Artivion Inc (AORT) 2004 Q4 法說會逐字稿

Good morning. And welcome to the CryoLife fourth quarter and year end 2004 conference call. At this time, all participants have been placed in a listen-only mode and the floor will be open for questions following the presentation.

At this time, it is my pleasure to introduce Steven G. Anderson. Mr. Anderson, the floor is yours.

Good morning, everyone. This is Steve Anderson, CryoLife's CEO, and I would like to welcome you to the company's fourth quarter '04 and year end conference call. With me today is Ashley Lee, the company's Executive Vice President, Chief Operating Officer and Chief Financial Officer.

Earlier today, we released our fourth quarter and year end operating results for 2004. Fourth quarter revenues were up 24 percent over the same quarter in '03. BioGlue sales for calendar year '04 increased 29 percent over the BioGlue sales for calendar '03. This is the best quarterly progress report we have had since the second quarter of '02. Management believes that the fourth quarter 2004 operating results were the beginning of a significant corporate turn-around.

The agenda for the call today is as follows --

Ashley will comment on the operating results for the fourth quarter and for the year ended December 31, '04, by product line. He will comment on the significant technical progress we have made as we re-enter the orthopedic sports medicine market. He will also comment on the $15 million line of credit that we negotiated with Wells Fargo and announced earlier in the month. He will comment on the status of corporate litigation. He will share his perspective on the significance of the AATB accreditation that we announced on February 1, as it relates to both the procurement of tissues for cryopreservation and our ability to increase our market share for cryopreserved tissues in certain hospitals throughout the United States. And last, he will offer some top line guidance for the first quarter of '05 and for the full year of '05.

I will comment on the new product timetables and the development of our protein hydrogel technologies. Our protein hydrogel technology platform underwent a considerable modification in project priorities and I will comment on the new product timetables for BioFoam, BioElastic, and the nucleus pulposus replacement human trials in Europe. I will comment on our introduction of the clearant process orthopedic tissues, and the development and introduction of our new cryopreserved osteoarticular allographs for the resurfacing of distal femors and hips.

In late January, we attended the Society for Thoracic Surgery meeting in Tampa, Florida. This was a successful meeting for us, as a favorable paper on Synergraft processed human heart valve allograft implants was given by the cardiovascular surgery department of the University of Michigan. The paper is available on the Society of Thoracic Surgeons website, at www.sts.org. All abstracts from the meeting can be seen by clicking on the link to the annual meeting program.

I will also comment on European operations, where sales were up 24 percent year to year.

At this time, Ashley will comment on this morning's press release.

Thanks, Steve.

To comply with the Safe Harbor requirements of the Private Securities Litigation Reform Act of 1995, I would like to make the following statement --

Comments made in this call which look forward in time involve risks and uncertainties and are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements include statements made as to the company's or management's intentions, hopes, beliefs, expectations, or predictions of the future. All statements made during this conference call that do not reflect historical results or information should be deemed to be forward-looking statements. It is important to note that the company's actual results could differ materially from those projected in such forward-looking statements. Additional information concerning risks and uncertainties is contained from time to time in the company's SEC filings, including the risk factor section of our form 10-K for the year ended December 31, 2003, and subsequent SEC filings.

This morning, we reported financial results for the 3 months and year ended December 31, 2004. We're continuing to see the improvements -- the results of our process improvement and cost control initiatives during the fourth quarter as evidenced by the continuing improvement in our gross margins. We expect that margins will continue to increase over the next few quarters. Also our pre-tax loss decreased from approximately $6.8 million in the fourth quarter of 2003 to approximately $4 million in the fourth quarter of 2004. We expect that our losses will continue to decrease over the next few quarters. Total revenues for the quarter ended December 31, 2004, were $15.9 million, compared to $12.8 million in the corresponding period in the prior year, representing an increase of 24 percent. This represents the best year-over-year quarterly revenue increase since 2002. Total revenues for the year ended December 31, 2004 were $62.4 million, compared to $59.5 million in 2003.

Net loss for the quarter ended December 31, 2004 was $2.4 million, or $0.10 per share. This compares to a loss of $7.2 million, or $0.37 per share in the corresponding period in the prior year. Net loss for 2004 includes a $1.6 million tax benefit. Net loss for the year ended December 31, 2004, was $18.7 million, or $0.81 per share; this compares to a loss of $32.3 million or $1.64 per share in 2003.

