Blog of Intellectual Capital

Gerbsman Partners (www.gerbsmanpartners.com) has been retained by Spinal Restoration, Inc. (www.spinalrestoration.com) to solicit interest for the acquisition of all, or substantially all of Spinal Restoration Assets.

Headquartered in Austin, Texas, Spinal Restoration has developed the Biostat® System, a proprietary resorbable biologic and delivery system for the treatment of chronic disc pain.

IMPORTANT LEGAL NOTICE:

The information in this memorandum does not constitute the whole or any part of an offer or a contract.

The information contained in this memorandum relating to the Spinal Restoration Assets has been supplied by Spinal Restoration, Inc. It has not been independently investigated or verified by Gerbsman Partners or their respective agents.

Potential purchasers should not rely on any information contained in this memorandum or provided by Gerbsman Partners (or their respective staff, agents, and attorneys) in connection herewith, whether transmitted orally or in writing as a statement, opinion, or representation of fact.  Interested parties should satisfy themselves through independent investigations as they or their legal and financial advisors see fit.

Gerbsman Partners, and their respective staff, agents, and attorneys, (i) disclaim any and all implied warranties concerning the truth, accuracy, and completeness of any information provided in connection herewith and (ii) do not accept liability for the information, including that contained in this memorandum, whether that liability arises by reasons of Spinal Restorations’ or Gerbsman Partners’ negligence or otherwise.

Any sale of the Spinal Restoration Assets will be made on an “as-is,” “where-is,” and “with all faults” basis, without any warranties, representations, or guarantees, either express or implied, of any kind, nature, or type whatsoever from, or on behalf of Spinal Restoration and Gerbsman Partners. Without limiting the generality of the foregoing, Spinal Restoration and Gerbsman Partners and their respective staff, agents, and attorneys,  hereby expressly disclaim any and all implied warranties concerning the condition of the Spinal Restoration Assets and any portions thereof, including, but not limited to, environmental conditions, compliance with any government regulations or requirements, the implied warranties of habitability, merchantability, or fitness for a particular purpose.

This memorandum contains confidential information and is not to be supplied to any person without Gerbsman Partners’ prior consent. This memorandum and the information contained herein are subject to the non-disclosure agreement attached hereto as Exhibit A.

Company Profile

Spinal Restoration, Inc. was founded in 2004 to restore patients’ lives by delivering new, early intervention, minimally invasive therapies with clinically proven results that address unmet needs in spine health management. The company developed its flagship product, the Biostat® System, specifically to address discogenic chronic low back pain. Discogenic pain is the most significant unmet need in spine health management, affecting approximately 4 million patients annually in the US alone, and represents an untapped potential available market opportunity in excess of $2 billion.

The Biostat System is a combination product consisting of BIOSTAT BIOLOGX Fibrin Sealant and the Biostat® Delivery Device. The Biostat System delivers a percutaneous injection of BIOSTAT BIOLOGX® Fibrin Sealant into a painful intervertebral disc where it forms a resorbable tissue repair scaffold and stimulates the normal healing process of the damaged disc tissues responsible for discogenic pain. BIOSTAT BIOLOGX Fibrin Sealant is Baxter Healthcare’s TISSEEL Fibrin Sealant repackaged and rebranded by Baxter for Spinal Restoration. The Biostat Delivery Device is a single patient use pressure monitored delivery system designed specifically to allow safe, controlled intradiscal injection of BIOSTAT BIOLOGX into the disc. The patented delivery system includes a unique coaxial needle design that slows the setting rate of the fibrin sealant and prevents clotting within the delivery needle.

Between 2004 and 2012, Spinal Restoration successfully raised three rounds of equity financing totally $30.4 million. Spinal Restoration attracted a group of investors with broad investment experience and capital resources, as well as focused musculoskeletal market expertise. With this funding, Spinal Restoration navigated the Biostat System through product design, development and manufacturing, preclinical testing, conduct of a 15-patient, 3-site IDE pilot study, negotiation of a Special Protocol Assessment (SPA) concurrence with the FDA, and completion of a 260 patient Phase III, randomized, saline-controlled Investigational New Drug (IND) study.

