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BioMimetic Therapeutics Inc. (NASDAQ:BMTI)

Q1 2008 Earnings Call

May 9, 2008 8:30 am ET

Executives

Kearstin Patterson - Associate Director of Corporate Communications

Sam Lynch - President, CEO

Larry Bullock - CFO

Steven Hirsch - COO

Analysts

Tao Levy - Deutsche Bank

Brian Wong - Next Generation Equity

Michael Matson - Wachovia Securities

Caroline Corner - Pacific Growth Equities

Bill Plovanic - Canaccord Adams

Operator

Good day, ladies and gentlemen, and welcome to the first quarter 2008 BioMimetic Therapeutics Earnings Call. My name is Eric. I'll be your coordinator for today. And, at this time, all participants are in a listen-only mode. We'll facilitate the question-and-answer session towards the end of the conference. (Operator Instructions)

I would now like to turn your presentation over to Miss Kearstin Patterson, Associate Director of Corporate Communications for BioMimetic Therapeutics, Inc. Please proceed, ma'am.

Kearstin Patterson

Thanks, Eric. 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 statement.

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 products and proven pre-clinical and clinical development activity, regulatory oversight, 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

Thank you, Kearstin, and good morning, everyone. Welcome to BioMimetic Therapeutics 2008 first quarter earnings conference call. I have with me on the call today Larry Bullock, our CFO, and Steven Hirsch, our COO.

During the call today, I will discuss our product development programs and business activities for the first part of 2008 and then Larry will review our financial results for the first quarter ended March 31, '08, which were released yesterday afternoon. I know we just spoke a few weeks ago so we'll keep today's update relatively brief but we'll certainly be happy to answer any questions that you may have during the Q&A portion of the call.

As you know, we had a very memorable first quarter 2008, with something some things I certainly would love to repeat, such as generating over $33 million in cash from the sale of the remainder of General Therapeutics business and other things that I wouldn't care to repeat anytime too soon, such as the posting by the FDA of the early communication related to Regranex, a J&J product. Overall, though, I believe that the outcomes of both of these events have made BioMimetic a stronger organization and have demonstrated the capabilities of the management team here to successfully work through issues that would have tested any organization.

Receiving an affirmative letter, such as we did two or three weeks from the FDA in the midst of an ongoing pivotal clinical trial, was an unusual and very positive step by the agency and would not have happened had our team not been able to quickly engage in open and productive discussions with the agency to clarify the issues involved. I remain very proud of the execution of our management team during the course of those events.

This past Monday, we announced that enrollment in our U.S. pivotal trial with GEM OS1, which we are developing as a replacement for autograft for the treatment of foot and ankle fusions, has reached 170 patients.

As we have previously indicated, enrollment in this trial did slow somewhat at the end of March and into early April, following the release of the early communication by the FDA. However, it appears to now have fully recovered to pre-early communication levels and we expect enrollment to continue increasing over the coming months. As you all know, and I'm sure you've done the calculations for yourselves. We enrolled approximately 45 patients over the past two months, which included the slow period following the early communication.

To further facilitate enrollment, we are expanding the number of sites to 32 from 28, 28 of those within the U.S., plus the additional four sites in Canada. This process should be complete within the next few weeks. We are also replacing four study sites that were low enrollers from the original group of investigators.

Secondly, we are also initiating a physician-to-physician referral program, which will channel potential trial patients from general and family practitioners directly to the foot and ankle specialists who are participating in our study. We are in the process of rolling out this program and should begin to see its impact within the next six to eight weeks.

And third, we are hiring several clinical specialists who will be dedicated to facilitating the enrollment efforts at our clinical study sites as opposed to our CRAs or clinical research associates, whose primary job is to ensure the high quality and completeness of the clinical trial data. These clinical specialists will be working with the site staff to keep them focused on our study and to ensure that we capture all eligible study participants.

Switching gears now to the ongoing E.U. trial with GEM OS1 for foot and ankle fusions, we have enrolled 81 patients as of March 5 at a total of 125. With about two thirds of the patients enrolled in this trial now, we expect completion by this fall.