BioGlue revenue were $9.2 million for the quarter ended December 31, 2004, compared to $7.8 million in the corresponding period in 2003. BioGlue revenues in the fourth quarter increased 19 percent over the fourth quarter of 2003. Of the 19 percent increase, 13 percent was due to unit growth, 5 percent resulted from price increases, and 1 percent from foreign exchange. BioGlue revenues were $35.7 million for the year ended December 31, 2004, compared to $27.8 million in 2003. BioGlue revenues for the year ended December 31, 2004 increased 29 percent over 2003. Of the 29 percent increase, 18 percent was due to unit growth, 10 percent resulted from price increases, and 1 percent resulted from foreign exchange.

Tissue processing revenues were $6.4 million in the fourth quarter of 2004, compared to $4.9 million in the fourth quarter of 2003. Tissue processing revenues in the fourth quarter of 2004 were up 31 percent as compared to the fourth quarter of 2003. Total tissue processing revenues were $25.7 million for the year ended December 31, 2004, compared to $30.8 million in 2003.

There are currently no regulatory restrictions preventing the company from processing and distributing any tissues in the United States that we have historically processed and distributed with the exception of Synergraft processed allograph tissues.

Cardiac revenues were $2.8 million for the fourth quarter of 2004, compared to $2.8 million in the fourth quarter of 2003. Cardiac revenues were $12.5 million for the full year of 2004, compared to $17.1 million in 2003.

Vascular revenues were $2.5 million for the fourth quarter of '04, compared to $2 million in the fourth quarter of '03. Vascular revenues were $10.3 million for the full year of 2004, compared to $12.7 million in 2003.

Orthopedic revenues were $1.2 million for the fourth quarter of '04, compared to $166,000 in the fourth quarter of '03, and compared to $843,000 in the third quarter of 2004. Orthopedic revenues were $2.9 million for the full year of 2004, compared to $1.1 million in '03. We are very encouraged by the ongoing recovery in the orthopedic program. We expect that with the recent AATB accreditation, the introduction of the clearant technology and to certain of our orthopedic tissue processing and the introduction of cryopreserved articular cartilage, the orthopedic program will continue to recover and will be the fastest growing area of our tissue processing activities over the foreseeable future.

Our overall cost of products and human tissue preservation services as a percentage of product and human tissue preservation service revenues was 51 percent for the fourth quarter of 2004, compared to 85 percent for the fourth quarter of 2003, and compared to 57 percent in the third quarter of 2004. We expect a gradual continuing improvement in cost of services and products, over the next few quarters, as a result of certain price increases and as we continue our process improvement initiatives.

Gross margins for tissue processing were 6 percent for the fourth quarter, compared to negative 80 percent in the fourth quarter of 2003. The fourth quarter of 2004 includes lower of cost of market write-downs of approximately $500,000, versus $3.7 million in the fourth quarter of 2003. This is the first quarter since the third quarter of 2003 where the company posted positive gross margins for the tissue processing business. We expect a continuing improvement in tissue processing gross margins going forward.

General, administrative and marketing expenses were $10.7 million for the fourth quarter of '04, compared to $7.9 million for the fourth quarter of '03. The fourth quarter of 2004 includes approximately $1 million of costs related to severance charges and restricted stock compensation charges. G&A expenses in 2003 include a favorable adjustment of $1.8 million related to product liability losses. General, administrative and marketing expenses for the full year 2004 were $42.6 million, compared to $53.6 million in 2003. The decrease reflects cost savings and lower expenses including a decrease in product liability losses, decreased consulting expenses, associated with FDA compliance issues, and lower legal fees, partially offset by increased insurance premiums and accounting fees. You should refer to our SEC filings including our recent form S-3 and our form 10-K for detailed discussions of factors affecting our results of operations.

