In line with the plan it laid out last fall to curb spending and cut costs in 2023, Surgalign is doing some spring cleaning.
The surgical device maker has shed two product lines: Coflex, a titanium implant that’s placed between vertebrae to treat lumbar spinal stenosis—and is currently the only such product approved by the FDA to treat the condition—and Cofix, which is implanted on the lumbar spine to ease lower back pain or pain caused by degeneration of the intervertebral discs.
Xtant Medical Holdings picked up the ownership rights to both implants for a total of $17 million in a deal finalized with Surgalign this week, the companies announced Wednesday.
The purchase will bulk up Xtant’s existing portfolio, which, like Surgalign’s, comprises a range of surgical tools specifically aimed at treating spinal disorders. In doing so, the new products are expected to add “approximately $14 million in annual revenue and attractive margins” to Xtant’s bottom line, which in turn may give the company the last push it needs to become profitable “in the near future,” CEO Sean Browne said in the release.
The trade-off aligns with Surgalign’s ongoing cost-cutting and restructuring plan. When it unveiled the plan in November, the company said it would be narrowing its focus only to the products that “hold the greatest growth prospects.” That slimdown was slated to include the discontinuation of some lower-performing devices, with the resulting savings poured back into the development of more promising products.
Indeed, in Wednesday’s announcement, Surgalign CEO Terry Rich said, “This transaction provides us with non-dilutive capital which will be used to advance our leading platform of artificial intelligence products across the entire continuum of care.”
Top of mind for the company, according to Rich, is its HOLO AI platform. The platform comprises software programs designed to automate certain parts of the surgical planning process, including labeling patient scans, sizing their implants and mapping out a trajectory for the procedure. Surgalign’s HOLO Portal, meanwhile, beams the resulting plan into an augmented reality headset that doctors can wear throughout a surgery for real-time guidance, using 3D overlays of the digital plan onto a patient’s body.
Overall, Surgalign said it was embarking on the restructuring plan with a goal of reducing its 2023 expenses by between $30 million and $35 million. That would add up to a year-over-year reduction of about a third since the company’s most recent financial report showed it racking up operating expenses of nearly $75 million throughout the first nine months of 2022—resulting in a net loss of more than $15 million for the period.
However, they say you have to spend money to make money, and the adage rings true for Surgalign’s restructuring plan, which allows for up to $7 million in expenses associated with the restructuring. That includes between $3 million and $3.5 million in “employee-related severance costs,” the company said at the time, though it didn’t specify how many of its more than 200 employees would be hit by the layoffs.