BioMimetic Therapeutics, Inc Q3 2007 Earnings Call Transcript

BioMimetic Therapeutics, Inc.(NASDAQ:BMTI)

Q3 2007 Earnings Call

November 13, 2007 4:30 p.m. ET

Executives

Kearstin Patterson - AssociateDirector of Corporate Communications

Sam Lynch - President and ChiefExecutive Officer

Larry Bullock - Chief FinancialOfficer

Steve Hirsch - Chief OperatingOfficer

Charlie Hart - Chief ScientificOfficer

Analysts

Seth - Deutsche Bank

Michael Matson - Wachovia

Brian Wong - Broadpoint Capital

Bill Plovanic - Canaccord Adams

Errol Rudman - Rudman Capital

Operator

Good day, ladies and gentlemen,and welcome to the Q3 2007 BioMimetic Therapeutics Earnings ConferenceCall. At this time, all participants areon listen-only mode. We will conduct aquestion-and-answer session towards the end of this conference. If any time during the call, you requireassistance, please press * followed by 0 and a coordinator will be happy toassist you.

I would now like to turn thepresentation over to Kearstin Patterson, Associate Director of CorporateCommunications for BioMimetic Therapeutics, Incorporated. Please proceed ma'am.

Kearstin Patterson - Associate Director of Corporate Communications

Thanks Anton. Before we begin, I would like to remind youthat any statements made during this call can be considered forward-lookingstatements within the meaning of the Private Securities Litigation Reform Actof 1995. These forward-lookingstatements are based on the current intent and expectations of the managementof BioMimetic Therapeutics.

These statements are notguarantees of future performance and involve risks and uncertainties that aredifficult to predict. There are manyimportant factors that could cause actual results to differ materially fromthose indicated in the forward-looking statements.

BioMimetic's actual results andthe timing and outcome of events may differ materially from those expressed inor implied by the forward-looking statements, because of risks associated withthe marketing of BioMimetic's products and product candidates, unprovenpreclinical and clinical development activities, regulatory oversight andapproval and other risks detailed in the company's filings with the Securitiesand Exchange Commission.

Except as required by law,BioMimetic undertakes no responsibility for updating the statements made duringthis call. Please note that for yourconvenience, this conference call webcast will be archived on the InvestorInformation section of our website for at least 30 days.

Now I would like to hand the callover to Dr. Sam Lynch, President and CEO of BioMimetic Therapeutics.

Sam Lynch - President and Chief Executive Officer

Thank you, Kearstin, and goodafternoon everyone, and welcome to BioMimetic Therapeutics third quarterearnings conference call. I have with meon the call today Larry Bullock our CFO, Steve Hirsch our COO and Head of Orthopedics,and Dr. Charlie Hart our Chief Scientific Officer.

During the call today I willdiscuss our product development programs and business activities for the thirdquarter ended September 30, 2007, and then turn the call over to Larry who will review ourfinancial results, which were released this afternoon. We will also be available for our Q&A atthe end of this call.

Let's begin with specifichighlights and updates on our individual product candidates starting with GEMOS1 Bone Graft, our lead orthopedic product candidate intended to be usedduring open surgical treatment of fractures and fusions.

As most of you know, like ourapproved periodontal product GEM 21S, GEM OS1 combines the recombinant form ofone of the body's key wound healing stimulators, platelet-derived growth factoror rhPDGF for the recombinant form, with a resolvable synthetic bone matrix, beta-tricalciumphosphate or beta-TCP for short.

Both components are critical tothe overall effectiveness of the product with the rhPDGF providing thebiological stimulus and really distinguishing this product candidate fromothers in the market, while the bone matrix provides the scalpel to enhance andguide bone regeneration.

Based on safety and efficacyresults observed in our three pilot or Phase I/II type of clinical trials, wehave approval from the FDA to enroll patients in a large randomized controlledpivotal trial to compare GEM OS1 to autograft for the treatment of foot andankle fusions. The primary endpoint forthis study is percent of patients fused as measured by CT scans at sixmonths. Patient enrollment is approvedfor 396 patients and up to 28 clinical centers. As a reminder, the study is designed as a non-inferiority trialcomparing GEM OS1 to autograft where the two treatments randomized 2 to 1,respectively.

Over the past quarter, we've beenvery active in bringing on new clinical centers for this study and currentlyhave 26 of the 28 clinical sites initiated, 40% of which have been initiatedwithin the past two months. So, since wevisited with you previously on our last earnings call.

To date, we have enrolled 60patients in the study and with the increased number of sites that have recentlybecome operational and the expectation of bringing on our final two sites bythe end of the year, we expect patient numbers to increase steadily throughoutthe spring with our goal of completion of patient enrollment by mid-2008 beingon schedule.

As you may recall, over the summer,Dr. Sheldon Lin, one of the clinical investigators in our U.S. pilot trial andalso an investigator in the ongoing pivotal trial, reported encouraging interimresults at the American Orthopedic Foot and Ankle Society meeting in Toronto for our 20 patientU.S. pilot study comparing GEM OS1 to autograft in foot and ankle fusions.

