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BioMimetic Therapeutics, Inc. (NASDAQ:BMTI)

Q2 2008 Earnings Call Transcript

August 11, 2008 4:30 pm ET

Executives

Kearstin Patterson – Associate Director, Corporate Communications

Samuel Lynch – President and CEO

Larry Bullock – CFO

Timothy Daniels – Associate Professor of Orthopedic Surgery, St. Michael's Hospital, University of Toronto

Steven Hirsch – COO and EVP of Orthopedics

Analysts

Imron Zafar – Deutsche Bank

Vincent Ricci – Wachovia Capital

Erica Selin – Stanford Group

Bill Plovanic – Canaccord Adams

Greg Wade – Pacific Growth Equities

Debjit Chattopadhyay – Boenning & Scattergood

Amrit Nagpal – Weintraub Capital

Operator

Good day, ladies and gentlemen and welcome to the second quarter 2008 BioMimetic Therapeutics earnings conference call. My name is Gwen and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session toward the end of this conference. (Operator instructions)

I would now like to turn the call over to Ms. Kearstin Patterson, Associate Director of Corporate Communications for BioMimetic Therapeutics Incorporated. Please proceed, ma'am.

Kearstin Patterson

Thanks, Gwen. Before we begin, I would like to remind you that any statements made during this call can be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on the current intent and expectations of the management of BioMimetic Therapeutics. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. There are many important factors that could cause actual results to differ materially from those indicated in the forward-looking statements. BioMimetic's actual results and the timing and outcome of events may differ materially from those expressed in, or implied by, the forward-looking statements because of risks associated with the marketing of BioMimetic’s products, unproven pre-clinical and clinical development activities, 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 will be webcast and 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.

Samuel Lynch

Thank you, Kearstin and good afternoon everyone, and welcome to BioMimetic Therapeutics 2008 second quarter earnings conference call. I have with me on the call today Larry Bullock, our CFO, and Steven Hirsch, our COO, and Dr. Charles Hart, our Chief Scientific Officer.

We're also fortunate to have Dr. Timothy Daniels, who will be joining us also on the call today. Dr. Daniels is Associate Professor of Orthopedic Surgery at St. Michael's Hospital in the University of Toronto, and is the lead investigator in our foot and ankle trial investigating our second orthopedic product candidate, Augment Injectable Bone Graft, as well as an investigator in our ongoing Augment Bone Graft pivotal trial. Dr. Daniels will be available to answer questions about the data we presented on the Augment Injectable product candidate for the first time today during the Q&A portion of our call.

The first part of the call today will address our product development programs and business activities, which will then be followed with Larry providing an update of our financial results for the second quarter of the year ending June 30, which were released this afternoon. We, along with Dr. Daniels, will also be happy to answer any questions you have during the Q&A portion at the end of the call.

This quarter we also unveiled a new brand name for our portfolio of orthobiologic product candidates. We announced that the Augment brand name will replace the GEM family of trademarks. Specifically, Augment Bone Graft will replace GEM OS1 and Augment Injectable Bone Graft will replace Gem OS2. You will see these new brand names reflected throughout all of our communications hereafter, and you will hear them used repeatedly on the call today. We will also discuss this transition in more depth later on the call.

So let's take a look first at our Augment Bone Graft product candidate. We are progressing this product candidate nicely, including applying for product approval in Canada, and completion of our ongoing studies in the U.S. and the EU. Let me first talk about the most important issue for our Company. That is the enrollment in our ongoing pivotal clinical trial. In our earnings press release issued this afternoon we announced that as of August 8, 220 patients have been enrolled in our U.S. pivotal trial on the Augment Bone Graft product candidate, which we are developing as a replacement for autogenous bone graft for the treatment of foot and ankle fusions.

While we are showing steady progress, the rate of enrollment has been somewhat slower than we had hoped. There appear to be three main reasons for this. First, we've seen a substantial slowdown over the past two months as a result of summer vacation schedules. Second, the worsening overall economy appears to have resulted in a decrease in the number of elective procedures in many hospitals. And third, believe it or not, the price of gasoline has increased patient concerns about the multiple followup visits required for the study.

Last quarter, though, we outlined some of the steps that we intended to take to directly address these issues, and we've now implemented those initiatives. We've hired a team of clinical specialists that are working directly with the sites to identify and overcome obstacles in patient screening, consent, and enrollment. We've implemented a physician-to-physician referral program to facilitate the referral of potential study candidates directly from general family practitioners to the foot and ankle specialist participating in our study. And we've applied to the IRBs to increase the reimbursement rate for patients' travel expenses.

We are just now beginning to see the results of these enrollment initiatives. We have been especially pleased with the positive reception that our new clinical specialists have received from the study sites. The specialists are becoming part of the team at our sites, and we are confident that this will result in greater emphasis on our study and ultimately in more patients enrolled. We expect these efforts to begin to impact on enrollment in September with a higher level of enrollment, which we believe will be sustained then throughout the rest of the year.

Another measure that we have previously discussed was the addition of new sites. We have already activated three new sites that replaced low and rolling sites. Additionally, three more new sites are pending study initiation and are expected to be on line in the coming weeks. In total, then, this will give us 32 active sites, an increase of four sites above the initially announced 28 site limit that we were targeting.

