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S2:E15 | #15 – Cleaning Up Joint Replacement w/ David Thompson (President & CEO of Osteal Therapeutics)

UMN David | Joint Replacement

Osteal Therapeutics is a privately-held, clinical-stage pharmaceutical company developing novel musculoskeletal therapeutics to treat orthopedic infections and their consequences.

David Thompson has served at Osteal Therapeutics President and CEO since August 2020. He brings over 20 years of experience in medical technology, most recently acting as Interim CEO of Gravitas Medical where he was a member of the Board of Directors since July 2018. Previously, David was based in London as Global Vice President of Strategic Development for Smith & Nephew where he oversaw company-wide strategic planning, business development and business intelligence. Prior to Smith & Nephew, David held senior commercial leadership roles at Barrx Medical (Covidien) and Kyphon (Medtronic).

David received an MBA from the Haas School of Business at UC Berkeley and a BA in International Relations from UCLA.

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Cleaning Up Joint Replacement w/ David Thompson (President & CEO of Osteal Therapeutics)

I interviewed David Thompson, President and CEO of Osteal Therapeutics. Prior to Osteal, he was the interim CEO of Gravitas Medical and a member of the board of directors. He was also the Global Vice President of strategic development for Smith & Nephew who oversaw company-wide strategic planning, business development, and business intelligence. Before Smith & Nephew, David and I worked together at Kyphon where he led marketing, and he also had a senior commercial role at BÂRRX Medical. Hope you enjoy the episode.

We have David Thompson, President and CEO of Osteal Therapeutics. David, I’m so glad to have you on the show.

Great to be here. It’s good to see you again.

Good to see you. You are looking well as always. For the audience, I was excited that David agreed to be a guest because he and I worked together a long time ago, and he is now leading an exciting company called Osteal Therapeutics. Before we get into what Osteal is working on, David, put a timeline for us. Where were you born? Where did you grow up and how did you get here?

I’m a native of California. I don’t live there now. I moved to Dallas but was born and raised in California up in the Bay Area. I grew up amongst the Silicon Valley startup scene and then went to school at UCLA for my undergrad and up to Berkeley for my MBA. My career in med-tech launched as a kid. I’m a third-generation med-tech entrepreneur. My grandfather was the president of a wheelchair company. My father spent his entire career in vitro diagnostics, and so med-tech in my blood.

Prior to you and I working together at Kyphon. It’s a backdrop. I joined Kyphon as a sales rep. David was a director of marketing. It wasn’t until I started doing sales operations that I got to interact with David at the home office. How did you get to Kyphon and what were your early roles coming right out of college?

I joined J&J in their life scan and blood glucose monitoring division right out of school, and that was because I had interned with them for several summers. I had gotten to know them. They knew me, so it was the opportunity to afford to be the most responsibility of all the opportunities in front of me. If I trace back how that impacted my road to Kyphon and then you and I met, it was at J&J in that role where we had a strong both professional presence as well as a consumer-facing side that I realized how bad med-tech companies were at marketing. Also, marketing in med-tech was largely a function of being a service organization to sales.

If you looked at the way marketing was done in other industries, it could be so much more than that and could provide so much more value than that. When I left J&J and went to get my MBA, I did so with the intention that I wanted to learning how to do great marketing. When I left Haas School of Business, the next place I went was into consumer-packaged goods.

I joined Clorox and spent several years with Clorox and their brand organization, trying to learn what was effectively the P&G model because Clorox had been a subsidiary of P&G. That model, I hoped to then bring back to med-tech. It just so happened that right as Kyphon was hitting that major growth inflection point where the company was realizing that penetrating the market and continuing to grow at the rate it had been growing was no longer going to be able to take place solely by relying on training surgeons.

There was going to have to now be more efforts to get patients in the door than that. I was recruited into Kyphon exactly because I had both the med-tech background and now the consumer products background to help the company start marketing to a broader audience, and that initially was referring physicians.

UMN David | Joint Replacement
Joint Replacement: Marketing in Medtech was largely a function of being a service organization for sales. But if you looked at the way marketing was done in other industries, it could provide so much more value than that.


I see how it all comes together. As a third-generation med-tech entrepreneur, what did your father and grandfather think of you doing this quick departure over into consumer-packaged goods?

They understood pretty well why it made sense, especially with the intent of coming back to med-tech. They wouldn’t have been all that excited about it if I told them I was going into packaged goods forever. It wasn’t their decision that they’d do it, but they were very excited about the idea of trying to bring new ideas into the med-tech world. They saw the sense in what I was doing there.

