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Alphatec Holdings, Inc. (NASDAQ:ATEC)

Q3 2009 Earnings Call

November 9, 2009 8:00 am ET

Executives

Peter Wulff - Chief Financial Officer, Vice President & Treasurer

Dirk Kuyper - President and Chief Executive Officer

Analysts

Bill Plovanic - Canaccord Adams

Matt Dolan - Roth Capital

Glenn Novarro - RBC Capital Markets

Bud Leedom - Global Hunter Securities

Operator

(Operator Instructions) Welcome to the Alphatec Holdings Third Quarter Fiscal 2009 Results Conference Call. At this time, I would like to turn the conference over to the Peter Wulff, Chief Financial Officer, Vice President & Treasurer.

Peter Wulff

Welcome to Alphatec Spine's conference call to discuss our third quarter ended September 30, 2009 financial and operating results. With me today is Dirk Kuyper our President and Chief Executive Officer.

By now you should have seen the copy of today’s press release announcing third quarter 2009 financial and operating results. If you do not have a copy of today's press release, you can find it in the Investor Relations section on our website at www.AlphatecSpine.com. Before we start, there are a couple of items we would like to cover. I would like to remind you that this call is being webcast live and recorded. A replay of the event will be available later today, on our website and will remain available for at least 30 days following the call.

We would like to remind you that our discussions today include forward looking statements. These statements are based on certain assumptions made by us based on historical trends, current conditions, expected future developments, including business prospects, product development objectives, future financial performance and other factors we believe to be appropriate in the circumstances. Risks and uncertainties may cause our actual results to differ materially from those projected in these forward looking statements.

You can find a discussion of these factors and more information about us in our filings with the SEC, including the risk factor section on our annual report on Form 10-K and subsequent quarterly reports on Form 10-Q and periodic filings on Form 8-K. These forward looking statements are made as of the date of this call and we assume no obligation to update these statements publicly, even if new information becomes available in the future. This broadcast is covered by US copyright laws and any use or rebroadcast of all or any part of this conference call may only be done with our expressed written permission.

Now I'd like to hand the call over to Dirk Kuyper, Alphatec Spine's President and Chief Executive Officer.

Dirk Kuyper

We're pleased to report that revenues for the third quarter of 2009 were a record $32.7 million representing a 27% increase over revenues from the same period last year. This represents the ninth consecutive quarter of record revenues. Year to date revenue of $95.6 million reflects a 31% growth over the same period 2008. In the US we grew the third quarter 2009 revenues by approximately 21% over the prior year. Year to date revenue growth was 28% as compared to 2008 for the same time period.

International revenues reached $6.6 million in the third quarter reflecting a 52% growth over the third quarter of 2009. This performance reflects the ongoing strength of our core business. We're proud to report adjusted EBITDA of $3.6 million for the third quarter which is a 31% sequential increase over the second quarter 2009 adjusted EBITDA of $2.8 million.

Year to date EBITDA reached $7.8 million reflecting strengthening operating leverage while we continue to drive strong top line growth, investing in our robust product pipeline and controlling costs. We continue to grow revenues at rates significantly higher then the growth rate of the spine market through the introduction of innovative new products, the strengthening of our US sales force and expansion of our international operations.

This morning we will provide additional highlights on our operating performance for the third quarter 2009 as well as an overview of new product introductions and accomplishments in the quarter. Consistent with our comments from previous calls I will focus my remarks on updating you on our four primary growth drivers at Alphatec.

1) Continued expansion of our core product portfolio especially in the area of minimally invasive surgery.

2) Product development initiatives addressing the aging spine.

3) US sales force expansion.

4) International expansion

Then I'll turn the call back over to our CFO, Peter Wulff, who will provide a more detailed review of our financial performance. Following Peter I will discuss growth initiatives and review our 2009 financial guidance before opening the call for questions.

We set out this year to launch a number of new products, addressing our core fusion product portfolio and we are pleased to report that we're on track to meet that objective. We continue to expand our fusion product line by introducing both new products and line extensions as well as securing additional intellectual property and distribution rights. I'll take a minute to highlight a few of these products.