From analysis of CT scans at six weeks, we observed 39% of the GEMOS1 patients demonstrated fusion as compared to 33% of the autograft patients,while at 12 week -- at the 12-week time point, 69% of the GEM OS1 patientsversus 50% of the autograft patients had fused. We'd like to remind you that fusion rate is assessed on CT scans, suchas the data I just presented to you is the primary endpoint for our U.S. pivotaltrial.

Complete clinical union was alsoobserved at 24 weeks following surgery in 85% and 100% of the GEM OS1 andautograft patients, respectively. Andwhile we know this may have created some questions, we would like to remind youthat although the one -- we had two GEM OS patients that didn't fuseclinically, one patient was a diabetic and smoker, also failed to fuse whenre-treated with autograft.

We believe that it is a strongtestament to our product and our data that all six of the surgeons involved inthe initial U.S.and Canadian studies are participating in the U.S. pivotal study. Obviously we are very encouraged by theirenthusiasm and realize their continuing involvement after treating 80 patientscollectively among the two initial studies is a display of their confidence intheir clinical impressions of GEM OS1 to date and the support for what we aretrying to accomplish at BMTI.

We are, as you know, pursuing aglobal strategy for the approval of GEM OS1, and so let's now move to ourstudies ongoing in the EU. We areenrolling patients in 125-patient clinical trial to assess the safety andefficacy of GEM OS1 as a bone substitute in foot and ankle fusion procedures atup to ten clinical centers. All patientswill be treated with GEM OS1 and the primary endpoint for the study is fusionrates as measured by CT scan at nine months post surgery. We currently have seven sites approved toenroll patients and have enrolled 20 patients to date. As with the U.S. pivotal trial, we expect tocomplete enrollment in this trial around the middle of 2008.

Now, moving to our 60-patientCanadian GEM OS1 foot and ankle registration study, the last patient completednine-month followup in September, and we are now completing the analysis of thedata.

As a reminder, this is anopen-label study in which all patients were treated with GEM OS1 with CT scansbeing taken at 6 and 12 weeks, and standard radiographs and clinicalassessments were obtained throughout the nine-month followup period. The final data will include the CT scans andstandard radiographic assessments along with the clinical endpoints includingassessment of fusion, function, and pain scores.

In July of this year, we providedthe three-month interim data on this study during the presentation that Dr. SheldonLin gave at the AOFAS meeting. The datapresented demonstrated that by CT scan assessment, a 70% fusion rate wasachieved in the GEM OS1 patients by three months.

This level of fusion is veryconsistent with the results we observed in the pilot U.S. trial and is similar topublished results using autogenous bone graft for this indication. Following completion of data analysis, wewill be releasing top-line data for this study by year end. At the time of the data release, we will beholding a conference call, and we hope to have one of our surgeons availablefor that call to answer questions.

In addition, more data from thestudy will be presented in early March at the American Academyof Orthopedic Surgeons or AAOS meeting. One of our clinical investigators, Dr. Chris DiGiovanni will bepresenting at the upcoming AAOS meeting and will be providing additional andexpanded details of both the Canadian and U.S. foot and ankle studies at thattime. We are very excited about theopportunity to have one of our lead investigators present our data in a generalsession at the largest orthopedic meeting of the year.

We are in ongoing discussionswith Health Canadaconcerning the filing of the BLA for GEM OS1. As with any major marketing filing, we believe that it is to ouradvantage to have a pre-BLA meeting with Health Canada to discuss the finaldata. This type of meeting is common toensure that the data and documentation to be submitted meet the expectations ofthe regulatory agency.

Once this meeting has been held,which we will expect to take place in the first quarter of next year, we shouldbe positioned to file the formal BLA shortly thereafter. While this may represent a two to three-monthfiling delay from our initial plans, we continue to believe that mostimportantly promising results in the very high-risk patient population in theCanadian trial where a third of the cases were revisions from our failedprevious surgery may be indicative of the results to be forthcoming in the U.S. pivotaltrial.

Now, moving to GEM OS2, oursecond orthopedic product candidate, earlier this year, we announced that wehave initiated a 20-patient clinical study in Sweden to evaluate the safety andclinical utility of GEM OS2 in the treatment of distal radius fractures usingminimally invasive administration of the product candidate into a fracturesite.

The study designed, mirrors theGEM OS1 distal radius fracture pilot's data, which as you may recall, had veryencouraging results and is taking place at the same clinical site in Sweden. We have enrolled 14 patients to date andanticipate that with the oncoming winter months, we will complete enrollmentaround the end of this year or the first part of 2008.

Keeping in mind the six-monthfollowup period, we expect to have data from this trial available early in thesecond half of next year. Also, we havenow completed enrollment in a 10-patient pilot study in Canada toevaluate the clinical utility of GEM OS2 for a treatment of foot and anklefusions. The data for this study arealso expected around mid next year.