Moving on now to Canada. We are finalizing the device license application, or DLA, for approval of GEM OS1 in Canada as a replacement for autogenous bone graft and foot and ankle fusions and still expect to submit this filing very soon, probably in the first week or so of June.

Now to review the status of GEM OS2, our second orthopedic product candidate. As you may recall, we are investigating the safety and effectiveness of this product in two ongoing pilot clinical trials, one for the treatment of distal radius fractures and the other for the treatment of foot an ankle fusions. Both trials were fully enrolled in the fourth quarter of '07 and we will have data available from these studies in the third quarter of this year.

As you can imagine, we are looking forward to seeing the results of these initial trials with our second orthopedic product candidate, which we believe has the opportunity to open up entirely new and very large markets in the closed fracture repair area for our regenerative protein therapeutics.

We are also focusing on the development of the first ever site-specific therapeutic for osteoporosis using the GEM OS2 injectable formulation. The first phase of this program is designed to evaluate the ability of GEM OS2 to increase bone density in the vertebrae of osteoporotic patients. Specifically, the pilot study, which we expect to initiate within the next few months, will be for 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.

We believe the clinical initiation of this program is particularly important, given that the Surgeon General's report on bones and osteoporosis indicates that one in every two women over the age of 50 will suffer from a fracture resulting from osteoporosis. Clearly, there is a substantial clinical need and a large market opportunity for a GEM OS2 type of product to treat and prevent osteoporotic fractures.

In the sports medicine area, we are advancing our product candidates through pre-clinical testing. We believe that the biology of PDGF, when combined with the appropriate tissue-specific scaffold, is well suited to address a number of clinical indications in the sports medicine area and we continue to focus here on improving the healing of tendon, ligament, and cartilage defects by the addition of PDGF combined with tissue-specific scaffolds that are targeted to the type of injury being treated. We presented our pre-clinical studies in this area at the Orthopedic Research Society meeting in March and expect to continue additional pre-clinical work in this area throughout 2008.

We announced in our earnings press release last night that the marketing authorization application, or what's called the MAA, for GEM 21S was validated in March and is under review by the European Medicines Agency, or EMEA. The MAA, the marketing authorization application, submission is required for approval of commercialization and distribution of GEM 21S as a medicinal product in the European Union. BioMimetic will receive, a $10 million milestone payment from Luitpold Pharmaceuticals, who owns and markets that product through its osteohealth company, upon approval of GEM 21S in the E.U. We expect that approval to come around the end of this year.

Now moving on to our corporate highlights. As we announced earlier this year, we strengthened our financial position with the closing of the sale of our remaining dental business for which we will receive a total of $43 million in cash plus ongoing royalty payments based upon net sales of GEM 21S and future products in the dental and cranium maxillofacial field.

We have received just over $33 million from this transaction to date, with the remaining $10 million due by year-end 2009. These payments are in addition to $10 million due us upon the E.U. approval of 21S, which as I mentioned is expected around the end of this year.

We've also announced that we entered into a distribution agreement with Joint Solutions Alliance Corporation, a sales and distribution company for orthopedic products, headquartered in Burlington, Ontario, Canada. This distributor has extensive experience in selling both total joint and fracture fusion hardware for the foot and ankle. They have excellent business relationships with many orthopedic surgeons in Canada and come highly recommended by our Canadian investigators and the key opinion leaders. As part of this agreement, Joint Solutions will act as the exclusive distributor for GEM OS1 and GEM OS2 products in Canada. The agreement has an initial two-year term, expiring in April 2010, and is subsequently renewable for additional one-year terms.

Based upon the upcoming filing of the DLA in Canada and an anticipated approval around the end of this year, we hope to launch our first orthopedic products in Canada in early 2009. Entering this agreement with a smaller niche company as opposed to one of the larger major orthopedic companies will allow us to maintain greater control of our product and be more involved in the distribution process. For example, BioMimetic will also deploy product specialists into the Canadian market to work collaboratively with the Joint Solutions team.