[Solas], a stand alone anterior lumbar interfusion or ALIF device. ILLICO SE posterior fixation system which is our percutaneous screw system. Amino Shield a biologic wound barrier. Profuse demineralized bone matrix, and our new licensing agreement we signed with ETEX corporation. We believe these products will allow us to cotninue to drive strong US revenue growth in the quarters ahead.

As we announced in our last quarterly call, we are developing a zero profile self locking inner body device initially for ALIF and in the future for cervical procedures based on intellectual property that we acquired earlier this year. We have fast tracked the development efforts of this product and I am pleased to report that we submitted [Solas] stand alone ALIF device to the FDA for 510 clearance as of last Friday, November 6. We anticipate launching the [Solas] stand alone ALIF product in the first quarter 2010.

We believe that a zero profile single action locking implant is a substantial improvement over devices requiring screws or additional steps to lock. This stand alone device will be unique in that it will be designed to be inserted and locked into the superior and inferior vertebral end plates in a single step. The simple insertion and fixation will result in a quicker procedure that we believe will reduce the risk to the patient and cost to the hospital. We will be demonstrating the product for the first time at the upcoming North American Spine Meeting in San Francisco, November 11-13.

The 2009 inner body fusion market in the US is estimated to be more then $950 million. According to Millennium Research, the ALIF market represents the largest segment of the inner body market with an estimated 2009 revenue opportunity exceeding $350 million.

In August we launched the ILLICO SE percutaneous fusion system to the market. This system in combination with the ILLICO Retractor which was launched last year, completes our lumbar MIS portfolio and allows us to compete in the fast growing MIS segment of lumbar fusion.

As you'll recall, in the second half of 2008 we brought on a number of new distributors that had substantial amounts of MIS business and we are pleased that we can now offer an elegant and simple solution that will allow them to convert that business to Alphatec Spine.

While we saw modest revenue contribution from ILLICO SE in the third quarter we are encouraged by early trends and uptake among surgeons and expect demand for the product to accelerate in the upcoming months.

Our Profuse demineralized bone scaffold provides us with a substantial growth opportunity. Our proprietary VIP packaging allows for rapid and uniform hydration of the bone scaffold with any liquid. Once hydrated Profuse can be squeezed and formed much like a sponge and is designed to fit compactly inside our peak and AlphaGRAFT spacers. At NAS we will be demonstrating for the first time the unique advantage of Profuse in the fusion process as a result of Wolf's law.

Going to Wolf's law, bone response to being in a loaded environment by remodeling new bone in the area under load. Profuse provides for consistent bone to bone end flate contact which allows for direct load sharing between he patients natural bone and Profuse. This load sharing environment should then result in improved boney incorporation of the graft and increased fusion as the bone remodels.

We think this can be particularly useful in cervical procedures where certain products such as BMPs are contrendicated. Profuse provides our sales force with an opportunity to add additional revenue per procedure. When our spacers are used, Profuse adds potentially $1,000 of revenue per procedure.

In the second quarter we secured the distribution rights to a tissue based in vivo wound covering product initially called Amino Clear. We have re-branded the product Amino Shield and sell it under our own private label. We feel as though Amino Shield better describes the unique aspects of this tissue which is derived from the inner lining of the placenta an area that is also called the Amnion. The Amnion has natural anti-adhesive immunogenic and anti-inflammatory properties and has been used for decades for corneal repair as well as a protective wound covering.

Two recently published animal studies, one in the European Spine Journal and the AATB (American Association Tissue Banks) support the use of Amnion tissue in the spine as an anti-adhesion and anti-inflammatory barrier. Intuitively adhesions likely play some role in recurrent pain following posterior lumbar spine surgery. It is estimated that over 20% of patients undergoing these procedures experience fail back syndrome. These complications can require the surgeon to re-enter the surgical site and remove the adherent fibrous tissue, a costly and time consuming process with inherent risks to the patient.

The European Canine Laminectomy study showed significantly reduced periepidural scar formation and reduced recruitment of fibril blast to the surgical site when amnion was used during the procedure as a wound covering.

Last week we announced the execution of our distribution agreement with the ETEX Corporation to distribute its EquivaBone and Carrigen products in the US and Europe, excluding Spain. ETEX is a leader in bone biology and biomaterials and has developed a proprietary non-crystalline calcium phosphate platform of products that promote the repair and regeneration of bone. EquivaBone is a proprietary combination of demineralized bone matrix and non-crystalline calcium phosphate that set hard in vivo and is FDA cleared for use in posterior lateral spinal fusion.