We have also decided to ramp upan entirely new program for the company with the aim to develop the first eversite-specific therapeutic for osteoporosis. The first phase of this program will evaluate the ability of GEM OS2 toincrease bone density in the vertebrae of osteoporotic patients, and we expectto begin clinical testing during the first half of next year.

Specifically, the initialindication will likely be the treatment of osteoporotic vertebral bodies atsites adjacent to kyphoplasty or vertebroplasty procedures, which are known tohave an elevated risk for future fractures. This study will determine if the local administration of our GEM OS2product candidate can lead to local improvement in bone density andosteoporotic bones that are at a high risk of fracturing.

By enhancing the bone density inthese bodies, we intend to reduce the risk of these fractures. We believe that the clinical initiation ofthis program is particularly timely given the increasing awareness of thesignificant side effects due to some of the systemic bisphosphonateosteoporosis drugs.

I would now like to turn to ourperiodontal and oral surgery program. Aswe had anticipated, we are seeing an upswing in sales of 21S as an increasingnumber of periodontists and oral surgeons are becoming familiar with the use ofthe product.

While sales have jumped 21S inthe U.S.,and Canadaremain on track with our projections, we are seeing fluctuations in theordering pattern of our partner, Luitpold Pharmaceuticals, a wholly-ownedcompany of Daiichi-Sankyo, Inc. due to seasonal stocking of the product. And Larry will discuss specific GEM 21S salesin a few minutes.

I recently attended the annual American Academy of Periodontology meeting in Washington, DC,and I have to say it was tremendously gratifying to see many presentationsshowing the excellent results in patients treated with our GEM 21 product.

As one tangible manifestation ofthe high regards for our work within the Academy, I along with two co-authorsfrom BioMimetic, as well as two other highly regarded scientific collaborators,were honored at the conference with the prestigious Earl Robinson RegenerationAward for the most significant scientific publication in the field ofregeneration. We were honored to receivethis award two years in a row, by such a preeminent organization as the AAP andI believe that it is a testament to the quality of research that we are doinghere at BMTI in the area of tissue regeneration.

Additionally, at this meeting weput the finishing touches on our new textbook on the clinical applications ofrecombinant protein therapeutics and tissue engineering in periodontics and maxillofacialsurgery, which we will review for the clinical community some of the excellentclinical results that have been achieved to date with recombinant PDGF.

Now moving on to the corporatefront, we have expanded the company's in-house protein chemistry capabilitiesover the past quarter with the addition of Leo Schnell, our new Vice Presidentof Protein Biochemistry. Leo brings 20+years of protein science and product development expertise to BMTI, includingmost recently, he was employed with Amgen and was responsible for leading aglobal operations team to develop and launch their first oncology proteintherapeutic.

In addition, this past quarter,we added John McKay as our new Vice President of Quality and EnvironmentalHealth and Safety. John also brings 20years of international experience in the fields of quality, environmentalhealth and safety, operations, engineering, compliance training, auditing andproduct development programs to BMTI. Most recently he served as Senior Director of Compliance at StrykerPhysiotherapy Associates, and prior to that he held several managementpositions within the Bayer Corporation, in Quality, Environmental, Health &Safety and Management Systems.

We are excited about theexperience that Leo and John both bring to BioMimetic and look forward to manypositive contributions that they will provide, as we continue to grow thecompany and move forward with our product development activities.

So in summary, during the thirdquarter of 2007, we hit several key clinical milestones. We concluded the nine-month followup on all60 patients in the GEM OS1 foot and ankle registration trial in Canada andintend to release the data by year end right on schedule.

Enrollments rates are increasingin both the U.S.and EU pivotal trials with GEM OS1, and we expect to have enrollment completedin both studies by mid-2008. Wecompleted enrollment in a pilot trial in Canada to evaluate GEM OS2 for atreatment of foot and ankle fusions. Andwe continue to receive very positive feedback from our investigators andsurgeons, who are gaining increasing experience from our products through both,clinical and preclinical studies.

And finally, as we've discussedon the call today, we are embarking on a new program to develop a localizedtherapy for the treatment of bones at risk of fracture due to osteoporosis,beginning first in the spine, using our current GEM OS2 formulation and expectto enter the clinic in this indication in the first half of next year.

I would now like to pass the callover to Larry, our Chief Financial Officer, to briefly discuss our thirdquarter ending September 30, 2007 financial results. Larry?

Larry Bullock - Chief Financial Officer

Thanks, Sam. Our third quarter financial results reflectthe continuing progress of our orthopedic product development programs that youjust heard about. We continue to striveto be financially prudent in managing our business, as we make the importantinvestments to advance our product candidates through clinical development.

Our net loss for the thirdquarter of 2007 was $5.6 million, compared to $4.2 million for the thirdquarter of 2006. Total revenue for thethird quarter of 2007 was $1.7 million, which includes product sales of GEM 21Sto Luitpold, our marketing and distribution partner, sublicense fee income androyalty income. This compares to thethird quarter of 2006 where we recorded total revenue of $700,000.

