BioMimetic Therapeutics, Inc Q3 2007 Earnings Call Transcript

BioMimetic Therapeutics, Inc. (BMTI)

Q3 2007 Earnings Call

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

Executives

Kearstin Patterson - Associate Director of Corporate Communications

Sam Lynch - President and Chief Executive Officer

Larry Bullock - Chief Financial Officer

Steve Hirsch - Chief Operating Officer

Charlie Hart - Chief Scientific Officer

Analysts

Seth - Deutsche Bank

Michael Matson - Wachovia

Brian Wong - Broadpoint Capital

Bill Plovanic - Canaccord Adams

Errol Rudman - Rudman Capital

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Q3 2007 BioMimetic Therapeutics Earnings Conference Call. At this time, all participants are on listen-only mode. We will conduct a question-and-answer session towards the end of this conference. If any time during the call, you require assistance, please press * followed by 0 and a coordinator will be happy to assist you.

I would now like to turn the presentation over to Kearstin Patterson, Associate Director of Corporate Communications 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 you that any statements made during this call can be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on the current intent and expectations of the management of BioMimetic Therapeutics.

These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. There are many important factors that could cause actual results to differ materially from those indicated in the forward-looking statements.

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

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

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

Sam Lynch - President and Chief Executive Officer

Thank you, Kearstin, and good afternoon everyone, and welcome to BioMimetic Therapeutics third quarter earnings conference call. I have with me on 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 will discuss our product development programs and business activities for the third quarter ended September 30, 2007, and then turn the call over to Larry who will review our financial results, which were released this afternoon. We will also be available for our Q&A at the end of this call.

Let's begin with specific highlights and updates on our individual product candidates starting with GEM OS1 Bone Graft, our lead orthopedic product candidate intended to be used during open surgical treatment of fractures and fusions.

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

Both components are critical to the overall effectiveness of the product with the rhPDGF providing the biological stimulus and really distinguishing this product candidate from others in the market, while the bone matrix provides the scalpel to enhance and guide bone regeneration.

Based on safety and efficacy results observed in our three pilot or Phase I/II type of clinical trials, we have approval from the FDA to enroll patients in a large randomized controlled pivotal trial to compare GEM OS1 to autograft for the treatment of foot and ankle fusions. The primary endpoint for this study is percent of patients fused as measured by CT scans at six months. Patient enrollment is approved for 396 patients and up to 28 clinical centers. As a reminder, the study is designed as a non-inferiority trial comparing GEM OS1 to autograft where the two treatments randomized 2 to 1, respectively.

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

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

As you may recall, over the summer, Dr. Sheldon Lin, one of the clinical investigators in our U.S. pilot trial and also an investigator in the ongoing pivotal trial, reported encouraging interim results at the American Orthopedic Foot and Ankle Society meeting in Toronto for our 20 patient U.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 GEM OS1 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 patients versus 50% of the autograft patients had fused. We'd like to remind you that fusion rate is assessed on CT scans, such as the data I just presented to you is the primary endpoint for our U.S. pivotal trial.

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

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

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

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

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

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

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

In addition, more data from the study will be presented in early March at the American Academy of Orthopedic Surgeons or AAOS meeting. One of our clinical investigators, Dr. Chris DiGiovanni will be presenting at the upcoming AAOS meeting and will be providing additional and expanded details of both the Canadian and U.S. foot and ankle studies at that time. We are very excited about the opportunity to have one of our lead investigators present our data in a general session at the largest orthopedic meeting of the year.

We are in ongoing discussions with Health Canada concerning the filing of the BLA for GEM OS1. As with any major marketing filing, we believe that it is to our advantage to have a pre-BLA meeting with Health Canada to discuss the final data. This type of meeting is common to ensure that the data and documentation to be submitted meet the expectations of the regulatory agency.

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

Now, moving to GEM OS2, our second orthopedic product candidate, earlier this year, we announced that we have initiated a 20-patient clinical study in Sweden to evaluate the safety and clinical utility of GEM OS2 in the treatment of distal radius fractures using minimally invasive administration of the product candidate into a fracture site.