And finally, we are pleased to announce challenge grants to both the Outreach and Education Foundation of the American Foot and Ankle Society as well as the Canadian Foot and Ankle Society. In order to provide greater visibility for our study and some additional motivation to our clinical investigators, we announced at the AOFAS summer meeting, that's the American Orthopedic Foot and Ankle Society summer meeting, these substantial grants if enrollment in the pivotal study is completed by year-end. These foundations are responsible for funding clinical outreach such a clinicians visiting underserved countries and research within the orthopedic foot and ankle community. We're very proud to be affiliated with such worthy programs and appreciate the dedication of all of our investigators to meet the challenge of completing enrollment by year-end.

In summary, we are taking a number of steps to overcome some of the challenges that we have encountered in enrolling our pivotal trial. Once the summer is over, we expect to see the positive impact of these initiatives and increase our enrollment rates in the study. While we would hope that these efforts will enable us to complete enrollment by the end of this year, and that remains our goal, we believe that we are obligated to relay the possibility that completion of enrollment may slide into the spring of 2009.

One final comment relating to the pivotal trial. Our study protocol called for a review of an initial cohort of patients by an independent data monitoring committee, or DMC. This committee will be reviewing six-month data from about 70 to 75 patients from the U.S. pivotal trial. The DMC will be performing a safety assessment and a sample size analysis and may recommend an adjustment to the sample size if they feel it's appropriate. The DMC review is due for completion in the September to October timeframe.

Switching to the ongoing EU trial with Augment Bone Graft for foot and ankle fusions, as of August 1 we are approximately 75% of the way to completing enrollment with 95 out of the total of 125 patients enrolled. We expect to complete enrollment in this trial around year-end.

Regarding the approval of Augment Bone Graft in Canada, we submitted the Device License Application, or DLA, to Health Canada in the second quarter of this year, meeting the timeline that we had previously announced. As you know, the DLA submission is required in Canada for approval of commercialization of the Augment Bone Graft as a medical device for use in the treatment of foot and ankle fusions. We recently received questions back from Health Canada regarding this filing and are in the process of addressing them. We anticipate that a final decision on the DLA will be obtained by the first half of 2009.

Now to review the status of Augment Injectable Bone Graft, our second orthopedic product candidate. As you may recall, we are investigating the safety and effectiveness of this product candidate in two ongoing pilot trials, one in Canada for the treatment of foot and ankle fusions and the other in Sweden for the treatment of distal radius fractures. Both trials were fully enrolled in the fourth quarter of 2007.

Earlier today we released the initial data from the Canadian study for foot and ankle fusion. A total of 10 patients were enrolled in this open-label study with all patients treated with Augment Injectable Bone Graft to enhance the rate of foot and ankle fusion. The study design was similar to the previous 60-patient trial we conducted for this indication in Canada, except of course for the use of the injectable formulation instead of the particulate formulation.

The results of the study demonstrated that all 10 patients achieved clinical healing at the six-month time point. Within the 10 patients a total of 20 joints were treated with 100% successful clinical outcomes. In addition, analysis of CT scans at three to four months after surgery showed that 90% of the patients had achieved radiographic fusion. This percentage is in line with what we had hoped to see at this time point and is similar or perhaps even better than the results we obtained in the 60-patient Canadian foot and ankle trial.

Consistent with our previous studies, there were no serious adverse or device- related events. Also, let me reiterate that the study entry criteria allowed for high-risk patients such as smokers and obese patients. As you may recall, a large portion of Dr. Daniels' patient population consists of such high-risk patients. In this study, a total of seven out of the 10 patients fell into one of the high-risk categories.

These results continue to support the value of the Company's PDGF-based platform technology to enhance bone tissue repair, further demonstrated by the previously released results with the use of Augment Bone Graft in the Company's U.S. pilot and Canadian registration studies, evaluating healing in foot and ankle fusion.

As mentioned earlier, Dr. Daniels will be available to answer questions about this study at the end of the call. Based upon these data and Dr. Daniels' comments, I hope you will come away with a similar sense of enthusiasm for this product candidate as best shared by Dr. Daniels and the staff at BMTI.

In addition to these data, we expect to release the results of the Swedish pilot study investigating the use of Augment Injectable in the healing of closed distal radius fractures around the end of September. If successfully developed, we believe that an injectable formulation of our product containing PDGF has the opportunity to open up entirely new and very large market segments for our regenerative protein therapeutic products, including the treatment of fractures, non-unions, and fusions, with a minimally invasive or percutaneous technique.

We have previously announced a plan to initiate a human clinical study in the first half of 2008 with Augment Injectable for bone augmentation applications or the prophylactic treatment of osteoporotic bone. However, due to our focus on our current ongoing clinical activities, specifically our large U.S. pivotal clinical trial, we've decided to postpone the initiation of a human clinical study assessing the Augment Injectable product candidate for bone augmentation applications ,thus again, allowing us to continue to focus on our U.S. pivotal clinical trial and its successful completion.

Now let's turn our attention to GEM 21S briefly. We announced in our first quarter conference call in May that the Marketing Authorization Application, or what's called the MAA, for GEM 21S had been validated and was under review by the European Medicines Agency, or EMEA. Since that time we have received the EMEA's response to the application and we are now in the process of responding to the questions raised in that communication. But we don't believe that the EMEA will be able to react to our responses by year-end. With that in mind, we now expect approval of this product in Europe in the first half of 2009.

The approval of GEM 21S in the EU will trigger a $10 million milestone payment from Luitpold Pharmaceuticals, who now owns and markets GEM 21S worldwide through its Osteohealth company.