On the patent front, we recently received notification of patent term extension of one of our key patents that protects the marketing of GEM 21S. This patent extension is for a period of about 2.7 years, extending patent coverage for this product out through March of 2012. We are also working on a number of pending patent applications in the U.S. and abroad that are in various stages of prosecution that if issued, will provide additional coverage for GEM 21S and all of our product candidates. We have received office action on the first of these applications and should know more about its final dispensation within the next several months.

We had a very successful series of presentations at the American Academy of Orthopedic Surgery and the Orthopedic Research Society meetings held this past March. In total, we had nine oral and poster presentations, highlighting our pre-clinical and clinical data in the orthopedic space. The responses that we've received continue to demonstrate growing enthusiasm within the orthopedic community for our pipeline of product candidates.

And, lastly, we have scheduled our Annual Shareholders Meeting for Thursday, June 12, 2008 at 8:00 a.m. central time. The meeting will be held at our corporate headquarters here in Franklin, Tennessee, just south of Nashville. And, on a personal note, I'd like to invite all of you to attend the shareholders meeting this year.

I would now like to pass the call over to Larry Bullock, BioMimetic's Chief Financial Officer, to briefly discuss our first quarter ending March 31, 2008, financial results. Larry?

Larry Bullock

Thanks, Sam. Our first quarter 2008 financial results reflect the cash received from the sale of the remaining dental assets and the ongoing progress in our orthopedic product development programs that you just heard about. Now, to summarize our first quarter results.

Net income for the first quarter of 2008 was $31.3 million compared to the net loss of $5.7 million for the first quarter of 2007. As a result of our January 2008 sale of our dental business, we recorded a gain of $39.3 million during the three months ended March 31, 2008. Excluding this gain, total revenue for the quarter was approximately $490,000. This compares to total revenue of approximately $365,000 reported in the first quarter of 2007.

Research and development expenses were $6.1 million for the quarter compared to $3.9 million for the first quarter of 2007. The increase in 2008 R&D expenses was primarily due to new and ongoing clinical trials for the company's orthopedic product candidates in the United States, Canada, and the European Union as well as continuing expenses associated with pre-clinical studies and regulatory filings. In addition, expenses for salaries, wages, benefits, stock-based compensation expense, supplies, and other employee costs have increased as a result of a net increase of 19 new employees in the R&D function.

General and administrative expenses were $2.3 million for the quarter compared to $2 million for the first quarter of 2007. These expenses consist primarily of salaries, wages, and related benefits for employees and general and administrative functions, professional services, rent, and utility costs for the company's facilities and cost of operating as a public company.

Turning to the balance sheet, we ended the quarter with cash and investments of $92.8 million as of March 31, 2008. As I'm sure many of you have noticed, the MTI reported a temporary impairment charge related to our investments in option rate securities. As of January 1, 2008, we adopted FAS 157, which defines fair value, establishes a framework for measuring fair value hierarchy for assets and liabilities measured at fair value, and required expanded disclosure about fair value measurements.

As a result, the temporary decline in fair value of the option rate securities, we recorded $2.4 million in unrealized losses that have been included in accumulated other comprehensive loss for the balance sheet at March 31, 2008. To explain this further, as of March 31, we had $60 million invested in AAA-rated student loan-backed option rate securities. There has been no observable market for these securities since mid February so we have based our valuation on a Level III analysis.

The estimated valuation is derived with a bond valuation model, taking into account the quality of the bond, the interest rate being paid during option failure, and an additional discount for the anticipated time to liquidity. The charge is booked as an unrealized loss of long-term investments and taken as other comprehensive income directly to retain earnings.

As I mentioned, our option rate securities are exclusively in AAA-rated student loan-backed bonds. We believe the underlying security is extremely strong and that liquidity will return to the market. Since we have sufficient liquid investments for our near-term capital needs, we believe we have the flexibility to hold these investments until the market provides liquidity.