We continue to make progress on outstanding litigation. Since our last public report, we have resolved 2 additional product liability lawsuits, leaving us with 8 outstanding product liability cases. 3 of these are covered by insurance, which we believe to be sufficient. We have 5 product liability lawsuits outstanding that are not covered by insurance. We have recorded unfunded balance sheet reserves of $2.8 million for known product liability lawsuits and claims that remain open, offset by $1 million in estimated insurance recoveries. This amount represents our best estimate of the costs to resolve the known product liability litigation in claims. Additionally, we have an unfunded reserve of $8.2 million for incurred but not reported losses offset by $1.9 million in estimated insurance recoveries. These reserves will be reviewed periodically and may decrease or increase in the future based on our experience. The rate at which we have been receiving cases has decreased over the last few quarters and we believe that bodes well for the company.

The class action securities litigation and the derivative shareholder litigation are ongoing. We will report any material developments to you as they occur.

The SEC investigation is still ongoing, and we have no idea as to when it will be concluded. You should refer to our SEC filings including our recent form S-3 and our form 10-K for detailed discussions of outstanding litigation.

During the fourth quarter, our cash balance decreased from $15.2 million at October 1, to $9.2 million at December 31. The quarter end cash balances reflect approximately $3.3 million that was paid during the fourth quarter to settle outstanding lawsuits and claims. We expect that as our business continues to recover, that the operating cash burn will decrease on a quarterly basis going forward.

As we have previously announced, we recently closed on a $15 million credit facility with Wells Fargo Foothill. As of the closing date, all $15 million in borrowing capacity was available to the company. The credit facility bears interest at prime plus 1 percent and is secured by substantially all of the assets of the company. The primary financial covenant requires that the company maintain a minimum level of qualified cash plus borrowing availability of $12.5 million. In the event that this covenant is not met, the company must meet certain EBITDA covenants and minimum BioGlue gross margins. We believe that the credit facility provides the company with financial flexibility as we move forward and provides us with sufficient capital to last through at least the end of 2005. Please see our SEC filings for a more detailed discussion of the credit facility.

Now, I will turn it back over to Steve.

Thank you, Ashley.

During the last quarter, we significantly modified our new products development portfolio and timetables. These changes reflect our focus on the development of products that compliment our present product lines, and that offer the least expensive and least burdensome regulatory pathways.

The protein hydrogel technology platform of which BioGlue is the first product, offers the company a number of unique product opportunities. Later this year, we will be introducing a 10 milliliter syringe of BioGlue that will supplement the delivery device and cartridge and that will round out our BioGlue syringe product line. Shortly, we will have BioGlue surgical adhesive in 2 milliliter, 5 milliliter and 10 milliliter syringes. The syringes should make it easier for the doctor and his surgical staff to deliver precise amounts of BioGlue into the surgical field. About mid year, we will also be introducing a spreader tip for the syringe system, and a rigid extender tip for the cartridge system that we feel will enable the physicians to administer the glue in a more uniform and controllable manner.

We are continuing to focus our attention on the protein hydrogel product BioElastic, as we feel that we may be able to get a 510(k) approval for BioElastic and that it may not have to go through the more arduous IDE/PMA approval format. BioElastic would be used as a pericardial replacement device to serve as a protective membrane and physical barrier to limit postoperative tissue attachment. Our present development timetable is to file a 510(k) application in the fourth quarter of 2005. The typical review time for a 510(k) is 90 days, although that can vary.

As you know from previous press releases, the BioFoam product for use in severe battle field trauma is to be funded with a $1 million appropriation from the Department of Defense. We are also intending to seek a European CE mark for this product for its use as a hemostatic agent for parenchymal organ lacerations, such as liver, spleen, and kidneys. The timetable for the development of BioFoam with the Department of Defense is to begin an acute animal study in the second quarter of this year, followed by longer term chronic studies to be completed in 2006.

In the fourth quarter, we announced that we signed an agreement with Endologix for the development and use of BioFoam with their triple-A graft for use in sealing endo leaks. The agreement with Endologix is only for the use of foam with endo leaks in association with their triple-A graft. CryoLife will be developing the foam for the other many uses it may have. During the week of February 1, Endologix began the first animal feasibility trials for the use of BioFoam with their triple-A vascular system. Human testing with the Endologix system is scheduled to begin in early 2006.

