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BioMimetic Therapeutics Inc. (NASDAQ:BMTI)

Q4 2007 Earnings Call

March 12, 2008 4:30 pm ET

Executives

Dr. Samuel Lynch - President and Chief Executive Officer

Larry Bullock - Chief Financial Officer

Steven Hirsch - Chief Operating Officer

Dr. Charles Hart - Chief Scientific Officer

Analysts

Tao Levy - Deutsche Bank

Vincent Ricci - Wachovia

Debjit Chattopadhyay - Boenning & Scattergood

Caroline Corner - Pacific Growth Equities

Bill Plovanic - Canaccord Adams

David Castercon - Columbia Circle

Operator

Good day ladies and gentlemen and welcome to the 2007 fourth quarter and year end BioMimetic Therapeutics earnings conference call. (Operator Instructions) I will now like to turn the presentation over to your host for today’s call, Ms. Kearstin Patterson, Associate Director of Corporate Communications for BioMimetic Therapeutics Inc. Please proceed.

Kearstin Patterson

Thanks Betsy. 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 Private Securities Litigation Reform Act of 1995.

The forwarding-looking statements are based on 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 can 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 the risk associated with the marketing of BioMimetic’s products, unproven clinical and clinical development activities, regulatory oversight and other risks detailed in the Company’s filings within the Securities and Exchange Commission. Except as required by law, BioMimetic undertakes no responsibility for updating 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. Samuel Lynch, President and CEO of BioMimetic Therapeutics.

Dr. Samuel Lynch

Thank you, Kearstin. Good afternoon everyone and welcome to the BioMimetic Therapeutics 2007 fourth quarter and year-end earnings conference call. I have with me on the call today Larry Bullock our CFO, Steven Hirsch, our COO and head of our Orthopedics Business, and Dr. Charles Hart, our Chief Scientific Officer. It is heard to believe that another year has passed and nearly 2 years since our IPO. We appreciate the support and feedbacks that we have received from all of you. During that time, we have tried to remain true to our vision of creating the premier protein therapeutics company in the orthopedics field and execute on the product development strategy as we initially laid it out for you during our IPO.

While drug development is of course never without its challenges, we are very proud of our track record to date and our ability to execute and deliver on our commitments. During the call today, I will discuss our product development programs and business activities for 2007 and the first part of 2008, then Larry will review our financial results for the fourth quarter and year-end December 31, ’07, which were released and filed this afternoon with the SEC in our 10-K. We will also be available for our Q&A session at end of the call.

This past year has been an extraordinary one for BioMimetic. It has been a year in which we advanced our lead orthopedic product candidate into pivotal clinical trails in the U.S., EU, and Canada concurrently substantially improving our balance sheet. The combination of strong clinical results, entrance into pivotal trails and a healthy cash balance has positioned the Company as a leader in the development of recombinant protein therapeutics in the orthopedic space, which we believe collectively, represents a multibillion dollar opportunity.

Let me take a minute to briefly review the significant product development milestones, we’ve accomplished over the past year and discuss our major objectives for 2008. First turning our attention to our orthopedic programs, GEM OS1 bone graft, our lead orthopedic product candidate is intended to be used during the open surgical treatment of fractures and fusions like GEM 21S, which demonstrated significant bone and periodontal regeneration and randomized controlled clinical trails, GEM OS1 combines recombinant human platelet derived growth factor or rhPDGF with a resorbable synthetic bone matrix, beta-tricalcium phosphate or beta-TCP. Both components are critical to the overall effectiveness of the product with the rhPDGF providing the stimulus to the healing process while the bone matrix provides the scaffolding to enhance and guide bone regeneration.

We advanced GEM OS1 into pivotal studies in the first half of ’07 in the U.S, which was the key company milestone. As a remainder, the study is designed as a randomized controlled non-inferiority trail to autograft with patients randomized two to one GEM OS1 to autograft respectively. The primary endpoint of the study is the percent of patients fused as measured by CT scans in 6 months. Patient enrollment is approved for 396 patients at up to 28 clinical sites. This past Thursday, March 6th, we conducted an investor and analyst meeting that was held in conjunction with the American Academy of Orthopedics Surgeons meeting in San Francisco. After this meeting, we reported that all 28 sites have received IRB approval for patient enrollment and then as of this past Thursday, we had approximately one third of the patients or 125 enrolled in the study.

Getting all 28 sites approved is a key milestone, which should allow us to continue to improve on our patient enrolment rates. While our enrolment rates have been generally increasing over the past few months, we look for the rate of enrolment to continue to grow as the newly approved sites get fully up to speed. As discussed in our investor and analyst meeting last week based on current enrolment rate, we believe that we will achieve completion of enrolment of this pivotal trail by the fall of 2008. While we continue to work with our dedicated team of clinical investigators of further ramp up in enrolment. Our primary concern at this point is running a vigorous well-executed trail and assuring a high level of data quality.

Moving to the Canadian registration trail, which is also evaluating the use of GEM OS1 in foot and ankle fusions, as you know we have completed 9-month follow up and released data this past December, which showed very strong clinical results. Importantly, we believe that the data reported support our ultimate goal of improving the care of patients suffering with an ankle pain. Let me remind you, the design of the Canadian registration trail. The study was an open label study in which all 60 patients enrolled were treated with GEM OS1 with CT scans obtained through 3 months and standard film radiograph and clinical assessments obtained throughout the study period.