Finally, I'll provide our financial outlook for 2008. Please note that these projections are based on our current expectations and assumptions related to the costs and timing of our ongoing and anticipated activities, such as clinical trials, pre-clinical studies, and regulatory filings.

As noted a moment ago, we ended the quarter with approximately $92.8 million of cash and investments. As a result of the sale transaction of our remaining dental business, described earlier, we will receive and additional $10 million in cash no later than December 2009.

At March 31, 2008, we had recorded a long-term receivable for $9.5 million, which represents the discounted balance of the $10 million due from Luitpold in future periods. In addition, we expect to receive a $10 million milestone payment upon the future European Union approval of GEM 21S. 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 to range from $71 million to $78 million and we expect our net cash flow to be between $4 million and $11 million. This includes the $10 million additional milestone we anticipate receiving late in 2008 from Luitpold for the European approval of GEM 21S. And, finally, our net income before income taxes for the year is forecasted to be between $2 million and $9 million.

With that, I would like to thank you for your interest in BioMimetic and, at this time, I'll turn the call over to Dr. Lynch.

Sam Lynch

Thank you, Larry. In closing, let me briefly review our progress during the first part of 2008 and summarize our goals for the remainder of this year. We have enrolled 170 patients as of this past Monday in the U.S. GEM OS1 pivotal trial and are increasing the number of study sites from 28 to 32. We received a letter from the FDA saying that no changes were being recommended to our ongoing U.S. pivotal study addressing the early communication posted by the agency, related to Regranex, a J&J product.

We continue to increase enrollment in our E.U. pivotal trial with GEM OS1 and had enrolled 81 patients as of this past Monday, May 5 out of a total of 125. We received validation of our marketing authorization application for GEM 21S by the EMEA in Europe in March, which positions us for gaining product approval in the E.U. around the end of this year.

We ended the quarter with nearly $93 million in cash plus we have an additional $20 million in future milestone payments, which we expect to receive by year end 2009 and no long-term debt. This strong financial platform positions us well to complete our GEM OS1 clinical development programs in a rigorous and timely fashion.

Key upcoming activities for the remainder of 2008 include filing the DLA for the Canadian approval in the second quarter. That's for GEM OS1 for treatment of foot and ankle fusions with the anticipated product approval, again, around the end of this year.

Receipt of data in the third quarter from two pilot clinical trials with GEM OS2, our injectable bone graft formulation for the treatment of closed fractures of the wrist as well as the stimulation of bone formation in foot and ankle fusion.

Third, the initiation of a new program in the spine, also using GEM OS2, to develop a localized therapy for the treatment of vertebral bodies that are at risk of fracture due to osteoporosis. And finally, completion of enrollment in our U.S. and European pivotal studies with GEM OS1 for treatment of foot and ankle fusion.

Today, we are one of only two companies to have a fully FDA approved recombinant protein therapeutic on the market to stimulate bone repair. Given the proven safety and efficacy of our technology in humans and its broad clinical applications, a strong financial position, and the large market opportunities of products in our space, we are confident that our future is indeed bright. For the remainder of 2008, we will continue to stay focused on the goals ahead of us and our vision of becoming a leading company in the development and marketing of protein-based regenerative orthobiologics.

We'd now be happy to answer any questions that you may have. Eric, 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. (Operator Instructions)

Your next question comes from the line of Tao Levy with Deutsche Bank. Please proceed.

Tao Levy - Deutsche Bank

Good morning. Tao from Deutsche. Can you hear me?

Sam Lynch

Yes.

Tao Levy - Deutsche Bank

Hey. How you guys doing?

Sam Lynch

Good morning, Tao.

Tao Levy - Deutsche Bank

So just a couple quick questions. One, Sam, have you kind of finalized what the design of your vertebral study is going to look like? How many patients, follow up, etc.?