What I love about consumer packaging in that marketing is one of the case studies is when the folks at Coca-Cola decided to change the formulation. It was a big flop. The consumer was outraged and they landed on their feet with Coca-Cola classic, which we enjoy now. It’s interesting if you put yourself in the grocery store aisle, whether it’s Downy the quicker picker-upper or Tide with or without dye, you name it. That’s interesting because it speaks to the psychology at the point of decision. I’m interested when you think about the decision-maker in something like what Osteal Therapeutics is doing or even previous med-tech roles. Whose psychology as a marketer are you looking to act on?

At the end of the day, I have to take a step back and look at who is the true decision-maker in the selection of the product. In the case of Osteal, it’s not going to be the patient. The patient will have some degree of say in this, but as in most med-tech, it’s primarily the surgeon and their staff. In our case, the thing where the consumer world crosses over is that in that consumer-packaged goods world, the product is very important but always starts with a consumer need and then goes to the product. Often in med-tech, we start with a technology and then we look for something to do with it.

In this case, you got to start with the consumer need, and in the case of Osteal, we are designing for the need of the surgeon and their support staff to make sure that the therapy we deliver fits into their world appropriately so that selecting the therapy is easy. That’s where when you think about the consumer-packaged goods world, it’s all about getting inside the head of the end chooser or the consumer.

Ensuring that you first figure out where you want to be positioned in their head based on their needs, and then you work backward from there. That’s how we see things that Osteal as well, that we know the fundamental consumer need. We treat parent prosthetic joint infections and other musculoskeletal infections. The patient wants the infection cured. They don’t care that much about how you are going about it. The surgeon and the nurse who is going to do it care a lot.

That is a great segue, but because you could give a masterclass on med-tech marketing, I want to unpack one case study and then we’ll get into the unmet need of Osteal Therapeutics. If you can, and I don’t know exactly what time you started participating in this, but at Kyphon, there was this concept of the downward spiral ultimately to mortality. There was this powerful imagery that, as a new sales rep, I found a lot of success with that showed a progressive kyphosis as a particular woman would get one fracture, so on and so on. How did that marketing campaign come to be?

It was a little bit before the time that I arrived there. I couldn’t tell you what the specific genesis was, but based on what I know about the organization and the time I was there, where that came from is in the mind of Karen Talmadge, the Founder of the company. It was Karen that saw the opportunity to not sell technology and focus on the benefits or the elements of the features of the technology. Rather, directly for the surgeon connect what they were going to be doing in the acute period in the short-term for the patient to the long-term outcomes for that patient.

Often in the surgical world, it’s about that acute episode of care. She saw the opportunity to come up 10,000, 20,000 feet and focus on the long-term benefit for the patient in a way that was going to be very satisfactory for the surgeon. The surgeon was going to see their place in that patient’s broader outcome, and that was Karen that first had that insight.

It reminds me of Peter Thiel’s book, Zero to One, where he talks about founders, med-tech, or any company builder. He looks to look for someone that has a secret. It’s like, “What’s the secret that you know that not everybody else does?” In the case of Dr. Karen Talmadge, she had studied these Osteoporotic fractures in such great length. No one ever made the connection that you could have something that was acutely very painful but ultimately healed and follow that patient through the arc of their lives and see that it had a mortality risk.

At the end of the day, you have to take a step back and look at who is the true decision maker in the product selection. Click To Tweet

One of the things that strike me from the years of COVID is mortality has a powerful psychological trigger for people. Even if that’s a 1% or 2% mortality, the increased risk of an inevitable outcome of all life moves clinicians and policymakers. I’m interested in maybe we can segue to Osteal Therapeutics. When you talk about these infections, what is the worst-case scenario of having a joint replacement and then going to have an infection?

You hit exactly on what the worst-case scenario is. For a patient who gets a pair of prosthetic joint infections, let’s take that as our lead candidate within our musculoskeletal portfolio. That patient who gets an infected hip or knee prosthesis has a five-year survival rate that sits in between breast and colon cancer.

They are going to have about 25% mortality over that five-year period. Within the first year, those patients are going to be between a 7% and 10% mortality rate, which is a considerable excess over their peers are going to experience who have joint replacements but are uninfected. There’s a huge mortality burden in this population.

For those who don’t experience mortality, there’s an enormous morbidity burden because many of these patients will never successfully walk again. They will either amputate or have very limited mobility because they will have retained what’s called a Spacer, a non-ambulatory implant that’s been put in. About half of the patients will experience an outcome that renders them either dead or they will end up unable to walk the way they did before. The outcomes for these patients under the standard of care are pretty devastating.

I would say the stakes are high when it’s death or losing the ability to walk. To put this in context for us, how many knee and hip replacements are there a year in the United States alone?