The BioDisc nucleus pulposus replacement project is continuing its development. We initially expected to have the first human implant of the BioDisc in the first quarter of '05, but this has been delayed until early in the second quarter. The delay centers around the schedule of the implanting physician, as well as additional technical questions that we received from U.K. regulatory authorities. We have responded to the questions from the regulatory authorities. We have also applied to the ethics committee of the implanting hospital and we are awaiting their confirmation of our application for a pilot study implants. We expect that the first human implant will take place at a clinic in Scotland and we anticipate having an initial pilot study of about 10 patients. If these implants are successful, then we will move to a controlled human study with a number of centers of excellence throughout Europe. Management estimates that the potential annual market for a nucleus pulposus replacement is about $4 million in 2004 in Europe, and about $145 million in the United States in 2007.

Development of the protein hydrogel vascular project, vascular stent project continues. This is a longer-term research effort that will require additional animal studies and evaluation. We remain enthusiastic about the potential for a biological implantable stent but the project is in an early stage of development, and it will continue to require additional research and animal feasibility studies going forward.

We completed the qualification of the clearant process for the processing of orthopedic soft tissues in early December '04, and the validation of the process should be completed by the end of this month. We began processing orthopedic tissues for implantable inventory using the clearant process in late December '04. The first human implant of these tissues should take place in the first quarter of 2005. During our qualification of this process over the past year, our studies have shown that the clearant process is capable of virtually eliminating the bio burden on orthopedic soft tissues. The clearant process appears to be bactericidal, fungicidal and viracidal. These current processed orthopedic soft tissues for use in the repair of sports injuries will be introduced at the American Association of Orthopedic Surgery meeting that begins tomorrow in Washington, D.C.

Over the past year, we have also been successful in developing a development to cryopreserve osteoarticular grafts for articular cartilage resurfacing. This area of orthopedic reconstruction is one of the fastest growing parts of the sports medicine market. This graft is a viable graft. Its viability is similar to the viability of the fresh OA grafts that we supplied about 2 years ago. We believe that we are the only tissue processor that has a viable cryopreserved OA graft available for transplant. The fresh grafts that we supplied 2 years ago had a shelf life of less than 45 days. Now, cryopreserved OA grafts can be stored up to 2 years. Surgery can also be scheduled on a non-emergency basis. It is easier for the patient and it is easier for the surgeon and the hospital OR. The first cryopreserved OA grafts for human implant were preserved on December 29, '04. We estimate that the potential annual market for preserved OA grafts in the United States is about $22 million to $35 million in 2005. This technology will also be debuted this week at the AAOS meeting and should place us clearly in the leadership position of the knee and hip reconstruction technology area.

It is our expectation that the introduction of the cryopreserved OA allograft and the clearant processed orthopedic soft tissues at the American Association of Orthopedic Surgery meeting will help reposition the company as a leader in our portion of the sports medicine market. Management believes that the orthopedic tissue preservation area will be a significant growth vehicle for the company this year.

At the end of January, we attended the Society for Thoracic Surgery meeting in Tampa. The highlight of the meeting for us was a paper given by the cardiovascular surgery department of the University of Michigan that outlined their experience with Synergraft processed human heart valve allografts. The 26 patients in the study who received a cryovalve SG were compared to an historical group of patients receiving standard processed human heart valves. The conclusion of the study was that the Synergraft processed tissues appeared to be more durable with less insufficiency and lower gradients than their standard processed counterparts.

We continue to be encouraged with the results of our Synergraft vascular graft that is marketed in Europe for uses in AV access device for patients undergoing hemodialysis. Data from our multicenter clinical registry shows a 75 percent secondary patency rate and a 96 percent freedom from infection, at 12 months post-implant. To date there have been over 250 patients implanted with this graft in Europe.

Our European subsidiary CryoLife Europa showed excellent growth during 2004. Total sales were up 24 percent to $7.2 million over the $5.8 million we did in 2003. Europa's BioGlue revenues also showed excellent growth and were up 24 percent from $4.9 million in 2003 to $6 million in 2004. Our CryoLife-O'Brien stentless porcine heart valve that is sold only in international markets was up 66 percent to $761,000 for the year. Manufacturing has been able to increase their production of these valves on a more routine basis, and the CryoLife -O'Brien stentless heart valve should be a good growth vehicle for the company in 2005. Also showing excellent sales progress during 2004 was the model number 100 Synergraft vascular graft for AV access; sales of the model 100 increased 45 percent for the year, with sales of $132,000.