$7.4M Series A – Oct 2004

Austin Ventures, Path4 Ventures

$20M Series B – Oct 2007

Austin Ventures, Path4 Ventures, Sante Ventures, MB Ventures

$3M Series C – Dec 2012

Austin Ventures, Sante Ventures, MB Ventures
In July of 2013, Spinal Restoration announced that the success criteria for primary analysis of the Phase III IND study of the Biostat® System were not met. The proportions of successful patients that received BIOSTAT BIOLOGX® Fibrin Sealant or saline injection were not statistically significantly different when analyzed at the 26-week primary endpoint. As a result, the Board of Directors of Spinal Restoration made a strategic decision to maximize value at Spinal Restoration and as such, have retained Gerbsman Partners to do a “Date Certain M&A Process”.

Intellectual Property Assets

The Spinal Restoration intellectual property portfolio includes biologic sealants composed of fibrin, thrombin, and corticosteroids for treatment of human tissues. The portfolio further covers methods and devices for delivering biological sealants to human tissues. Claims are directed primarily to the use of fibrin and thrombin, alone or in combination with various additives, in the treatment of human intervertebral discs.  Device claims are directed to devices for the delivery of multi-component adhesives where separate fluid paths and pressure monitoring are advantageous. Spinal Restoration also owns 6 registered U.S. trademarks.

U.S. Registered Trademarks

·      Biostat Disc Augmentation System (stylized mark)

·      BIOSTAT®

·      BIOSTAT BIOLOGX®

·      BIOSTAT BIOPREP®

·      Spinal Restoration disc logo (stylized mark)

·      Spinal Restoration company logo (stylized mark)

U.S. Patent Portfolio

·      13 issued

·      1 licensed

·      4 pending

OUS patent Portfolio

·      3 issued

·      4 active EP cases

Potential acquirers:

·      Manufacturers and developers of sealants and adhesives for medical and dental applications

·      Companies developing technologies which use fibrin or fibrin sealants as a carrier, structural component, sealant, or adhesive

·      Medical device and pharmaceutical companies developing injectable therapies to treat intervertebral disc disease

Biostat Delivery Device Assets

The Biostat Delivery Device is a pressure monitored, dual-chambered disposable delivery system that is designed to provide separate fluid pathways and terminal mixing for two component adhesives.

·      2ml fluid chambers (2x)

·      Ratcheting drive mechanism delivers 0.5 mL from each chamber simultaneously with each trigger pull (1 mL combined fluid volume per trigger pull)

·      Simple fluid loading procedure from standard syringes

·      Inner needle assembly provides separate, coaxial fluid pathways and terminal mixing of fluids

·      Digital pressure display provides pressure readings in PSI and ATM units

·      Patented design (U.S.8,047,407)

Delivery Device assets

·      Design History File

·      SolidWorks CAD models and prints

·      Assembly fixtures and molds for injection molded components

·      Phillips-Medisize Feasibility Assessment report and Phase I and Phase 2 quotes

o   Detailed assessment of the device design and requirements for transferring from clinical to commercial production

·      Finished product and component inventory

Potential acquirers:

·      Manufacturers and developers of sealants and adhesives for medical and dental applications

·      Disposable medical device manufactures

·      Companies developing injectable therapies to treat intervertebral disc disease

Marketing Assets

The marketing assets of Spinal Restoration provide detailed business intelligence for companies developing competitive technologies for the treatment of lumbar discogenic pain.

·      Chronic low back pain market segmentation

o   Provides detailed estimates of chronic low back pain patient populations by anatomical source of pain (discogenic, facet joint, sacroiliac joint, vertebral compression fracture, other)

o   Provides detailed estimates of procedure volumes for interventional and surgical procedures that address the different anatomical sources of pain

o   Includes all literature references and calculations used to derive the model

·      Sales projections and financial model

o   Detailed revenue model with seven year financial projections for the commercialization of the Biostat System

o   Provides estimates for market penetration, revenue, resource requirements, and associated costs

·      Reimbursement strategy document

o   Detailed review of the coding, coverage, and payment landscape for the Biostat System. Strategic plan with required tasks and timelines for pursuing CPT and HCPCS codes. Detailed review of resources required for reimbursement support during commercialization
·      Executive Summary

o   The executive summary provides a concise written summary of the business of Spinal Restoration as of December 2012

Potential Acquirers:

·      Companies developing technologies for the treatment of lumbar degenerative disc disease (aka, discogenic pain)

Regulatory and Clinical Assets

Regulatory and Clinical assets include the open IDE (#13463) and IND (#14222) filed with the FDA. These regulatory files contain all of the regulatory and clinical history associated with the development of the Biostat System. The clinical studies provide extensive demographic, medical history, imaging (x-ray and MRI), healthcare utilization, and clinical outcomes data for patients diagnosed with chronic discogenic low back pain. Regulatory fillings include the rationales and justifications for all study designs including inclusion and exclusions criteria, choice of control, study endpoints, outcome measures, etc. These documents also document FDA’s questions and Spinal Restoration’s detailed responses throughout the IDE, SPA, and IND submission processes.