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

Keeping in mind the six-month followup period, we expect to have data from this trial available early in the second half of next year. Also, we have now completed enrollment in a 10-patient pilot study in Canada to evaluate the clinical utility of GEM OS2 for a treatment of foot and ankle fusions. The data for this study are also expected around mid next year.

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

Specifically, the initial indication will likely be the treatment of osteoporotic vertebral bodies at sites adjacent to kyphoplasty or vertebroplasty procedures, which are known to have an elevated risk for future fractures. This study will determine if the local administration of our GEM OS2 product candidate can lead to local improvement in bone density and osteoporotic bones that are at a high risk of fracturing.

By enhancing the bone density in these bodies, we intend to reduce the risk of these fractures. We believe that the clinical initiation of this program is particularly timely given the increasing awareness of the significant side effects due to some of the systemic bisphosphonate osteoporosis drugs.

I would now like to turn to our periodontal and oral surgery program. As we had anticipated, we are seeing an upswing in sales of 21S as an increasing number of periodontists and oral surgeons are becoming familiar with the use of the product.

While sales have jumped 21S in the U.S., and Canada remain on track with our projections, we are seeing fluctuations in the ordering pattern of our partner, Luitpold Pharmaceuticals, a wholly-owned company of Daiichi-Sankyo, Inc. due to seasonal stocking of the product. And Larry will discuss specific GEM 21S sales in 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 presentations showing the excellent results in patients treated with our GEM 21 product.

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

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

Now moving on to the corporate front, we have expanded the company's in-house protein chemistry capabilities over the past quarter with the addition of Leo Schnell, our new Vice President of Protein Biochemistry. Leo brings 20+ years of protein science and product development expertise to BMTI, including most recently, he was employed with Amgen and was responsible for leading a global operations team to develop and launch their first oncology protein therapeutic.

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

We are excited about the experience that Leo and John both bring to BioMimetic and look forward to many positive contributions that they will provide, as we continue to grow the company and move forward with our product development activities.

So in summary, during the third quarter of 2007, we hit several key clinical milestones. We concluded the nine-month followup on all 60 patients in the GEM OS1 foot and ankle registration trial in Canada and intend to release the data by year end right on schedule.

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

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

I would now like to pass the call over to Larry, our Chief Financial Officer, to briefly discuss our third quarter ending September 30, 2007 financial results. Larry?

Larry Bullock - Chief Financial Officer

Thanks, Sam. Our third quarter financial results reflect the continuing progress of our orthopedic product development programs that you just heard about. We continue to strive to be financially prudent in managing our business, as we make the important investments to advance our product candidates through clinical development.

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

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

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

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

We believe these resources position the company very well to complete development of our initial orthopedic product candidates.

Finally, I'll provide our financial outlook for 2007. Please note that these projections are based on our current expectations and assumptions related to the costs and timing of our ongoing clinical trials and our current expectations relative to product revenue from GEM 21S and regulatory approval for our product and product candidates.

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

Total product sales revenue of GEM 21S to Luitpold is expected to be $5 million, which excludes royalties and milestone payments. And finally, our net loss for the year is expected to be between $24 million and $28 million.

With that I would like to thank you 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 substantial progress during the third quarter, and I believe that there is much more progress ahead in the final quarter of 2007.

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

1. The announcement of our GEM OS1 Canadian top-line data by year end and filing for the treatment of foot and ankle fusions with anticipated approval by year end 2008.

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

3. The initiation of a GEM OS2 injectable bone graft pilot trial for localized treatment of osteoporosis in the spine of patients 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 the distal radius by the middle of next year.

4. And finally, presentations at the AAOS and ORS meetings next spring as well as several publications in orthopedic journals, our preclinical studies supporting our product candidates.

Overall, we believe that we continue to make good progress on a number of very important events coming up and we look forward to sharing that information with you as we achieve these milestones.