The results released in December demonstrated that 90 percent of the patients, which included over half of the study patients at a high risk for compromised or poor healing, achieved a successful outcome based upon a return to full weight-bearing status and without any need for revision surgery. When looking at the subset of the patients would be included in the U.S pivotal study, the patients treated for hind foot and ankle procedures, the clinical success rate was 97%. The radiographic fusion rate was 87% at 9 months after surgery. The high level of success achieve in this study further suggests that GEM OS1 treated patients had fusion rates comparable to those expected using autogenous bone graft, the current standard care for bone grafting materials, but without the morbidity and extra operating room time required to harvest the autograft.

As previously reported, the company has ongoing discussions with Health Canada regarding the filing of the device license application, otherwise known as the DLA for approval of GEM OS1 for use and treatment of ankle fusion in Canada. As a result of these discussions, Health Canada has now determined that it is not necessary to have a face-to-face meeting with BioMimetic as the company has previously anticipated and instructed us to proceed with the filing of the DLA. We are addressing the comments provided by Health Canada, and therefore, intend to file the DLA in the second quarter of 2008. Given this time line, we are optimistic that we will obtain approval of GEM OS1 in Canada by year end. We would, however, still caution you that just because Health Canada has now recommended that we file the DLA does not guarantee that they will approve the product on the basis of this submission.

Looking at the data so far from nearly 100 patients in both the U.S. pilot data, the Canadian registration – the U.S. pilot study, the Canadian registration study and the EU distal radius fracture study, we are very encouraged by the results obtained using GEM OS1 to enhance bone healing infusions and fractures and believe that the results observed to date suggests that GEM OS1 maybe a safe and effective alternative to autograft. We further believe that it is a strong testament to our product and our data that all 6 of the surgeons involved in the initially U.S. and Canadian studies are participating in the U.S. pivotal trail. Obviously, we are very encouraged by their enthusiasm and their continued involvement in the GEM OS1 program, which we see as the display of their confidence in their clinical impressions of the GEM OS1 safety and efficacy.

We are pursing a course of global strategy for the approval of GEM OS 1 and with that lets move on to the EU. We are enrolling patients in a 125 patient’s registration clinical study to assess the safety and efficacy of GEM OS1 as a substitute for autograft and foot and ankle fusion procedures at up to 10 clinical centers. Similar to the Canadian study, this is an open label trail in which all patients will be treated with GEM OS1. We currently have 7 site actively enrolling patients and have 65 patients to date. Similar to the U.S. study, we expect to complete enrolment in this trail during the fall of 2008. As I alluded to earlier, this past year we also provided results from a pilot clinical trail in the EU, Sweden specifically for the evaluation of GEM OS1 for the treatment of distal radius fractures requiring open surgical intervention.

This study was designed as the randomized controlled trail evaluating distal radius fractures treated with external fixation versus external fixation augmented with GEM OS1. In January 2007, we announced the interim results from this study, which suggested that GEM OS1 accelerated bone regeneration in earlier time points as compared to patients that were treated with only external fixation alone. As we follow on to these promising results, last year we completed enrolment in a second 20 patients randomized controlled clinical study in Sweden to evaluate the safety and clinical utility of our GEM OS2 injectable bone graft in the treatment of distal radius fractures using a minimally invasive administration of the product candidate into the fracture site. The study designed mirrors the GEM OS1 distal radius fracture pilot study and is taking place at the same clinical center in Sweden.

Keeping in mind the 6-month follow up period, we expect to have data from this GEM OS2 clinical trail available in the second half of this year. Also last year, we completed enrolment in a 10-patient pilot clinical trail in Canada to evaluate the clinical utility of GEM OS2 for the treatment of foot and ankle fusions. The data from this study are also expected in the second half of this year. As you can imagine; we are looking forward to seeing the results from these initial clinical trails on our second orthopedic product candidate, which is being developed for using closed surgical applications and which would be – which would open up an entirely new in very large market for our regenerative protein therapeutics.

We have also ramped up our development of GEM OS2 in the spine 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 clinical testing to begin in the second quarter of this year. Specifically, the initial indication will be the treatment of osteoporotic vertebral site bodies at sites adjacent to kyphoplasty or vertebroplasty procedure. These sites are well known to have an elevated risk for fractures. This pilot study will access if local administration of our GEM OS2 product candidate can lead to local improvement in bone density in osteoporotic bone that are at high risk for fracturing.

We believe that the clinical initiating of this program is particularly timely given the increasing awareness of significant side effects associated with some of the systemic bisphosphonate osteoporosis drugs. In the sports medicine area, we continue to advance our GEM product candidates through preclinical testing. We continue to believe that the biology of our rhPDGF will combine with the appropriate tissue-specific scaffold is well suited to address a number of clinical indications in sports medicine. Our focus here is on improving tendon ligament and potentially cartilage repair by the addition of rhPDGF combined with tissue-specific scaffold that are targeted to the type of injury being treated.

We presented our preclinical result at the Orthopedic Research Society or ORS meeting last week and expect to continue the preclinical work in sports medicine throughout 2008. In addition to the sports medicine presentation, we had several other presentations at the ORS meeting summarizing preclinical data on our product candidates. One study, I specifically like to highlight demonstrated that a single treatment with GEM OS2 injected into the vertebral bodies of non-human primates stimulated significant new bone regeneration with no evidence of any local or systemic toxicity. The formation of new bone as measured by quantitative computerized tomography or QCT scans was seen at an initial time point of 12 weeks following treatment and was maintained through 36 weeks, which was the last time point in the study. In other words, a single injection of GEM OS2 provided at least a 9-month benefit in bone density in this study.

