The Tarsus Medical Story
How Tarsus Went From Funding to Acquisition in 3 Years
Last Fall, the Biodesign Fellow Alumni were joined by Nick Mourlas and Avi Roop to discuss the story of Tarsus Medical. This was an especially exciting event for us, as both Nick and Avi are alumni from 2001 and 2008 respectively. After Biodesign, Nick became CEO of a company he co-founded out of Biodesign, Acumen Medical, and led the company to its acquisition by Medtronic in 2009. His next move was to join Tarsus as the CEO, a position he held until its acquisition by Integra Life Sciences. In Avi’s short post-Biodesign career, he earned an MBA from UC Berkeley, then became Director of Sales and Marketing for Tarsus Medical through the time of acquisition while continuing to work on projects started at Biodesign.
Tarsus Medical is a unique company for several reasons. First and foremost, it was able to go from funding to acquisition in 3 years, while also getting 2 implants cleared through the FDA. The company was also founded by venture capitalists. Not so uniquely, the journey was not without its challenges. Nick and Avi shared great insights into these aspects and many more from the Tarsus experience, while providing excellent advice for fellow entrepreneurs.
- A VC Experiment – Tarsus medical was founded in 2009. This time period was notoriously difficult for obtaining venture funding for medical device companies, so it’s fitting that this company was founded by 2 VC’s at SplitRock Partners: Josh Baltzell and Jason Lettmann (now at LightStone). They specifically sought an opportunity that would require a small amount of money for exit (< $10 million) and had a fast and clear regulatory path through FDA. They arrived on the bunion space, and Tarsus’s first product in development was a device for the treatment of this disease state, also known as hallux valgus.
- Staying nimble – Shortly after setting the company’s initial trajectory, Josh and Jason hired Avi and then Nick to run Tarsus. With the goal of getting to market on a small amount of money, Tarsus was run very lean. They maintained an office in Mountain View that was small and designed to provide nothing more than what was absolutely necessary for core business functions. They did not waste any money — they never even got a sign for the office! Nick and Avi further never had more than 4 full-time employees at one time, only adding quality and R&D engineering expertise in addition to themselves. In fact, throughout much of his time at Tarsus, although having responsibilities of a C-level executive, Avi maintained a consulting relationship with the company. The byproducts of almost two years working in the bunion space included novel technologies that could be applied to soft tissue anchoring broadly and syndesmosis injury specifically. These products would prove to have fewer regulatory challenges. Tarsus was able to pivot quickly and cheaply, making the syndesmosis device the lead product. This shift was made easier because of the small, very capable and experienced team.
- Understanding the need – When asked what could have been done differently, Avi states they needed to understand the full complexity of the pathophysiology of bunions at an earlier stage. They believed they understood the disease’s pathophysiology through literature searches as well as discussions with leading physicians, but the heterogeneity of the disease state, and high loads in the distal extremities, resulted in multiple development cycles.
- Navigating the FDA – Incredibly, Tarsus was able to get 2 implants cleared through the FDA in its three short years, the first in 4 months and the second in 6 months. There were several keys that led to their successful regulatory strategy. First, they chose products that would likely have 510(k) pathways, meaning there were clear regulatory approaches that had been navigated by several predicate devices, and a testing strategy that allowed them to show substantial equivalence exclusively with extensive mechanical testing. They also utilized multiple regulatory consultants in order to get sounding boards from more than one angle in order to triangulate the best path for their specific situation.
- Quality systems – A key factor in their success was Tarsus’s right-sized quality system. They observed that having a well implemented, and maintained, quality system not only results in low overhead on the development process but builds trust and confidence early in the diligence process. Much of what Integra was impressed by, beyond the need that was being solved, was the attention to detail in operations and quality .
- Commercialization push – Maintaining the lean philosophy combined with a bias toward action, Tarsus began to explore options for acquisition simultaneously with their push toward commercialization. They did not hire a formal sales team, and instead Avi focused all his energy on Tarsus’s sales efforts performing substantially all sales activities himself. While this happened, Nick focused heavily on speaking with potential acquirers that had expressed interest in the company.
- Using investment banking – When the time did come to begin more structured talks with potential acquirers, the Tarsus team decided to use investment bankers to serve as brokers in the introduction and negotiation process. Both Nick and Avi would “absolutely” use investment banking again, especially for a company operating in a highly fragmented market where many potential acquirers exist. They felt the access they received to top level executives was incredible, and the negotiating ability of financial experts cannot be underestimated. However, when looking for investment banking professionals to work with, it is imperative to choose those with experience in the specific clinical area of interest.
There are several lessons to take away from the Tarsus story. First, from the founding of the company, there were only 3 board members and so decisions could be made expeditiously. Also, while exemplary that Tarsus was able to commercialize two implantable products in three years with less than $5 million in funding, the complexity of the original target disease state may have contributed to not having a third product 510(k) cleared in as many years. While a lot of time was spent early on gaining deep understanding of the pathophysiology of bunions, these efforts slowed down during initial R&D. Lastly, the Tarsus story is a great example of why running lean is especially important in today’s financial and regulatory environment. The road of medtech innovation is always uncertain, and Tarsus was able to navigate major hurdles by maintaining a small team and a low burn rate.
In the end, Nick and Avi are both grateful that they were able to be part of Tarsus and delighted that its products found a good home in Integra LifeSciences, a company that bought into the Tarsus vision, and is committed to improving patient outcomes.
We want to congratulate Nick and Avi on their success with Tarsus, and would like to thank them for spending an evening with the Biodesign Alumni Association.
Richard “Andy” Rink, MD, is currently the 2012-2014 Stanford Biodesign Surgical Innovation Fellow, and has completed three of his five years in General Surgery residency at Northwestern University.