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

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, if you wish to ask a question please press "*" followed by "1" on your touch-tone telephone. If your question has been answered, or you wish to withdraw your question press "*" followed by "2". Questions will be taken in order received. Please press "*1" to begin.

Your first question comes from the 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 with the Canadian Health Ministry and do you believe that the current data is going to be enough to get a product approval?

Sam Lynch - President and Chief Executive Officer

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

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

Seth - Deutsche Bank

Okay. So, Sam, assuming that we don't have any hiccups, you said shortly thereafter, we should expect the filing, does that mean 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 first quarter.

Seth - Deutsche Bank

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

Sam Lynch - President and Chief Executive Officer

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

Seth - Deutsche Bank

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

Sam Lynch - President and Chief Executive Officer

Well let me just say regarding the VCF indication that we have a number of preclinical studies that you may well imagine that we have completed or are in the very final phases of completing and we are very optimistic about the results that we have seen to date with those studies. And I believe some of that data, Charlie correct me if I am wrong, but I believe some of that data should be available next spring.

Charlie Hart - Chief Scientific Officer

Yeah assuming we get the speaking slots or the poster slots we hope it ORS, which we should know in the next few weeks, 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 I correct in saying we are expecting $5 million this year and then another $10 million in 2008 in milestone payments?

Larry Bullock - Chief Financial Officer

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

Seth - Deutsche Bank

Okay, and Larry, is that, so you said 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 of GEM OS1?

Larry Bullock - Chief Financial Officer

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

Seth - Deutsche Bank

All right guys, well, thanks a lot. Thanks for the update on all of your 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 the line of Michael Matson with Wachovia. Please proceed with your question.

Michael Matson - Wachovia

Hi! Thanks for taking my question. I guess, just curious on the decision to look at the pilot trial for vertebral compression fractures rather than something like in the area of hip fractures, any thoughts there?

Sam Lynch - President and Chief Executive Officer

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

Steve Hirsch - Chief Operating Officer

Yeah, Michael, clearly we have looked at both of those potential indications, both of them represent big markets, and frankly we have been doing some development work from a preclinical standpoint on both indications. We have been pleasantly surprised that the preclinical work in the spine area has progressed well, and we believe we are in a position to get into spine, earlier than we would have originally anticipated and as a consequence we have decided to go after that as opposed to the hip fracture. Just from a market perspective for market potential perspective, vertebral compression fractures is between 700,000 and 800,000 vertebral compression fractures in the U.S. a year, hip fractures, probably around 350,000 or so. Both are very attractive markets. But if we can get proof-of-concept in a spine model, we think that that's going to be very important for the company.

Michael Matson - Wachovia

Okay. That makes sense. And then just one question on the GEM OS2 pilot trial that you mentioned. You may have said this. I may have missed it if you 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 studies ongoing. One is a 10-patient trial in Canada, looking at foot and ankle fusions, and the second is a closed distal radius fracture indication whereby the material is injected into the fracture site under fluoroscopy.

Michael Matson - Wachovia

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

Operator

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

Brian Wong - Broadpoint Capital

Good afternoon, Sam and Larry. 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 looking at. Larry maybe you could tell us what you expect in terms of how much that's going to cost?

Larry Bullock - Chief Financial Officer

That's probably looking a lot further forward than what we are prepared to do at this point. This initial study obviously for 10 patients is not going to be terribly expensive and not going to affect our growth rate materially. The question really comes down to -- as we go further into development and we haven't got plans laid out yet, but I would be feeling comfortable about talking about at least externally yet.

Brian Wong - Broadpoint Capital

Okay. And then if you could talk a little bit more about the design? If I am clear, you are looking at using GEM OS2 to inject prophylactically on 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 to standard after VCF without injection?

Sam Lynch - President and Chief Executive Officer

I am sorry, Brian. What was that?

