Artivion Inc (AORT) 2006 Q4 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the CryoLife Corporation 2006 year-end conference call.

[OPERATOR INSTRUCTIONS]

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Steven Anderson, President and CEO of CryoLife. Thank you, Mr. Anderson, you may begin.

Good morning, everyone, this is Steve Anderson, CryoLife's CEO, and I would like to welcome you to CryoLife's 2006 year-end conference call. With me today is Ashley Lee, the Company's Executive Vice President, Chief Operating Officer and Chief Financial Officer.

This morning, we reported 2006 revenues of $81.3 million, a 17% increase over the $69.3 million we reported for fiscal year 2005. We also reported the Company's return to profitability for the 2006 fiscal year. CryoLife's net loss for calendar 2005 was $19.5 million and the net profit in 2006 was $365,000. Management feels the Company's return to profitability is a significant milestone in the Company's history. Ashley will get into the details of the financial results in just a few moments.

The agenda for today's call is as follows -- Ashley will discuss this morning's press release and the details of the Company's 2006 financial performance. He will talk about the significant improvement in gross margins. He will also focus on the financial aspects of the asset swap that we did with Regeneration Technologies in December of last year. He will provide you with top-line guidance for fiscal year 2007.

I will comment on the CardioWrap distribution agreement, the research agreement with the Cleveland Clinic, the submission of our updated patient implant information to the FDA to complete our 510k notification for our decellularized pulmonary heart valve allograft, the CE Mark application for our BioDisc Nucleus Pulposus Replacement device and the Company's progress in finding a partner for BioDisc, as well as our progress with the development of the BioFoam product.

After my comments, Ashley will return and give some guidance for the fiscal year 2007 and then we will have a Q&A session after that.

At this time, Ashley will discuss the details of the Company's financial performance for fiscal year 2006.

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 factors section of our Form 10K for the year ended December 31, 2005, and our Form 10K for the year ended December 31, 2006, which we expect to file by the end of this week and in the press release that we released this morning.

This morning, we reported our results for the fourth quarter and full-year of 2006. Revenues for the fourth quarter of 2006 increased 17% to $21.1 million, compared to $18 million in the fourth quarter of 2005. Net loss in the fourth quarter of 2006 was $50,000 and $0.01 per basic and fully diluted common share, compared to a net loss of $681,000 and $0.04 for basic and fully diluted common share in the fourth quarter of 2005.

Please refer to the Investor Relations section of our website at www.cryolife.com, and select the headings "Webcast and Presentations" for a reconciliation of nonGAAP adjusted earnings contained in the following discussion to the comparable GAAP earnings numbers. Adjusted net income in the fourth quarter of 2006 was $527,000 and $0.01 per basic and fully diluted share, excluding a noncash charge of $2.8 million and a net gain of $2.6 million, comprised of a noncash gain of $2.9 million, offset by approximately $300,000 in transaction costs, related to the Company's exit from orthopedic tissue processing; a $751,000 charge for stock-based compensation and benefits related to the adjustment of reserves for product viability and other legal losses of $333,000.

Adjusted net income in the fourth quarter of 2005 -- excuse me, adjusted net loss in the fourth quarter of 2005 was $1.8 million and $0.08 per basic and fully diluted common share, excluding benefits related to the adjustment of reserves for product liability and other legal losses of $683,000, a $118,000 charge for stock-based compensation, and a noncash gain for the change in the value of the derivative related to the Company's convertible preferred stock of $512,000.

Revenues for the full year of 2006 increased 17% to $81.3 million, compared to $69.3 million for the full year of 2005. Net income in the full year of 2006 was $365,000 and a net loss of $0.02 per basic and fully diluted common share, compared to a net loss of $19.5 million and $0.85 per basic and fully diluted common share in the full year of 2005.

The net loss of $0.02 per share in 2006 results primarily from dividends related to the Company's convertible preferred stock.

Adjusted net loss for the full year of 2006 was $287,000 and $0.05 per basic and fully diluted share, excluding noncash charges of $2.8 million and a net gain of $2.6 million, comprised of a noncash gain of $2.9 million offset by approximately $300,000 in transaction costs related to the Company's exit from orthopedic tissue processing, a net $2.1 million gain related to the settlement of insurance coverage disputes, a $1.6 million charge related to stock-based compensation, a $784,000 gain related to the adjustment of reserves for product liability losses, and a $448,000 charge related to post employment benefits.

Adjusted net loss for the full year of 2005 was $7.7 million and $0.36 per basic and fully diluted share, excluding an $11.6 million charge for the settlement of the shareholder class-action lawsuit, an $851,000 charge related to post employment benefits, a $285,000 charge related to stock-based compensation, and a $961,000 benefit related to the adjustment of reserves for product liability and other legal losses.

