JF: Yeah, so the protein, this recombinant NELL-1, is classified as osteopromotive. It increases bone formation in the presence of osteoblasts, which are bone cells. So, if you think of this bone-forming cascade, you have MSCs, mesenchymal stem cells. They're cells of unknown origin; they can become bone cells if they go down the osteogenic lineage and muscle cells if they go down the myogenic lineage. So they're not sure, but those that go down the bone osteogenic lineage, you start seeing osteoblast form, and you have this RUNX2 protein acting upon that. That recruits the NELL-1 to the site. So think about growing bone better, faster, and stronger, only in the presence of bone. That's kind of the safety feature. Half the story here is whether this product will be safe. Is it going to be effective? And so, from a safety standpoint, we don't see a lot of inflammation or ectopic bone growth because it occurs much later down this bone-forming cascade. We see a nice, steady, controlled bone growth.
JF: In essence, better bone for patients, and again, especially these hard healers. Referring to hard healers, we are talking about patients who are immunocompromised, diabetic, obese, or smokers. They have trouble regenerating bone cells on their own, so they need help. This is what surgeons look for to make sure they get a good, solid bone formation and that there are no revisions or redo where the patient has to come back and present himself for another surgery. So, that protein is applied right to the surgical bed in a liquid form. If you put it right into that surgical bed, it would run all over the place. So it's mixed with a DBM, demineralized bone matrix, which is like a putty.
JF: So the surgeon and the OR tech would mix the protein and the putty. Right now, we're calling the combined product NB1. That is packed into an interbody cage. When the surgeon removes the disc for a patient who presents with degenerative disc disease, that cage is packed in between the two vertebrae with the NB1 product, and that cascade starts; you're starting to regenerate bone between the two vertebrae. You start getting a thin line, then a column, and then a solid bone formation.
BS: Yeah, excellent. You've obviously seen this in action somewhere, and I know you've done initial clinical tests. What have you seen in there that gives so much promise and investors can look at and go, hey, this really has some potential now that we're starting human trials?
JF: We've done animal studies on rodents and sheep. We've seen the bone formation, number one. Then, number two, we've seen a very good safety profile, meaning we do not see any inflammation. We're not seeing, as I mentioned, ectopic bone growth or cyst formation. We've also done our biosafety testing, set out and put into lab animals and further tested, clean from a cancer standpoint or no impact on fertility. So, all the biosafety testing has been done in the animals, as well as the effectiveness we've seen in bone formation and getting fusions in those animals. That led us to move this product into our pilot clinical studies.
BS: And do you manufacture this product in-house?
JF: No, we run the company extremely lean. We have a lot of vendors, partners, and contractors. We have a CDMO, a contract development manufacturing organization, that makes the protein for us. We have another partner that does the fill-finish; they take it from a drug substance to a drug product. Then, it will be delivered to the hospital. Then, that's combined at the surgeries in the OR or mixed with the DBM and the protein. So yeah, that is partnered out, but we have the know-how and capabilities.
BS: As we go forward, and hopefully, we will get approval for this at some point in the not-too-distant future, would you continue to outsource the manufacturing for cost purposes and quality, or would you look to bring it in-house?
JF: Yeah, I think we would keep it outsourced. The CDMOs do a really good job. They're really efficient. They have great expertise and know-how. I think from that standpoint, we will continue to outsource that.
BS: Yeah, and they would have the capacity, hopefully, to increase volume once it gets approved.
JF: Yeah, they do. We have one of the top CDMOs in the world. They have various partners in pharma and biotech. A lot of those companies have some capacity on their own, but they also can do much more efficiently with a CDMO partner. I think it's beneficial to many people, given their expertise, scale, and how fast they can ramp. They're already in compliance with FDA and all the regulatory agencies. That continues to make sense for us as we look down the road.
BS: Yeah, definitely. Promising technology. What does the market look like? What does the market opportunity look like in the initial stages? Like you said, we'll talk about other opportunities in a few minutes. But what does the initial opportunity in spinal fusion look like for bone?
JF: Yeah, so the orthobiologics market is about three billion. A little over half of that is in the US, growing in the upper single digits. That's broken out into growth factors, which would be the main portion of demineralized bone matrix, allograft, synthetics, and stem cells. All of those subsegments comprise the orthobiologics market. As I mentioned, we are initially pursuing just spine fusion. Being a small company, we're laser-focused on the applications in the spine. As I mentioned also, that's one of the harder healing environments in the body, so we think we demonstrate success in spine fusion. We also have the indications for trauma. So, long bones, arms, legs, things like that. We think having success in the spine could just naturally prolong the opportunity in trauma.