In the US, there are well over 1.2 million joint replacements done. Thankfully, the rate of infection over the life of a joint implant is only about 2%. For the vast majority of people, these are life-changing implants that they absolutely need should get. They restore function in a way that’s miraculous and highly beneficial to the patient. A narrow group of folks in that 2% is going to get an infection. For those people, the options that they have are fairly limited. Many times, if the infection is very acute and it’s caught very early, a surgeon is able to go in, they can debride, and wash out the implant with some anti-infective agents. That patient has the possibility of a positive outcome, about a 50/50 chance.

For patients who have a chronic infection, that’s typically defined as about six weeks or more after the implantation of their prosthesis. Those patients will have to undergo what’s called a Two-Stage Exchange whereupon the diagnosis of the infection, a surgeon will have to go in and remove the infected implant, do a radical debridement of the bone and soft tissue to remove any sign of infection, and then they will put in a spacer. It’s made of bone cement, a polymethyl methacrylate plastic. They will put that bone cement spacer in, and in the process of doing so, they will mix some powdered antibiotics into that polymethyl methacrylate. They then send the patient home for about 6 to 8 weeks of IV antibiotics.

At the end of that period, they take the patient off the IV. They go ahead and assess whether the infection has been resolved, and then if the infection has, right around week 12 or 16, that patient will have the spacer removed, and they will get a new implant. In about 50% of cases, the patient will not have the infection resolved, so they will either have to get a new spacer and try again, or the patient will go on to long-term antibiotics.

They will have to be amputated or the patient will have died. About half of the patients will not have a positive outcome by the time they have gone through one year of therapy. This is where Osteal comes in. Our founding surgeon, Dr. Brian de Beaubien, saw an opportunity here to both accelerate the therapy as well as achieve a better outcome.

What we do at Osteal is we still do a two-stage exchange. The patient comes in and gets the infected implant removed, but what we then do is we put in a temporary spacer that’s made of titanium that’s fenestrated. It’s got holes all through it. We connect that to a negative pressure pump, and that negative pressure pump delivers very high concentrations of antibiotics into the infected joint directly. It pumps them in, lets them soak, and then sucks them back out. It does that in cycles over and over again over a 24-hour period.

UMN David | Joint Replacement
The Road to Serfdom: Text and Documents–The Definitive Edition

Over the course of seven days, a patient gets over 150 cycles of very high concentration antibiotic delivered into the infected joint. At the end of that seven days, we take the spacer out. They get their definitive revision implant, and that patient now got their infection resolved and goes off to physical therapy fully ambulatory. It’s a 16-week therapy and do it in 7 days.

Let me see if I have some numbers right. In the US, there are 1.2 million of these joint replacements a year. I call it 14,000 or 1.2%. Almost 15,000 of those joint replacements will come up with a chronic infection.

It’s 2%, so it’s much closer to 40,000 patients.

The standard of care prior to Osteal is folks would get this two-stage exchange, except it takes six months or a year.

If they are lucky, it takes sixteen weeks. About half the cases at the end of the year are still not treated.

As you mentioned, you can get 150 cycles of these antibiotics, do it in two weeks, and get their definitive implant. It’s pretty exciting. I want to make sure I have this correctly. Is the big difference instead of putting in the PMMA spacer, you are using the fenestrated spacer?

The big difference is that the antibiotics in a bone cement spacer will elute from that spacer very quickly at high concentrations over the first 24 to 48 hours. Whatever is on the surface of that implant has been consumed, and essentially then, the antibiotic levels drop precipitously to sub-therapeutic levels. At the same time, you are relying on IV antibiotics over a 6 to 8-week period supplement that spacer antibiotic delivery.

The challenge is you can’t deliver very high concentrations of antibiotics systemically because, by the time they get down to the joint, the concentrations have gotten very low. We have gotten some therapeutic. The reason you can’t drive them higher is because their systemic delivery will become nephrotoxic or ototoxic. You’ll poison the kidneys or the hearing of the patient before you reach therapeutic levels at the infected joint.

The challenge is because of the existing delivery methods, you cannot safely reach high enough concentrations to penetrate these bacterial biofilms. That’s the critical thing. In an infected joint, these are not bacteria floating around that infected joint. These bacteria are in a biofilm state where they have built this matrix around themselves of polysaccharides that protect them. Much in the way cancer hides from a chemotherapeutic.