This unique product delivers both Osseo-inductive and Osseo-conductive properties. With hard setting characteristics the material will stay in place once set in surgery. Alphatec Spine will begin immediately distributing EquivaBone in the US.

Carrigen is a synthetic bone substitute utilizing the same proprietary nano-crystalline calcium phosphate technology that is found in EquivaBone. The 510-K for this product is currently FDA review. As a pure synthetic, Carrigen has the ability to set hard with strength levels comparable to that of cancellous bone. Carrigen has high porosity which allows it to absorb saline in our blood when it is mixed with Carrigen. Alphatec Spine expects to distribute Carrigen in the US and Europe in the first half of 2010.

Additionally, pursuant to the distribution agreement we signed with ETEX they have granted us rights of first negotiation with respect to non-exclusive access to future proprietary synthetics that have a variety of potential applications ranging from posterior lateral fusion to the treatment of vertebral compression fractures.

Next I'll discuss our second growth driver initiative addressing the aging spine. We believe that throughout the last year and a half we have successfully positioned Alphatec as the market leader in providing solutions for the aging spine. We invested heavily in research and development to end license develop and commercialize new and innovative products to treat pathologies of the aging spine.

We continue to expect that the majority of these products will not make significant contributions to our revenues until 2010 and thereafter. Key products addressing the aging spine that I'll discuss are OsseoFix, OsseoScrew and Helifuse Helifix.

One of our key aging spine initiatives is the OsseoFix spinal fracture reduction system. We're pleased to announced that in the third quarter we began enrollment in our OsseoFix 510K clinical study in the US. This is in line with previous expectations. We expect to enroll 100 patients at 15 clinical sites with a 12 month follow-up. We currently have eight out of the 15 sites up and running and expect all sites to be enrolling patients by the end of the year.

As a reminder, we began the commercial introduction of OsseoFix in Europe in 2009 and year to date of the quarter end we have treated over 300 patients representing more then 400 vertebral levels. This is up from the 200 patients we reported having been treated as of the end of the second quarter. We are enthusiastic about the strong initial response to OsseoFix and look forward to continued uptake of the product.

As many of you may recall, we had originally hoped to submit the 510K for OsseoScrew by the end of March 2009 but we pushed out our timing to conduct additional testing. We are pleased to announce that the OsseoScrew 510K was filed with the FDA at the end of June. We expect to receive CE mark clearance in the fourth quarter 2009 and will launch the OsseoScrew together with our ILLICO SE MIS system in Europe in the first quarter 2010. We are currently in discussions with the FDA regarding the OsseoScrew 510-K submission and we responded to the FDA's original questions back on October 22.

We continue to work on expanding our pipeline for the aging spine and will be highlighting Helifix which we acquired earlier this year from Helix Point LLC at NAS. We anticipate applying for a CE mark for Helifix in the first quarter 2010 and launching the product in Europe in the first half of the year. Helifix and Helifuse are both designed for the treatment of lumbar spinal stenosis which is a leading cause of spine surgery in patients over 65.

Helifix which is a non-fusion product, will be the first percutaneous self-distracting inner spine sim plan on the market. Helifuse which is a fusion device, will have the same MIS and self-distracting features with the additional locking capabilities that affix it to the spine as process to facilitate fusion. We currently plan on launching Helifuse in the US market in the second half of 2010.

In terms of US distribution at the end of the third quarter we had over 90 total distributor organizations in the US which we believe represent 267 individual sales representatives. We remain committed to our goal in 2009 of achieving 85% exclusivity among our distributors.

Finally I'll discuss our fourth growth driver, international expansion. We continue to expand internationally in the third quarter we recorded $1 million in revenue from Europe and $5.6 million from Asia. We are encouraged by early interest in and the uptake of OsseoFix in Europe which has in a short time driven new distributor relationships and increased surgeon adoption of all of our products.

We're proud to have just reported our ninth consecutive quarter of record revenue growth and our third consecutive quarter of positive adjusted EBITDA. We believe that through the strength of our core product offering and distribution network we will cotninue to expand both our revenue base and market share. We have created a platform to support the vision at Alphatec of being the leader in aging spine.