BioGlue sales in the fourth quarter of 2006 increased 9% to $10.5 million, compared to $9.6 million in the same period in 2005. The increase was primarily attributable to an increase in BioGlue average selling prices, which increased revenues by 5%, a 2% increase in the amount of milliliters shipped, which increased revenues by 3%, and the effect of foreign currency exchange, which increased revenues by 1%.

U.S. BioGlue sales were $7.7 million and $7.2 million in the fourth quarter of 2006 and 2005 respectively. International BioGlue sales were $2.8 million and $2.4 million in the fourth quarter of 2006 and 2005 respectively. BioGlue sales in the full year of 2006 increased 5% to $40 million, compared to $38 million in 2005. The increase was primarily attributable to an increase in average selling prices which increased revenues by 5%. U.S. BioGlue sales were $29.8 million and $28.7 million in the full year of 2006 and 2005 respectively. International BioGlue sales were $10.2 million and $9.3 million in the full year of 2006 and 2005 respectively.

Tissue processing revenues in the fourth quarter of 2006 increased 27% to $10.2 million, compared to $8.1 million in the fourth quarter of 2005. Tissue processing revenues for the full year of 2006 increased 32% to $40.1 million compared to $30.3 million for the full year of 2005. Tissue processing revenues increased primarily due to an increase in tissue procurement and an improvement in processing yields which resulted in an increased number of allografts available for distribution and price increases. You may refer to our 10K which we plan to file by the end of the week for more information about procurement trends.

Cardiac revenues were $4.4 million for the fourth quarter of 2006, compared to $3.4 million in the fourth quarter of 2005, an increase of 32%. The increase in cardiac revenues was due to an increase in service fees, which increased revenues by 18%, and an increase in volume, which increased revenues by approximately 14%. Although we saw an increase of 20% in cardiac units shipped in 2006, we experienced a product mix shift in 2006, which resulted in more lower-priced cardiac patches being shipped as a percent of total cardiac units shipped.

Cardiac revenues were $16 million for the full year of 2006 compared to $13.8 million in the full year of 2005, an increase of 16%. The 16% increase in revenues was due to an increase in service fees, which increased revenues by 10%, and an increase in volume, which increased revenues by 6%. Again, although we saw an increase of 15% in cardiac units shipped in 2006, we experienced a product mix shift, which resulted in more lower-priced cardiac patches being shipped as a percent of total cardiac units shipped.

Vascular revenues were $3.9 million for the fourth quarter of 2006, compared to $3.2 million in the fourth quarter of 2005, an increase of 23%. The increase in vascular revenues was driven by fee increases, which increased revenues by 14%, and an 8% increase in vascular unit shipments, which increased vascular revenues by 9% in the fourth quarter of 2006 as compared to the same period in 2005.

Vascular revenues were $17 million for the full year of 2006, compared to $11.5 million in the full year of 2005, an increase of 48%. The increase in vascular revenues was driven by a 30% increase in vascular unit shipments, which increased vascular revenues by 36% in 2006 as compared to 2005, and by fee increases, which increased revenues by 12%. The increase in unit shipments in the fourth quarter and for the full year is a result of the strengthening procurement trends and an increase in yields.

Orthopedic revenues were $1.9 million for the fourth quarter of 2006, compared to $1.6 million in the fourth quarter of 2005, an increase of 22%. The increase in orthopedic revenues was driven by fee increases, which increased revenues by 16%, and a 16% increase in orthopedic shipments, which increased revenues by 6% in the fourth quarter of 2006 compared to the fourth quarter of 2005.

Orthopedic revenues were $7.1 million for the full year of 2006, compared to $5.1 million in the full year of 2006 -- excuse me, in the full year of 2005, an increase of 40%. Unit shipments of orthopedic tissue increased 24%, which increased revenues by 26% in the full year of 2006 compared to the full year of 2005. Additionally, increases in average service fees increased revenues by 14% in the full year of 2006 compared to 2005. Again, the increase in unit shipments reflects improving procurement trends and improving tissue yields.

For a more detailed discussion of the factors driving revenues, please refer to our Form 10K for the year ended December 31, 2006, which we plan to file by the end of the year.

Total product and tissue processing gross margins were 47% in the fourth quarter of 2006 compared to 54% in the fourth quarter of 2005. Tissue processing gross margins in the fourth quarter of 2006 were 10% compared to 21% in the fourth quarter of 2005.

Excluding a noncash charge of $2.8 million related to the Company's exit from orthopedic tissue processing, total product and tissue processing gross margins were 60%, and tissue processing gross margins were 37% in the fourth quarter of 2006. See the schedule attached to our press release from this morning, a copy of which is posted on our website for a reconciliation of GAAP gross margins to adjusted gross margins.

