Monogram Orthopaedics (March 2019)

Deal Abstract

https://www.seedinvest.com/monogram/series.a

Using computers to make better implants. Joining machine learning (detecting patterns in molds,) robotics (no-human error,) and 3D printing (small batch, highly detailed manufacturing.) “By linking 3D printed implants and advanced robotics via automated digital image analysis algorithms, Monogram has achieved greater stability, implant insertion accuracy, and fit than current conventional methods, based on our collaborative study with UCLA Biomechanics Laboratory.”

Decision

No

Why Investing/Passing

  1. “Innovation in orthopedics is slow and inefficient. Large interdependent oligopolistic companies dominate the market with implants that are almost indistinguishable and robotic technology that is costly, limited, slow, and replaceable. As it stands today, almost all of the robotically inserted implants could be inserted with manual instruments. The cost of capital, distribution, and development have built almost insurmountable barriers to entry which has led to four companies having a monopoly of over 76% of the $18B market.”
  2. Valuation at 21.5MM pre-money, my $200 buys nothing.
  3. Great products don’t make for great business.

The 6 Calacanis Characteristics (91 161 18)

CheckPass/Fail
1. A startup that is based in SVFail: (Brooklyn, NY)
2. Has at least 2 founders Pass
3. Has product in the market Fail
4. 6 months of continuous user growth or 6 months of revenue.Fail
5. Notable investors?Pass: Icahn School of Medicine at Mount Sinai
6. Post-funding, will have 18 months of runway Fail: no numbers despite having been marketing on SeedInvest for two months.

No data, no SEC confirmation, has been in business since 2017 and can’t get a product to market. Has gone from 6MM to 8MM to 10MM and now 20MM.

Monogram profile on SeedInvest

The 7 Thiel Questions (ETMPDDS)

  1. The Engineering question:
    • Good: allegedly 7x better than everything else.
  2. The Timing question
    • Bad: this is not a market that is suddenly going to have incumbent power taken away.
  3. The monopoly question
    • Bad: this is a product, not a business.
  4. The people question: 
    • Good: yes on the product side, not bad on the business side.
  5. The distribution question
    • Horrendous: one of the biggest killers of this business.
  6. The durability question
    • Bad: Maybe the data from molds is defensible, but everything else with capital could be taken from a Stryker/large company quickly. That said, the regulation and passing of tests is probably not as fast, but this is not a fast moving market.
  7. *What is the hopeful secret?: 
    • “Great products make great businesses!”

What has to go right for the startup to return money on investment:

  1. Product passes and is the best in breed by a long shot.
  2. Patents and protection are strong enough for defense.
  3. Some mega healthcare company wants to assemble a portfolio of key technologies like this to then make a super healthcare portfolio.

What the Risks Are

  1. Distribution risk.
  2. Market risk.
  3. Business model risk.

Financials (References)

  • Total Round Size: US $20,000,000
    Raise Description:  Series A
    Minimum Investment:  US $1,000 per investor
    Security Type:  Preferred Equity
    Pre-Money Valuation:  US $21,250,000
    Target Minimum Raise Amount:  US $2,750,000
  • Closing conditions: Needs to get approval from SEC to even start fundraising.
  • Security Type:Preferred Equity
  • Shared Price: $4.0
  • Valuation Cap:US $21,250,000
  • Option Pool:2.0%

Updates

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10 comments
  1. Nancy Medina
    Nancy Medina
    April 19, 2020 at 2:49 pm

    Is this product ready? I am 70 years old and need both knees replaced.

    Reply
    • muhan
      muhan • Post Author •
      April 19, 2020 at 8:46 pm

      Hi, Nancy, I don’t believe so. From their website “Monogram expects to be submitting a hybrid implant solution for FDA approval.”

      Reply
  2. Mark
    Mark
    April 20, 2020 at 8:15 am

    Muhan, has your opinion on this investment changed since you wrote your article?

    Reply
    • muhan
      muhan • Post Author •
      April 22, 2020 at 4:43 pm

      Mark, not so much. Monogram has done really well in their fundraising, but the fundamentals of their business remain challenging in my opinion.

      Reply
  3. Chris Daggett
    Chris Daggett
    April 23, 2020 at 10:19 pm

    Since they are more of a product and not a business, wouldn’t Monogram’s target be to become acquired by a larger company, such as Stryker? They buy our Monogram and payout the investors in a share/ or all cash sale?

    Reply
    • muhan
      muhan • Post Author •
      May 18, 2020 at 4:41 pm

      Sure, but in that case who has the leverage? Great products don’t make for great businesses. Give me an insurance business that has zero-to-no marginal cost of selling an additional policy with revenues up front and the float to reinvest that cash and I’ll take that hand-over-fist over a highly regulated business that requires so many things to go right to be profitable. In the latter case, you’ll suffocate from lack of oxygen and just need to raise another round, which Monogram seems to have been perpetually raising.

      Reply
  4. Michael
    Michael
    April 24, 2020 at 11:30 am

    Muhan, may I assume your opinion on investing is still a “no?” One of the four (4) incumbents may actually buy Monogram to improve their position amongst the gang of four. What are your thoughts on a acquisition by say a Stryker, zimmer bionet, Conformis, or DePuy Synthes?

    Reply
    • muhan
      muhan • Post Author •
      May 18, 2020 at 4:39 pm

      Correct, my investing opinion is still a “no.”

      I may revisit this opinion given how much interest there seems to be in Monogram, especially if they have updated financials. That said, what would any of the Gang of Four be buying? Maybe an email list with the investors, but honestly it’d be in their interest to let Monogram make all the mistakes in this business (*if* there’s a business, which I’m still skeptical of) then once they validate the market re-assess.

      That said, I also acknowledge that biotech follows its own rules due to high regulation, aversion to innovation, and so if there’s greater interest I’ll do a deeper dive at a latter date. Thanks for the insightful question!

      Reply
  5. John Mayer
    John Mayer
    May 30, 2020 at 8:22 am

    Hello Muhan
    I would love to see a deeper dive/revisit from you based on the recent uptick in interest in this company.

    Reply
    • muhan
      muhan • Post Author •
      May 30, 2020 at 9:12 am

      Duly noted! I’ll make a point to revisit this week.

      Reply
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