Now I'd like to turn the call back over to Peter to discuss the third quarter financial results and I'll conclude with an update on 2009 product initiatives and financial guidance.

Peter Wulff

The following remarks are about our reported financial results for the three months ended September 30, 2009. Consolidated revenues for the third quarter 2009 were $32.7 million an increase of 26.6% from the $25.8 million reported for the third quarter 2008. US revenues for the third quarter 2009 were $26.1 million an increase of 21.4% from the $21.5 million reported for the third quarter 2008. Asia revenues for the third quarter 2009 were $5.6 million an increase of 44.5% from the $3.9 million reported for the third quarter 2008. European revenues for the third quarter 2009 were $1 million an increase of $500,000 from the $500,000 previously reported in the third quarter 2008.

Deferred revenues recorded on our balance sheet as of September 30, 2009, were $2.1 million of which $1.2 million relates to our European distributors. Consolidated gross profit for the third quarter 2009 was $20.8 million an increase of $4.1 million over third quarter 2008 of $16.7 million. The third quarter 2009 gross margin of 63.7% was lower then the third quarter 2008 gross margin of 64.7%.

The US gross margin in the third quarter 2009 was 68.9% an increase of 1.1 percentage points over the 2008 third quarter US gross margin of 67.8%. The overall decrease in gross margin was primarily due to increased European and Asian sales mix which have a lower gross margin and higher instrument depreciation expense partially offset by decreased royalty expenses and improved manufacturing efficiencies.

Total operating expenses for the third quarter 2009 were $21.5 million an increase of $300,000 compared to the third quarter 2008 of $21.2 million. The increase in third quarter 2009 was primarily due to increased sales and marketing expenses to support revenue growth, partially offset by reduced in process research and development expenses.

Research and development expenses for the third quarter 2009 were $3.6 million an increase of $200,000 compared to the third quarter 2008 of $3.4 million. Sales and marketing expenses for the third quarter 2009 were $12.6 million an increase of $1.9 million compared to the third quarter 2008 of $10.7 million. The increase was primarily due to an increase in sales commission expenses related to the increased US sales volume and increased sales expenses in Asia.

General and administrative expenses for the third quarter 2009 were $5.2 million a decrease of $600,000 compared to the third quarter 2008 of $5.8 million. The net loss for the third quarter 2009 was $1.3 million or -$0.02 per share both basic and diluted compared with a net loss of $4.9 million or -$0.10 per share both basic and diluted for the third quarter 2008. The net loss of -$0.02 per share represents a sequential increase of $0.11 per share from the second quarter 2009. When excluding IP R&D expenses it represents an increase of $0.02 per share or a 50% improvement over the second quarter 2009.

Adjusted EBITDA of $3.6 million was reported for the third quarter 2009 compared to -$91,000 for the third quarter 2008. Adjusted EBITDA of $3.6 million represents a 31% increase over the second quarter 2009 of $2.8 million. As of September 30, 2009, the company had a $14.1 million position in cash and cash equivalents. The sequential decline in our cash position in the quarter was primarily due to one time payments, namely a litigation settlement, the OsseoScrew development milestone payment, and the pay down of our working capital line of credit as well as continued investment in surgical instruments to support product launches in the quarter.

We are beginning to realize inventory efficiencies resulting from the realignment of our manufacturing operations but more importantly to a heightened emphasis on receivable management, our US hospital DSOs dropped seven days in the third quarter compared to the second quarter of 2009. We are very pleased with the results of these internal measures and will continue to closely monitor our cash management efforts to ensure that we meet our stated 2009 guidance.

Now I'd like to turn the call back over to Dirk.

Dirk Kuyper

As you may recall, we set out this year to launch a number of new products in 2009 both addressing our core spinal product portfolio and addressing the aging spine market. While we set an extremely aggressive target, the Alphatec team has risen to the challenge and we're pleased that we are basically on track to meet the objective and have, as of now, launched 11 products either into beta or full commercial launch in the market.

Our core product launches expand the breadth of the offering. I'm going to take a moment to talk about our exciting new minimally invasive ARC Portal system and GLIF technique which we believe addresses a $200 million market opportunity in the US. The ARC Portal access system and instrumentation is our breakthrough access system that provides a far lateral approach to the spine with the patient in a natural face down position.