Moving on to corporate highlights, as I mentioned earlier in the call, in the second quarter we introduced Augment as our new brand name for our portfolio of orthobiologic product candidates. The Augment brand name will replace the GEM family of trademarks, which was acquired by Luitpold in the transaction that divested the Company's remaining dental business earlier this year. GEM OS1 Bone Graft has become Augment Bone Graft and GEM OS2 Injectable Bone Graft has become Augment Injectable Bone Graft. The Augment name will be incorporated into all current and future product candidates that contain recombinant PDGF and is intended to be used worldwide. We believe that this new brand name will allow for improved recognition among surgeons and patients and is intended to reflect the value proposition of the Company's platform protein technology. While the change has already taken effect, it will take until the end of the year to fully integrate the Augment brand across all of our marketing channels.

During the quarter BMTI was also selected for addition to the Russell 2000 Index, which is widely used by investment managers and institutional investors for index funds and as benchmarks for both passive and active investment strategies. We feel very privileged to be included in this group of so many impressive companies.

And lastly, we announced the results of the 2008 Annual Meeting of Stockholders that took place on June 12, 2008 here at the Company's headquarters. Re-elected to the Board of Directors for three-year terms expiring at the 2011 Annual Meeting of Stockholders were Larry Papasan, Chairman of the Board, James Murphy, and myself, in addition to other business that was conducted at the meeting.

I would now like to pass the call over to Larry Bullock, our Chief Financial Officer, to discuss our second quarter ending June 30 financial results. Larry?

Larry Bullock

Thanks, Sam. Our second quarter 2008 financial results reflect the ongoing progress in our orthopedic product development programs that you just heard about. We continue to strive to be financially prudent in managing our business as we make the important investments to advance our product candidates through clinical development.

Our net loss for the second quarter of 2008 was $9.2 million compared to $6.4 million for the second quarter of 2007. Total revenue for the second quarter of 2008 was approximately $460,000, primarily consisting of royalty income and sublicense fee income. This compares to total revenue of approximately $490,000 for the second quarter 2007, which included almost $100,000 of GEM 21S product sales revenue. As disclosed earlier this year, we do not expect product sales revenues of GEM 21S in 2008 and going forward due to our January 2008 sales of our remaining orofacial therapeutic business to Luitpold Pharmaceuticals.

Research and development expenses were $6.8 million for the quarter compared to $4.7 million for the second quarter of 2007. The increase in 2008 research and development expenses was primarily due to new and ongoing clinical trials of the Company's orthopedic product candidates in the United States, Canada, and the European Union, as well as continuing expenses associated with preclinical studies and regulatory filings. In addition, expenses for salaries, wages, benefits, stock based compensation expenses, travel, supplies, and other employee costs have increased as a result of a net increase of 16 new employees.

General and administrative expenses were $2.5 million for the quarter compared to $2.1 million for the second quarter of 2007. These expenses consist primarily of salaries, wages, and related benefits for employees and general and administrative functions, plus professional services, rent, and utility costs of our facilities, and minimum royalty payments for our patent licensing agreements.

Turning to the balance sheet, we ended the quarter with cash and investments of approximately $76.1 million as of June 30, 2008. As I'm sure many of you have noticed, BMTI recorded a temporary impairment charge related to our investments in auction rate securities. As of January 1, 2008 we adopted FAS 157, which defines fair value, establishes a framework for measuring fair value of hierarchy for assets and liabilities measured at fair value, and requires expanded disclosures about fair value measurements. As a result of the temporary decline in fair value of our investments in auction rate securities, we recorded an unrealized temporary impairment charge of $10.2 million on our balance sheet as of June 30, 2008.

BMTI holds $60 million in auction rate securities in its investment accounts. As you know, the auctions for these securities began failing in February of this year and virtually all the auctions have failed since that time. Our funds are invested in very high quality bonds, a significant majority of which are government backed through the Federal Education Loan Program.

We recently had an independent valuation and analysis done on these bonds by a company that specializes in valuing security such as these. As a result of that valuation analysis and taking into account actual offers to purchase these securities, the Company has taken an additional $7.8 million temporary impairment charge against these investments in the second quarter in addition to the $2.4 million charge recorded in the first quarter, bringing the total to $10.2 million. I refer you to our quarterly financials for a more complete disclosure on this subject.

Additionally, you probably noticed news over the last week or so as several banks involved in the marketing and sale of these securities have made announcements regarding their expected repurchasing of them. We find these recent developments very encouraging and supportive of our characterization of the impairment charge as temporary.

Finally, I will provide our financial guidance 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, preclinical studies, and regulatory filings. As noted a moment ago, we ended the quarter with approximately $76 million in cash and investments after reflecting the temporary impairment charge against our auction rate securities.

As a result of the sale transaction of our remaining orofacial therapeutic businesses described above, we will receive an additional $10 million in cash no later than December 2009. At June 30, 2008 we had recorded a long-term receivable of $9.6 million, which represents the discounted balance of that $10 million, which is due from Luitpold in future periods. In addition, we expect to receive another $10 million milestone payment upon the future European Union approval of GEM 21S, which is now anticipated later in 2009.

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 $58 million to $65 million, assuming no change in the temporary impairment charge against our auction rate securities, and anticipate that our net cash usage will be between $2 million and $9 million.

