How to Invest
Monogram is raising up to $34.9 million on StartEngine. If you don’t already have a StartEngine account, you can sign up for one here. Once you’re logged in to StartEngine, go to the Monogram deal page. Then click the green “Invest Now” button. Enter the amount you want to invest, starting as low as $250.80, and proceed through the required steps. Be sure your investment is confirmed, then you’re good to go.
Risks
This opportunity, like all early-stage investments, is risky. Early-stage investments often fail. Monogram might need to raise another round of funding in a year or two, if not sooner. If it executes well, this shouldn’t be a problem. But that’s a risk worth considering when investing in early-stage companies.
The investment you’re making is NOT liquid. Expect to hold your position for five to 10 years. An earlier exit is always possible but should not be expected.
All that said, I believe Monogram offers an attractive risk-reward ratio.