The G-Width technique, which is an acronym for guided lumbar inner body fusion is designed to allow surgeons to perform a 360 degree minimally invasive procedure without the need for repositioning the patient. When augmented with posterior pedicel fixation the ARC and GLIF are designed to reduce the overall length of the lateral lumbar procedure, thereby reducing operating room costs and trauma to the patient.

We recently initiated limited beta launch for the GLIF and our portal system for far lateral lumbar fusion procedures. We met our objectives and confirmed that the system works. The purpose of this beta launch was to validate the system in real operative conditions to make any necessary final changes prior to full commercial launch.

We made minor modifications to the portal following our initial experience and have reinitiated the use of the product at the beta sites. We now expect to make our full market introduction in the first quarter 2010.

In terms of financial guidance for 2009 we are reiterating our guidance of annual revenues of $128 to $130 million and at this time our comfortable with the high end of the range. We are reiterating our annual 2009 adjusted EBIDTA of $12.5 to $14.5 million. As Peter mentioned in his financial comments, the third quarter gross margin of 63.7% was below the 64.7% reported in the same period in 2008 and slightly below our expectations.

While our overall sales reported for the third quarter were in line with expectations the US international mix was weighted towards international sales which negatively impacted our gross margin. This was attributed to lighter then expected case volume in July and August reflecting a slower seasonal trend and a slight delay in the launch of the ILLICO SE.

We are pleased that case volume picked up significantly in September and has remained strong through October. ILLICO SE volume has picked up strongly since the launch and is now contributing to sales growth. We continue to expect gross margin expansion over the next two years driven by manufacturing efficiencies, product mix, and new product launches and re-designs that are intended to reduce commitments to third parties.

For 2009 gross margin we now anticipate a range of 64% to 65% for the full year which compares favorably to the 63.9% margin we had for the full year 2008. While we are pleased with our third quarter results we continue to invest significantly in future development initiatives and product launches which negatively impacted our EPS results in the quarter. We expect fourth quarter EPS to be break even or slightly positive.

The Board of Directors and I are extremely pleased with the performance of the entire Alphatec team. We have a team of talented and dedicated employees that exhibit a can do attitude every day. This team has excelled in every way during the third quarter. We believe we are well positioned for the future and to continue to drive growth and shareholder value going forward.

Lastly, we hope that many of you are coming out to San Francisco to attend the North American Spine Society Conference. Many of the products we discussed on today's call will be showcased at our booth. We are also hosting an investor breakfast on Wednesday morning at 7:30am at the Intercontinental Hotel in San Francisco where we will showcase several of our new products including hands on demonstrations and information sessions. We look forward to seeing you there.

Thank you and now I'd like to open the call up for your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Bill Plovanic - Canaccord Adams

Bill Plovanic - Canaccord Adams

On the OsseoScrew you said that you submitted to the FDA and received questions back. Can you give us a little color on the types of questions you're receiving on that?

Dirk Kuyper

It wasn't anything that we hadn't really anticipated. The primary one related to bony integration because the screw is slightly different then a traditional screw, they wanted to know that bone would actually grow around the screw which we showed them histology slides from an animal study that we had done. The second one had to do with retrievability post surgery and we showed them both immediately at the time of surgery it could be un-deployed and removed and also after six weeks that it could be un-deployed and removed and that study is continuing and we will give them additional results after they're in.

Bill Plovanic - Canaccord Adams

Do they need those additional results for the approval?

Dirk Kuyper

They haven't asked for them at this time.

Bill Plovanic - Canaccord Adams

Do you think that this will get approved before year end or early January?

Dirk Kuyper

We're hopeful. We think that we addressed their questions in a very substantive way. We're hopeful, they have 30 days basically to get back to us from the 22nd so we should hear right before Thanksgiving. Always the Holidays make that a little more difficult as things definitely slow down at the FDA but I think worst case certainly early first quarter.

Bill Plovanic - Canaccord Adams

On GLIF could you give us some color on the changes that you made and is this the final tweak and you're ready to go, start manufacturing instrumentation sets?