Total product and tissue processing gross margins were 54% in the full year of 2006 compared to 53% in the full year of 2005. Tissue processing gross margins in the full year of 2006 were 25%, compared to 20% in the full year of 2005. Excluding a noncash charge of $2.8 million related to the Company's exit from orthopedic tissue processing, total product and tissue processing gross margins were 57% and tissue processing gross margins were 32% for the full year of 2006.

See the schedule attached to our press release from this morning, a copy of which is posted on our website, for a reconciliation of GAAP gross margins to adjusted gross margins.

Tissue processing gross margins improved in 2006 compared to 2005, primarily as a result of price increases and improved tissue processing yields, as well as an increase in the number of tissues processed.

General, administrative and marketing expenses in the fourth quarter of 2006 were $11.4 million, compared to $10.5 million in the fourth quarter of 2005. General, administrative and marketing expenses in the fourth quarter of 2006 included a $751,000 charge for stock-based compensation and a $333,000 gain related to the adjustment of reserves for product liability and other legal losses. General, administrative and marketing expenses in the fourth quarter of 2005 included a $683,000 gain related to the adjustment of reserves for product liability and other legal losses and a $118,000 charge for stock-based compensation.

General, administrative and marketing expenses in the full year of 2006 were $41.5 million, compared to $53.2 million in the full year of 2005. General, administrative and marketing expenses for the full year of 2006 included a net $2.1 million gain from the settlement of insurance coverage disputes, a $1.6 million charge for stock-based compensation, a $784,000 gain related to the adjustment of reserves for product liability losses, and a $448,000 charge related to post employment benefits.

General, administrative and marketing expenses for the full year of 2005 included an $11.6 million charge for the settlement of the shareholder class-action lawsuit, an $851,000 charge related to post employment benefits, a $285,000 charge for stock-based compensation, and a $961,000 benefit related to the adjustment of reserves for product liability and other legal losses. You should refer to our SEC filings for detailed discussions of factors affecting our results of operations.

Also during the fourth quarter, our cash and securities balances increased from $8.2 million at September 2006 to $8.7 million at December 31, 2006. As of Friday, February 16, our cash and marketable securities balances were $9.3 million.

On the strategic front, we announced several transactions pursuant to the continued implementation of our strategic plan. We believe that these transactions will have a positive effect on the Company in the future.

On December 19, 2006, we announced that we had entered into an agreement with Regeneration Technologies whereby we effectively swapped our allograft sports medicine business for their allograft cardiovascular business. No cash was exchanged in this transaction. We will continue to distribute our existing orthopedic tissue inventory until June 30, 2008, and RTI will continue to distribute its existing cardiovascular and vascular tissue inventory through June 30, 2008. We are already starting to see the positive effects of this transaction on procurement, and expect to see the benefits on the top line beginning in the second quarter.

Additionally, we completed transactions with the Cleveland Clinic and MAST Biosurgery. Steve will discuss those transactions later.

We also plan to expand our sales force throughout 2007 by up to eight individuals. We believe that doing so will enhance our ability to drive revenue growth across all of our cardiac and vascular product and tissue lines. We will continue to look for opportunities to add new, innovative products to our distribution channels in the future.

Now I will turn it back over to Steve.

In January, we announced an agreement with MAST Biosurgery of San Diego, California, for the exclusive distribution of CardioWrap in the United States. CardioWrap is a bioresorbable protective sheet used to replace the pericardium in cardiac reconstruction and other cardiac surgeries where the patient may face reoperation within six months. It is made from a polylactide polymer consisting of lactic acid similar to that which occurs naturally in the human body. The product could potentially be used for various cardiac reconstructions where a reoperation may be required or expected. CardioWrap is also transparent, which provides better visualization for the implanting physician. We feel that the biodegradable nature of this product will provide benefits to the patient and the physician.

CardioWrap was exhibited for the first time at the Society of Thoracic Surgery meeting in late January. Early acceptance of this product by cardiac surgeons has been encouraging, and we feel that this product has the potential to contribute significantly to the Company's growth. Management estimates that the potential U.S. market for open-heart procedures where a material like this might be used is approximately $100 million annually.

Late last year, we completed our agreement with the Cleveland Clinic for the joint development of a combination aortic mitral valve allograft for treatment of bivalvular endocarditis, that usually is a life-threatening situation. Dr. Navia of the Cleveland Clinic will implant three of these valves in patients with endocarditis and the patients will be followed over a six to nine month post-op period. If the valves perform as expected, they will be released for additional patients in other clinics. Dr. Navia estimates that he sees four to six patients a month who might be candidates for this kind of valve transplant.

Management estimates that the United States market for this type of allograft valve could be as high as about $30 million. Currently anticipated to be brought to market sometime in early 2008, the valves would be priced at a premium to our existing cryo-preserved heart valves.