R&D expenses were $4.6million for the quarter versus $2.8 million for the third quarter of 2006. The increase in 2007 research and developmentexpenses primarily relate to the new and ongoing preclinical studies andclinical trials in the United States, Canada, and the European Union, as itrelates to our orthopedic product candidates, as well as continuing expensesassociated with regulatory filings.

General and administrativeexpenses totaled $1.8 million for the third quarter of 2007, compared to $1.7million for the same period in 2006. These expenses consists primarily of the costs of doing business withpublic company, including costs to implement the requirements of Section 404 ofSarbanes-Oxley Act of 2002, professional services, and staff and facilitiesexpansion to accommodate our increasing product development activities.

Turning to the balance sheet, ourbalance sheet and liquidity remains strong with cash, cash equivalents,certificates of deposits and investments in marketable securities of $68.3million as of September 30, 2007. We significantlystrengthened our balance sheet in February 2007 by completing a secondaryoffering, which raised additional net proceeds of approximately $40 million.

We believe these resourcesposition the company very well to complete development of our initialorthopedic product candidates.

Finally, I'll provide ourfinancial outlook for 2007. Please notethat these projections are based on our current expectations and assumptionsrelated to the costs and timing of our ongoing clinical trials and our currentexpectations relative to product revenue from GEM 21S and regulatory approvalfor our product and product candidates.

We expect our year end cashbalance to be between $64 million and $68 million after receipt of a $5 millionmilestone payment, which we anticipate during the fourth quarter from ourmarketing partner, Luitpold.

Total product sales revenue ofGEM 21S to Luitpold is expected to be $5 million, which excludes royalties andmilestone payments. And finally, our netloss for the year is expected to be between $24 million and $28 million.

With that I would like to thankyou for your interest in BioMimetic and will turn the call back over to Dr.Lynch.

Sam Lynch - President and Chief Executive Officer

Thank you, Larry. As you can see, we have made substantialprogress during the third quarter, and I believe that there is much moreprogress ahead in the final quarter of 2007.

Before we open up the call toquestions, I would like to briefly review the key milestones coming up in thenext 12 months.

1. The announcement of our GEM OS1Canadian top-line data by year end and filing for the treatment of foot andankle fusions with anticipated approval by year end 2008.

2. Completion of enrollment in the U.S. and EUpivotal studies for foot and ankle fusions by the middle of next year.

3. The initiation of a GEM OS2 injectablebone graft pilot trial for localized treatment of osteoporosis in the spine ofpatients with vertebral compression fractures by the first half of 2008,release of data from both GEM OS2 studies in the foot and ankle, as well as thedistal radius by the middle of next year.

4. And finally, presentations at the AAOSand ORS meetings next spring as well as several publications in orthopedicjournals, our preclinical studies supporting our product candidates.

Overall, we believe that wecontinue to make good progress on a number of very important events coming upand we look forward to sharing that information with you as we achieve thesemilestones.

We would now be happy to answerany questions that you may have. Anton,let me turn the call back over to you for further instructions for the Q&Aportion of the call.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, if you wish to ask aquestion please press "*" followed by "1" on your touch-tonetelephone. If your question has beenanswered, or you wish to withdraw your question press "*" followed by"2". Questions will be takenin order received. Please press"*1" to begin.

Your first question comes fromthe line of Tao Levy with Deutsche Bank. Please proceed with your question.

Seth - Deutsche Bank

Yeah. Hi, guys. This is Seth calling for Tao. First, I just wanted to touch base on the Canadian filing. First, when did you decide to have a meeting withthe Canadian Health Ministry and do you believe that the current data is goingto be enough to get a product approval?

Sam Lynch - President and Chief Executive Officer

We initially decided to have thatmeeting, I would say, I don't know roughly a month or so ago, more or less, andit was after an initial conversation with them on this topic, we believe thatwe will be to our benefit to review that data with them. It's a very customary thing to do, to go inand have a pre-filing meeting with the regulatory agencies. And we just think that that will be very muchto our benefit to have that meeting with them prior to making any submission.

So in regard to any speculationon the data, we have not received or have not finished analysis of thedata. We do not yet have at this pointany more data that has been publicly released. So, we can't speculate on whether or not that will -- that data will besufficient until it's fully analyzed and we submit that to the Ministry ofHealth in Canada.

Seth - Deutsche Bank

Okay. So, Sam, assuming that we don't have anyhiccups, you said shortly thereafter, we should expect the filing, does thatmean by the end of the first quarter?

Sam Lynch - President and Chief Executive Officer

I would say if all goes smoothly,yes, it should be sometime next spring, early next spring. But I would say around the end of the firstquarter.

Seth - Deutsche Bank

Okay. And then, to move over to the U.S. pivotalstudy, you said that enrollment is on-track. So, is it safe to assume, we're going to see top line data from thisstudy by about this time next year?

Sam Lynch - President and Chief Executive Officer

Seth, I don't know about that, itdepends – it's going to be very tight let me say that. If we complete enrollment in the middle ofnext year, we've got a six-month followup, chances are, it's going to be firstquarter of '09 before we will be in a position to release the data, top-linedata.