Brian Wong - Broadpoint Capital

So, you are comparing the injection 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 within that study. But obviously from the first 10-patient pilot, we hope to learn basically do we have -- are we having the effect that we anticipate and can we go on to a bigger study, which would clearly be controlled.

Brian Wong - Broadpoint Capital

Got you. Okay. And then in terms of your Luitpold agreement, the $5 million that you are projecting this year, is that still the minimums that were -- does that still 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 year is actually a time-based payment based on the initial approval date; it's two years following the initial approval date.

Brian Wong - Broadpoint Capital

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

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 contractual minimum royalties still for this year.

Brian Wong - Broadpoint Capital

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

Larry Bullock - Chief Financial Officer

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

Brian Wong - Broadpoint Capital

But the uptake has been good so far.

Sam Lynch - President and Chief Executive Officer

Pardon.

Brian Wong - Broadpoint Capital

The uptake has been good so far on that route?

Sam Lynch - President and Chief Executive Officer

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

Brian Wong - Broadpoint Capital

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

Sam Lynch - President and Chief Executive Officer

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

Brian Wong - Broadpoint Capital

Got you. So is it really a matter of just getting that data out there and getting familiar? I mean 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 and certainly as Luitpold well knows -- this is somewhat of a smaller market, and it's one that historically has had slow adoption rates. Yes, once the surgeons become comfortable with 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 in the 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 and revolutionary technologies, but once they get going, there is a significant market opportunity here.

Brian Wong - Broadpoint Capital

Okay. And so what has been the impact of INFUSE in that market? Any color you can give on that?

Sam Lynch - President and Chief Executive Officer

Only anecdotally, I believe after having attended that meeting and talked to a number of surgeons that have used both GEM 21 as well as INFUSE that we will be able to compete incredibly successfully head-to-head with INFUSE. And let me just leave it at that. I just think that the clinical results being anecdotally reported by surgeons 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 the line 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 housekeeping questions to start with. Larry, why were the COGS so high in the quarter?

Larry Bullock - Chief Financial Officer

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

Bill Plovanic - Canaccord Adams

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

Larry Bullock - Chief Financial Officer

I think it relates more to a problem with a particular batch that's not -- not one that we would anticipate would 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, but yes.

Bill Plovanic - Canaccord Adams

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

Sam Lynch - President and Chief Executive Officer

Bill, I think really it's in the hands of our marketing partner to really push that product and get the data in front 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 front of them to educate them on the most recent clinical developments. And I really think that, it's going to take that kind of intensive distribution activity to really educate the community. I mean, certainly things like these awards and the presentations at the national meetings go a long way towards building the credibility, but, you got to have people out on the street following 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 say is that, really historically what happens is that the dental surgeons will use a product three or four times on three or four cases, and they will then wait six 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 a scale.

So, there is always going to be kind of 6 to 12 months, kind of, lag period between the time that the doc first uses it. Let's say, he was convinced by some presentation at the Academy meeting last month. He may have ordered, again, a half a dozen units, but that maybe all he will order for 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 Canadian trial. What are the -- what's the nature of 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 well know, our strategy there after an initial meeting with Health Canada a year and half, two years ago, was that the GEM 21S, that randomized, controlled, pivotal clinical trial would really serve as the, sort of, fundamental randomized controlled trial for the product. And they at a year and a half, two year ago, were looking at GEM OS1 as sort of a family extension, like a family approach; so almost as a product, what we would call in U.S., a product extension.

In the interim, in the last 18 months to 24 months, they of course, had some personnel change and the new folks up there are just a little bit more conservative and they didn't ask for anything unusual. Again, having a pre-BLA meeting is very, very typical, in fact, it's more common than not. But, they wanted to go that route and have an opportunity to review the data. And, again, it's a very conventional request, nothing that we could really certainly have 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 you are, but you think its more just a process issue that anything else at this point. Is that fair?