We believe this data strongly support the potential use of GEM OS2 for localized bone augmentation and osteoporotic bones that are at risk of fracture including the treatment of osteoporotic vertebral bodies for the prevention of vertebral compression fractures. Obviously, we are pleased with the results of this study. In all, we had in collaboration with several prestigious orthopedic surgery departments, 9 presentations between the ORS and the American Academy of Orthopedic Surgeons or AAOS meeting. We would refer you to our recent press release and 8-K filing for more information on this on the other studies. We have been very encouraged by the reception we received from the orthopedic community to our research activities. This data and the presentations continue to establish the scientific merits and clinical awareness of rhPDGF in orthopedics.

I now would like to turn our attention briefly to the divestiture of our periodontal program. In December of 2007, we entered into an asset purchase agreement with Luitpold Pharmaceuticals, a group company of Daiichi-Sankyo Limited of Japan that transaction closed in January of this year. Under this agreement, we agreed to sell Luitpold our remaining orofacial therapeutics business including the downstream formulation, fill, finishing and kitting of GEM 21S as well as right for future improvements in the dental and cranio-maxillofacial field. Luitpold currently markets the GEM 21S product through its OsteoHealth Company division. We will receive $40 million in near term cash, $30 million of which we’ve already received as a result of this transaction plus approximately $3.4 million in cash from the sale of existing inventory, which we also have already received. Along with continuing royalty payments based on net sales of GEM 21S and future products in the dental and cranio-maxillofacial fields.

In addition in the fourth quarter, we received a time-based $5 million milestone payment that was part of our first agreement with Luitpold. This payment was for the second anniversary of the U.S. marketing approval of GEM 21S. In addition, we still have another $10 million milestone payment that will made on the European Union approval of GEM 21S, which we expect late this year.

Let me now turn briefly to a few developments of highlights on the corporate front. Design activities began in December of 2007 on a new sterile fill, finished and quality testing facility, which we have leased it, which will be used to manufacture and release our orthopedic products once fully evaluated. This facility will also provide our future expansion of office, labs, and manufacturing space. The facility is located in the same complex as the Company’s current headquarters in Franklin, Tennessee. The cost of this facility is being partially offset by a $5 million grant and other expenses from the State of Tennessee and local government.

We expect the facility to be fully operational in 2010. Also as we have mentioned previously, Luitpold acquires the GEM 21S brand as part of our other asset purchase agreement with them, therefore, we are conducting a rebranding program for our orthopedic products, and we anticipate completing this exercise by year end.

I would now like to pass the call over to Larry Bullock, our CFO to briefly discuss our fourth quarter and year-end December 31, ’07 financial results. Larry.

Larry Bullock

Thanks, Sam. Our 2007 financial results for the fourth quarter and year end reflecting ongoing progress in our orthopedic product development program 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. Now to summarize for fourth quarter results, our net loss for the fourth quarter 2007 was $6.9 million compared to $5.3 million for the fourth quarter of 2006. Total revenue for the quarter was $1.5 million, which includes 43.6 million of product revenue from the sales of GEM 21S to Luitpold Pharmaceuticals Inc., our marketing and distribution partner and royalty income of approximately $700,000 and $200,000 of sublicense fee income. This compares to total revenue of $1.9 million recorded in the fourth quarter of 2006.

Research and Development expenses were $6 million for the quarter compared to $3.9 million for the fourth quarter of 2006. The increasing R&D expense primarily relates to the clinical trails in the United States, Canada and European Union, for orthopedic product candidates as well as continued expenses for new and ongoing preclinical studies and regulatory filings. General and administrative expenses were $2.8 million for the quarter compared to $2 million for the same period of 2006. These expenses consist primarily of the cost of doing business as a public company including cost to implement requirements of section 404 of the Sarbanes-Oxley Act of 2002. Stock-based compensation expense, professional services, staff salaries, and wages and facilities expansion to accommodate our increasing product development activities.

To summarize our full year 2007 results, our net loss for the year-ended December 31st, 2007 was $24.6 million compared to $17.2 million for the same period in ’06. Total revenue for the year was $7 million, which includes $5 million of product revenue from the sales of GEM 21S to Luitpold in addition to $1.2 million royalty income and approximately $740,000 from sublicense fee income. This compares to total revenue of $4.1 million recorded in the year-ended December 31, ’06.

The 2007 revenue includes $2.4 million increase in product sales revenue primarily attributable to an approximately 81% increase in unit sales to Luitpold in 2007 versus 2006. Research and development expenses were $19.2 million for the year compared to $11.7 million for the same period of 2006. The increase in 2007 R&D costs related to increase Research and Development activities and clinical trails in the orthopedic program for our product candidates resulting from $2.8 million increase in professional services as well as salaries, benefits, supplies, and other administrative cost associated with the addition of 23 new R&D employees.

General and administrative expenses totaling $8.8 million for the year compared to $6.5 million for the same period of 2006. The 2007 G&A cost relate to the cost of doing of business as a public company including cost to implement the requirements of section of 404 of the Sarbanes-Oxley Act of 2002. Increased facilities cost, increased stock-based compensation expense, and increased salaries, benefits, supplies, and other administrative cost associated with the additional 6 new G&A employees.

Turning to the balance sheet, we ended the year with cash and investments of $67.3 million as of December 31st, 2007. We significantly strengthened our balance sheet in January of 2008 by completing the sale over remaining orofacial therapeutics business to Luitpold. This included the rights to downstream formulation fill, finished, manufacturing and kitting of GEM 21S along with all the rights of the GEM family trademark as they mentioned. We will receive $40 million as a result of the sale transaction plus approximately $3.4 million from the sale of existing inventory. In addition, we will receive ongoing royalty payments based on net sales of GEM 21S and other products that are based on adopting our technology to future products in the orofacial therapeutic fields.