Seth - Deutsche Bank

Okay. Are there -- do you have any other updates, Iguess on the vertebral compression fractures in the GEM LT studies?

Sam Lynch - President and Chief Executive Officer

Well let me just say regardingthe VCF indication that we have a number of preclinical studies that you maywell imagine that we have completed or are in the very final phases ofcompleting and we are very optimistic about the results that we have seen to datewith those studies. And I believe someof that data, Charlie correct me if I am wrong, but I believe some of that datashould be available next spring.

Charlie Hart - Chief Scientific Officer

Yeah assuming we get the speakingslots or the poster slots we hope it ORS, which we should know in the next fewweeks, we would hope to be able to release lot of that data that point in time.

Seth - Deutsche Bank

Okay. About the Luitpold milestones, so am Icorrect in saying we are expecting $5 million this year and then another $10million in 2008 in milestone payments?

Larry Bullock - Chief Financial Officer

Yes, there is a $5 millionpayment that should come during the fourth quarter as we said before this yearand then also $10 million payment -- milestone payment upon completion orapproval of the European filing for GEM 21.

Seth - Deutsche Bank

Okay, and Larry, is that, so yousaid on your comments that cash was going to be sufficient to complete your --did you say your initial orthopedic studies?

Larry Bullock - Chief Financial Officer

Yes.

Seth - Deutsche Bank

Okay. So this should probably take you to launch ofGEM OS1?

Larry Bullock - Chief Financial Officer

I won't make any guarantees aboutthat, but certainly we think we are in a very good position at this stage.

Seth - Deutsche Bank

All right guys, well, thanks alot. Thanks for the update on all ofyour studies and good job, and I will get back in the queue. Thanks.

Sam Lynch - President and Chief Executive Officer

Thank you, Seth.

Operator

Your next question comes from theline of Michael Matson with Wachovia. Please proceed with your question.

Michael Matson - Wachovia

Hi! Thanks for taking myquestion. I guess, just curious on thedecision to look at the pilot trial for vertebral compression fractures ratherthan something like in the area of hip fractures, any thoughts there?

Sam Lynch - President and Chief Executive Officer

Well, let me turn it over toSteven and let him comment on that.

Steve Hirsch - Chief Operating Officer

Yeah, Michael, clearly we havelooked at both of those potential indications, both of them represent bigmarkets, and frankly we have been doing some development work from apreclinical standpoint on both indications. We have been pleasantly surprised that the preclinical work in the spinearea has progressed well, and we believe we are in a position to get intospine, earlier than we would have originally anticipated and as a consequencewe have decided to go after that as opposed to the hip fracture. Just from a market perspective for marketpotential perspective, vertebral compression fractures is between 700,000 and800,000 vertebral compression fractures in the U.S. a year, hip fractures,probably around 350,000 or so. Both arevery attractive markets. But if we canget proof-of-concept in a spine model, we think that that's going to be veryimportant for the company.

Michael Matson - Wachovia

Okay. That makes sense. And then just one question on the GEM OS2pilot trial that you mentioned. You mayhave said this. I may have missed it ifyou did, but what is the indication there that you are looking at?

Sam Lynch - President and Chief Executive Officer

We have two GEM OS2 pilot studiesongoing. One is a 10-patient trial in Canada, lookingat foot and ankle fusions, and the second is a closed distal radius fractureindication whereby the material is injected into the fracture site underfluoroscopy.

Michael Matson - Wachovia

Okay. All right, that's all I've got. Thanks.

Operator

Your next question comes from theline of Brian Wong with Broadpoint Capital. Please proceed with your question.

Brian Wong - Broadpoint Capital

Good afternoon, Sam andLarry. How are you?

Sam Lynch - President and Chief Executive Officer

Okay, Brian. How are you?

Brian Wong - Broadpoint Capital

Good. Thanks. I just had a question in terms of VCF study that you are lookingat. Larry maybe you could tell us whatyou expect in terms of how much that's going to cost?

Larry Bullock - Chief Financial Officer

That's probably looking a lotfurther forward than what we are prepared to do at this point. This initial study obviously for 10 patientsis not going to be terribly expensive and not going to affect our growth ratematerially. The question really comesdown to -- as we go further into development and we haven't got plans laid outyet, but I would be feeling comfortable about talking about at least externallyyet.

Brian Wong - Broadpoint Capital

Okay. And then if you could talk a little bit moreabout the design? If I am clear, you are looking at using GEM OS2 to inject prophylacticallyon the adjacent level vertebrae after VCF. Is that correct?

Sam Lynch - President and Chief Executive Officer

Yes.

Brian Wong - Broadpoint Capital

Okay. And then are you comparing that just tostandard after VCF without injection?

Sam Lynch - President and Chief Executive Officer

I am sorry, Brian. What was that?

Brian Wong - BroadpointCapital

So, you are comparing theinjection with GEM OS2 versus no injections. Is that correct?

