GRAND RAPIDS — After closing last spring on a $2 million venture capital investment, Ted Spooner began seeking another $8 million for his company, RespondWell LLC, a Grand Rapids-based telehealth provider.
During that “road show,” a prospective investor introduced Spooner to executives at Zimmer Biomet Holdings Inc., one of the world’s largest makers of knee and hip replacement implants that has been building a new business unit to provide hospitals digital services to care for patients before and after surgery.
By the end of June, Spooner had closed on the sale of RespondWell to the Warsaw, Ind.-based Zimmer Biomet (NYSE: ZBH) for an undisclosed sum. Zimmer Biomet announced the deal in late October.
A changing economic model for health care that has hospitals getting paid for an “episode of care” — which spans from pre-surgical preparation to surgery and to post-surgical care, for example — drove Zimmer Biomet’s interest in RespondWell. When presented with an opportunity to partner with a large corporation that was moving in that direction, Spooner agreed to a deal, even though he wasn’t looking to sell.
“Zimmer has more feet on the street than anybody else, specifically in knee and hip replacement. The alignment was just really good and sometimes when a deal like that presents itself, you have to jump on it,” Spooner told MiBiz. “They have a lot of customers. Even though the whole market is not ready for what we do, their slice of it is so big that we’ll be able to be there for those early adopters that are ready for what we do.”
Telehealth has become an exploding market opportunity. One indicator comes in the annual survey of employer-sponsored health benefits by Mercer. In the firm’s 2016 survey, 59 percent of the more than 2,500 large employers nationwide that responded said they offer telemedicine benefits as part of their health coverage, nearly double the rate from 2015 and more than triple the percentage from 2014.
‘A PERFECT BUYER’
RespondWell’s entire workforce joined Zimmer Biomet, which intends to keep the company’s operations in Grand Rapids. Spooner became general manager of the RespondWell division and vice president of connected health, which is the corporation’s bigger initiative around the rapidly emerging digital health field.
The sale to Zimmer Biomet gave RespondWell instant scale, greater engineering capabilities and other resources, plus a sales force and distribution network that the company otherwise would have had to create with major investments. Zimmer Biomet plans to sell RespondWell’s tele-rehabilitation service to hospitals and other care providers.
“Zimmer Biomet, I think, is a perfect buyer for this company,” said Dale Grogan, co-managing director of Michigan Accelerator Fund, a Grand Rapids-based venture capital firm that invested $600,000 in RespondWell.
Michigan Accelerator Fund was not looking to divest its holdings in RespondWell when the Zimmer Biomet opportunity came along, but the deal was one that investors could not pass up, Grogan said.
“The market said, ‘We’re ready to buy,’” Grogan said. “When a buyer comes knocking on the door, you’re going to listen, and they made a compelling argument. Zimmer Biomet said, ‘We can take this company and make something really meaningful out of it.’”
Zimmer Biomet in 2015 had revenues of $5.99 billion. Sales through the first nine months of this year totaled $5.67 billion.
LEVERAGING GAME TECH
The division Spooner now runs will train care providers on protocols, patient education and outcome metrics. RespondWell plans to move from downtown incubator space operated by Start Garden, whose venture capital spinoff — Wakestream Ventures — also invested in the firm, to new offices on the west side of Grand Rapids, according to Spooner.
RespondWell employs about 20 people and plans to add 40 positions within six months, plus software engineers at a development center in Portland, Ore.
Formed in 2015, RespondWell developed a platform and software that allows patients to receive virtual care at home as they rehabilitate from surgery. The platform delivers physical therapy sessions to patients virtually, whether online or via a smartphone or tablet application, alleviating the need for them to go to an outpatient clinic.
Deploying an approach used in fitness video games, the company’s platform takes patients through their physical therapy, led by a digital instructor, at their convenience. The platform then delivers video and data from the session to a therapist, who virtually tracks a patient’s progress. Patients can also report any issues or concerns they have.
“The new value-based reimbursement environment compels hospitals and providers to assume responsibility for patient outcomes well after discharge and through the critical rehabilitation period,” David Nolan, a group president at Zimmer Biomet, said in a statement announcing the deal. “Integrating an innovative and comprehensive tele-rehabilitation program into our Zimmer Biomet Signature Solutions offering addresses the emerging need for health care providers to oversee and optimize post-surgical recovery outcomes in order to maximize value across the entire episode of care.”
RespondWell is developing other uses for the tele-rehab platform beyond knee and hip replacements, which are the “big volume right now” and about 80 percent of the company’s focus. Additional uses include rehabilitation for cardiac, stroke and COPD patients, plus ankle and shoulder surgeries.
In the future and with Zimmer Biomet’s backing, Spooner sees RespondWell developing applications that work with wearable devices that report a patient’s conditions to a physician, both before and after surgery. For instance, he envisions a wearable device tracking the physical activity and condition of a person who is a candidate for knee-replacement surgery. The patient’s doctor can use the real-time data with predictive modeling to help make a decision on when that patient is ready for surgery and perform the procedure at the right time for the best potential outcome.
“It’s going to give us the ability to do some research and development into some areas that I’ve been really interested in doing but just didn’t have the resources,” Spooner said.