Finally, I’ll provide our financial outlook for 2008. Please note that this projections are based on current expectations and assumptions relates to the cost and timing of our ongoing and anticipated activities such as clinical trails, preclinical studies, and regulatory filings. As noted a moment ago, we ended 2007 of approximately $67.3 million in cash and investments and in January 2008, we completed the sales of our remaining orofacial therapeutic business to Luitpold, which has already brought in $33.4 million. In addition, we expect to receive $10 million milestone from Luitpold on the future European Union approval of GEM 21S and an additional $10 million in 2009 to complete the asset sale transaction. We believe these resources position the company very well to complete the development of our initial orthopedic product candidates.

For 2008, we expect our year-end cash and investments balance ranged from $71 to $78 million and we expect our net cash flow to be between 4 and 11 million dollars. This includes the $10 million additional milestone payment. We anticipate receiving late in 2008 from Luitpold for the European approval of GEM 21S. And finally, our net income before taxes for the year is expected plus forecast to be between $2 and $9 million. With that I would like to thank you for your interest in BioMimetic, and at this time I will turn the call back over to Dr. Lynch.

Dr. Samuel Lynch

Alright, thank you Larry. In closing, let me briefly review our progress during 2007 and summarize our goals for 2008. First, over the past year we have concluded our GEM OS1 and foot and ankle registration trail in Canada and reported what appeared to be very positive results not only from the study but also previously from the U.S. foot and ankle pilot clinical trail. We now expect to file the DLA required for product approval of GEM OS1 in Canada in the second quarter of 2008 i.e., just in the next several months and anticipate a 6 to 9 months review process. Second, enrolment rates are generally increasing in the U.S. and EU GEM OS1 pivotal registration trails and we expect to complete patient enrolment in both of these pivotal studies during the fall.

Third, we entered clinical trails with our second orthopedic product candidate GEM OS2 injectable bone graft and in fact completed enrolment in two trails, one for closed distal radius fractures and the other for fusions. Four, based on promising preclinical data, we are embarking on a new program to develop a localized therapy for the treatment of bones and risk of fracture due to osteoporosis beginning first in the spine using our current GEM OS2 formulation. We continue to receive positive feedback from orthopedic surgeons who have now treated well over 200 patients and have recorded data on 100 of those patients with our product candidates as well as having conducted and published many preclinical studies. At last but not least, we have as Larry just described for you secured sufficient capital to carryout all of these programs in a very vigorous and timing fashion through achievement and obtaining our pivotal clinical trail data for GEM OS1.

Turning to the remainder of 2008, we continue to stay focus on the goals ahead of us and our vision of becoming a leading company in the development and marketing of recombinant based protein therapeutics or auto-biologics. Based on our strong clinical relationships as well as the well characterized biology and history of safety and efficacy for the use of GEM OS1 and use of rhPDGF, our major goals for 2008 are first, of course as we have described filing of the Canadian approval filing for Canadian approval of GEM OS1 for the treatment of foot and ankle fusions in the second quarter with the potential for approval by year end.

Second, completion of enrolment in the U.S. and pivotal studies this fall for GEM OS1 and foot and ankle fusion. Third, the initiation of a GEM OS2 injectable bone graft pilot trail for a localized treatment of osteoporosis in the spine and patients with vertebral compression for fractures, and we expect to initiate that trial again in the second quarter. Fourth, we will have several publications coming out this year in leading orthopedic journals, all supporting our product candidate. Fifth, release of data from two GEM OS2 clinical trails in foot and ankle fusion in the distal radius fractures in the third quarter, so more data on GEM OS2 in the third quarter.

Sixth, achieving EU approval of GEM 21S by year end and again as Larry described the associated $10 million milestone payment, and seventh, extending and strengthening our patent protection on GEM 21S as well as all of our orthopedic product candidate, that also remains our major goal for us this year. We will now be happy to answer any questions that you may have. Betsy, let me turn the call back over to you for further instruction on the Q&A portion of the call.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Your first question comes from Tao Levy from Deutsche Bank, please proceed.

Tao Levy -- Deutsche Bank

Just a couple of quick questions, obviously we just saw you guys last Thursday at the analyst meeting, but maybe Sam, could you tell us what did you learn so far in the U.S., you know, like you mentioned enrolment was running a tad slower than expected. Anything with the handling of the product, packing and mixing, you know anything?

Dr. Samuel Lynch

I’m not sure if it is in the pivotal trail but one of the things that we learned in the pilot U.S. study as well as to some extent in the Canadian registration trail early on and that surgeons – and obviously the surgeons picked up on this again right away should not or we call over stuffed the joint, in other words, as you heard more and necessarily better. In these fusion cases, the objective is to get as much bone on bone opposition and if you pack too much of the PCP component of our product in that joint space and essentially distend and extend the distance between the two bony ends, it just takes more time as I think its maybe common sense if it takes more time for that site to completely view, so we have certainly been over that very extensively as you saw with the investigators in the pivotal trail and I think you saw a video of that procedure last week in the investor and analyst meeting how that material is being packed in and how they are getting basically primary bone on bone opposition following packing of that in. So that’s clearly one of the things that we learn other than and after surgeons report very good handling of the material of the any issues there. There has been no migration of the particles or anything like that, so I think we are very happy with that. Certainly, we know that surgeons really like the GEM OS2 injectable putty formulation and we are excited about that and of course we continue as we talked about to develop that as well.