Sam Lynch - President and Chief Executive Officer

Well, our initial study, Brian,is a 10-patient pilot. And again,basically, what we are doing is we are looking at a proof-of-concept. So, we are not really doing a control withinthat study. But obviously from the first10-patient pilot, we hope to learn basically do we have -- are we having theeffect that we anticipate and can we go on to a bigger study, which wouldclearly be controlled.

Brian Wong - Broadpoint Capital

Got you. Okay. And then in terms of your Luitpold agreement, the $5 million that youare projecting this year, is that still the minimums that were -- does thatstill fall into the minimums that were detailed in the contract?

Larry Bullock - Chief Financial Officer

Yes, it does. The $5 million payment that we get this yearis actually a time-based payment based on the initial approval date; it's twoyears following the initial approval date.

Brian Wong - Broadpoint Capital

All right. But what is there contract minimums that theyhad --?

Larry Bullock - Chief Financial Officer

Yes. In terms of the $5 million product revenue,that is, yes, consistent with our contractual minimums as well as contractualminimum royalties still for this year.

Brian Wong - Broadpoint Capital

Okay. Any chance that you will beat that or anykind of time frame that you might be willing to put out there that these thingswill actually hit beyond the contractual minimums?

Larry Bullock - Chief Financial Officer

I don't think we are going tospeculate as to when that may or may not happen.

Brian Wong - Broadpoint Capital

But the uptake has been good sofar.

Sam Lynch - President and Chief Executive Officer

Pardon.

Brian Wong - Broadpoint Capital

The uptake has been good so faron that route?

Sam Lynch - President and Chief Executive Officer

I think we are very pleased sofar with the adoption rate for practicing periodontists up there right now.

Brian Wong - Broadpoint Capital

Is there any color you can give uson where their sales force is in terms of size? Are they ramping that sales force up or are they pretty much status quoright now?

Sam Lynch - President and Chief Executive Officer

I think it's pretty much as wehave discussed in the past, we are still looking at sort of roughly 15 to 20sales people. Having met with them atthe AAP meeting, clearly they are I think still very enthusiastic with thereception and the data that is coming out and the clinical results that theclinicians are seeing.

So I think that they remain --Luitpold remains very confident in the uptake of the product, and certainly,they have a lot of the first-hand interactions with the dental surgeons. So, we feel good in part, because they feelvery good.

Brian Wong - Broadpoint Capital

Got you. So is it really a matter of just getting thatdata out there and getting familiar? Imean is that really what the sort of bottleneck is?

Sam Lynch - President and Chief Executive Officer

I think that that's right. I mean clearly, as we've talked about andcertainly as Luitpold well knows -- this is somewhat of a smaller market, andit's one that historically has had slow adoption rates. Yes, once the surgeons become comfortablewith the new technology, they can significantly embrace it. And I would point to again dental implants,the titanium dental implants as being one of the main precedence for that. That started out with a lot of skepticism inthe community and, you know, pretty low sales. And yet, today -- 10 years later or so, there is $600 million going on$1 billion product category. So,certainly historically, you have seen surgeons be slow to adopt really new andrevolutionary technologies, but once they get going, there is a significantmarket opportunity here.

Brian Wong - Broadpoint Capital

Okay. And so what has been the impact of INFUSE inthat market? Any color you can give onthat?

Sam Lynch - President and Chief Executive Officer

Only anecdotally, I believe afterhaving attended that meeting and talked to a number of surgeons that have usedboth GEM 21 as well as INFUSE that we will be able to compete incrediblysuccessfully head-to-head with INFUSE. And let me just leave it at that. I just think that the clinical results being anecdotally reported bysurgeons that have used both products are very favorable for GEM 21.

Brian Wong - Broadpoint Capital

Got you. Great. Thanks very much for taking my questions.

Operator

Your next question comes from theline of Bill Plovanic with Canaccord Adams. Please proceed with your question.

Bill Plovanic - Canaccord Adams

Hi! Thank you. Good evening.

Sam Lynch - President and Chief Executive Officer

Hi, Bill.

Bill Plovanic - Canaccord Adams

A couple of housekeepingquestions to start with. Larry, why werethe COGS so high in the quarter?

Larry Bullock - Chief Financial Officer

Actually, when you get a chanceto read further through the Q, you will find that we had some inventorywrite-offs for some failed batches that took place during the quarter. So that increased our cost of goods for thethird quarter here fairly significantly.

Bill Plovanic - Canaccord Adams

Is it fully explained why thebatches failed and is it something we can expect to continue or--?

Larry Bullock - Chief Financial Officer

I think it relates more to aproblem with a particular batch that's not -- not one that we would anticipatewould be ongoing operations.

Bill Plovanic - Canaccord Adams

Okay. So, it was a raw materials issue?

Larry Bullock - Chief Financial Officer

Yeah. It was actually a combination of factors, butyes.

Bill Plovanic - Canaccord Adams

Okay. And then, can you give us the D&A numberin the quarter? Actually, I have the Q, forget it. To switch over, Sam, not to beat the deadhorse, but just on the periodontal, you've got some recognition in themarketplace, it's very good clinical results. What do you think is going to be the tipping point to really driveadoption in that market?

