Velocity Orthopedics, Inc.

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April 21, 2014 Issue

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Sports Medicine Orthopedic Products

“My personal drive is to create an organization that delivers quality products to the users and improves the quality of life for the patients. We do this by hiring talented people that have a fire inside to do better. We then establish an environment where creativity is nurtured and rewarded. Mixed in with some hard work, the results are innovation and value for the surgeon and an improved quality of life for the patient.”

“Doing something like this is a huge amount of work, but it is rewarding. It is kind of a funny thing; you put many hours in, but you are happier at the end of the day. This satisfaction and reward is something you do not get at a big company.” - Bill Coy

Velocity Orthopedics, Inc.
10700 Jersey Blvd., Suite 360
Rancho Cucamonga, CA 91730

909.987.4343
www.velocityorthopedics.com

 

Interview conducted by: Lynn Fosse, Senior Editor, CEOCFO Magazine, Published – April 21, 2014
 

CEOCFO: Mr. Coy, what is the concept at Velocity Orthopedics?

Mr. Coy: Velocity is the next generation for sports medicine products: orthopedics. Forty years ago a company called Watson pharmaceuticals laid the groundwork to create generic drugs. They took everything that was brand named proprietary, looked at expired patents and brought the market some cost value rationality. We are doing the same thing in the orthopedics side. That is our mission. We started with one product; wanted to try out the market. We have brought the product to market with a concept. Now it looks like that concept is starting to take off. With a distribution network in place, we will just follow on with products that fit the same mold.

CEOCFO: Why orthopedics?

Mr. Coy: It is what I know. I have been in the orthopedic business for the past twenty five years.

CEOCFO: Would you tell us about product one?

Mr. Coy: Product One is an arthroscopy shaver blade. Worldwide, this market is more that 300 million dollars and owned by the big three in orthopedics. With Velocity we wanted a piece of that market. We know that the surgeons do not want to change from their existing capital systems, so we are making just the disposable. The devices are difficult to manufacture and we will acquire a little piece of that market. That is what we have done. It looks like we are being pretty widely accepted around the world, so far.

CEOCFO: Why is there room for another one? What might be different about your instrument, your pricing and your set up, to encourage surgeons or hospitals to use your product?

Mr. Coy: Two of the three companies designed their products over twenty years ago. They have not incorporated many changes. Therefore, we actually manufacture a better product than theirs. Ours spins smoother, cuts better and we offer value. We are going in strong and we are confident that we can beat the market price by twenty to thirty percent.

CEOCFO: Sometimes, when you are able to produce something less expensively, people do not think it is as good. Therefore, do you see some resistance in the fact that it is a lower price point?

Mr. Coy: Absolutely. That is the first question that they ask, which is “Where do you make it?” The assumption is that the product is made in either in India or China. We proudly put a label on the product that it is all made in the US. Then we play on my background; we have been in the medical device business for the past twenty five years. That seems to get, at least, the doors open. That is because our goal is to get an evaluation. Once we have an evaluation at the surgery center or the hospital, we have pretty much not missed out. Once they get the product, they see it; they try it, probably ninety percent turn into purchase orders.

CEOCFO: How is it better?

Mr. Coy: There are very subtle differences. We have run some tolerances a little bit tighter. We add some bearings where the original equipment does not have a bearing.

CEOCFO: How would that make a difference in surgery?

Mr. Coy: The product runs smoother. For example, in the Asian market, we introduced into Korea about eighteen months ago. The gentleman that we use as a distributor there is a great engineer from George Washington University. He has a degree in mechanical engineering and is very intelligent. He started making notes of the differences between our blades and the OEM blades. Therefore, we went back to our designs and we refined our designs with his input. The bottom line is that when using our products, the surgeon can focus on the patient and not worry about problems with the device.

CEOCFO: How do you get a foot in the door?

Mr. Coy: It is one of the most difficult markets in which to get a foot in the door. Our original plan was to market our product and distribute through a larger company, so that we did not have the hurdle of getting a foot in the door. We were not successful with that plan, because the bigger companies did not focus on the product. We terminated the relationship with the larger company and leveraged our relationships around the world to find people that wanted to carry Velocity products. As of right now, we have our product registered and ready to go in thirty eight different countries. Therefore, the relationships are absolutely key, but the other important part is to have a premium product. It does not hurt that we were the first to have an alternative disposable generic blade for the market to use.

CEOCFO: Do you need to keep a large inventory or are you able to ramp quickly should the demand exceed your expectations?

Mr. Coy: I would love to have a large inventory. However, it is very difficult to forecast. For the most part, our product has a lead time of about six months. It is incredibly difficult to plan. If we forecast our growth inappropriately or incorrectly and we are on the low side, I have got quite a bit of inventory cash out of pocket on the shelf. If I under forecast, then we are hurting customers. With a commodity item we cannot be on backorder. Therefore, it is a battle that we have been fighting; that balance, for the last six of seven months.

CEOCFO: Are you winning?

Mr. Coy: I have POs and customers waiting for product. Therefore, I am not losing.

CEOCFO: Do the doctors need training or is it instinctive for them when using your product?

Mr. Coy: We have purposely chosen products that are instinctive. Our objective is to choose common products that most second year residents would know how to use; just put it in his/her hand.

CEOCFO: Are you offering one product now? Is it a range of products? Would you explain where you are and what might be in the pipeline?