Packing will be a double blister pack, packing for convenient use in an operating room setting and we are well on our way to having that well undergo, so I don’t see any issues there, and I think in enrolment as you alluded to in the first part of your question tail, you know, as we talked about with many of you, we don’t see – I mean obviously we would like to the faster of course, but what we don’t want the investigators to do is to push so hard to enroll patients that for example one of the issues is being just a logistical one, just having patients that may come from two or three hours away and many of these centers again our major thought leader centers and recruit patients from long distances, and so we have been careful about advising the investigators to only enroll those patients that are geographically located near enough to the clinical site that they are not terribly inconvenience by coming back for the multiple follow up visits that are required as part of FDA study. I can say that slightly differently what we don’t want is to push so hard on our clinical investigators as they started enrolling patients that live two or three hours away and that patients fuse in three or four months and see no need to come back for their 6 and 9 month followup and that would not be good and of course 6 month as you know is our primary end point for example, so we really must make sure that we collect that data. So, we’re walking a fine line between continuing to push patient enrolment and not pushing so hard that we risked the data quality.

Tao Levy -- Deutsche Bank

Okay, Sam thanks, that’s helpful and you brought up patents as being a key objective this year – you maybe go through some of the filings or patent filings that you may have done and you haven’t gotten approval or the patent issued yet and is that something we should care more about as the year progresses where you can get some new issue patent.

Dr. Samuel Lynch

Sure, we can give you a very high level overview of that process, and we have many patent applications on file covering of variety of different aspects of the product candidates that were developing for different indications and pretty much all of the major indications that we are discussing with you, we have filed patent protections and applications on. The initial patents application of that is the furthest along in the process covers compensation and formulation of our product that was used in the GEM 21S product for the periodontal bone regeneration as well as our GEM OS1 and hopefully GEM OS2 formulations as well, so orthopedic as well as the dental products. We have received initial office actions on that. We have a number of discussions with the reviewer of the PTO and we expect to have some decisions on that, but later this year. We are optimistic but obviously still going through the review process. If that application is issued, we expected to provide good coverage for as I mentioned GEM 21S, OS1 and OS2 out through 20, 24.

Tao Levy -- Deutsche Bank

Perfect, great, thanks and then my last question, what’s the regulatory process, you know, you guys think about GEM OS2, obviously you’re getting some – going to get some pilot data during the third quarter. Is that going to require another full blown pivotal trail in foot and ankle to get that approved; any thoughts there? Thanks and that’s it.

Dr. Samuel Lynch

Yes, I'll maybe comment initially and then I'll ask Steve to comment further. I’ll keep my comments somewhat brief, but I would just say that we will continue to evaluate the data as we get in probably in the third quarter hopefully, I mean in the second half of this year and once we fully evaluated that data, we will obviously be in a much better position to decide what indication or indications we wished to proceed for our pivotal clinical trails for GEM OS2. Steve would you like to add anything further to that?

Steven Hirsch

Well, I would say Sam is that we’re looking at a couple of different regulatory – potential regulatory pathways. I think of the premature to really say, you know, we have decided on this because as Sam suggested, it’s not going to be until later in the year where we will really make a decision, but clearly it will be to our benefit to able to leverage GEM OS2 as a supplement to the GEM OS1 filing. So, that’s probable pathway whether we are able to achieve it that way still remains to be seen.

Tao Levy -- Deutsche Bank

Thank you.

Operator

Your next question comes from Vincent Ricci from Wachovia. Please proceed.

Vincent Ricci – Wachovia

Hi guys, just a quick question. You told us that all 28 centers in the U.S. pivotal or North American pivotal trail have received IRB approval, how many are being running right now?

Dr. Samuel Lynch

We have 26 up in running and the remaining two have IRB approval and its really just a matter of weeks before they get going and starting enrolling patients.

Vincent Ricci – Wachovia

And then last week at the Analyst Day, you guys made quick commentary to the safety board’s review of the initial first 50 patients. Sam, do you think you can just quickly clarify what you had said there?

Dr. Samuel Lynch

Yeah – yes we certainly will do that and but I’m going to avoid getting into too much specifics but basically we do of course have a data safety monitoring board for this pivotal trail, that board is charged with reviewing the principally that the safety of the study or potentially stopping the study if it’s clearly, you know, there’s clearly a poor response to GEM OS1, which obviously we don’t expect but it is obviously part of their mandate. I will say that as we, you know, we certainly know GEM OS1 at least appears to be an incredibly safe product with no substantive serious adverse event, GEM 21S we estimate as now being used in, you know, probably somewhere between 35 and 45,000 cases in the dental maxillofacial area with, again as to our knowledge anyway no adverse event attributed it, so we don’t expect anything there, but in terms of safety for the DSMB to really focus on and clearly there has not been anything yet. Another aspects of their review process is to look at the initial outcomes for this group of patients and provide some guidance to the company regarding sample size. This is exactly the same strategy that we use with our GEM 21S pivotal clinical trail. And in that study, the IRF, I mean, I am sorry, in that study the data safety monitoring board met when the first group of patients was the data were available and advised us just to complete the trail with the original sample size. With the GEM OS1, again the review board will meet and will provide us some guidance, but I would have to again caution you that it is we will not know any of the rational for their guidance. So, they might tell us to go forward and not change the sample size at all. They could tell us to increase the sample size or I guess potentially decrease it but I doubt now would be the case, but we will know the rational, I mean for example you could – one could think that and increase in the sample size could be due to either the fact that GEM OS1, you know, is trailing slightly autograft and you would want to increase the sample size to make sure you achieve non-inferiority of you could increase the sample size if GEM OS1 is actually trailing ahead, not trailing, is actually ahead of autograft and there would be an opportunity to the [inaudible] show superiority potentially. So, we don’t want to overstay too much of that. It’s really not something that we are going to be able to interpret or really shed any light on for you. So, I think, you know, I think it’s going to be prudent for anybody to try to hang their heads too much on anything that’s going to come out of that one way or another.