I would like to call everyone's attention to the four new CryoLife videos that are on CryoLife's Web site. The first video is an overview of the company and our technology. Then there are separate cardiovascular and orthopedic videos that feature interviews with some of our implanting surgeons and their patients. Many of the physicians featured are chairman of departments of cardiac and orthopedic surgery at major universities throughout the United States and in England. All of the surgeons are experts in cardiac, vascular and orthopedic reconstruction procedures that utilize preserved human tissue allografts. The last video is an interview with Professor Magdi Yacoub, FRS, who is conducted on duplication at the Airfield Hospital in England by Dr. Ronald C. Elkins who's Chairman Emeritus of the Department of Cardiac Surgery at the University of Oklahoma. Dr. Elkins is also a member of our board of directors. Professor Yacoub is generally considered to be one of the premiere heart reconstruction surgeons in the world. He shares his ideas on the future of cardiac reconstruction, and the emerging technology of tissue engineering. If you're interested in having your own DVD copy of these videos please call Investor Relations at CryoLife.

At this time I will turn the conference call back over to Ashley who will give some financial guidance for the first quarter of 2005 and also for the fiscal year. After Ashley's financial guidance, we will open up the conference call for questions from our listeners.

Thanks, Steve.

I would like to give some guidance for the first quarter and full year of 2005. For the first quarter, we believe that total top line revenue will be in the range of $16.4 and $18.2 million. For 2005, we expect full year revenues of between $73 million and $80 million. The 2005 revenues contemplate moderate increases in tissue yields and procurement and price increases. We expect BioGlue revenues for the first quarter of 2005 to be between $9.3 and $10.1 million. For the full year of 2005, we expect BioGlue revenues of between $40 and $42 million. We expect tissue processing revenues for the first quarter of 2005 to be between $7 and $8 million. For the full year of 2005, we expect tissue processing revenues of between $32 and $37 million. The most significant area of growth is expected to be in the the orthopedic program where we expect revenues of between $6 and $8 million for the full year of 2005. We also believe that our process improvement initiatives will lead to higher tissue yields, resulting in an increase in unit shipments as compared to 2004. Additionally, we believe that our recent AATB accreditation will stimulate more demand for our processed tissues especially in orthopedics. We believe that this increased demand will ultimately lead to an increase in the supply of incoming tissue into CryoLife.

As we have communicated previously, we expect that gross margins will continue to improve during the remainder of 2005. Tissue processing gross margins were positive for the fourth quarter, and we believe that they will continue to improve during 2005. We are working on initiatives scheduled to be implemented in the first half of this year, and we believe that they will have a positive effect on our gross margins. We expect general and administrative expenses to be between $10.5 and $11.5 million for the first quarter. For the full year of 2005, we expect general and administrative expenses to be between $42 and $45 million. These amounts do not include any favorable or unfavorable adjustments that may be made to product liability or other litigation reserves.

R&D expenses are expected to be approximately $1 million for the first quarter. For the full year of 2005, we expect R&D expenses to be around $4 to $5 million. That concludes my comments and now I'll turn it back over to Steve.

That concludes my comments and now I'll turn it back over to Steve.

At this time, we'll open up the conference call for questions from our listeners.

Thank you. The floor is now open for questions. [OPERATOR INSTRUCTIONS] Other first question comes from Raj Denhoy of Piper Jaffray.

Hello, can you guys hear me?

Yes.

Great. I want to ask you a little bit about the gross margins. Nice to see the tissue gross margin go positive in the quarter. I know you've given some just preliminary guidance as to where that can go but do you think that can go get up to the 20, 30 percent level here in short order? Or how should we think about that improving going forward?

It is certainly possible that they could get to that range, Raj. You know, as I mentioned, one of the things that we're working on, or some additional process improvement initiatives that are scheduled to be implemented in the second quarter of this year that we think are going to have a positive effect on tissue processing gross margins. The other thing that I mentioned was the fact that we had implemented some price increases effective on January 1 of this year; those were in all areas with the exception of orthopedic tissues, so we expect that those are going to have a positive effect on gross margins also, beginning in the first quarter.