Mr. Coy: The introduction was for generic shaver blades. Although it is one product line, we have three different styles that we manufacture, each with its own design challenges. Therefore, we have six different styles of blades that fit three different manufacturers hand pieces. We started with that, and have followed up with a set of arthroscopy hand instruments.

CEOCFO: Are there geographic areas where you have plans to enter the market? You mentioned that you are in quite a number of countries already.

Mr. Coy: We are currently registering the product in Mexico, China and a few other countries. A year ago, we did evaluations in four different regions in China and three different hospitals in each of the regions. The Chinese doctors prefer American made devices. They do not like to use the Chinese made devices, because they consider them inferior. Therefore, we have taken the step; we are going to move forward and register there. It is a very lengthy, costly process. However, we think that the market is going to be accepting of our product. We are contemplating Japan and will most likely initiate registration there later this year. We have only established ourselves in a few of the Western European countries but will accelerate that process later this year.

CEOCFO: Are you funded for the steps you would like to take? Are you considering partnerships or investors?

Mr. Coy: I will not say no to anything. However, one of the things that has been very nice is to not have to consult with other partners before I make decisions. That has kept us in pretty good shape, especially when shifting the business model on distribution. It could have been tumultuous if we had outside investors. Without them, I could make that decision on the fly. I knew it was right. I could not prove it and it was a big change. Therefore, I like the autonomy of the “go it your own” approach. However, I do not like the tight cash fit, sometimes.

CEOCFO: What are the one or two highlights you have learned in you past experiences; what to do and maybe what not to do, as you bring the product to market and as you approach people about what you have?

Mr. Coy: That is a good question. Before I did this, one friend of mine said, “Do not do it, do not do it, do not do it. The market is not ready for it.” Then another friend said, “Ah, you are an entrepreneur. Everyone is going to tell you that you cannot do it, and you are going to do it.” You do not know which one to listen to. Another friend said, “It is going to take twice as long and cost twice as much” That part must absolutely be built into the business model. No matter how solid your model is, things are going to change.” That part I was not as ready for--leaving the corporate world and going off on my own. This would be much easier the second time around.

CEOCFO: You mentioned participation in the largest industry conference. Would you tell us a little bit about how that went? What was the theme for Velocity Orthopedics?

Mr. Coy: The meeting was AAOS, The American Academy of Orthopedic Surgeons. The first day, this little ten by ten booth was busy until three thirty in the afternoon. We had people around the booth all day long. It was obvious that even though I had not done any advertising, people are paying attention. It did not stop. We had a surgeon walk up sometime in the afternoon. He was not just casually walking by and stopping in. He knew he was coming to our booth. He asked me, “Do you guys do evaluations?” I said, “Yes, absolutely; we can do that.” I asked him where he was and he is local, in Southern California. He said, “I am an owner of a surgery center with a number of other doctors and we would like to try your product.” I said, “Absolutely; I will do the evaluation myself!” He said, “Call this lady; she is the gate keeper.” He pulled out his phone and said, “Here is our phone number. Call her and set it up.” That does not happen very often. For a surgeon to go in and schedule an evaluation; that made my day! We had people requesting distributorships from around the world. We had a couple of doctors come in and try to set up other evaluations. The level of interest was very encouraging.

CEOCFO: What is the plan for the next year or two?

Mr. Coy: The rest of this year is to stabilize production and make sure that we can meet all of the demands. We want to build some manufacturing redundancy. For the past couple of years, we have been crippled by a couple of hurricanes in the North East. The snow storms, just this past winter, have just been brutal. That is because that is where one of our key suppliers is and every time he shuts down, our production ends up getting behind three or four weeks, which has been terrible for us. We want to continue growing the sales force and distribution network. We are going to make entry into the US market this year. We have been holding off on the US market, because the market has not been ready. Even though they know cost pressures are coming, none of the liability has been removed from them. Therefore, in the past couple of years they have not been ready to try generic products. We are seeing the initial signs of a willingness to try alternative products and Velocity is ready to accommodate. We are also working on a couple of drawing board products to release into the network for next year.

CEOCFO: Is the fact that you, as CEO, have been in the industry, meaningful when you are talking with prospective customers?

Mr. Coy: Absolutely! It has been very important because of the generic thing. Surgeons do not want to buy products from someone who is used to making hinges for cabinets. Their reputation is at stake every time they operate on a patient and they, nor their patient, can accept risk.

CEOCFO: Why pay attention to Velocity Orthopedics?

Mr. Coy: They should pay attention to Velocity Orthopedics because we are doing making a paradigm shift. The surgery centers, the surgeons, the hospitals; they look to the big companies and see the brand as quality. However, they pay a premium for the brand and the healthcare system in the US, as well as around the world, cannot sustain this burden. That the customer cannot afford quality is an oxymoron. They cannot afford the products, but they cannot afford to not have the quality. Therefore, it has been an easy out to just pay the money and be assured that the quality is there. Therefore, we are going to offer an alternative to that. That customer must know that the quality level is still there. I think that is the challenge. For us, it is to make the customer know that they are still getting a premium quality product, but at a reasonable price. Doing something like this is a huge amount of work, but it is rewarding. It is kind of a funny thing; you put many hours in, but you are happier at the end of the day. This satisfaction and reward is something you do not get at a big company.

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