Article - Issue 46, March 2011
Engineering business success
Professor William Bonfield CBE FREng FMedSci FRS
Apatech has fused bones and commercial vision to create one of the world’s fastest growing medical companies.
Bone making cells (osteoblasts) are shown after 48 hours in cell culture, adhering and multiplying on the surface of hydroxyapatite (HA)
In less than ten years, UK-based ApaTech, has grown from a university start-up to a multi-million pound business supplying synthetic bone graft materials to surgeons worldwide. The founder of the company is Emeritus Professor of Medical Materials at the University of Cambridge, William Bonfield CBE FREng FMedSci FRS. He tells Ingenia how he and his colleagues developed, tested and then successfully exploited the idea.
In March 2010, US healthcare giant, Baxter, bought UK-based developer of synthetic bone grafts, ApaTech for $330 million. Noteworthy, given the global recession, but remarkable considering ten years before, the company did not exist and the bone-graft material was only being produced in laboratory beakers.
In its short, nine year history, ApaTech, has scooped many awards. Named Britain’s fastest growing MedTech company from 2007 to 2009, by The Sunday Times, and Europe’s fastest growing Life-Science business in the Deloitte 2009 Technology Fast 500, the business also won the Frost & Sullivan 2009 North American Device Biologics Company of the Year award. Today, surgeons worldwide use ApaTech’s synthetic bone graft material. So how does a company evolve from beaker chemistry to a multi-million dollar entity in less than a decade?
Identifying a Need
The story starts in 1991 at Queen Mary, University of London, where I was Director of the Interdisciplinary Research Centre (IRC) in Biomedical Materials. A key strategic research target that I set in the IRC programme was to innovate a superior bone graft material that could be used in regenerative medicine to fuse spines, as a bone replacement in revision hip surgery, or to reconstruct parts of the skeleton following trauma or disease.
At the time, orthopaedic surgeons had two main options when making bone grafts. The first was to use bone harvested from cadavers and donated to hospital bone banks to make an ‘allograft’, or the second, to transplant bone from one part of a patient’s body to another, a process known as ‘autografting’. Both options have issues. Bones from hospital banks are of variable quality, biologically inactive and do not promote bone growth. In contrast, autografts do promote bone growth but are limited in quantity, cause additional pain and sometimes infection from the second operation.
We hypothesised that if we could engineer a synthetic bone graft material with a similar chemistry and structure to natural bone, then that could stimulate the biological repair processes, giving surgeons a practical, new option for the myriad bone graft applications. So the research commenced, with my colleagues, Serena Best, Karen Hing and Iain Gibson as well as myself focusing on this major scientific challenge.
Engineering a Soloution
Hydroxyapatite (HA), with the formula Ca10 (PO4)6 (OH)2 was the starting point for developing a synthetic bone graft material. Produced in the laboratory by a ceramic processing route, this compound resembles bone mineral,which comprises about 50 volume % of adult cortical bone. Importantly, hydroxyapatite is also bio-active; put it into a skeletal site and bone-making cells (osteoblasts) adhere to the surface and start to make new bone.
While HA was already being synthesised for commercial use as a coating for metal stems in joint arthroplasty, it was only being used in around 5 % of bone graft operations worldwide as the time taken for bone-growth to take place was just too slow.
Crucially, we had noted that commercial hydroxyapatite was often non-stoichiometric – that is, the calcium (Ca) to phosphorus (P) ratio was less or greater than 10/6, and could contain traces of heavy metals if manufactured using ordinary, rather than distilled water. We demonstrated that these deviations disturbed the cellular reactions taking place at the bone graft surface, and impeded bone growth.
With these issues in mind, we prepared stoichiometric hydroxyapatite (with Ca/P =10/6) under controlled laboratory conditions. We then performed initial biological screening tests with Simulated Body Solution (SBS), which is the ionic equivalent of blood plasma without cells, to samples of the stoichiometric HA and waited for new bone growth, as indicated by surface deposition of calcium phosphate, to take place. The results were incredible. Experiments revealed that ‘cleaning up’ the hydroxyapatite cut the time taken for bone growth from 40 days to 28 days.
Despite this progress, 28 days was still too long a fixation time for an optimum bone graft; how could we make bone grow faster? We decided to mimic the chemical make-up of bone mineral as closely as possible, so systematically added individual traces of elements and ions found in bone mineral, such as sodium, magnesium and carbonate, to stoichiometric HA. Three years later, we found the element we were looking for; silicon.
Experiments showed that a trace substitution (0.8 wt%) of silicon in the hydroxyapatite lattice, resulted in the replacement of phosphorus with silicon, which produced silicate-ions and elicited bone growth in just seven days. This silicate-substituted hydroxyapatite was a success.