Also, our income before income taxes for the year ended December 31, 2008 is forecasted to be also in the range of 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 back over to Dr. Lynch.

Samuel Lynch

Thanks, Larry. In closing, let me briefly review our progress during the second quarter of 2008 and summarize our goals for the remainder of the year. First, we reported that in the Canadian pilot trial, Augment Injectable achieved 100% clinical success rates by six months and a 90% fusion rate on CTs at three to four months. We took several steps to improve enrollment in the U.S. Augment Bone Graft pivotal trial, including replacing three non-performing sites, qualifying three more new sites, hiring four clinical specialists to work directly with the new and original clinical sites, initiating a physician-to-physician referral service, and agreeing to fund the challenge grants to the AOFAS and COFAS if enrollment is completed by year-end.

We reached 75% enrollment in our EU foot and ankle trial with the Augment Bone Graft product and maintain our guidance to complete enrollment by year-end. We submitted our Augment Bone Graft DLA to Health Canada and are addressing follow-up questions raised by the agency.

Key upcoming activities then for the remainder of the year include receipt of the data around the end of September from the Swedish pilot clinical trial with Augment Injectable for the treatment of closed distal radius fractures. Secondly, continuing enrollment in our U.S. and European studies with the Augment Bone Graft for treatment of foot and ankle fusions. And third, receipt of the DMCs six-month interim safety and sample size analyses on or about – on about 70 to 75 patients from the U.S. pivotal trial.

While we have experienced and certainly will continue to experience some challenges, we continue to believe that our clinically proven and FDA approved platform technology, organizational capabilities, and strong balance sheet position BioMimetic for success in the rapidly growing billion dollar orthobiologics marketplace. For the remainder of 2008, we will maintain our focus 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 would now be happy to answer any questions that you may have. Dr. Daniels, would you like to make a few comments before we turn the call back over to Gwen for further instructions on the Q&A portion of the call?

Timothy Daniels

Hi, Sam. Can you hear me?

Samuel Lynch

Yes, sir.

Timothy Daniels

I'm Dr. Tim Daniels. I'm an orthopedic surgeon at St. Michael's Hospital. I came in a little late, so that introduction might have already been made. I am a Canadian orthopedic surgeon. I was involved in the pivotal study with GEM OS1 and enrolled 30 of the 60 patients. And now I've been asked to comment on the 10 patients that I enrolled with GEM OS2. For those of you that may not be familiar, the primary difference between the two is that GEM OS1 uses the TCP, which is a tricalcium phosphate as a delivery substance whereas in the GEM OS2 it's a collagen based substance. So in comparison it's like a mortar versus a thin putty in terms of the injectable. I've been impressed with the GEM OS2. Obviously with 10 patients, 20 fusions completed, 100% fusion rate, there is no reason for me not to be impressed and particular with the handling capabilities of the product. And I'm here to answer any questions that might be out there regarding the GEM OS2 product.

Samuel Lynch

Great. Thank you, Dr. Daniels. With that, Gwen, let me turn the call back over to you for further instructions on the Q&A portion of the call.

Question-and-Answer Session

Operator

(Operator instructions) Our first question comes from Tao Levy with Deutsche Bank. Please proceed sir.

Imron Zafar – Deutsche Bank

Good afternoon. This is actually Imron in for Tao. Thanks for taking my questions. My first question is on the Canadian filing. Can you, Sam, please just give us a little bit of light on what the nature of the questions were from Health Canada?

Samuel Lynch

Yes, Imron, basically the normal types of questions that you would expect ranging all the way from the clinical trial itself to manufacturing type issues, safety assessments, pre-clinical studies, and so forth. So we think fairly standard type of questions.

Imron Zafar – Deutsche Bank

Okay. And then as far as GEM OS2, the regulatory strategy there with the foot and ankle indication, can you just talk about what you expect there as far as the pivotal trial?

Samuel Lynch

The pivotal trial for GEM OS2, is that the question, Imron?

Imron Zafar – Deutsche Bank

Correct. Yes, please.

Samuel Lynch

Yes. We obviously are very encouraged and very enthusiastic with the results from Dr. Daniels' trial in the foot and ankle indication. As he said, it's hard to get better than all your patients being successful, having successful clinical outcome. So we clearly feel very, very good about that, but understand that it is a 10-patient trial and that we need to get – generate further data to further support the product in that indication. But we also want to make sure that we see the data from Dr. Larsson in the Swedish closed distal radius fracture study. And as I mentioned, that should be out around the end of September. And we want to make sure that we have an opportunity to review those data as well and to digest them. We then will get together with our orthopedic advisory board and review the data with them and select a final indication for moving forward into a pivotal or registration type trial.

Imron Zafar – Deutsche Bank

Okay, and then a couple of questions for Dr. Daniels. Dr. Daniels, in the 10 patients you treated with GEM OS2, can you just give us a little bit of sense of the patient composition? Were these de novo patients, or were they previously treated with a different type of surgery or – how many were smokers? How many were diabetics? And how many were both? Thanks.

Timothy Daniels

I work at a quaternary; my practice is quaternary. So many of these patients, I think 60%, had risk factors. The most common one was obesity. I can't give you exact numbers. Are they in front of you there, Sam or Bill, with regards to the number of smokers? But the number I recall, 60% had a significant risk factor. You had two questions. The second one was?

Imron Zafar – Deutsche Bank

Just I was going to ask you about the handling. I think you made a comment that you were impressed with the handling. Were there any attributes of the product that maybe were challenging or things that could be improved upon?