Regulatory and Clinical Assets:

·      IDE, IND, and SPA submissions and FDA correspondence

·      Rationale and justification for study design including inclusion and exclusions criteria, control, study endpoints, outcome measures, etc.

·      FDA questions and Spinal Restoration detailed responses

·      Preclinical, pilot, and Phase III randomized, placebo-controlled study results and analysis

·      Study databases

Potential Acquirers:

·      Companies developing technologies for the treatment of lumbar degenerative disc disease (aka, discogenic pain)

Key Personnel (Spinal Restoration, Inc.):

·      Gary Sabins-President and CEO

·      John Wheeler-Director of Product Development and Marketing

·      Jeff Frizell-Chief Financial Officer

·      Jeff Doerzbacher-Director of Clinical, Regulatory and Quality Affairs

·      Kevin Thorne-Director of Scientific Affairs

Board of Directors:

·      Gary Sabins (Spinal Restoration, Inc.-President and CEO)

·      Kevin Lalande (Sante Ventures-Managing Director)

·      Joe Aragona (Austin Ventures-General Partner)

·      Gary Stevenson (MB Ventures-Managing Partner)

·      Steve Whitlock (Path4 Ventures-Managing Partner)

·      Jerry DeVries (Path4 Ventures-Managing Partner)

The Bidding Process for Interested Buyers

Interested and qualified parties will be expected to sign a nondisclosure agreement (attached hereto as Exhibit A) to have access to key members of the management and intellectual capital teams and the due diligence “war room” documentation (the “Due Diligence Access”). Each interested party, as a consequence of the Due Diligence Access granted to it, shall be deemed to acknowledge and represent (i) that it is bound by the bidding procedures described herein; (ii) that it has an opportunity to inspect and examine the Spinal Restoration Assets and to review all pertinent documents and information with respect thereto; (iii) that it is not relying upon any written or oral statements, representations, or warranties of Gerbsman Partners, or their respective staff, agents, or attorneys; and (iv) all such documents and reports have been provided solely for the convenience of the interested party, and Gerbsman Partners (and their respective, staff, agents, or attorneys) do not make any representations as to the accuracy or completeness of the same.

Following an initial round of due diligence, interested parties will be invited to participate with a sealed bid, for the acquisition of the Spinal Restoration Assets. Sealed bids must be submitted so that it is actually received by Gerbsman Partners no later than Friday, January 10, 2014 at 3:00 p.m. Central Daylight Time (the “Bid Deadline”) at Spinal Restorations’ office, located at 9600 Great Hills Trail Ste. West 150 Austin, Tx. 78759. Please also email steve@gerbsmanpartners.com with any bid.

Bids should identify those assets being tendered for in a specific and identifiable way.

Any person or other entity making a bid must be prepared to provide independent confirmation that they possess the financial resources to complete the purchase where applicable. All bids must be accompanied by a refundable deposit check in the amount of $200,000 (payable to Spinal Restoration, Inc.).  The winning bidder will be notified within 3 business days of the Bid Deadline. Unsuccessful bidders will have their deposit returned to them within 3 business days of notification that they are the unsuccessful bidder.

Spinal Restoration reserves the right to, in its sole discretion, accept or reject any bid, or withdraw any or all of the assets from sale.  Interested parties should understand that it is expected that the highest and best bid submitted will be chosen as the winning bidder and bidders may not have the opportunity to improve their bids after submission.

Spinal Restoration will require the successful bidder to close within a 7 day period. Any or all of the assets of Spinal Restoration will be sold on an “as is, where is” basis, with no representation or warranties whatsoever.

All sales, transfer, and recording taxes, stamp taxes, or similar taxes, if any, relating to the sale of the Spinal Restoration Assets shall be the sole responsibility of the successful bidder and shall be paid to Spinal Restoration at the closing of each transaction.

For additional information, please see below and/or contact:

Steven R. Gerbsman

steve@gerbsmanpartners.com

Kenneth Hardesty

ken@gerbsmanpartners.com

Philip Taub

phil@gerbsmanpartners.com