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Looking at many of the technologies emerging in healthcare, it’s undoubtedly an exciting time within the realm of regenerative medicine. More products are emerging that either promote or facilitate natural healing of injuries or implement natural elements such as stem cells into a healing system. TheraCell is a company that has developed a technology that replaces a traditional bone graft with an alternative that provides a more natural bone forming process to occur.

Also of interest, the company used an equity crowdfunding platform called FlashFunders to secure financial support for its technology’s development. Equity crowdfunding relies on a somewhat different business model than the more well known sites such as Indiegogo or Kickstarter.

The CEOs of both companies spoke with MDT in the following interview about the TheraCell’s technology, the crowdfunding experience, and what’s ahead for both areas. Bradley Patt is the CEO of TheraCell while Vincent Bradley is the CEO of Flashfunders.

Sean Fenske: Thank you to both of you for speaking with MDT on this technology and the experience of crowdfunding medical technology as an alternative to more traditional investment avenues. Let’s start with TheraCell. What’s happening in the regenerative medicine space that makes a bone repair product feasible?

Bradley Patt: Current bone grafts are suboptimal — growth factors and bone morphogenic proteins (BMPs) are expensive and cause complications. Synthetic grafts don’t induce bone formation. Demineralized bone matrix products are not optimized. Patients incur pain from iliac crest and other secondary sites for autologous tissue harvest. Recovery is slow. Fusion is often incomplete. There is often a need for reoperation or, for many patients, surgeries simply don't succeed.

Fenske: Is your bone graft being grown, such as in a lab?

Patt: No. Using our Fiber Matrix Technology, we transform allograft bone from its original architecture into demineralized bone fibers (DBF) that are elongated fibers of the remaining bone matrix after the mineral is removed. This matrix is primarily type I collagen — as is found throughout our bodies — but also contains a number of proteins specific to bone formation. These BMPs aid in the bone repair process following surgery by inducing some of the patient’s cells to become bone-forming cells by a process known as osteoinduction. This innate property of allograft, along with our process to form it in a fiber matrix architecture, allow us to combine these osteoinductive properties with an optimized osteoconductive scaffold intrinsic to our DBF.

Osteoconduction is another mechanism through which bone forms. It refers to the ability of a graft to provide a matrix for bone forming cells to move in. In our DBF products, this matrix is a super highway where the fibers provide a contiguous bridge for the cells to populate and rapidly form bone throughout the graft.

Further, by having no added materials (as some of our competitors must use to make their grafts able to be handled), the cells from the receiving patient are readily incorporated and provide the third mechanism for bone healing — osteogenesis. This is the required cellular process to make bone. Our fiber matrix grafts provide an ideal matrix for osteogenesis to occur, provide BMPs to provide osteoinduction, and have optimized osteoconductive properties combining and optimizing all three mechanisms of bone formation.

Fenske: Is there an opportunity to use 3D printing for this process?

Patt: Rather than use 3D printing, we have stepped back to a previously developed technology — textiles. We use processes developed many hundreds of years ago to transform our fibers into three-dimensional products.

Fenske: Why the decision to go with an equity crowdfunding approach for fundraising?

Patt: We liked the idea of doing something new and different and one of our board members was involved in the startup of FlashFunders. Originally, we did not think that a crowdfunding approach would work because the company’s technology, products, and value proposition are highly technical and would be potentially difficult to get across to a broad base of investors. But we decided the platform would work and, in fact, would be extremely useful if it was used with a highly selective group of potential investors, namely orthopedic, spine, dermatology and other related professionals who would immediately get the story and understand our value proposition.

Vincent Bradley: TheraCell used FlashFunders’ online equity platform to target sophisticated, industry experts and raise $1.7M. FlashFunders allowed TheraCell to efficiently and economically execute investments from a large nationally dispersed community of surgeons and industry experts.

Fenske: Do you think there is the risk of questionable promises being made in equity crowdfunding campaigns to increase the funding total that do not materialize in the final product?