Sam Lynch - President and Chief Executive Officer

Bill, I think really it's in thehands of our marketing partner to really push that product and get the data infront of the average clinicians. I mean,again, as you well know, a lot of these clinicians are in their own private offices,and therefore, tend to be somewhat isolated. And you just have to get territory managers or sales reps out in frontof them to educate them on the most recent clinical developments. And I really think that, it's going to takethat kind of intensive distribution activity to really educate thecommunity. I mean, certainly things likethese awards and the presentations at the national meetings go a long waytowards building the credibility, but, you got to have people out on the streetfollowing the orders through the order chain. And I think that's really what it's going to take to drive that.

And the other thing I would sayis that, really historically what happens is that the dental surgeons will usea product three or four times on three or four cases, and they will then waitsix months to a year to see the results. Because, typically that's kind of what it takes to see the results radiographically,before they will really jump in to a very regular ordering pattern on much of ascale.

So, there is always going to bekind of 6 to 12 months, kind of, lag period between the time that the doc firstuses it. Let's say, he was convinced bysome presentation at the Academy meeting last month. He may have ordered, again, a half a dozenunits, but that maybe all he will orderfor next 6 to 12 months until he sees the results in his own hands.

Bill Plovanic - Canaccord Adams

Okay. Let's switch over to GEM OS1 in the Canadiantrial. What are the -- what's the natureof the questions coming out of Health Canada on this at this point?

Sam Lynch - President and Chief Executive Officer

Bill, again, I think as you wellknow, our strategy there after an initial meeting with Health Canada a year andhalf, two years ago, was that the GEM 21S, that randomized, controlled, pivotalclinical trial would really serve as the, sort of, fundamental randomizedcontrolled trial for the product. Andthey at a year and a half, two year ago, were looking at GEM OS1 as sort of afamily extension, like a family approach; so almost as a product, what we wouldcall in U.S.,a product extension.

In the interim, in the last 18months to 24 months, they of course, had some personnel change and the newfolks up there are just a little bit more conservative and they didn't ask foranything unusual. Again, having apre-BLA meeting is very, very typical, in fact, it's more common than not. But, they wanted to go that route and have anopportunity to review the data. And,again, it's a very conventional request, nothing that we could really certainlyhave any objection to, just delaying us by two to three months.

Bill Plovanic - Canaccord Adams

Okay. So, it's really just the changeover in staff,maybe a little more conservative approach. You have to sit down and educate them on kind of how you got where youare, but you think its more just a process issue that anything else at thispoint. Is that fair?

Sam Lynch - President and Chief Executive Officer

Well, look Bill, all of us is inthe healthcare industry much time at all understand the vagaries of theregulatory approval process, and while we absolutely believe that the way thatyou just paraphrase it is accurate, as we know today, we also want to becareful not to overstep our confidence, if you will, so we can only report toyou what we are hearing. We are -- andwe certainly will go up to Health Canada and talk to them about the initialmeeting that we had when we embarked upon the strategy year and a half ago, andremind them of their approval of that process and allowing us to expand our20-patient pilot trial into the 60 patient registration trial and go throughthe data.

At the end of the day, I wouldsay that this is going to be -- come down to really an issue of twothings. First and foremost is, will thetwo or three new people involved in the process from their side buy into theirpredecessor's acceptance of an open-label trial for approval of theproduct. And I think that's first andforemost the primary issue. The secondwill of course be as always hinge upon the data and how strong the datais. We feel very confident in thelatter, but we certainly don't know about the former.

Bill Plovanic - Canaccord Adams

Okay. Thank you. And then last question, and then I will pass on. In terms of the U.S. study, you have 60 patientsenrolled. You enrolled 35 over the last90 days. What gives you the confidencethat you are going to be able to enroll 330 patients over the next months, andif you are -- at this point, if you are literally enrolling maybe 10 to 12patients a month?

Sam Lynch - President and Chief Executive Officer

That's a -- it's a very goodquestion. We certainly expect that to beanswered. But, I think the answer is,again, 40% of our site we have -- excuse me, we've initiated over the last twomonths, and so again, those sites are just really ramping up in terms of theiractivity. Clearly, enrollment has been abit slower than what we had hoped, and no doubt about it. But, we continue to be reassured by theinvestigators that as their site get ramped up that enrollment rates willreally pick up, and I think again after the first of the year, you should see-- you should see that enrollment pick up. And we would expect that peak enrollment rates would kind of -- wouldstart ramping up and probably be reached March, April, May, June kind of time framefor peak enrollment rates.

Bill Plovanic - Canaccord Adams

And then just to help usout. Can you give us the feeling forwhat the October enrollment rate was, if you are willing to share that level ofdetail?

Sam Lynch - President and Chief Executive Officer

I really think we should kind ofresist blow-by-blow analysis of the enrollment rates. We've committed to giving you quarterlyupdates, I certainly appreciate and understand why you would ask, but let'sjust keep it on a quarter-by-quarter update.

Bill Plovanic - Canaccord Adams

That's all I have. Thank you.