Timothy Daniels

Not improved upon. I mean, what I found very useful with regards to GEM OS2 is that it really was a substance that could interdigitate and get into every crevice as far as the fusion surface area was concerned, but not obstruct or prevent the biological surface, which is the bleeding bone from interacting with one another. So for me it was an ideal delivery mechanism by which you were getting the PDGF to the areas that mattered but not interfering with the mechanics of the fusion site.

Imron Zafar – Deutsche Bank

Okay, and in GEM OS1 when you were discussing that you had talked about the wound healing benefits you noticed with PDGF. Did you notice that in the GEM OS2 study as well?

Timothy Daniels

As far as I recall we didn't see one patient out of the 10 with any wound healing difficulties. And once – and also what's interesting is this GEM OS is sort of like – GEM OS2 is like a thick porridge. And when you compress the joint it squeezes out into the soft tissues. And when you're actually closing the soft tissue envelope, the GEM OS2 is sitting in that soft tissue envelope. So in some ways it is, I would say, more available to the soft tissues with regards to healing during the surgical closure of the wound.

Imron Zafar – Deutsche Bank

Okay, got you. And then, Sam, one nit-picky question for you and I don't mean to be splitting hairs. But you had mentioned in your prepared remarks that you hoped to have enrollment completed for OS1 by year-end and may slip into spring of '09. Would that be as in post March 21, '09 or as in Q1 '09?

Timothy Daniels

I believe that's for you, Sam.

Samuel Lynch

Yes, I think, Imron, given that our goal, as I said, is still to complete enrollment around the end of this year. We would certainly hope that it wouldn't slip past the first quarter of '09. We are obviously acutely aware that if you just take the current enrollment rate and run it out and assuming a flat line and it doesn't increase that it would go into probably the April to May timeframe. But I mean we clearly believe that once we get past the summer and post Labor Day here in the U.S. that all the initiatives that I listed to increase in our enrollment will really start to kick in and that enrollment will ramp up. So we're still optimistic or holding out hope that we can complete enrollment by the end of this year. But if it does slip, we certainly would hope that it wouldn't go past the end of the first quarter.

Imron Zafar – Deutsche Bank

Great. Thank you very much. And Dr. Daniels, thank you very much as well.

Timothy Daniels

Thank you.

Operator

Our next question comes from Vincent Ricci with Wachovia. Please proceed, sir.

Vincent Ricci – Wachovia Capital

Hi, guys, just a couple of quick questions regarding the U.S. trial. Could you kind of gives us kind of a weekly/monthly kind of run rate that you guys are going right now with patient enrollment? And then kind of what you think you're going to see in the fourth quarter?

Samuel Lynch

Well, Vincent, I think on our last quarterly call, which was in early May, we had 170 patients enrolled at that time. So, obviously, if we do the math we've enrolled 50 patients over about a three-month time period. This was, again, a little bit slower than what we had seen in the spring, which again is what suggests to us that there, as well as, of course, just talking with the investigators, that there is a summer slowdown, which is always seen for elective procedures during the summer as a result of vacation schedules and otherwise. And it may be somewhat even further exacerbated this year because of some of the economic conditions. So I give you – if you divide that out you can see we're running at 16, 17 patients a month for the last three months. But again, we would expect that to ramp up very considerably post Labor Day.

Vincent Ricci – Wachovia Capital

Okay. And with the new centers that you guys are bringing in and the ones you replaced do you guys have any kind of target in mind of what you're hoping that fourth quarter run rate will be?

Samuel Lynch

Well, we will have at this point 32 active – at that point 32 active centers. And our goal is about 1.5 patients to 2 patients per center per month.

Vincent Ricci – Wachovia Capital

Okay, great. And then just with the different formulation, with the Augment Injectable, could you kind of give us an idea – this might be a better one for Dr. Daniels – where you would differentiate using this versus obviously for the open fracture. What type of surgeries you would use them in?

Timothy Daniels

With the GEM OS2 I would use it in almost all surgeries simply because it's very pliable and it can be applied to even surrounding autogenous bone graft, if that is necessary. So I'm thinking of a situation where I would not use it. If you need a structural graft, that would not be an indication, but you could certainly augment the structural graft with GEM OS2 to try to promote healing at either end of your fusion site.

Vincent Ricci – Wachovia Capital

Okay, great. And then I guess just a quick refresher for us. Obviously you guys have an agreement for how you're going to execute in Canada, assuming that you do eventually get approval on the DLA there. Can you just kind of walk us through what the strategy is there?

Samuel Lynch

I'm going to pass that question along to Steve.

Steven Hirsch

Yes, Vincent, as we had previously announced, we have signed an agreement with an orthopedic distributor in Canada. And we're going to be working with that distributor, who has a sales organization across the country, has experience in selling products in the foot and ankle space, and also has experience in selling products in the orthobiologics category. So we are kind of all set and ready to go with that distributor. We're working on developing our sales training materials to train the sales organization. We'll be ready to go as soon as we can get regulatory approval in Canada.

Vincent Ricci – Wachovia Capital

Okay, great. That's all I've got. Thank you.

Operator

Our next question comes from the line of Erica Selin, Stanford Group. Please continue.

Erica Selin – Stanford Group

Thanks for taking my call. I first had a couple of clinical questions and then some modeling. First, do you think you're going to have to do anymore clinical or preclinical work to answer the questions for the DLA?