Sam Lynch

I'm not sure I can use the term completely finalized. We have submitted now our application to begin that study, which of course, includes a definitive protocol. The caveat is, of course, the final protocol design will be dependent upon the final approvals by the different regulatory bodies. So with that caveat, let me just say that the design that we have settled on is kind of, as we have alluded to previously, a 10 patient pilot study in which we would treat two vertebral bodies in each of those patients. One would be treated with GEM OS2 and the other would be a controlled vertebral body that would be treated either with a GEM injection or just no treatment at all. And again, one of those vertebral bodies would be superior to a vertebral body that had a kyphoplasty vertebroplasty performed on it and one of those vertebral bodies would be inferior to the kyphoplasty or vertebroplasty and that would be randomized.

We will look at CT scans as an endpoint, among others, for assessment of changes in bone density over time. And Steve, I believe that we have a nine-month to a year follow up in those patients.

Steven Hirsch

Correct, yes.

Tao Levy - Deutsche Bank

Okay, great. And for those that like to do the nitty gritty math on the GEM OS1 trial enrollments, can you get into a little more detail how patient enrollment has looked, what was looking before the letter, sort of on a per week basis and maybe over the last couple weeks since you did get the letter?

Sam Lynch

Tao, again, rather than talking on a per week basis, you can sort of do the math again. You know that since we last announced the enrollment rate, which was about two months ago, which was 125. It's now at 170 so we've got 45 patients over that two month period of time approximately, so we're averaging about 20 to 25 patients a month.

So, you can see sort of what we're doing per week. Again, we are back at that same level now, as we were prior to the early communication. Clearly, if you take that same enrollment rate and do the math and take that out over the next several months, we still have some work to do to increase our enrollment rates to complete enrollment by this fall or end of this year. And we've always expected that would be the case. I think it's fairly typical that you see substantial increases in your enrollment rate in the latter half of the clinical trials as all your sites get very comfortable with the study and really start to get into the groove, getting the patients, and getting treated, so that part is not unexpected for us.

But certainly, as we alluded to, we're certainly taking a number of steps that we believe will lead to that increase in enrollment over the latter half of the study, those being, again, the number of sites to 32 to discontinue some of the low-enrolling sites that just never seem to really get up and going and replace those with new sites that we know have a high volume of these kinds of patients and maybe have better study infrastructure. Again, our patient referral program from physician-to-physician referrals and so forth.

Tao Levy - Deutsche Bank

Just fair enough. And I guess what I should try to get at, before the levy, because if you do the 20 per month, that's probably an overly low number, given that I assume that when, before you guys received the FDA letter, that enrollment was probably faster than the month post. Is it fair to assume that your goal is to kind of be tracking at 30, 40 a month, going forward, so that you can hit this, this fall?

Sam Lynch

Yes, absolutely. That's definitely a fair statement. And I think, again, we're seeing, at least over the last couple of weeks, we're certainly seeing that rate but I would, again, provide the caution that, of course, again, it's still pretty new, it's pretty recent, following that early communication and then getting very new after we got the second letter from the FDA, sort of providing us the guidance that no changes were going to be required to the study. That's only been a couple weeks. So, since we've gotten that letter, enrollment certainly has picked back up, even potentially to higher levels than it was before the early communication was announced. Just what we don't know is that a rebound effect or is it truly a demonstration of increased enrollment rates and that the effects of the activities that we've already taken to improve enrollment. Still, I would say a little bit too early to say for sure but we certainly remain confident that we'll get the study done by the end of the year.

Tao Levy - Deutsche Bank

Great, thanks. And then last question. Can you remind us? Is there an early look at the data monitoring, safety board meeting or anything? I think you probably have a bunch of patients now reaching that six month endpoint?

Sam Lynch

Yes. I really don't have anything further to add to that, Tao, at this point. We are doing a data monitoring committee meeting, to assess sample size, and I think we've talked about it fairly extensively. That will be done, sometime in the third quarter. And we won't really have a lot to say about that, if anything, other than if there's a change in the sample size and the number of patients that will be enrolled in the trial.