Vincent Ricci – Wachovia

Okay, great and then lastly a question had been asked at the Analyst Day about would the BCF pilot study, you guys have talked about, you know, it’s prophylactic treatment and preventing fracture but also how you would link that fracture rate, could you just clarify your remarks a little there.

Dr. Samuel Lynch

I'm sorry, Vincent. Clarify what?

Vincent Ricci – Wachovia

The question had been asked about, would the BCF pilot study about how you would demonstrate with the prophylactic that you are decreasing fracture rate?

Dr. Samuel Lynch

Right, well, again we will be conducting its study, this initial study in patients that have received either a kyphoplasty or vertebroplasty. So, the patients are obviously, it’s going to be an enriched pool of osteoporotic patients that are clearly pretty severe osteoporotic patients to the point where they already had one significant and painful vertebral compression fracture.

So, the patients are clearly prone to having these fractures, and I think that the data and the literature pretty clearly suggest that within 6 to 12 months of the vertebroplasty or kyphoplasty that there is a fairly high frequency of a subsequent fracture and one of the adjacent vertebral bodies. Whether or not that’s the result of doing the kyphoplasty and increasing the stress on the adjacent vertebral bodies or whether is just the result of [inaudible], these patients are osteoporotic, there are going to get osteoporotic compression fractures, vertebral compression fractures doesn’t really matter to us, but again what we do now is that there is a as I see sort of 20 to 30% fracture rate within a year of having vertebroplasty or kyphoplasty in one of the adjacent vertebral body.

So, we will clearly look primarily in the initial studies that bone density as a surrogate endpoint, but we will of course also collect data on subsequent fractures of these adjacent vertebral bodies and we will probably follow the patient out for at least a year and possibly two years to collect that data, and so we will be able to ascertain the fracture rate and these adjacent vertebral bodies and again as we have described the hopeful, I can say its been approved by any regulatory body, but the planned clinical protocol is to enroll if you will or to study two adjacent vertebral bodies, the superior and the inferior vertebral body adjacent to the kyphoplasty, one would be a controlled, the other would be treated with GEM OS2, and so we will have an internal comparison in the same patient, which I think will make that study even though its going to be a small study in terms of number of patients, it could make it a very powerful and very interesting study. And we will able to again follow these patients and access if there is any potential change in either bone density or fracture rate in the GEM OS2 treated vertebral body as compared to the controlled vertebral body. And then again, we will collect that data and we will make an assessment of how to go forward with the development of that product on the basis of that initial data.

Vincent Ricci – Wachovia

Okay, great, thanks for taking my questions.

Dr. Samuel Lynch

Okay.

Operator

Your next question comes from Debjit Chattopadhyay from Boenning & Scattergood. Please proceed.

Debjit Chattopadhyay -- Boenning & Scattergood

Good afternoon. Thank you for taking my questions. I am wondering the GEM OS2 study in Canada; is that a foot and ankle fusion or is that fractures?

Dr. Samuel Lynch

The GEM OS2 study in Canada is foot and ankle fusion, the GEM OS2 study in Sweden is distal radius fractures. So, how would GEM OS2 and foot and ankle fusion be different from GEM OS1, I understand it’s a different product and different way of administration. But, could you just highlight the study details out there?

Dr. Samuel Lynch

Well, I think that just in general GEM OS2 allows for a minimally invasive application and so I would think in the future as we go forward, you know, again our goal is to have a product that can be used arthroscopically or closed fractures or fusions and of course there are not a lot at the moment, but there are an increasing number of arthroscopically done ankle fusions for example. So, you know, this initial trail was done in an open -- GEM OS2 was done in an open procedure for foot and ankle fusions, but the idea was again to start to understand the safety and efficacy profile in an ankle effusion and then to potentially have it available commercially down the road for all kinds of minimally invasive surgical procedures involving a bone defect, be it in the foot and ankle or be it in the distal radius or be it in a spine in the vertebral compression fracture.

Debjit Chattopadhyay -- Boenning & Scattergood

The potential product approval in Canada by year end, do you know what percentage of foot and ankle fusions are treated at the four centers that they are better participating in the pivotal trail right now?

Dr. Samuel Lynch

I am sorry, Debjit, do we know …

Debjit Chattopadhyay – Boenning & Scattergood

I mean assuming that Canada has about 7% of foot and ankle fusion cases comparing United States. The four states who are participating in the clinical trails right now, do you see a large majority of those or?

Dr. Samuel Lynch

I am going to turn that question to Steve.

Steven Hirsch

Yeah, in fact in Canada, we are meeting with the Canadian investigators and a kind of joke that there is only about a dozen foot and ankle surgeons in Canada, but it’s not a joke, its reality when the Canadian orthopedic Foot and Ankle Society gets together, it’s in a very small room. So, in fact the investigators, the four investigators that are on our study are probably seeing 50% of the very difficult foot and ankle procedures. Now, what you have in Canada maybe more so in the U.S., is you have general orthopedists that will do straightforward foot and ankle procedures. But with these four surgeons, we definitely have a significant percentage of the key opinion leaders in foot and ankle in Canada.