More sophisticated screening, using cell cultures containing actual human osteoblasts – the cells responsible for bone formation – produced the same bone formation rates as did later in-vivo tests. Even better, longer-term studies revealed that the regenerated bone was ordered, rather than disordered, paving the way for a good quality, strong bone repair. We had developed a safe and effective bone-graft material that provided the optimum chemistry for new bone growth, (see ‘How does it work?’).
One further step was crucial. We needed to engineer the structure of the bone-graft material so it could provide an optimum ‘scaffold’ for new bone growth. This structure would need to accommodate all the biological processes leading to bone growth and necessary for a successful bone graft.
We went on to develop a novel process for producing both hydroxyapatite and silicate-substitued hydroxyapatite granules comprised of a network of interconnecting pores through which bone growth could take place. On completion of this key step, which was patented, we were able to fabricate reproducible structures with up to 80% porosity. These structures formed the basis for custom made, state-of-the-art scaffolds, with both the right chemistry and structure.
Preparing for Launch
What we did next was quite unusual in academe at that time. Instead of publishing our results immediately, we patented the key findings and became canny about “know how “. Every development or discovery, from how we manufactured silicate-substituted hydroxyapatite to processing its porous structure, was assessed for its patentability. Very soon, a raft of applications had built up so in 1996, we launched a virtual company - Abonetics - to act as a locker for these and later patents. Come the turn of the decade, there was a heightened interest in the market for enhanced synthetic bone graft materials. Surgeons, especially in the US, were growing reluctant to use allografts from hospital banks, while the second operation for autograft was being questioned.
We now held enough intellectual property in Abonetics to launch a commercial venture in the bone graft field and decided to try to raise some start-up finance. Hence, we recruited an independent consultant, Dr Peter Lawes, with a background in bioengineering as well as orthopaedic industry experience, to prepare a business plan.
Armed with this plan, we approached several Venture Capital companies to discuss funding. At the time, London-based business 3i plc, was the largest UK funder of start-up companies, so we met with the head of medical technology, Dr Nigel Pitchford, and asked for £1.8 million to set up the new company.
After a rigorous due diligence, Nigel Pitchford endorsed the technology, saw orthopaedic surgery, particularly spinal surgery, as a growing market given the US and Europe’s ageing populations, and was convinced the MedTech industry needed a reliable, synthetic bone product. He also felt we had not asked for enough money!
Testing and Fundraising
Our patents were valued at £3 million and 3i plc offered £3 million to launch the commercial venture. So in June 2001, ApaTech was born, and thanks to just over a decade of radical research twinned with a strategy of patenting first, then publishing, the business was valued at £6 million from day one. (A cautionary note for would be entrepreneurs is that I was the principal warrantor of this investment if it had gone pear shaped).
ApaTech was set up at Queen Mary, University of London, with Peter Lawes as Chief Executive and myself as a Non Executive Director, to develop a range of bone graft substitutes. The stoichiometric HA we had initially synthesised in the mid 1990s was our first commercial product, marketed as ApaPore.
As a commercial venture, our first step was to submit Apapore for regulatory approval for surgical use in Europe and the USA. In August 2002, the product was awarded the European CE mark, with US Food and Drug Administration approval following in May 2004. The company now had a workforce of 10.
Clinical trials of Apapore were also well under-way. In early 2003, orthopaedic surgeons in Aberdeen implanted the product in 30 patients undergoing spinal fusion for degenerative disc disease. At the same time, synthetic grafts were being used for impaction grafting in joint hip revision surgery, in Exeter. These trials, as well as collaboration with surgeons at the Royal National Orthopaedic Hospital, London, produced excellent results, with the material behaving exactly as predicted and proving more effective than allograft alone.
Come 2004, however, we wanted to grow. With the necessary regulatory approvals and successful clinical trials in tow, we were keen to set up a free-standing production plant. We had progressed from making our product in small beakers to big beakers, but now envisaged a full-scale fabrication process that would boost manufacturing capacity. This, of course, demanded more cash.
On April 2004, we won £6.5 million in venture capital funds. UK-based venture capital business, MTI, led this round of funding with, importantly, continuing investment from 3i. At the same time, we brought in a new Chief Executive with the required commercial experience for the next stage of development, Simon Cartmell.
Clinical applications in the skeleton for bone grafts
Our rate of growth from here on in was breath-taking. Simon Cartmell wanted to launch more products on a global scale, so appointed UK-and Europe-based sales companies to distribute our products. Crucially, however, he also set up a US subsidiary in Foxborough, MA, ApaTech Inc, to sell bone graft substitutes directly to the US market. As he highlighted at the time, the US held 40% of the world healthcare market.