But, as we've talked about, we won't know really what reason that the sample size would be adjusted for. It could to show superiority, potentially, or to increase our opportunity to show superiority or potentially to get more patients in to make sure that we have a better chance of showing the non-inferiority endpoint. But I would expect to be able to make any announcement on that until sometime in the third quarter.

Tao Levy - Deutsche Bank

Okay. Thanks a lot.

Operator

Your next question comes from the line Brian Wong with Next Generation Equity. Please proceed.

Brian Wong - Next Generation Equity

Thank you and thanks for taking my questions.

Sam Lynch

Hey, Brian.

Brian Wong - Next Generation Equity

Hi. I was wondering, you said you're adding four new sites to get the 32 plus replacing four other sites that were lower enrollment. How long do you think it'll take for those guys to get and running and enrolling?

Sam Lynch

I mean, this is a process that we already started. So, I would say within the next four to six weeks. Somewhere in that timeframe, we should have all those sites up and running.

Brian Wong - Next Generation Equity

Okay. What was the original protocol in terms of how many total sites can you extend this to if necessary?

Sam Lynch

Well, originally, the IDE approval from the FDA was for up to 28 sites but, of course, one of the things we had to talk about a lot that always, certainly, we're aware of is that the US FDA, of course, regulates the U.S. sites. That's 28 clinical sites within the U.S. And we've always kind of had in our back pocket an opportunity to add some sites in Canada and get to 28 sites in the U.S. plus whatever additional sites we wanted to activate in Canada.

The limiting factor to the number of sites is driven also, of course, by statistical considerations of wanting to make sure that you have valid statistics at the end of the study, which provide some restriction on, of course, the total number of centers that you can have, and we have gone back, this spring, to the bio-statistical group that we utilize to consulting CRO and have obviously had a number of discussions with them prior to making this change, so we don't believe that this will have any impact at all on the statistical rigor of the trial.

Brian Wong - Next Generation Equity

Okay. So, this was done with the FDA's blessing of it, I would guess.

Sam Lynch

With what blessing?

Brian Wong - Next Generation Equity

With the FDA's blessing.

Sam Lynch

Oh, yes.

Brian Wong - Next Generation Equity

Okay. And then, I have a question, I guess, for Charlie. Could you remind me what sort of carcinogenicity studies have been done for PDGF and what the typical requirements are for the FDA to approve or disapprove carcinogenicity?

Sam Lynch

Brian, Charlie is not with us this morning, so I'll give you just a 30,000 foot perspective on that. In terms of carcinogenicity studies for Regranex and for GEN 21, neither were required to perform long-term carcinogenicity studies, as you well know. Those are most typically reserved for products that have a six month or longer duration of exposure to the patient. Certainly, our GEM OS1 and GEM OS2 and GEM 21, are single applications, so a long ways from six months. So I think that's one caveat.

I would say though that, certainly, for infuse and for OP-1 to other types of protein therapeutics that are marketed in the bone regeneration area, that both did some long-term safety tumor promotions, like carcinogenicity studies, and looking through those, our interpretation is probably that the 12 month study and 12 month follow up to those studies was really the key data point in those trials. And it's a little bit unclear but, at the moment, it looks like a lot of that data was allowed to be submitted, post approval. So, we are certainly, again, having discussions, many discussions with the agency since the early communication and are, as we indicated on our last conference call a couple weeks ago, intend to do all the studies that are going to be necessary to get the product approved and at least, at this point, we certainly don't believe that any of those pre-clinical studies would delay our PMA approval.

Brian Wong - Next Generation Equity

Okay, great. And then just a point of clarification for you Larry, that $2 million to $9 million in net income, that does include that $10 million milestone payment. Is that correct?

Larry Bullock

Yes, that's correct.

Brian Wong - Next Generation Equity

Great. Thank you.

Larry Bullock

You're welcome.

Operator

Your next question comes from the line of Michael Matson with Wachovia Capital Markets. Please proceed.

