Last week we were chuffed to be welcomed as a new investor in orthopaedic technology company Formus Labs.
Punakaiki Fund joined GD1, Icehouse Ventures (IVX) and Pacific Channel in a US$5 million pre-series A funding round. Flying Kiwis Angels and Uniservices also participated.
Formus Labs is just the kind of tech company Punakaiki Fund loves to back – New Zealand grown, with a strong team and which solves a significant global problem. “We have been watching Formus Labs for some time and know how promising this technology is. So it’s wonderful that we got our foot in the door before the Series A round,” says Lance.
The deal was covered last week in NBR. Co-founder Ju Zhang said that, “by New Zealand standards, US$5m is absolutely a Series A raise, but we have a few major milestones coming up – for example, our FDA approval, as well our launch into the USA, which would be major value inflection points that we could take advantage of to raise a really healthy, full Series A.”
The company raised $1.1m in a seed round led by Flying Kiwi Angels in early 2019, then raised a convertible note of about $800,000 in a bridge round mid-2020.
Series A is likely to occur in early 2023 and hopefully led by a big US-based VC, Ju says.
Spin out to success
The investment is a strong endorsement of Ju’s vision for improving the lives of joint replacement patients. Spun out of the highly impressive Auckland Bioengineering Institute (ABI), Formus employs biomechanics and machine learning to produce accurate models for joint replacement surgery.
As Ju Zhang describes it in the video below, “you wouldn’t try to build a car without knowing exactly how every part fits together. And it shouldn’t be any different with joint replacement surgery. But one in five knee replacements are unsatisfactory and one in ten hip replacements require revision, costing the orthopaedic industry US$10 billion a year.”
That’s because without detailed 3D modelling surgeons must rely on x-rays to estimate the best size and orientation of implants ahead of surgery. Sometimes CT scans might inform an engineer, who sends back a draft plan, to be tweaked by the surgeon. But it’s still only an estimate of the real joint shape and size.
The Formus platform uses all available patient data to build accurate 3D models of the joint and its replacement, leading to far better fit and far fewer problems post-surgery.
The product is the result of Ju’s PhD thesis, which was further developed under the guidance co-founder Professor Thor Besier (now Formus’ chief scientific officer), Associate Professor Justin Fernandes, Antonije Velevski (now a Formus software engineer) and orthopaedic surgeon Paul Monk.
The product has been successfully used in Australia and New Zealand and is on the cusp of FDA approval, which will provide with the validation needed for US expansion.
“Right now, we have a minimum viable product, but with the FDA approval we will aim for a general release in the US early next year,” says Ju. “So the spend is heavily earmarked for marketing, which itself is mostly personnel and sales support. Bear in mind we don’t sell directly, we partner with Zimmer Biomet. But we’ll need to train up their people, so we will employ training managers across the USA. And we’ll also need to be working with key opinion leaders in this field.”
Babies all around
We spoke to Ju just before Christmas break when the deal was still inky-dry. Back then, the whirlwind of business was about to take a backseat as he awaited the arrival of his first child – Sol was indeed born mid-January – a nice addition to the other toddler in his life.
Has he had time to reflect on the journey so far?
“I guess right now it’s hard to stop and reflect because we’ve been so focussed. But seeing the research project turn into a real product that improves the lives of real people feels really good.
“It’s been hard work but closing this round is validation of the impact we can have; it shows how much belief people have in us as a team and a product.”
In an earlier article Ju joked that his parents were disappointed he wasn’t heading into medicine as a doctor. Did they still feel that way?
He laughs. “They brought that again up last week! I think that they’re coming around to the idea, especially once they saw the valuation.”
With Formus poised to enter a new phase of growth, does he anticipate sticking around?
“Yes! I want to step up. I want to grow with the company. It’s a challenge for me. There will be a bit of stepping aside with the role changing and my child being born. But I’m getting better at delegation and leadership. A lot of the growth will be in the US and I’ll be spending more time there – but I’m not expecting to move there. In March there’s a big conference in Chicago, which we will attend.”
Punakaiki has early eyes on Formus
The inclusion of Punakaiki Fund in this round is a pleasing conclusion to the first meeting in 2016. Funded by Callaghan Innovation to explore post-doctoral applications for his research, Ju’s task was to build a prototype and commercialise it.
“We were talking to various people and met Lance through Uniservices. We were trying to figure out the value and what kind of partnerships we needed.”
They met again in 2019 when Lance coached Ju for an NZTE pitch event, organised by Punakaiki Fund’s (now) investment director, Nadine Hill.
“It’s really good to have Punakaiki on board with us,” says Ju. “We had other options but really wanted to go with smart money. Also we feel like we’ve known Lance and Nadine for a long time. We know what they do for the start-up community. Actually, Punakaiki was the first fund I heard about and I have friends who have invested. So yeah, they are kind of foundational to our story, I think.”