Patt: Of course, however this risk exists in any scenario. At least in a crowdfunding campaign, all of the company information that the company is willing to provide is accessible to every potential investor. Investors need to do their diligence as they would in any scenario. In addition, crowdfunding under FlashFunders is a highly formalized process in that the server will not allow investments from investors whose accreditation is not validated by a third party. Moreover, the FlashFunders process requires any investor to specifically assert that they realize that the investment is potentially risky.

Bradley: There’s a much greater chance of fraud on crowdfunding platforms like Kickstarter or Indiegogo than there is on an equity funding platform like FlashFunders. That’s because most equity funding deals already have lots of sophisticated investors investing in the deals and the platform is now allowing the “crowd” to invest alongside these sophisticated investors for the first time. For instance, FlashFunders featured a company on the platform named Tesloop who’s first investment of $165K came in from a venture capital firm — any accredited investor could come to the site and invest in that deal alongside the VC.

Fenske: How can this type of fraud be prevented in crowdfunding?

Bradley: Proper regulation by the SEC and FINRA is important. As an FINRA-licensed broker-dealer approved to operate an online funding portal, FlashFunders takes compliance and regulatory issues very serious.

Fenske: Why are some alternative fundraising sites reluctant to allow medical devices to raise capital on their sites?

Bradley: At first glance, medical devices seem to be ultra-sophisticated products that won’t necessarily be easy for the average consumer to understand. Doctors, however, are a great segment of the “crowd" to target and a platform like FlashFunders can help a medical device startup target a large number of physicians in a much more efficient and economical manner than they otherwise would offline. This isn’t dumb money crowdfunding — this is online fundraising from sophisticated, industry experts. Previously, a company may have tried to speak with 100 physicians; now, because of the technology, they can speak with 10,000 at the same time.

Fenske: Getting back to the technology, what’s the next step for bone fusion and/or repair?

Patt: Cells need oxygen and in the body, cells are always close to a blood vessel; in fact, in bone, 90% of the cells are within a tenth of a millimeter of a blood vessel. When scientists try and grow tissue in the laboratory, they struggle to grow tissue more than 2.0mm thick that doesn’t have a “dead zone” in the center. Recently, a research group made a theoretical model of the fracture healing process and showed that in the absence of oxygen a fracture with a 3.0mm gap would not heal unless they added oxygen into their model.

Bone grafts are generally many millimeters thick. So there is a body of evidence suggesting the importance of oxygen. TheraCell has a way of providing a reservoir of oxygen in an implant. This is available to provide oxygen to cells and to allow healing to take place before vasculature is established. Our approach uses perfluorocarbons, which are biologically inert materials that naturally have a very high amount of dissolved oxygen in them. Previously, scientists have used these materials to develop artificial blood. TheraCell has shown that formulating our oxygenation technology into a demineralized bone matrix product makes a material that has faster bone formation and that the bone formed is of higher quality. The technology can also be used with stem cells, an approach that is further down our product pipeline.

Fenske: What’s on the horizon in terms of regenerative medicine?

Patt: It’s a very exciting time in the field of regenerative medicine with great steps forward being made in regenerating all types of tissue. We feel that providing scaffolds for tissue growth and factors such as oxygen to facilitate the repair process are great enablers with broad potential.

Fenske: And on the other side of this discussion, what’s the next step in the equity crowdfunding of medical technology?

Bradley: We’re in the first inning but I’m excited about the future. The more capital we can pump into the field, the better. There may be some waste that occurs — meaning a few companies that probably shouldn’t get funded may get funded — but the output of an increase in capital deployment is generally innovation! I guess another way of saying it is that frothy markets or “bubbles” in venture investing isn’t always great for investors of the time but when you look back 10, 20, 30 years, it almost always ends up being a value add to society because a lot of innovation is the bi-product. Think the 2,000 bubble — we got Amazon, Google, Priceline, etc.

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