Samuel Lynch

Erica, I think that's a great question, a very fair question. I guess the answer is we simply don't know at this point. It's been our policy all along not to comment on any details of our dialog back and forth with regulatory agencies. I think we want to keep that precedent in tact for this call. And I just wouldn't want to speculate whether or not we'll have to provide any additional clinical or preclinical data until we get completely through the interaction with Health Canada.

Erica Selin – Stanford Group

Okay, I can respect that. Could I get some clarity on when you expect the Canadian approval, if things go well? Is that by the end of first half of '09?

Samuel Lynch

Yes, if things go well I would expect it – I don't know. Again, I think it's hard for us to predict, certainly some time within the first half. I don't – hopefully it wouldn't be fully at the end of it. But again, it's really trying to look into a crystal ball at this point as to how quickly that process will or won't be move forward.

Erica Selin – Stanford Group

Okay, thanks. It was just a little unclear at first. Also, Dr. Daniels, the patients in that trial, did they fail prior treatments of a similar caliber? Or had they just failed regular management?

Timothy Daniels

Most of them had failed regular management.

Erica Selin – Stanford Group

Okay, thank you. And I guess if I can get in some modeling questions. Do you see the R&D and G&A increasing on a dollar basis in the coming quarters, holding flat? If there is any guidance I can get that would be helpful.

Larry Bullock

Erica, I would say that it's pretty consistent or we would anticipate it's pretty consistent for the next couple of quarters. The primary drivers for this increase are the enrollments in the pivotal clinical trial and the European clinical trial. So those numbers we hope to go up a little bit but probably will not drive expenses up significantly from where they are.

Erica Selin – Stanford Group

Okay. Thank you. That's helpful. And if I can just get one more question in. I'd like to know what you need to have achieved in the U.S. pivotal trial to feel comfortable moving ahead in the other indications. We think it's a smart idea to put off the spine application. But we'd just like to know when we can start looking for those other opportunities.

Samuel Lynch

Right. Well clearly I think the first thing that we're all interested in seeing is completion of enrollment in that pivotal trial. So that's number one. I think secondly – sequentially isn’t the right order but maybe in the order of importance it probably is – the interim analysis is something we want to make sure that everything looks okay from the DMC's perspective as part of that. So we want to check that box, again, completion of enrollment. And then I think we'll have to look at the timing and how those things look. We'll have to assess our EU – ongoing EU trial. And again, look at the data coming out of the distal radius fracture trial. So we would, again, given what we said about those things, we would expect that roughly by the first of the year to be able to provide some further updates on the kind of the timing of how we would go forward with GEM OS2 or the Augment Injectable and what indications we might target and so forth. Again, depending upon completion of enrollment in OS1.

Erica Selin – Stanford Group

Okay, thank you very much.

Operator

Our next question comes from the line of Bill Plovanic, Canaccord Adams. Please proceed, sir.

Bill Plovanic – Canaccord Adams

Great, thank you. Actually after the laundry list of questions all of mine have been answered. Thank you.

Samuel Lynch

Thank you, Bill.

Operator

Our next question comes from Greg Wade with Pacific Growth. Please proceed, sir.

Greg Wade – Pacific Growth Equities

Thanks. Dr. Daniels, I was just wondering if I could get a little more visibility into the linearity in terms of the enrollment in the ongoing study. It's obviously 50 folks over the last three months, but what direction are the enrollment numbers going on a monthly basis?

Timothy Daniels

Are you talking about the GEM OS1?

Greg Wade – Pacific Growth Equities

Yes – no. This question was for –

Timothy Daniels

GEM OS2?

Greg Wade – Pacific Growth Equities

No, GEM OS1.

Timothy Daniels

GEM OS1. I'll defer that one. I'm just one center so I think Sam should answer that. He's got his finger on the pulse for all the centers.

Samuel Lynch

Okay, thanks Dr. Daniels. Greg, if I understood the question correctly in terms of the trajectory of the enrollment, we – from sort of the April-May timeframe, as you may recall, let me back up a little bit more, at the end of March there we obviously had the Regranex (inaudible) and that provided a little bit of a hiccup then after that for a period of a month or so. And then we had a very strong May. And a strong sort of first couple weeks of June and then from about the middle of June until very recently it's – frankly it's been quite slow again, as I think our borne out by the numbers, 50 patients that were over three months. And during the course of that time we had the American Foot and Ankle Society meeting, the AOFAS summer meeting. And we had certainly I think at least two-thirds if not three-quarters of our investigators there at that meeting, so meaning they were out of the clinic, weren't able to operate during that time. But the feedback that we received from the investigators at that meeting was very positive. I think everybody's feeling very good about the trial. Everybody was very receptive and welcoming of our clinical specialists and thought that that might help. Of course again at that meeting we announced the challenge grant for both the American and Canadian Foot and Ankle Societies. So I think that was really well received. And we're proud and happy to have been able to offer that. So it's been slow. It's been a slow summer. There's no way around it. But again, all we can say is that we expect that enrollment rate to pick up come the first part of September.

Greg Wade – Pacific Growth Equities

And then with respect to the interim analysis and the potential to change the study size, can you just give us some parameters around the magnitude of the change that could be expected based upon the internal modeling that you've done, if there is a change?