Dirk Kuyper

We've actually already started manufacturing the instrumentation set. What we found in the initial surgery was with, a lot of time lumbar surgery is done on people who are obese and one of the first patients that we got was extremely obese and we saw that the portal was a little bit too short for that type of scenario and wouldn't stay in place so we actually lengthened it a little bit and then also added a couple of pins to it to lock it down into the vertebral body. That's been done, we confirmed it in a lab a couple of weeks ago and so we believe we've got the final solution now. We'll do some more cases in the beta and then the idea is to launch basically right after the beginning of the year.

Bill Plovanic - Canaccord Adams

On the adjusted EBITDA guidance for the quarter you did $3.6 million, if I look at the guidance you'd have to do between $4.7 and $5.7 million in the fourth quarter. It sounds like you're probably going to be more towards the lower end of that given the EPS guidance, is that fair?

Peter Wulff

We don't comment on the range but we are very comfortable with the guidance we have and with the revenue increase that we expect to continuing growing in the fourth quarter.

Dirk Kuyper

We see a reacceleration of the US growth rate. We're very pleased with September and October and that should help that quite a bit.

Bill Plovanic - Canaccord Adams

I know you said you'd be 85% exclusive by year end. Can you give us an update on where the number of distributors are today, the number of agents, reps and your exclusivity to date?

Dirk Kuyper

We're over 90 distributor agencies which represents about 267 sales people and exclusivity I think is around 75%.

Peter Wulff

Its in the mid 70's.

Operator

Your next question comes from Matt Dolan - Roth Capital

Matt Dolan - Roth Capital

A follow up on the distributor, can you take that point one step further and give us your targets? I know we've talked about 300 and 85% in the past. When are you comfortable with getting there so we can factor that into growth expectations?

Dirk Kuyper

In the third quarter we really were working on consolidating a lot of the distributors that we had added earlier in the year. We didn't see a large growth in the distribution network. We do anticipate that also reaccelerating this quarter and going into the first quarter. I can't give you an exact number because it really depends on when people sign up but we are in negotiation to add to the distribution group and increase that number here in the fourth quarter and the first quarter of 2010 as well. You should start to see that number go up when we report the fourth quarter.

Matt Dolan - Roth Capital

Maybe a longer term type growth question, you had a number of positive variables here; distribution expansion, new products this year, probably some MIS conversion competitively and you continue to grow well above the market growth rate. Can you talk about how things are tracking and your expectations? Do you think a double market growth rate is something that you can sustain given the pipeline you put out there this year?

Dirk Kuyper

Absolutely. I think double market growth rate just with our core products is absolutely feasible. We're very excited about the [Solas], stand along inner bodies have picked up very dramatically in the last year with a couple of other product introductions. We fast tracked that from the time we acquired the IP in March we were basically in six month went from concept to a fully tested and submitted product and we think that has some very exciting opportunity for us next year in the US in terms of core products. Our growth rate really still at this state reflects very little in terms of aging spine. I think that'll start to come into play in 2010 once we get approval for OsseoScrew.

Matt Dolan - Roth Capital

On the aging spine, you're getting some good experience in Europe with OsseoFix, do you expect to see any clinical data published out of that experience that you're getting here in the near term? If so, can you describe what forum that might be presented in.

Dirk Kuyper

Getting data published obviously always takes some time. We are in the process of initiating several studies in Europe to gather some good scientific data. For instance, at NAS we actually have several European surgeons presenting in the booth and there are a couple posters on OsseoFix. There are some surgeons that will be presenting their cases for us and the results are quite exciting and very encouraging.

Matt Dolan - Roth Capital

The Q4 guidance I think would require about a 67% gross margin in Q4. Its still pretty good ticked up, is that just a mix issue cleaning itself up and what do we think about your ability to continue to expand those gross margins in the next year or two?

Peter Wulff

I think in the near term for the fourth quarter we're expecting the margins to be in the 64% to 65% range. We are comfortable with the EBITDA guidance for the fourth quarter based on our expected sales growth and improvements in there. The guidance for March and in the future periods we do expect that to up-tick over time really through three areas; one is our continued development and production efficiencies, second is abatement of the royalty expense we have, third is through new product launches that inherently have a higher margin profile.

Operator

Your next question comes from Glenn Novarro - RBC Capital Markets

Glenn Novarro - RBC Capital Markets

Specifically to your US business you mentioned earlier that the US business was impacted by seasonality. We cover a lot of other spine companies and its looked like the US for some of the other spine companies was quite strong. It appears to me that the US market did well in the third quarter. I'm wondering if you can clarify a few things. One was for Alphatec was you business impacted by the overall market or was it Alphatec specific, if you can clarify and provide a little bit more there.

