Dealing for Dollars

The lights were about to flicker out at Spineology as the summer of 2006 began. A financing designed to spur significant expansion at the company—its biggest such deal ever, for $20 million—had just collapsed.

“We were ready to close,” says John Booth, CEO of Oakdale-based Spineology. “I went from thinking I was going to have $20 million in the bank on Friday to, ‘How do I make payroll?’ the following week.” The company needed the financing to hire more sales reps and build the sales organization. Some of the money would have gone toward clinical trials for Spineology products.

Booth embraced radical surgery that enabled the company to survive and now, thanks to another financing that did close last year, it is aggressively expanding.

The irony is hard to miss. Spineology was struggling in 2006 while the economy was rolling along. This year, as the nation is mired in a deep recession, Spineology is prospering. So much so, in fact, that Booth admits to being “almost embarrassed” when he describes how the sun is shining on his company just as dark clouds hang above so many others. In finance, it seems, timing can be everything. Well, almost everything.

Spineology makes implants for two spinal disorders: degenerative disk disorders of the lower back and vertebral compression fractures. Middle-aged patients, often private payers, make up the former market. Older, osteoporitic women with collapsing vertebrae, largely covered by Medicare, provide much of the latter market. Both markets are expected to grow significantly.

Dr. Stephen Kuslich founded Spineology in 1996. Kuslich was a pioneer in minimally invasive spine surgery. He was a cofounder of Spine-Tech in 1988. Spine-Tech, a Minneapolis company that went public in 1995, was acquired just 30 months later by Switzerland-based Sulzer Medica. The sale to Sulzer made Spine-Tech one of Minnesota’s most successful IPOs of the 1990s. The selling price was $595 million, almost nine times its value when it went public. Kuslich realized a huge gain from that deal.

Initially, he and Wisconsin-based Phillips Plastics Corporation, a custom injection molder of plastic, metal, and ceramic parts, operated Spineology as a joint venture. By 2001, they had pumped $12 million into the company. Booth arrived in 2003, and was named CEO in 2004 after Kuslich, who had been president and chairman, became sick and died.