Michael Matson - Wachovia Securities

Hi. Thanks for taking my question. I guess, just with regards to the letter or the communication that you got from the FDA regarding the situation with Regranex and what that means for your study. I understand that they're letting you continue to just kind of run your study as it's been designed, but is there any additional risks that, down the road, they can require more follow up or just any other risks associated from a regulatory standpoint related to the Regranex issue?

Sam Lynch

Well, I think, Michael, we don't believe so at this point. Let me say that. We haven't either in the letter of in discussions, haven't had those comments or haven't been led to believe that. As you well know, of course, the agency, depending upon any data that they receive, has the ability to change their position. So, I'm sure we'll have to continue to look at this as we go forward. But right now, we don't certainly expect that we need to do anything beyond we're already planning on doing.

I mean, we were planning already, for example, on continuing to follow-up on the patients after the trial was over, after the six month primary endpoint. We already had built into the protocol another six month follow up for safety on those patients taking the total follow up out to a year.

In our GEM 21 patients, in our pivotal clinical trial that was finished three years ago before any of this was ever an issue, we continued to follow those patients and now have three-year data on those patients. It's just something that we think it is prudent scientific and frankly, good data to have for lots of reasons. So, we would certainly expect to continue the long-term follow up on our patients in this trial, just as we did on GEM 21 trial.

Michael Matson - Wachovia Securities

Okay. And that actually leads, well, into my next question, which is in Canada, once the product is approved there, are there any plans to create sort of a registry or to follow any of those patients that have the GEM products, not part of a standard trial, I guess?

Sam Lynch

Well again, we certainly will follow any adverse events that are reported. We're always required to do that. Every product is, every medical device is always required to do that. So we certainly will do that and, yes, to your point, it actually might be prudent for us to set up a form of registry. It's not something that we have focused on yet really and put a lot of the nuts and bolts behind that but certainly, we would be very comfortable doing that and will certainly seriously consider doing that, as we get closer towards that marketing approval.

Michael Matson - Wachovia Securities

Okay. And then a question for Larry, I know you're not, giving guidance on revenues but just given the revenues we saw in the quarter, can we kind of expect similar levels for revenue for at least the remaining three quarters in the year? Is there any kind of seasonality? I guess the seasonality is probably smoothed out now that the product, the GEM 21 product has been sold to Luitpold. Is that fair?

Larry Bullock

Yes, for the most part, I would say that that is correct because there won't be the inventory and the minimum purchase requirements from Luitpold anymore. In terms of seasonality, there probably will be some seasonality with the sales of the product just from Luitpold's perspective, which would drive our royalty income. But other than that, I would say no, that we'll just see the standard ramp and unfortunately, we don't have as much visibility as we used to have either with Luitpold, other than royalty calculation.

Michael Matson - Wachovia Securities

Okay.

Larry Bullock

But, yes, it should be relatively smooth now.

Michael Matson - Wachovia Securities

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

Sam Lynch

Thank you.

Operator

Your next question comes from the line of Caroline Corner with Pacific Growth Equities. Please proceed.

Caroline Corner - Pacific Growth Equities

Hi. Thanks for taking my call. My first question was about the pending patent that you have. Could you tell us any more about the patent that's pending? Is it a composition of matter patent or what does that entail?

Sam Lynch

Caroline, it covers the composition and dose ranging of PDGF with calcium phosphate matrixes for use in bone regeneration type procedures.

Caroline Corner - Pacific Growth Equities

Okay, thanks. And then, just trying to look at the cash position a little bit more here. You currently have about $92 million in cash, but $60 million of that is in option rate securities. It looks like you're maybe burning $15 million to $20 million according to guidance, in the next nine months or so. How comfortable are you that you're going to be in a good position, cash wise? I know you've got milestones, I know you've got royalty streams. Can you just reassure us a little bit there, I guess, would be my question?

Larry Bullock

Well Caroline, I think we certainly are very sensitive to our cash burn and will do everything that we think is appropriate, relative to keeping our cash burn under control. So I think we feel very good that we have a very strong balance sheet at this point and time. We also think that we have the flexibility to hopefully not realize any losses on any of these option rate securities with the other liquid investments that we do have. So, I think we're in very good shape at this point.