These are hiding from the antibiotics in case of these biofilms. Only by delivering antibiotics at very high concentrations. Can you penetrate the biofilm and eradicate the infection? That’s ultimately why we are able to do it. We are putting concentrations that are so high they can get in there and penetrate that biofilm critically, as we are also sucking the antibiotic back out on an hourly basis. We prevent them from being absorbed into the surrounding tissue and, therefore, into the bloodstream, so we don’t get concentrations that are systemically high enough to be dangerous to the kidneys or the hearing. We keep it all local.

When you think about the consumer packaged goods world, it's all about getting inside the head of the consumer and ensuring that you first figure out where you want to position in their head based on their needs and then work backward from there. Click To Tweet

What do you call your solution?

We don’t have a brand name on it. It’s a project name or a candidate’s therapeutic name. We call it VT-X7. We’ll be branding it. We are a clinical-stage company in a phase two RCT, so we haven’t reached the stage yet. We have got the brand name settled.

There’s a longer treatment where the two-step exchange. You have to keep coming back to the PMMA. What is the cost of that whole episode of care for the chronic infection where it’s a coin flip as to whether or not the patient does okay?

CMS spends about $110,000 per patient in the first twelve months to treat a Periprosthetic Joint Infection. We call it PJI. Over a 3-year period, they spend $150,000 treating that patient.

What is the average age roughly of a PJI patient?

Your typical PJI patient is about 67 years old. Essentially, half of them are Medicare age, and half of them are private pay.

This makes a ton of sense, and thanks for that background. It’s very clear. It also explains why you would be celebrating the success of such large financing. Tell us about the financing and who’s backing your business at this point. Where do you think that takes you?

We closed our Series B financing, which was a $21 million round led by a joint venture between a large private equity fund and the Mayo Clinic. It was also supported by JJDC and Medvest, who was in the Series A syndicate. We are very lucky to have a strong group of folks with deep pockets who were able to support the company and bring both the med-tech and the biopharmaceutical perspectives to this financing.

What this is going to allow us to do is get through two randomized control trials that we are running. We got the first one initiated. The next one will initiate soon. Those will provide us with confirmatory evidence to back up the large retrospective database that demonstrates that we have about a 40-point treatment effect.

Meaning standard of care success rates are about 44% in one year, and what we have demonstrated in our data to date has been a success rate of about 85% in one year. All my time in med-tech, I have never seen a product that had a 40-point treatment effect. We are excited about the opportunity to demonstrate that in our RCT.

UMN David | Joint Replacement
Joint Replacement: By bringing both the medtech and biopharmaceutical perspective to financing, we can get through two randomized control trials that we are currently running.


The two RCTs, Randomized Controlled Trials, is one of them hip and the other one knee?

The FDA has recognized that hip and knee are essentially subject to the same pathogens and standard of care, so they are allowing us to pull hips and knees in these trials. The first trial, the one that’s underway right now, looks at the total chronic PJI population, and then the trial that we’ll be kicking off will take a sub-population of the broader PJI group. We’ll be looking at them, and we still haven’t completely decided definitively on what that subpopulation limitation will be.

It’s important to us because, as an anti-microbial therapy, FDA established back in 2018 a unique pathway for approval. This is something that CDER up where there is now this pathway called the LPAD, which is a Limited Population For Antibiotic And Antifungal Drugs. What it allows FDA to do is have flexibility in the design. The number of studies required in order to grant approval for a population that has a particularly high need for anti-microbial therapy. In this case, what it potentially allows is FDA could approve our therapy on a single study. What this does by having two of these is gives us two bites of the apple on those LPAD approvals.

Within the joint replacement market, there are 1.2 million patients. What are the risk factors that would increase the chance of a patient having a PJI? Is that part of this unmet need for one of these LPAD approaches?

In our case, it’s less about what could potentially cause a patient to be at higher risk, and the higher risk is the typical things you would see in almost any risk for a surgical complication. It’s age BMI, smoking status, and the typical lifestyle elements you would see in almost any risk of surgical complications. For us, the design of these studies is more around populations who are being served exceptionally poorly by the standard of care.

Knowing that the standard of care has an overall success rate of 44% within the chronic PJI population, we then looked at some subgroups. We found that, for instance, patients who have a multi-drug resistant pathogen have an even lower success rate in the low of 30%. Similarly, patients who’ve had repeated attempts to treat their PJIs also have results down in the high twenties. We found that within some of these subpopulations, the standard of care performs exceptionally poorly while our therapy continues to deliver success rates up in the mid-80s. It’s an opportunity for us to serve populations who are particularly underserved.

How long do you think these clinical trials will take the two RCTs?