Debjit Chattopadhyay – Boenning & Scattergood

Because I was trying to figure out what would be the adoption rate. But since there are not that many physicians and these guys treat the most difficult case, but I would guess the adoption would be faster having have the experience on the clinical trails before?

Dr. Samuel Lynch

I think that’s a reasonable assumption because word of mouth among foot and ankle surgeons in Canada doesn’t take too long.

Debjit Chattopadhyay – Boenning & Scattergood

And marketing in Canada, 5 to 10 reps, that’s what you had indicated before [inaudible] or independent reps?

Dr. Samuel Lynch

This would be – we are engaging with the distributor in Canada who has independent reps and then also works with subreps throughout the country in some of the more remote areas, but overall coverage we should have somewhere between 5 and 10 people actively selling our product in Canada.

Debjit Chattopadhyay – Boenning & Scattergood

And is there going to be a significant price differential between Canada and United States, I understand you haven’t decided on the pricing for United States [inaudible] Canada, you know, getting close to submission?

Dr. Samuel Lynch

I don’t think we are ready to comment on that yet, Debjit.

Debjit Chattopadhyay – Boenning & Scattergood

Okay, and last question actually for Larry, could you clarify the net income before taxes for ’08, is that including cash from the divestiture plus the $10 million in milestone payments or is that a product sales that you’re talking about?

Larry Bullock

Well, the – the guidance that we have given does include the transactions with Luitpold obviously and that transaction will likely be booked almost entirely in 2008 in terms of net income calculation even though all the cash does not come in 2008. Is that helped with your question?

Debjit Chattopadhyay – Boenning & Scattergood

Thank you so much.

Larry Bullock

Great, thank you.

Operator

Your next question comes from Caroline Corner from Pacific Growth Equities. Please proceed.

Caroline Corner -- Pacific Growth Equities

Hi, thanks for taking my call. First question, following up of around the BCF trail, is that going to be entirely at U.S., that pilot study?

Dr. Samuel Lynch

That is our strategy at the moment, yes.

Caroline Corner -- Pacific Growth Equities

Okay, so that would include the EU and Canada, then or have you thought through that yet?

Dr. Samuel Lynch

We are primarily focused at the moment on Canada, although, it certainly we have accessed opportunities in Europe and even had obviously conservations with some spine and interventional radiologists in the U.S., as well as you know from the Analyst Meeting last week.

Caroline Corner -- Pacific Growth Equities

Sure, and how many patients are you thinking that will be, how many, 20 patients or?

Dr. Samuel Lynch

I think probably its going to be 20 sites of 20 vertebral bodies in 10 patients, again I will just caution, however, that’s purely subject to finalization of the protocols with the appropriate regulatory values.

Caroline Corner -- Pacific Growth Equities

Okay, thanks for that. Second question, given that you’re building your new facility and also that you have several ongoing R&D efforts, can you talk a little bit about the size of your R&D team and plans to expand that going forward?

Dr. Samuel Lynch

Let me turn that question over to Dr. Hart.

Dr. Charles Hart

Yeah, sure. Hi, Caroline. We've got about 15 people right now and what I'll call the research side of the R&D and folks who are actually doing the lab work right now. I would expect over the coming year, we are going to probably add maybe three more folks in that area. Again, to be able to expand out from the sports medicine area that Sam alluded to you earlier. And again, we will continue to build the analytical program and protein biochemistry. We brought on [inaudible] last year. So, we’re not going to expand a lot. Larry might call three to four a lot, but you know, I think that’s a kind of work we’re probably at the end of the year.

Caroline Corner -- Pacific Growth Equities

And then going at the 2010 when you are fully operational on the new facility is that going to involve a lot of new hires, too, what are your thoughts there?

Dr. Charles Hart

Caroline, obviously we are giving much guidance for 2007 at this point, but certainly to get the manufacturing facility up and running and staffed it will involve headcount additions. It's not a labor intensive process, we’re not talking, you know, under device or anything that.

Caroline Corner -- Pacific Growth Equities

Okay, fair enough. And then finally you had in the fourth quarter 700,000 in royalties and going forward given the Luitpold acquisition of GEM 21S, can you give us any comments around expected royalties going forward that you will be receiving?

Dr. Samuel Lynch

Really not – we are not going to get into that level of detail in our guidance, however, our royalty calculation will be very similar to what it is currently, so it will be a function of what Luitpold sales are.

Caroline Corner -- Pacific Growth Equities

Okay, great, that’s helpful. Thanks very much for taking my call.

Operator

Your next question comes from Bill Plovanic from Canaccord Adams. Please proceed.

Bill Plovanic -- Canaccord Adams

Great, thank you. Good evening.

Dr. Samuel Lynch

Hi, Bill.

Bill Plovanic -- Canaccord Adams

Just couple of questions, first really you mentioned that you have enrolled 125 patients yet, 35 the last time we spoke, so that’s 90, but was the base we are running off of last time September 30th or was it at the time of the conference call, just trying to get a feel for how many we’ve enrolled and how long the time frame?

Dr. Samuel Lynch

I am sorry, Bill. We call everything up until really the meat of your question was what would the dates of the enrollment (multiple speakers)

Bill Plovanic – Canaccord Adams

Right, the 35 that you had last time, what was the drop that you are using for that number?

Dr. Samuel Lynch

That was pretty much at the time of that conference call.

Bill Plovanic – Canaccord Adams

At the time of the call, okay, and then my second question is in terms of the GEM OS1 trail in Sweden distal radius trail, are there any plans to go to filing in Europe based after that or is that wait for the foot and ankle fusion data in kind of follow on that data and then you expand the label with the distal radius data?