Sam Lynch - President and Chief Executive Officer

Okay.

Operator

Ladies and gentlemen, as areminder, if you would like to ask a question, please press "*",followed by "1". Your nextquestion comes from the line of Errol Rudman with Rudman Capital. Please proceed with your question.

Errol Rudman - Rudman Capital

Hi! If you could you just go back to the meetingwith the Canadian Health Ministry and if you could discuss the plus point onthe trial design. What is it they arelooking for, is it primarily you educating them and they accepting the factthat an open design is acceptable to them or would you have to go back to thedrawing board again?

Sam Lynch - President and Chief Executive Officer

Well. I am not exactly sure how to answer thatquestion. For the first part is correct,but obviously the outcome of the first part of that, i.e., the discussion withthem relative to the study design and the initial discussions that we had withthem, that outcome of that discussion is probably going to drive the answer tothe second part of your question. Iwould remind you obviously that as you all know, we have the large randomizedcontrol trial ongoing for the U.S.approval and we have several Canadian sites that are also participating inthat.

So, I think worst case is that wewould have to rely on the data from that trial for approval also in Canada, butagain, we have several Canadian investigators already participating in that andthat trial is well underway. So, it'snot like we would plan on starting from scratch and designing a new trial toget approval on Canada. I certainly would not expect that we wouldhave to go down that route.

Errol Rudman - Rudman Capital

And just to clarify, if you couldjust quantify the market potential -- Canada versus the U.S., -- the U.S. is xmultiple the Canadian?

Sam Lynch - President and Chief Executive Officer

Let me turn that question over toSteve.

Steve Hirsch - Chief Operating Officer

Yeah. Broadly, we value the Canadian market and 7%to 8% of the U.S. market and the way we do that is we look at the procedurepotential, so if you just take one group of procedures for example, the footand ankle fusions, which will be our primary indication, we estimate now thatthere is probably between 70,000 and 80,000 foot and ankle fusions being donein the United States. And there isprobably -- our estimate backed by some market research we've done in Canadasuggest that there are 4,500 to 5,000, so I am not sure if those numbersworkout exactly right, but over all the indications we are looking at for GEMOS1, we figured the value of the market potential in Canada versus the US isaround 7% or 8% of the total U.S. potential.

Errol Rudman - Rudman Capital

Thank you.

Operator

Your next question is a follow-upquestion from the line of Bill Plovanic with Canaccord Adam. Please proceed with your question.

Bill Plovanic - Canaccord Adams

Hi! Thanks. Two questions. First of all, in terms of GEM 21, if Luitpolddoesn't pay that final $5 million milestone payment, the time-based one, wouldyou have the right to negotiate with other players in the market?

Sam Lynch - President and Chief Executive Officer

Bill, I don't think we even wantto comment on that. We are absolutelyconfident that they will. Just toreiterate, we have met with them. We knowthat they have continuing great deal of confidence in the product and thencontinue to have a lot of enthusiasm and understand that they have certainlywork to do to pull the sales through the sales channel, but I wouldn't evenspeculate on what would happen if they don't pay the milestones, because we areconfident they will.

Bill Plovanic - Canaccord Adams

Okay. And then any update on GEM 21S in Europe?

Sam Lynch - President and Chief Executive Officer

No, I think just that we'll kindof stick with what we've said in the call itself that we would be projectingapproval at this point, sort of mid to second half of '08.

Bill Plovanic - Canaccord Adams

Okay. And then you may have kind of talked a bitabout this, but on the GEM LT product, just you are working on the preclinicaldata, any thoughts on kind of your initial data that you are seeing on that andif that might make it into the clinic or not?

Charlie Hart - Chief Scientific Officer

Hi Bill, it's Charlie!

Bill Plovanic - Canaccord Adams

Hi Charlie!

Charlie Hart - Chief Scientific Officer

I'd say right now, obviously,we're looking at a number of different indications in the sports medicine. We are still very high on the biology of PDGFto be useful in this area. I guess whatI've told you in the past is that we are really trying to optimize the type ofmatrices to take into a variety of indications, and that's still kind of wherewe are sitting at this point right now.

So, I'd like to say that we have-- we're moving into the clinic in the next -- tomorrow. But right now, we are still in thepreclinical phase of those studies.

Bill Plovanic - Canaccord Adams

Okay. That's all I have. Thanks a lot.

Operator

There are no further questions inqueue. I would now like to turn the callback over to management.

Sam Lynch - President and Chief Executive Officer

Great. Thank you, Anton. Let me thank everyone for joining ustoday. We certainly appreciate yourcontinued interest and support of BioMimetic's. And I would just close by saying, we remain very confident in ourprogress over the last quarter and our progress that we will make throughout therest of this year and going into next year. And we will work hard to make the timelines and commitments that we'veput out there for you just as we have always in the past. And again, we remain very confident in ourprospects going forward over the next few weeks and in fact over the next fewyears.

So, with that let me close. And again, thank you for your support.

Operator

Thank you for your participationin today's conference. This concludesthe presentation. You may nowdisconnect.

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