The second question has to do with the enrollment for the OsseoFix in the US. You have eight enrolling centers, how many patients have you so far enrolled in that trial?

Dirk Kuyper

Our growth rate in the third quarter for the US was 21% which we think still compares very favorably with the overall market as being quite strong. I would say that the market has not necessarily gone down. We did have within our surgeon group a decrease in just number of procedures that we think was seasonal related to vacations or whatever. We saw that pick up significantly.

The other thing is we had obviously planned to launch the ILLICO SE about 30 days earlier then we actually did and that had an impact obviously on the third quarter. We saw an immediate up-tick but it wasn't near as much as we had originally anticipated obviously with the delay. We feel very good about where our growth rate is going in the US and saw both in September and October again a very nice pick up back to the levels that we had anticipated.

In terms of OsseoFix getting the sites up and running we had 15 sites trained prior to getting the nod from the FDA to start enrolling patients but then you still have to go through the IRB process and a lot of hurdles to get these sites so that's been quite a task. As I mentioned we have eight out of the 15 fully up and running and looking for patients. As of this date we have about a handful of patients that have been actually enrolled into the trial so we're still very much at the beginning stage.

Glenn Novarro - RBC Capital Markets

On OsseoFix for the 100 patients what's your best guess at this time as to when you can get enrollment complete? The reason why I'm asking is obviously with 12 months follow up and then we've got to take into consideration FDA review time it looks like this is probably a 2012 launch. Your thoughts there?

Dirk Kuyper

I don't know if its going to be 2012 but its certainly 2011. As I mentioned, everything takes longer then you think its going to and certainly getting the sites up and running has taken us a little longer just getting through all the IRB processes. Now that we have more then half of the sites up and running we hope to accelerate the enrollment process.

This is a very prevalent procedure so we don't see a lot of problems getting the enrollment done so we're hopeful that certainly first we'd like to see it completed in the first quarter, it might be first half before we've got all 100. You actually have to do more then 100 because you have some fall out. Certainly by the first half. I think its still late 2011, I don't believe that it pushes into 2012 for US approval.

Glenn Novarro - RBC Capital Markets

I'm assuming pricing, price per case was stable to up in the quarter is that fair?

Dirk Kuyper

That's correct.

Operator

Your next question comes from Bud Leedom - Global Hunter Securities

Bud Leedom - Global Hunter Securities

One question related to OsseoScrew, given the specificity of the questions from the FDA would you believe that a more formal clinical pathway requirement is off the table at this point?

Dirk Kuyper

I don't know that you can ever say anything is completely off the table. We feel very good about the answers that we provided and we had a lot of substantive data to support the answers that we gave them. We feel very good about it. We're hopeful that we will get approval without any other significant questions or requirements to do a clinical.

Bud Leedom - Global Hunter Securities

Do you have a CapEx figure for the third quarter?

Peter Wulff

In the third quarter we spent approximately $1.5 million for surgical instrumentation to support the roll out of the ILLICO SE. Our core PP&E was several hundred thousand dollars, it was relatively low. Most of our core PP&E capital was front end loaded for the year as we had consolidated and moved our manufacturing facility into one site back in March and April.

Operator

At this time with no further questions I'd like to turn the conference back over to management for any additional or closing remarks.

Dirk Kuyper

Our mission is to be the leading independent full line spine company with a focus on solutions for the aging spine and our goal is to improve the aging patients quality of life. The aging population is a global phenomenon, its estimated that by 2030 over one billion people worldwide will be over the age of 65. This represents a tremendous opportunity for Alphatec going forward.

As surgeons continue to see a shift in their practices to increasingly older patients we plan on being their spine company of choice worldwide. As such we have invested heavily in proprietary products that will outperform current standards in aging patients which position the company for market leadership position in what we believe represents the fastest growing segment of the global spine market.

Thank you very much for your time this morning and look forward to seeing you in San Francisco.

Operator

That does conclude today's conference. We appreciate everyone's participation today.

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Source: Alphatec Holdings, Inc. Q3 2009 Earnings Call Transcript

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