BS: Yeah, it's a huge market out there. I think everybody probably knows somebody or experiences themselves with some sort of back problem. And this is a serious back issue. But those are certainly not rare in the United States, and I'm sure globally as well. We usually leave the client questions for the end, but this relates to what we were just talking about, so I want to jump in here and get one listener question. They're asking if there are differences between human bones and sheep bones that might impact the results. Would you expect to see different results? Do they react differently, or are they fairly equivalent and that's why you test them?
JF: Yeah, they're fairly equivalent. We did sheep before humans because they have some girth to them, so there's weight. These animals are quite heavy, so you're putting some pressure on the spine. When you start out in research, you're doing it in rodents, and you're moving into larger animals like sheep or even monkeys; those get a lot closer and very much mimic human bone regeneration. Hence, we did a pilot pivotal study on sheep. We had very mature sheep, not juveniles who throw off a lot of growth factors. I would say that they were heavy sheep to put pressure on that. We appropriately sized the implants that went along with this. I would probably call it the first time this animal study mimicked human studies for this product. So that's how I would respond to that question, Brad.
BS: Thanks. And yeah, that's the first time I've heard why we used heavy, fat, big-boned sheep for this study. Excellent.
BS: We won't tell them that; they might get offended. Let’s get to the headline from today that you've started human trials. How have you worked with the FDA through this process? Have you been working with them closely? Have they consulted with you on designing the human study?
JF: Yes. We've had several discussions with the FDA. We filed our pre-sub. This is deemed a combo product. We have a drug and a device. The demineralized bone matrix, the carrier, so to speak, has been on the market for over 18 years. It's safe, it's proven. Because that is a device on the market combined with our protein, which is the drug, it is a combo product. But the device is on lead, so it will follow a medical device PMA regulatory path. Based on that, we will do a pilot clinical study, which we've undertaken on 30 patients in Australia. As you alluded, we had our first two implants this week. And these are patients with degenerative disc disease, so this will be a single-level fusion. Then, at the conclusion of the pilot clinical, we would move into a pivotal clinical, so a larger study here in the US, possibly 300 to 350 patients. Then, after the completion of the pivotal study, we would submit it to the FDA as a PMA.
BS: All right. Excellent. So, let's talk about human study. You said it's mainly taking place in Australia. This initial study is going to be 30 patients. We've had two that were just announced today. What is the process of getting those patients? How difficult is that? What's the time process looking like to get from two to 30? Let investors know what the first pilot trial timeline is looking like.
JF: We‘re continuing to enroll sites. We'll have somewhere between six and eight sites when all is said and done. This will help us enroll the 30 patients. Of the 30 patients, we'll have two treatment arms and one control arm. These will be single-level degenerative disc disease patients. It'll be a TLIF procedure. The big question you get is how long the timing is, and so you're kind of at the beck and call of the patient when they present themselves to the surgeon. They go through several treatment options. Maybe they're exploring physical therapy first to see if they get relief. Maybe they're moving on to some injections, such as nerve blocks, until they realize that I'm not getting any relief; I'm still in quite a discomfort. Then they look to maybe fusion as a solution. Once the surgeon says, "Okay, you're a fusion candidate," they bring them back and go through the inclusion and exclusion criteria. There's a list of items that they need. They can't have previous back surgery, other treatments, and things like that that would interfere with the study. Once they clear those criteria, then we move into the surgeon getting the patient to consent to be part of the clinical study. It's those three steps in the process, and they can take weeks to a good month or so to clear.
BS: Yeah, that is quite the process. So, let me ask why the tests are being done in Australia rather than the United States.
JF: Yeah, so, two reasons. One is that it moves pretty quickly to get into Australia and is a little bit more attractive in terms of pricing. For an early-stage company like ours, we really try to control the burn and get the best use out of our money. We had done our animal studies in Australia as well, so it was an easy transition to take that technology right into the first man in Australia.
BS: All right. Well, and then, since you brought that up, we will transition a bit into what is often talked about at this stage of companies: the burn rate and the financing and dilution. Those are all things that people expect with clinical trials. But where does Bone stand at this point as far as funding needed to complete this initial human trial, and how much more funding do we need to get to that point?
JF: Yeah, so we have cash to get us into fall, just get through the summer. We'll need about 5 million to complete the study and to get to data readout. Then, the next question usually is, okay, how much cash do you need to commercialize to get all the way through? Across the goal line? And we'll probably need about 24 million to get FDA approval and commercialize it.