Sam Lynch - President and Chief Executive Officer

Well, look Bill, all of us is in the healthcare industry much time at all understand the vagaries of the regulatory approval process, and while we absolutely believe that the way that you just paraphrase it is accurate, as we know today, we also want to be careful not to overstep our confidence, if you will, so we can only report to you what we are hearing. We are -- and we certainly will go up to Health Canada and talk to them about the initial meeting that we had when we embarked upon the strategy year and a half ago, and remind them of their approval of that process and allowing us to expand our 20-patient pilot trial into the 60 patient registration trial and go through the data.

At the end of the day, I would say that this is going to be -- come down to really an issue of two things. First and foremost is, will the two or three new people involved in the process from their side buy into their predecessor's acceptance of an open-label trial for approval of the product. And I think that's first and foremost the primary issue. The second will of course be as always hinge upon the data and how strong the data is. We feel very confident in the latter, 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 patients enrolled. You enrolled 35 over the last 90 days. What gives you the confidence that you are going to be able to enroll 330 patients over the next months, and if you are -- at this point, if you are literally enrolling maybe 10 to 12 patients a month?

Sam Lynch - President and Chief Executive Officer

That's a -- it's a very good question. We certainly expect that to be answered. But, I think the answer is, again, 40% of our site we have -- excuse me, we've initiated over the last two months, and so again, those sites are just really ramping up in terms of their activity. Clearly, enrollment has been a bit slower than what we had hoped, and no doubt about it. But, we continue to be reassured by the investigators that as their site get ramped up that enrollment rates will really 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 -- would start ramping up and probably be reached March, April, May, June kind of time frame for peak enrollment rates.

Bill Plovanic - Canaccord Adams

And then just to help us out. Can you give us the feeling for what the October enrollment rate was, if you are willing to share that level of detail?

Sam Lynch - President and Chief Executive Officer

I really think we should kind of resist blow-by-blow analysis of the enrollment rates. We've committed to giving you quarterly updates, I certainly appreciate and understand why you would ask, but let's just 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 a reminder, if you would like to ask a question, please press "*", followed by "1". Your next question 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 meeting with the Canadian Health Ministry and if you could discuss the plus point on the trial design. What is it they are looking for, is it primarily you educating them and they accepting the fact that an open design is acceptable to them or would you have to go back to the drawing board again?

Sam Lynch - President and Chief Executive Officer

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

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

Errol Rudman - Rudman Capital

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

Sam Lynch - President and Chief Executive Officer

Let me turn that question over to Steve.

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 procedure potential, so if you just take one group of procedures for example, the foot and ankle fusions, which will be our primary indication, we estimate now that there is probably between 70,000 and 80,000 foot and ankle fusions being done in the United States. And there is probably -- our estimate backed by some market research we've done in Canada suggest that there are 4,500 to 5,000, so I am not sure if those numbers workout exactly right, but over all the indications we are looking at for GEM OS1, we figured the value of the market potential in Canada versus the US is around 7% or 8% of the total U.S. potential.

Errol Rudman - Rudman Capital

Thank you.

Operator

Your next question is a follow-up question 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 Luitpold doesn't pay that final $5 million milestone payment, the time-based one, would you 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 want to comment on that. We are absolutely confident that they will. Just to reiterate, we have met with them. We know that they have continuing great deal of confidence in the product and then continue to have a lot of enthusiasm and understand that they have certainly work to do to pull the sales through the sales channel, but I wouldn't even speculate on what would happen if they don't pay the milestones, because we are confident 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 kind of stick with what we've said in the call itself that we would be projecting approval 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 bit about this, but on the GEM LT product, just you are working on the preclinical data, any thoughts on kind of your initial data that you are seeing on that and if 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 PDGF to be useful in this area. I guess what I've told you in the past is that we are really trying to optimize the type of matrices to take into a variety of indications, and that's still kind of where we 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 the preclinical phase of those studies.

Bill Plovanic - Canaccord Adams

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

Operator

There are no further questions in queue. I would now like to turn the call back over to management.

Sam Lynch - President and Chief Executive Officer

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

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

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect.

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