When Norwest led the Series C round of financing for Vertos Medical in June 2023, we had high expectations. The company fit all our criteria for investment in the medical device space: seasoned management, a large market opportunity, a proven track record of commercial execution, and a first-to-market product that dramatically improves patient outcomes at significantly lower cost.
At the time of our investment, we expected the company to continue growing commercially for another 2 – 3 years and eventually become a candidate for acquisition or an IPO. Since our investment, the company did continue to perform commercially but our timing expectations for an exit were off. We are thrilled to announce that Vertos has agreed to be acquired by Stryker, a global leader in medical technologies.
Dramatically Improved Treatment for Millions with Crippling Back Pain
Vertos’s therapy, the mild® procedure, addresses one of the most common causes of chronic lower back pain in the U.S., lumbar spinal stenosis (LSS). LSS is a narrowing of the spinal canal that causes compression of the nerves and results in debilitating pain and loss of strength in the lower back and legs. The underlying cause of LSS is the gradual wear and tear that happens to people’s spines as they age and the osteoarthritis that develops as a result. Nearly 15 million people in the U.S. suffer from LSS. The Vertos mild procedure treats LSS with a minimally invasive outpatient procedure that provides significantly higher rates of relief with fewer complications and at lower cost than traditional procedural and surgical treatment methods.
Prior to the mild® procedure, the only treatment available for LSS patients who had failed medical therapy was spinal decompression surgery – a major operation during which a surgeon removes part of the bones surrounding the spinal canal (a laminectomy), removes the tissue that is compressing the nerves (a spinal decompression), and cements parts of the patient’s vertebrae together (a spinal fusion). Spinal decompression surgery for LSS is highly invasive, generally requires an inpatient hospital stay, and is very expensive ($40K+). In addition, the efficacy for spinal decompression surgery is quite limited: up to 40 percent of patients suffer from worse symptoms after the procedure, a disorder called failed back surgery syndrome (FBSS). Lastly, spinal decompression surgery has a high rate of complications and, as a result, high re-operation rates, with as many as 17 percent of patients requiring additional surgery within two years.
Clearly, there is a need for an alternative treatment that is more effective, less costly, and easier on patients.
The mild® procedure provides that alternative. It is an elegantly simple, minimally invasive treatment that is performed in about 40 minutes at an outpatient setting. It requires only a small 5mm incision (the size of an aspirin), through which a physician removes the parts of the bone and soft tissue that are causing the narrowing of the spinal canal and pressing on the nerves. Most patients return home the same day and typically resume normal activity within 24 hours with no restrictions.
Win-Win Acquisition for Continued Growth
By the time Norwest led the Series C financing, Vertos already had a record of commercial success: more than 70,000 patients had been treated with the mild® procedure in the U.S. and the company had demonstrated compelling commercial growth in the years prior to our investment. Vertos had clear product-market fit, was seen as a category maker and innovator in the back pain space, and had an enormous whitespace ahead of them.
Norwest invested in Vertos to enable the company to continue to capitalize on its commercial success and expand its operational capabilities. With the capital infusion from our investment, Vertos was able to develop a second-generation product, improve reimbursement coding and expand payor coverage for the mild® procedure, and significantly increase the size of the sales team. The Series C funding, along with operational support from Norwest’s Portfolio Services team, helped Vertos management accelerate the company’s commercial maturation and provided the business meaningful operational optionality for future growth.
Styker’s acquisition of Vertos will yield significant benefits for both companies. Vertos will gain access to one of the largest sales forces in the medtech industry and enable it to scale commercial adoption of the mild® procedure more rapidly than it could as a standalone company. It also will have the resources to further expand its product offerings across the burgeoning interventional pain space. Stryker, in turn, will add a one-of-a-kind therapy with proven efficacy in a large market to its already impressive portfolio.
Another Healthcare Innovator from the Norwest Portfolio
Vertos’s path from startup to acquisition is similar to other successful investments in the Norwest medical device portfolio. Norwest looks to invest in healthcare companies that offer unique, first-to-market therapies that address significant unmet needs in large markets. Similar companies in our portfolio include iRhythm, Intersect ENT, Silk Road Medical (all of which went public), Devoro (acquired by Boston Scientific), and General Surgical Innovations (acquired by Covidien).
Common to all those investments was that the companies’ products had demonstrated meaningful value for all stakeholders in the healthcare system – patients, providers, and payors. While it is difficult to find companies with that type of strategic advantage, with a great management team and the right investor partners, those investments have consistently generated outside returns for us. These attributes are what led us to partner with Vertos and are what we look for in our future investments as we continue to grow our medical device and healthcare portfolio.
Based on our years of experience, Norwest has a deep understanding of what large medical-device companies look for in potential acquisitions, and they look to us as a conduit to high-potential, well-qualified innovators. Our history also provides us with a deep appreciation of the many challenges companies face when developing novel medical therapies and insights into how to best navigate that journey.
So, if you are applying advanced technology to develop a unique product or procedure that improves patient outcomes at lower cost, we want to hear from you. Contact Dr. Zack Scott or Suraj Shah.