Samuel Lynch

Well, I don't know. I mean I guess, Greg, at this point it would be pure speculation. You can run models, obviously, to come up with whatever number that you want from zero to hundreds and hundreds. Until we see the data or I should say until the DMC has a chance to review the data, it really would be pure speculation on our part to talk about numbers of patients that enrollment might be increased by. I would say that there would obviously come a point that we would probably – beyond which we would not further increase enrollment. I wouldn't, again, want to speculate today on the call what that point might be. But I think it's fair to say we wouldn't go beyond a certain point in the enrollment.

Greg Wade – Pacific Growth Equities

Okay. And it's mostly dependent, I would expect, upon the success rate in the control group?

Samuel Lynch

Yes, as we've talked about in the past, there are several potential reasons why the sample size could be adjusted. Either Augment could be ahead but the overall fusion rate in both groups could be a bit below the target of 85% on the CT scans, which would increase the variance, which would mean we need to increase the power a bit. Both treatment groups could be below that number, below the 85% target, which, again would, as we've talked about, narrow the window a bit, for which we have an opportunity to show non-inferiority. So again, that might mean we have to increase the power. So – and obviously it could be possible that Augment is trailing a bit modestly. But by increasing the power we could still show non-inferiority. So there are several potential reasons why it might happen.

Greg Wade – Pacific Growth Equities

That's helpful. Thanks and good luck with the enrollment.

Samuel Lynch

Okay, thank you.

Operator

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

Debjit Chattopadhyay – Boenning & Scattergood

Hey, good afternoon. Most of my questions have been kind of answered. I've been kind of juggling another call as well, so some of the questions might be redundant. Dr. Daniels, what do you think would be the appropriate – the control arm for the GEM OS2 product?

Timothy Daniels

Well, the standard would be the autogenous bone graft. That would be the control arm that I'd be considering. But again, these decisions are up to the BioMimetic group.

Just on a note to the question from the gentleman from Deutsche Bank, I just found the data. There were –70% of the patients had at least one significant risk factor, and 10% were smokers.

Debjit Chattopadhyay – Boenning & Scattergood

So the current – the 10 patients are basically looking – what would have been the standard for these guys? Just some kind of–

Timothy Daniels

Yes, the standard would have been autogenous bone graft either local or from a separate site.

Debjit Chattopadhyay – Boenning & Scattergood

Okay. And at what point does BioMimetic start looking into randomized trial for the second product?

Timothy Daniels

Sam?

Samuel Lynch

Yes, Debjit, that's – in a previous question we had indicated that – if I understood your question correctly – that we would probably wait until, one, we see that data off the closed distal radius fracture trial with GEM OS2 coming out of Dr. Larsson's study. Secondly, want to get through the set of analysis. Thirdly, want to complete enrollment in the Augment pivotal trial. And I think once we get those things behind us then we'll be in a position to assess how and when and at what indication to move forward with the Augment Injectable product.

Debjit Chattopadhyay – Boenning & Scattergood

Now the Augment Injectable product, would you think you could enroll multiple different indications into one trial? Or you think that would be not feasible at least from the FDA's point of view, too many variables?

Samuel Lynch

From the FDA's point of view probably it’s not feasible. May have some additional flexibility, again, potentially in Canada or Europe or outside the U.S., but in the U.S. we probably have to pick an indication to focus on.

Debjit Chattopadhyay – Boenning & Scattergood

And final question, the GEM 21S, which now appears to be slightly behind schedule, the nature of the questions from the EMEA, I'm surprised that that would be questions at this point.

Samuel Lynch

Well, no, I don't think, Debjit, it's surprising that there would be questions I think especially given the somewhat tortuous regulatory path we had to pursue in Europe. First being a device and then being re-classified as a drug and the all the changes that were required to the filing as a result of that. I think certainly it's to be expected that we would have a lot of questions still to be answered from that MAA filing. Again, the types of questions were ranging all the way from the design and conduct and data from the clinical trial to preclinical studies to manufacturing and quality, the gamut that one would expect from a regulatory body. So that's kind of why we indicated that we've got these questions in. We're in the process of answering them. But for us to get them all addressed and get them back to the EMEA and get an approval by the end of the year, we just didn't feel like that was probably going to be realistic at this point given the review cycle timing. So that's why we've changed the guidance on that.

Debjit Chattopadhyay – Boenning & Scattergood

So, right now you're expecting first quarter or first half of '09 for GEM 21S?

Samuel Lynch

I think we're – guidance is first half.

Debjit Chattopadhyay – Boenning & Scattergood

Okay, thank you very much and good luck with the enrollment.

Samuel Lynch

Thank you.

Operator

Our next question is a repeat from Tao Levy with Deutsche Bank. Please proceed, sir.

Imron Zafar – Deutsche Bank

Thanks again, a couple of very quick questions. Sam, on the sports medicine studies, is there anything new there? Or can we just assume that these are also being sort of put on the backburner similar to the prophylactic bone augmentation?

Samuel Lynch

Well, nothing really new to highlight there, which is why we didn't include that in any of our prepared remarks. But we are continuing that program. We're still in the preclinical phase. We have a large sheep study underway. So – no, we have not fully put that on the backburner. It's just that we're still in the preclinical phase there and don't anticipate being into the clinic for the next, I don't know, six to 12 months at least. So we didn't feel like it was critical to highlight that. Certainly feel it is an area of interest for the Company.

Imron Zafar – Deutsche Bank

Got you. Okay, and then on the Swedish distal radius fracture study, is that going to be presented in the form of a press release or at some sort of a medical meeting?