BS: Obviously, you'll try to tap any source that you can at some point, but is there the potential for grants from different organizations? Will you hit up the equity market? Will you look to take on debt? What's the company's philosophy regarding obtaining those resources that are so important?
JF: Yeah, again, as an early-stage company, our goal was that you don't want to run out of cash. You want to keep advancing the science. We're very cognizant of that, so we run the company extremely lean and try to control the burn. We'll bring cash in that's necessary to keep advancing the science. We think this is a tremendous novel technology that addresses many unmet needs in the spine space. We’ve got to keep the company going, so we're always keeping our options open. We don't want to pin ourselves into a corner, but we are cognizant of all the other challenges with financing. So, options are always open, Brad, but we're also very cognizant of the spending and really trying to funnel most of this to science.
BS: I will just actually echo that quickly with my analyst hat on, that Bone does a very good job of controlling costs and staying focused on the science. One of my biggest frustrations is hearing about the cost of drugs. Yeah, some abuses exist, but people don't know what goes on behind the scenes. They just ignore the money that's needed to develop these drugs and the treatments that people rely on. And this is a huge need. I think every investor in clinical trial companies knows that and appreciates the challenge and necessity of that and the potential rewards. So that's my little soapbox, and I'll get off that right now. Since we're on the revenues, I just want to touch on the fact that you have a licensing agreement with UCLA. Is that ongoing? Do you have a fee? Do they get a cut of potential revenues? How does that work at this point?
JF: Yeah, we pay an annual licensing fee, and then we will also pay on a few milestones. Then, there are royalty rates on revenues down the road. We think we have a very attractive agreement. We have rights to three indications, as I mentioned: spine, trauma for hard bone, and then the third option we didn't mention yet for osteoporosis.
BS: Yeah, I wanted to get into that lastly. I know you're just starting on that, that's the periphery, but I did want to touch on it. Everyone knows about osteoporosis. What do you see as the potential there, really quick?
JF: That's well over $10 billion market. This would be a systemic approach where spine and trauma would now be applied right at the surgical site. Osteoporosis would be a systemic application. We'll look to license and partner with that. That would be a huge undertaking for a little company. But again, demonstrating success in the human markets in a challenging healing environment like the spine, we think, bodes well for opportunities in osteoporosis. Again, what's unique about NELL is that it regenerates bone and doesn't slow bone loss like many of the drugs on the market. So that's going to be an interesting opportunity, and we think we'll partner with PhRMA.
BS: Yeah, I think that would be a huge opportunity. And that's just another good thing to know, that this does have the potential to impact millions of lives in a positive way, and that's one of the positive things. There is one question that relates to the trials. Will you be providing interim data before the study is completed?
JF: Yeah, it'll be some sort of interim update. I don't know if it's data or how much will be shared at that point. You have to be cautious with the FDA and such, so there will be some sort of interim update.
BS: All right, that's good for investors to know. I think we've provided a good story. I want to give you guys an opportunity to address anything that I missed that you want to address.
JF: I think if I put my old analyst hat on, the three big takeaways are that it's a very attractive market opportunity, as I mentioned, over three billion. The surgeon has to do nothing different with our product when they do surgery, so it doesn't interrupt their flow of business or procedures. Second, the NELL solution provides well-controlled bone growth with a strong safety profile much later in the cascade; there are over 45 peer-reviewed publications out there. And then I think lastly is a very clear regulatory path for the agency, this PMA, and so doing a pilot clinical, then a pivotal clinical, and then submitting that to the agency. So I think it's a really simple and easy story to understand. But with an aging and active population, people want to take care of their back issues, and we have a great solution for patients, surgeons, and payers.
BS: Yeah, I definitely agree with that. You mentioned there are 45 peer-reviewed studies out there. If you look at the study results, there are charts; if you go to the Bone Biologic thing, you can see those. I encourage investors who are interested to look at that. I want to thank everybody for their time and consideration here. If you have more questions you didn't get to ask or want more information from the company; please let them know; they're very willing to talk to investors. So there's a way, after the conference, to set up meetings with them as was described, so please, do that. But for now, I want to thank you. And I'll leave it to Jeff to finish it off, and thank you for coming.
JF: Yeah. Deina, anything else you wanted to add or that we didn't touch on?
Deina Walsh: No, I think we've covered the main points. We run lean, use our money wisely, and have some good news for investors to look forward to.
JF: Yeah, so the investors can reach out through Brad or our IR firm, LHA, or on our website. There are multiple ways to contact the company. I appreciate everybody's time and attention today.
BS: Thank you.
DW: Thank you.
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