Caroline Corner - Pacific Growth Equities

And should we assume that with regard to the option rate securities that once there's some liquidity realized in those markets that you'll be selling those or getting out of them?

Larry Bullock

That's probably an obvious yes.

Caroline Corner - Pacific Growth Equities

Okay.

Larry Bullock

I think since we are in what's characterized as the high quality option rate securities, we certainly would expect that's where we will see some liquidity earliest in the marketplace.

Caroline Corner - Pacific Growth Equities

Okay. And then, my last question is the new sites for the GEM OS1 trial, the eight new sites, the four that add up to the 32 and then the four replacement sites are they all in the U.S. or where are they, geographically?

Sam Lynch

Yes. Steve, I believe they're all in the U.S., right?

Steven Hirsch

They are, but just to clarify, Caroline, you said eight new sites?

Caroline Corner - Pacific Growth Equities

Wasn't there -- there's four additional sites and then you said you were replacing four sites, as well?

Steven Hirsch

Well, the four new sites are replacements for four sites that were previously on our list or part of the study. I guess if you include the four Canadian sites plus the four new U.S. sites, that would be a total of eight sites, but I just want to be clear on that.

Caroline Corner - Pacific Growth Equities

Okay. So just to get that straight then, the 28 sites that were originally included, four of those are no longer enrolling but you've got four new ones that are now?

Steven Hirsch

That is the plan. Correct.

Caroline Corner - Pacific Growth Equities

Okay. Thanks for that clarification. Okay. That's all I have. Thanks.

Operator

(Operator Instructions)

Your next question comes from the line of Bill Plovanic with Canaccord Adams. Please proceed.

Bill Plovanic - Canaccord Adams

Great. Thank you. Good morning.

Sam Lynch

Good morning, Bill.

Bill Plovanic - Canaccord Adams

I just have a couple questions. Actually, I'm going to put maybe Larry on the spot here for a minute. Larry, there's a lot of incremental assets going towards driving enrollment. What do you think the cost of that or is there an incremental cost associated with that that we should be thinking about?

Larry Bullock

Well Bill, certainly there is an increased deployment of assets going into our enrollment for a pivotal clinical trial, but I would suggest that that is anticipated in the projections that we've already given you. So, we don't anticipate adjusting guidance as a result of these activities. These are the sorts of things that we had already anticipated in our budgeting process.

Bill Plovanic - Canaccord Adams

Okay. And then, in terms of the Joint Solutions deal, is this -- how should we think about this, I am sorry? Is this just like a normal independent agent rep, distribution deal? Is this a stocking distributor deal? I mean, how should we think of this?

Larry Bullock

Bill, it's a stocking distributor situation so Joint Solutions will be our exclusive representation in Canada, an orthopedic distributor that has representation all across the country, but they will be buying the product from us so they're a stock and distributor.

Bill Plovanic - Canaccord Adams

Okay. All right, great. Thank you very much.

Sam Lynch

Thank you, Bill.

Operator

We're currently showing no more questions in the queue at this time. I would like to turn the call over for closing remarks.

Sam Lynch

All right, great. Thank you, Eric, and thank you, everyone. We appreciate the support and feedback that we've received from all of our investors over the last several weeks and several months. While there has certainly have been some unforeseen challenges so far this year, we are fortunate that they really were not directly directed at us. In contrast, the only other recombinant protein therapeutic that's fully approved for orthopedic use has been the subject of some significant adverse effects that have been reported recently and potential labeling changes, which, we believe, opens the door, wide open, for us to compete even more successfully for our multi-billion dollar orthobiologics market. We therefore remain committed and focused on our vision of creating the premiere regenerative protein therapeutics company in the orthopedics field.

With that, let me close and thank you all very much for joining us today.

Operator

Thank you for your participation in today's conference. This concludes our presentation. You may now disconnect and have a good day.

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Source: BioMimetic Therapeutics Inc. Q1 2008 Earnings Call Transcript
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