Small Bone Secures Record Venture Capital Investment

Citing an untapped market that is largely ignored by the big orthopedic firms, Small Bone Innovations Inc. (SBI; New York City) announced earlier this month that it had received a fresh infusion of $42.2 million in second-round financing. SBI focuses exclusively on orthopedic care related to arthritis and trauma in small bones and joints. The company was founded in 2004 by Viscogliosi Brothers LLC (New York City), a merchant banking firm specializing in the musculoskeletal-orthopedic sector.

The deal represents the largest-ever investment of venture capital in the orthopedics sector, according to Venture Source, a business unit of Dow Jones & Co., Inc. (New York City).

The funding was led by 3i (London), a private equity and venture capital firm, and NGN Capital (New York City), a healthcare venture capital firm. Each invested $12 million. Other investors included Anspach Investments LLC (Palm Beach Gardens, FL), Axiom Venture Partners III LP (Hartford, CT), TGap Venture Capital Fund LP (Kalamazoo, MI), Viscogliosi Brothers LLC, SBI employees, and leading orthopedic surgeons interested in new product development.

Ferguson: Going global.

The investment group estimates that the worldwide small-bone orthopedics care market has a current valuation of $1.4 billion and is growing rapidly. The funding will enable SBI to expand its business of making implants that replace bones in hands and wrists. Allan Ferguson, head of U.S. business for 3i (Waltham. MA), says, “It’s worth noting that SBI’s products are already being sold in 28 countries. As we see it, that represents the beginning of a truly global business.”

Abramowitz: Investing in growth.

Kenneth S. Abramowitz, a managing general partner and cofounder of NGN Capital, says, “SBI represents an outstanding growth opportunity in orthopedics. The company has the people, the products, and the strategy to make it the undisputed leader in its field. Small-bone orthopedics is one of the fastest growing areas in healthcare. We think SBI is ahead of the curve, and we’re very pleased to be investing in its success.”

Viscogliosi: New approaches to critical need.

“Small Bone Innovations concentrates on a critical area of healthcare,” says Anthony G. Viscogliosi, SBI chairman and CEO. “Injuries to small bones dramatically alter the quality of life. It is clear that as our population ages, more and more of us will be handicapped by diseases—like arthritis—that affect the hands and feet. SBI brings together the leading technology and the best minds in the field to address the need for new approaches to small-bone medical science.”

According to Viscogliosi, large companies do not dominate the small-bones sector, as is often the case in many other medical device markets. “Forty-two percent of the sector revenues are from the ‘little guys’ like us,” he says. Viscogliosi sees Synthes Inc. (Solothurn, Switzerland) as the market leader, with a 17% share, and notes that Stryker Corp. (Kalamazoo, MI) and DePuy Inc. (Warsaw, IN), a Johnson & Johnson Inc. company, are also key players.

“The large orthopedic firms do not see the small-bones market as large enough yet to stake out a major presence,” Viscogliosi says. “Our goal at SBI is to develop the broadest and deepest product portfolio and the best global sales and service force within the sector. We fully expect to become the market leader—and an attractive target to be gobbled up by one of the big orthopedic firms.”

SBI devices are manufactured in both the United States and France. The company has more than 40 product lines and sells directly to physicians and hospitals, as well as through distributors and independent agents.

© 2006 Canon Communications LLC

Return to MX: Issues Update.