The first one we expect to have enrolled in by mid-year of 2022. The six-month results in Q1 of 2023 and the one-year results in about Q3 and Q4 of 2023. The second study similarly is delayed about eight months from the first one. We are expecting that by the middle of 2024, we’ll have the one-year results from both studies. At that point, we’ll have also started a large phase three trial. Unknown yet as to where that falls within our regulatory pathway.

One of the things people tell us that have been guessed before, particularly on the heels of financing, is also in this labor market. They get a lot of calls, emails, or LinkedIn requests about, “I’m interested.” If I’m reading this episode and I love what you guys are up to at Osteal, what are some of the roles you are hiring for or anticipate needing in the future that folks should reach out to you about?

The role that’s coming up that’s particularly important for us is the head of our regulatory affairs group. That’s because this is a very interesting challenge in terms of the fact that we have received orphan drug designation, qualified infectious disease, and product designation. We are hopeful that we’ll get our breakthrough therapy designation, and that will be one of the responsibilities of the incoming VP of RA.

It's only through the growth of the economy and productivity that we can ultimately sustain the kind of spending that the country wants to do. Click To Tweet

Because we are a combination product, we are both a drug and a device. We are classified as a drug but we have a major device component. From this being a very interesting role for somebody within the regulatory world, we are looking for somebody who’s got a unique background and looking for a unique challenge. That’s probably the role we are the most eager to get filled with somebody who’s got that diverse background that can handle both the drug and the device side.

For all you regulatory affairs professionals, reach out to David Thompson on LinkedIn. This could be a great opportunity to use your creativity because of all the different designations and drug-device combo. I have enjoyed having you on the show so far and learning about Osteal. I can see why you are excited. To wrap up the interview, we will go to the vault. We’ll ask you four quick questions and go ahead and respond in rapid-fire. There are no wrong or right answers. What’s the book, movie, blog, or any piece of content did you encounter that influenced your perspective on life or business?

I went back and read an old one, which was Hayek’s The Road to Serfdom. Given the political environment that the country has experienced over the last couple of years and the amount of money that the country has spent dealing with the Coronavirus epidemic, going on to spend tremendous amounts of money is debt. Hayek’s The Road to Serfdom, for me, was a real wake-up call, reminding us that it’s only through the growth of the economy and productivity that we can sustain the spending that the country wants to do.

It was a great reminder of the fundamentals of how you structure and grow an economy successfully. As we have gotten away from that, we are all seeing inflation takeoff and the real risk. It’s something that we haven’t had for many years and a lot of folks have forgotten how devastating it was in the ‘70s and early-’80s. The more we can get back in touch with Hayek, Milton Friedman, and some of those pillars of the fundamentals of economics, the better off we are all going to be.

Excellent choice. I’m going to check that out. Next question, other than your parents, who is someone who saw your potential, took an interest in your development, and had an important influence on your career or life?

Somebody who was influential to me was somebody who I met during the Kyphon acquisition with Medtronic. It’s somebody who’s been important in my life twice. During that period was Brad Cannon. He was running a large part of Medtronic’s European spine marketing organization, and he and I met through that acquisition. He was supportive as I entered the Medtronic organization. Even though he was in Europe and I was in the US, he took the opportunity and the time to help me integrate into that organization.

I encountered Brad again when I was running business development for Smith & Nephew, and he was the Chief Marketing Officer at S&N at that time. He looked for and helped me chart my pathway through that organization and my departure from it. He helped me with seeing that my opportunities there were much more limited than if I were out being an entrepreneur again as I was when he met me at Medtronic. He has continued to be a mentor as I have been out in my role.

In your work at Osteal Therapeutics, what is one online tool or some app that you use almost every day and you can’t imagine working without?

It’s a boring answer. It’s Zoom. It’s the answer everybody gives. I couldn’t get through my day without it and I spent too much of my day on it.

What is your biggest unmet need in running Osteal that you hope somebody will build something to address?

The biggest unmet need in running Osteal is while Zoom is a great tool for having these types of video interactions, it’s certainly better than video conferencing. I still have not found anything that is able to replace the ability to drop in and have a casual conversation in the way you can when you are in the office and you all sit co-located together. That’s the thing that still makes me reluctant to have a fully virtual company and to not want to build that common location. Having an office where everybody’s in there every day is that ability to have spontaneous interactions virtually. It still doesn’t exist.

The Road to Serfdom reconnects us with some macroeconomic principles. Brad Cannon, a key mentor in David’s career, couldn’t live without Zoom, and the biggest unmet need is some virtual drop-in that could give that in-person presence that we can’t get without the office. David, I’m very excited about the work that you are doing at Osteal Therapeutics. Congratulations on the progress, and thanks for being a guest on the show.

Thanks, Jeff. It was a pleasure.

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