I'm hesitant to give you any further guidance, specifically, you know, in the 20 to 30 percent range in the short term. I think that once we can complete these process improvement initiatives in the second quarter, we are going to have a much better read as to where gross margins -- especially in tissue processing -- are going to end up and at that time, probably give you more definitive guidance on gross margins and profitability.

Okay. Also on the tissue side, can you give us some sense of where procurement is, how that has improved over the last year? Do you have any metrics you can kind of point out?

I think, you know, for instance in cardiac tissue, we are actually slightly below where we were in 2003. In 2004, we were slightly below where we were in 2003. That goes for cardiac tissues were also down slightly in vascular and orthopedic tissues.

We haven't been very aggressive at all in 2004 in regards to trying to regain procurement customers because of the issues that we've had with some of our processing throughout 2004. With the improvements that we're starting to see in our yields and gross margins, we are really just at the point where we are going to get a little bit more proactive and aggressive in trying to go out and grow procurement, and we have reason to believe that we're going to be successful in obtaining the procurement that we need to hit our numbers this year.

Okay. And then on the clearant process, you know, in the validation work you guys have been doing over the last couple of month, has the bio burden reduction you've seen in that work given you enough data to claim that you're sterilizing the tissue?

We might be able to make a sterile claim at some time in the future. That remains to be seen. We're not doing it at the moment, however.

Okay. And just one last one, on BioGlue. I'm sure you probably saw that Closure Medical got a CE mark for their surgical sealant. I'm curious whether you have any thoughts on how that product might affect BioGlue going forward.

I read the press release this morning just like you did and their CE, mark, is much narrower than ours is. Ours, of course, is for central cardiac repair, peripheral vascular repair, sealing of air leaks in lungs, and used as a hemostatic agent for parenchymal type organs and use in soft tissue in the CE mark. I noticed there's had been approved for peripheral vascular reconstruction and for use along with AV access devices. So it appears to me on first read that they have a much narrower application of that product than we do in their CE mark.

You know, the AV access business in Europe is very different from our AV access market in the states. They use primarily autogenous tissues to do AV fistulas, where as the American physicians prefer synthetic vascular grafts like Impra or Gortex or something like that. So the practice of medicine there is much different as far as AV access goes, and the markets there for AV access, frankly, are far smaller as a result of -- far smaller om comparison to the markets in the United States. But those are just my initial thoughts.

Okay. Well I will jump in line. Nice quarter. Thanks.

Thank you. Our next question is coming from Raymond Myers of Emerging Growth.

Thank you for taking the question. I have financial questions here. You had a $1.6 million tax benefit in the fourth quarter. Can you describe what that was for?

Yes, we recorded some additional product liability losses in the third quarter of this past year in 2004. And you have a longer carry-back period for product liability losses as compared to some other losses. So when we recorded those losses, in the third quarter of this year, we were able to carry back those losses more than 5 years back and we were able to claim some type of benefit for that.

So you received benefit in the fourth quarter somehow related to third quarter charges?

Well, that's when it became apparent because the money was not actually paid until the fourth quarter of this year, of 2004.

So it was a -- it could be thought of as a partial reversal of the third quarter charges?

No, they're actually two separate things. I mean have you the charges related to the product liability losses, and it is a separate income tax benefit. They're related but they relate to different issues. One product liability losses, one income taxes.

Okay. So you got an income tax benefit for taking the charges in the third quarter?

Yes.

Okay. I understand. Did you have any expense of settling the two product liability lawsuits in the fourth quarter?

I don't think there was anything material. I think that for the most part that they had been accrued for.

Previously accrued for but -- okay. Were they paid in cash?

Yes.

Can you disclose what the payment was?

No. We're not at liberty to do that.

Okay.

But it is all reflected in the numbers that we presented in our ending cash balances, and our product liability accruals.

Right. Okay. We can go through those. Thank you. Tissue preservation, let's see, R&D, was higher in the fourth quarter. Was there some one-time item there? We see that we expect R&D to go back down to a million in the first quarter.