Samuel Lynch

I think we're still working out the venue from which that will be released. But I think it's fair to say that we will release that this fall. We probably will not sit on that until the next major meeting. So I would expect sometime this fall to release those data.

Imron Zafar – Deutsche Bank

Okay, and then when the data monitoring – safety monitoring committee completes their evaluation, is that something that you would publicly report? Or is that just something that you would just not talk about?

Samuel Lynch

Well I think if it's material, essentially as results in any material change, we feel like we would be obligated to make that public. If there's no material change then we'll have to see. I guess in this case no news is good news.

Imron Zafar – Deutsche Bank

Okay, thanks so much.

Operator

Our next question comes from the line of Amrit Nagpal with Weintraub Capital. Please proceed, sir.

Amrit Nagpal – Weintraub Capital

Hi. Can you hear me?

Samuel Lynch

Yes, Amrit.

Amrit Nagpal – Weintraub Capital

Hi, thanks for taking my questions. I had a couple of questions on the interim analysis. I just want to make sure, can you characterize in qualitative terms the statistical hurdle that would need to be hit to actually change enrollment? Maybe just give us a sense for how much deviation, how many standard deviations need to be different from expectations in order for there to actually be a (inaudible)?

Samuel Lynch

Well, Amrit, I know you know this area extremely well. So understanding that I doubt we may – I may not be able to fully address that. But again, the trial is targeted, as you know, to an 85% overall fusion rate. If the fusion rate is higher than that, the window of opportunity to show non-inferiority increases from about 3% to 4% at the 85% target to if it’s 95% fusion overall it's maybe 5% or so, something like that. The opposite, as you know, is also true. If the overall fusion rates are less than 85% then the window narrows. In other words, there's only a – depending on how low it goes below 85%, there may be only a 1% or a 2% or I guess potentially even less delta there for being able to show non-inferiority.

Amrit Nagpal – Weintraub Capital

And then a statistical model would produce the increased enrollment required to widen that window, is that right?

Samuel Lynch

That's exactly correct. We would have to increase the power of the study to show a smaller difference there if the overall numbers are lower.

Amrit Nagpal – Weintraub Capital

Now you characterized – somebody had asked the question what if the enrollment was a significant amount, and you made it sound like the data monitoring committee's recommendations are not binding. Can you speak about that? Is it a requirement or a recommendation?

Samuel Lynch

They provide a recommendation is our understanding. It's not a requirement.

Amrit Nagpal – Weintraub Capital

Okay. And then you've said in the past that –

Samuel Lynch

I'm sorry, Amrit. The one thing that was pointed out to me is of course if it's a safety concern, which obviously none of us would expect, but you never know, that's why we do these things – if it's a safety concern of course that would be of course a requirement that we follow any safety recommendation.

Amrit Nagpal – Weintraub Capital

Right. That makes sense. And then the last question is in the past you've said that it's possible that the enrollment could be boosted because there would be the potential to demonstrate superiority, although discussion today has been more about non-inferiority. Can you just remind us of that possibility? And if it were the case that enrollment were boosted because there was the potential to show superiority on your secondary endpoint, would the Company know that or not?

Samuel Lynch

Yes, again, good question. We have at this point given guidance to the DMC that we would prefer not to adjust the sample size significantly anyway to show superiority. So if there is a, if it would require a substantial increase in the sample size to show superiority, we have already alerted them that that's not something that we would want to pursue.

Amrit Nagpal – Weintraub Capital

Okay. Thank you very much.

Operator

Our next question comes from the line of Erica Selin with Stanford Group. Please continue.

Erica Selin – Stanford Group

Thanks for letting me take a followup. You know we have a hard time accepting ‘no news is good news.’ On that vein, do you think you'll know if the rate is enrollment is picking up in a meaningful way before the next earnings call?

Samuel Lynch

Again, a very reasonable question. Again, we've committed to providing guidance once a quarter on the enrollment. I think we don't want to change that at this point. We may choose to provide guidance in between now and the next call. But I don't want to absolutely commit to that.

Erica Selin – Stanford Group

Okay. That makes sense. Thank you very much.

Samuel Lynch

Okay.

Operator

There are no more questions at this time.

Samuel Lynch

Great. Well, thank you, Gwen. We certainly appreciate everyone's support and the feedback and the great questions that we've received this afternoon. We at BioMimetic continue to remain committed and focused on our vision of creating the premier regenerative medicine and protein therapeutics Company in the orthopedic field. I think we're off to a good start with a good foundation of GEM 21 and the approvals there. And now we are over 50% enrolled in our U.S. pivotal trial; we're 75% enrolled in our EU trial. So I think we're making good, steady progress.

We feel really good about the group of investigators that we have involved in the study. I think Dr. Daniels' quality and his seriousness by which he approaches patient care as well as doing research studies is obvious. And we want to thank him for his time this afternoon. As well as, again, all of our other investigators who are working very diligently on the trial, and thank them for all of their efforts as we've indicated before.

Our main concerns are the patients and providing them with a good, safe, and effective product for treating their problems and their issues. And that remains our goal. And we remain highly optimistic with our progress and our ability to do that. So with that, again, let me thank everyone for your time. And we will look forward to speaking with you again soon. Thank you for joining us today.

Operator

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

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Source: BioMimetic Therapeutics, Inc. Q2 2008 Earnings Call Transcript
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