Dr. Samuel Lynch

Yeah, again as you know all subject to change when you are discussing strategies with the regulatory bodies, but our thought has been for a while and I would say continues to be that we need to get GEM 21S approved in Europe and just as it is in Canada of course in the U.S., and that will certainly position us much more favorably for getting GEM OS1 approved in Europe just as it has positioned us more favorably for getting it approved particularly in Canada to some extent perhaps lesser extent in the U.S., so that’s why we still in addition to just our obligation to Luitpold to get 21S approved as quickly as possible. We really want to also get it approved because we do think that its approval will position us well for at least giving us that best position to go and to speak to the EMEA regarding the approval of OS1 for orthopedic application.

Bill Plovanic – Canaccord Adams

I guess my question is would you wait for the foot and ankle fusion data in Europe prior to submitting for a distal radius with GEM OS1, are you going to wait for the bigger data package or is it you’ll get GEM 21S through when you’re just going to push the next one through and see if you can give a kind of label extension?

Dr. Samuel Lynch

It’s a great question. I am not sure, we are going to be really prepared to publicly get into that level of detail or thought process and strategy negotiations with the EMEA, Bill. I certainly appreciate and understand why you are asking, certainly we are exploring all opportunities to as quickly as possible, get GEM OS1 on the market worldwide including in Europe and Canada and let me just leave it that, let me just say we’re exploring all of our options but you know we are not really prepared to go into our discussions with the regulatory bodies at this point.

Bill Plovanic – Canaccord Adams

Okay and then just the lastly on the rotator cuff product, I think last time we spoke that was really your most advanced, it sounds like at this point you’re kind of scaling back and maybe waiting for 2009 before you go into humans on that product. Am I reading the body language right here and if so kind of why the changing posture?

Dr. Samuel Lynch

Yeah, I guess that you want to say it’s the rotator cuff is the most advanced, it certainly is in terms of sports medicine application. We think they are based upon just even more discussions at the AAOS meetings last week, just a very substantial medical need for something to improve to healing of the rotator cuff as you will know again a very highly ruptured rate and that indication or failure rate in that indication after the procedure.

So, I would still characterize that as probably being the case, although, we have and are continuing to also investigate other applications in the sports medicine area as well. You know, just a kind of revisit, the rotator cuff and also [inaudible] the other sports medicine applications, again our initial data there was very promising but when we demonstrating an open surgical procedure, when we got additional feedback from the surgeons that most of the at least rotator cuff procedures are moving towards arthroscopic not entirely but most of them are moving towards an arthroscopic approach where there is a luminous amount of water that’s being used in those procedures.

We really had to reevaluate our matrix material that we were using for that indication and basically and frankly found it wanting in the sense that continuing to bind and hold PDGF in the matrix in the presence of its high volumes of water that’s being injected into the joint space during the arthroscopic procedure. So, we have spent and we are continuing to spend time to come up with a formulation that is appropriate for use in that kind of an environment, i.e. that really holds and binds PDGF into the matrix better than, you know, frankly anyone of our current formulations including OS1 or OS2 or even some of the other initial applications that we pursued and in the matrix that we pursued.

So, we in light of the fact that we are continuing that preclinical research in the animals and we don’t want to be overly optimistic in our projections of – therefore where when we might get in the clinical trails. So, I think it’s fair to say that we are looking at ’09 and maybe it’s a long way to answer to your question, but yes, it’s fair to say that we are looking at ’09 to initiate the clinical trails in rotator cuff.

Bill Plovanic – Canaccord Adams

Okay and then one last follow up. In considering the difficulty in terms of a carrier for rotator cuff, there is some thoughts maybe to switch over to cartilage repair or maybe a plug of some sort or something like that where the kind of grounding for the material or at least the carrier?

Dr. Samuel Lynch

We have – we’ve looked at that area. We are doing some research in that area and let me again just kind of leave it at that, it’s certainly on our radar screen.

Operator

Your next question comes from David Castercon from Columbia Circle. Please proceed.

David Castercon -- Columbia Circle

All my questions have been answered, thanks.

Operator

Your next question comes from David Glickman from [inaudible] Capital. Please proceed. Mr. Glickman, your line is open. There are no questions at this time. I would like to turn the call over to Dr. Lynch for closing remarks.

Dr. Samuel Lynch

Great, well thank you very much. We certainly appreciate everybody’s interest in our fourth quarter and year-end ’07 call. We hope; we have been able to provide some further guidance. I will have to say that the management remains very optimistic about ’08. We believe that we are just really well positioned to make significant progress on our clinical development activities and really advancing our orthopedic product candidates very close to the clinic.

We are happy with the execution of the GEM OS1 U.S. pivotal clinical trail and gets being executed very well, you know, enrolment will get there, we are very confident of that and again the most important thing for us is that the data -- quality of the data whether its 2 or 3 months behind maybe but its that at the end of the day that is really high quality clinical data. Just like we think, we have gotten in all of our clinical studies so far and we are certainly happy with our progress and would help Canada with the DLA. I think again, we are well positioned at this point there. So, and finally I guess with our current cash position of nearly $100 million with additional cash coming in throughout the remainder of this year and in ’09 as Larry reviewed, especially given the market opportunities for the first part of this market conditions for the part of this year were, you know, we were feeling very good with where we are at right now on that front as well. So, stay tune for hopefully more good things to come. And again, we certainly appreciate all of your confidence and support as we move forward 2008.

Thank you very much.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect and have a wonderful day.

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Source: BioMimetic Therapeutics Inc. Q4 2007 Earnings Call Transcript
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