There were a couple of issues there. First of all, the comp number from '03 was especially low because we were monitoring our expenses very aggressively in the fourth quarter of '03. In the fourth quarter of '04, we were spending money to complete the validations for the -- both clearant process as well as the new cryopreserved OA grafts, so the moneys that we spent were a little bit higher than we have seen in previous quarters, and we expect that come down a little bit in the first quarter.

Okay. That makes sense. And with regard to the OA grafts, those, do you expect revenue -- significant revenue in the first quarter to begin?

We actually will have begun shipping those as we speak, as of yesterday, and that number, we have essentially included that in the guidance that we've given for the first quarter. So overall tissue processing revenues between $7 and $8 million, and any effect from the OA grafts are included in that number. We hadn't given out specific guidance for cardiac vascular and orthopedic but with that being said, we do believe that OA grafts are going to be a nice growth vehicle for 2005.

Sure. And then maybe finally, could you wrap up by describing what pricing or competitive advantage or changes you might describe in 2005 due to your use of the clearant process?

I think initially, we aren't planning to charge any more for the clearant process grafts than our traditional -- traditionally processed cryopreserved grafts. You know, we're going to be introducing that in the very near future, the clearant process grafts, and we really need to see, you know, what the market acceptance is going to be, and physician feedback before we make any determination in regards to pricing in the future.

Well, thank you. I look forward to seeing these new products at the academy.

Okay. They will be there.

Bye.

Thank you. Our next question is coming from Keay Nakae of CE Unterberg Towbin.

Good morning. First question on the clearant graft, is that initially limited to just a bone-tendon-bone graft or can you tell me which product that might be applicable to in the early going here?

Initially they are going to be applied to all tendons used for ACL reconstructions, both bone and non-boned.

Okay. Great. And can you tell us why or any reason why at this point you don't want to make a sterile claim for the clearant grafts?

We are actually in the process, all of the validations that we're doing and so forth, we have reason to believe that it should be sufficient to allow us to claim sterility. The initial validations that we're doing problem are not going to allow us to do that, but some of the follow-on work probably will, and we think it is just going to be a matter of timing.

So sometime perhaps later this year?

We hope, but I really need to get, you know, an updated time frame from our people in R&D. But I think sometime later this year is a reasonable expectation.

Okay. And can you give us an update on the FDA review of the Synergraft?

We've had a couple of meetings with them. We had a meeting on January 6 at their headquarters on that issue, and we had a conference call that was a follow-up to that meeting a week ago Monday. A week ago yesterday. We're continuing to work through those issues with them. And we are expecting to hear something from them within the next month.

Definitively or just kind of a -- it's their turn to respond?

It's their turn to respond.

And then in the orthopedic area with both the clearant products and the OA product, is there going to be a specific market relaunch type of campaign for these? And perhaps we will see that at the conference?

You will see that at the AAOS.

Okay. Okay. Well, we will look for that then. All right. Thank you.

Thank you. Our next question is coming from Keith Markey of ValueLine.

My questions have been answered, thank you.

Good morning?

Thank you, once again, the floor is open for questions. If you do have a question, please press star one on your touch-tone telephone at this time.

Are there any more questions?

Once again, the floor is open for questions. If you do have a question, please press star one on your touch-tone telephone at this time. Please hold while we poll for questions. Our next question is coming from Stephanie Hagerty of Register and Acres.

Good morning, gentlemen.

Good morning, Stephanie.

How are you?

Well. How are you?

Good. The numbers look better than I think a lot of people expected.

Thank you.

Can you give us any comment on what's going on with the shelf, Steve? Or I know you stated in your comments earlier that you expected that with the $15 million line, you could get through the end of the year, and that the cash burn would recede. Nonetheless, it looks a little tight to me. So what are your plans at this juncture as far as the shelf registration is concerned?

Hey, Stephanie, this is Ashley. I guess depending on market conditions, we would expect to take something down off the shelf sometime during the first half of this year. But, you know, again, the exact amount and what exactly we're going to do is going to be dependent upon market conditions.

Okay. Thank you.

Thank you. At this time, there are no further questions. I would like to turn the floor back over to Mr. Anderson for any closing remarks.

Thank you for joining us and since there are no further questions we are going to close this conference call.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. And have a wonderful day.