Less than a year later, we had launched silicate-substituted hydroxyapatite products, initially as ‘Pore Si’, but later as ‘ActiFuse’ in a variety of formulations. Each product had full regulatory safety and efficacy requirements, while supporting scientific studies proved they promoted reproducible bone growth and importantly, surgeons, particularly in the US, were welcoming ActiFuse with open arms, especially for use in spinal fusion.
Amidst the product launches, plans for the new manufacturing facility were moving quickly. We had already set up initial operations at Centennial Park in Elstree, while our team of project managers and building engineers coordinated the building of the 10,000 square feet bespoke ceramic processing plant.
With the new facility we were planning to take ceramic processing to a new level and installed a novel materials flow system so we could precisely and reliably fabricate ActiFuse on a larger scale. Engineers and builders installed clean rooms with climate and humidity control for materials preparation as well as a 1,000 litre reactor for synthesising the bioceramic. Mills, moulds, casting equipment and atmosphere-controlled furnaces for heat-treating the final products were also incorporated. In September 2006, Lord Sainsbury, as Minister for Science opened the facility. He observed at the time that orthopaedics was one of the fastest growing sectors in the medical device industry and that he would like to see many more start ups like ApaTech. By May 2007 we had launched two more products, established a Germany-based subsidiary and were selling more than 1,000 packs of synthetic bone graft material a month. Indeed, annual sales now stood at £3.1 million, up from £270,000 in 2005.
By this time, buyout offers were appearing, but instead of cashing in, we approached private funders one last time. As always, 3i plc was our rock and provided funds, but this time US-based Healthcore came forward as well, and in the Summer of 2008 we won $45 million, around £30 million.
The business plan was dramatic. Over the next eighteen months, we were to recruit 100 more people, including several at senior management level and build a second $13 million (~ £8 million) facility at Elstree that would expand manufacturing capacity four-fold. Product launches continued, sales figures hit $60 million (approximately £40 million), and in November 2009, HRH The Princess Royal opened the second manufacturing facility, which now had a 1600 litre reactor. This formal opening completed a circle, as in 1992 Princess Anne had also opened the IRC where the concept started.
Then as quickly as our start-up had entered the MedTech industry, it exited. In March 2010, global healthcare business, Baxter, acquired ApaTech for $330 million, about £220 million. Baxter wanted to expand their position in the rapidly growing orthobiologics market and ActiFuse gave them a key plank in the bone fusion and regeneration category. While US-based, the greater global out reach of Baxter will enhance the market penetration of this UK technology.
The finished result. This micrograph shows the complete infilling of a 5 mm bone defect with new bone. The porous hydroxyapatite scaffold (black) has allowed cellular ingrowth of osteoblasts along the surfaces of the interconnecting pores
Secrets of Success
So how did we turn a university spin-off into a multi-million pound business considered critical to the future success of an US healthcare conglomerate? First and foremost, we produced world leading science. From the outset, our research was distinctive and the clinical results have been outstanding, which has driven the commercialisation of our products.
Second, we were developing materials for a growing market. When we launched our first product, orthopaedics was one of healthcare’s fastest growing sectors and today it is a major global market. Our focus on the spine was a major contributor to this success.
Third, patenting proved crucial. From day one, our researchers not only took a strategy of patenting first and then publishing, but also ensured that the applications stood up against the competition.
Fourth, the ability to raise money was vital - no money, no company. Technology companies need funds to manufacture products before sales can even start, which requires a good rapport with the Venture Capital community. Continuity of funding from the first round funder is essential to attract other funders on subsequent rounds. We were extremely well supported by 3i plc and Nigel Pitchford from start to finish.
People were the overall factor contributing to our success. While ApaTech required exceptional researchers to produce innovative science, we also needed talented individuals with commercial experience to market our products. In our case, personal contacts with a network of surgeons interested in the science underpinning medicine also proved pivotal when launching the synthetic bone graft materials. Importantly, the people we recruited to build ApaTech were all willing to take a big leap of faith.
Professor William Bonfield is internationally recognised for his pioneering research on biomaterials, with awards including The Royal Academy of Engineering Prince Philip Gold Medal. He was also the inventor of a bone analogue, HAPEX, which is used globally for middle ear implants to treat conductive hearing loss, as well as a co-Founder of Orthomimetics Ltd (now TiGenix ), which innovated a cartilage repair scaffold and was a finalist in the 2009 MacRobert Award.
The author would like to acknowledge the distinctive contributions of all the members of the Board and Senior Management Team to the commercial success of ApaTech. He would also like to thank Dr Rebecca Pool for her help in compiling this article.