The additional data that the FDA requested for our CryoValve SG decellularized human pulmonary heart valve have been collected, collated and forwarded to the FDA. This data included additional clinical data, certain bench-top durability testing data, and histologic assessments.

You will recollect from past conference calls that the FDA wanted realtime patient follow-up on patients receiving the CryoValve SG for right ventricular outflow tract reconstruction and when used in the Ross Procedure. The mean implant time for these patients is 3.95 years with a maximum follow-up of 6.75 years. This data was collected from seven centers throughout the United States and included about 300 patients.

It is our belief that the safety and performance data from this analysis demonstrated the required regulatory threshold of substantial equivalence of the CryoValve SG as compared to conventionally processed human pulmonary valves. We hope to hear from the FDA sometime toward the end of the second quarter on the status of this submission. We estimate that the market size for a valve like the CryoValve SG would involve about 5,000 patients per year and could be a market opportunity of about $75 million.

The application for the CE Mark for our BioDisc Nucleus Replacement product was sent forward to our European notified body yesterday. The data includes the six-month implant data from our 10-patient clinical series conducted in Aberdeen, Scotland. The longest implant of the BioDisc is over 18 months. We anticipate hearing on the status of this submission within the next 90 days. The data from this study will be targeted to be the subject of numerous presentations at major spine meetings over the next 6 to 12 months.

If the CE Mark is granted, then it is our plan to initiate an expanded 150 patient post-market clinical study of the BioDisc. This will be done at five to seven clinics across Europe, including the United Kingdom and Austria.

CryoLife management has talked with six firms that are in the spinal implant space about joint venturing with us on the BioDisc. We have met with some of these firms three or four times. Some of the firms made co-marketing or joint venture proposals to us. Management has evaluated these proposals and in certain cases has countered with our own proposals. It is CryoLife management's opinion that the proposals some of these companies have made for the BioDisc have not properly valued the technology. As a result, it is management's intention to run the BioDisc expanded clinical study by ourselves. We can afford to do this and we have the clinical research staff to accomplish this.

During the continued development of the BioDisc expanded study, we will continue to meet with these firms and perhaps others for the purpose of seeking a proposal that reflects the true value of this technology. We are mindful that any partner should be the correct partner with the appropriate valuation of the BioDisc technology.

We continue our development of BioFoam, both with the Department of Defense and through independent internal research. BioFoam is a self-expanding bio material derived from our protein hydrogel technology platform. With the current formulation, we have identified an area of potential clinical benefit in [inaudible] organ sealing. Early proof of concept animal testing has been quite promising for controlling bleeding. Preliminary histological examinations have revealed that the BioFoam may have the advantageous property of short-term biodegradation showing signs of biodegradation at about 30 days post-operatively. Additional animal testing will be conducted. Timetables for regulatory submissions are being developed, and we should be in a better position to discuss these during the next conference call.

That completes my comments. And now I will turn the call over to Ashley, who will discuss in more detail the results from 2006 and provide some guidance for the rest of 2007.

Thanks, Steve.

We expect to record annual product and tissue revenues for the full year of 2007 of between $89 million and $92 million, exceeding our previous record of $87.7 million recorded in 2001.

The Company expects tissue processing revenues of between $45 million and $47 million and BioGlue revenues of between $43 million and $44 million for the full year of 2007. We expect orthopedic tissue processing revenues to be strong in the first quarter and gradually decline throughout the year. We expect only a nominal amount of revenues from orthopedic tissue processing beyond 2007.

The Company expects continuing improvements in its gross margins for the full year of 2007. We believe that with more of our tissue processing revenues being generated from cardiac and vascular tissue shipments versus orthopedic tissue shipments, gross margins should improve.

We expect general, administrative and marketing expenses of between $45 million and $48 million, and research and development expenses of between $4 million and $5 million for the full year of 2007, excluding research and development expenses associated with the Department of Defense grant. That concludes my comments and now I'll turn it back over to Steve.

At this time we will open up the conference call for questions.

Thank you. [OPERATOR INSTRUCTIONS] Our first question is from Raj Denhoy with Piper Jaffray. Please proceed with your question.

Good morning, guys.

Good morning.

I was curious on the BioDisc. If I heard you correctly, it sounded like you are not signing an agreement right now even though a CE Mark is potentially imminent. What does that do to your distribution prospects in Europe? Will you still distribute the product even though you will continue this expanded trial?

We can handle the distribution requirements of the expanded clinical trial, Raj. That's not going to take a great number of people because we are going to limit it to about five to seven centers, as I stated. So I don't think that will affect -- be negatively affected at all.

So you won't fully commercialize the product until you complete this follow-on.

That's true.

I guess that is what I was a little unclear on. And then SynerGraft timing, it sounds like that is still on track for -- I think you mentioned end of the second quarter.

Yes.

At that that point you are ready to launch that product and we should see it start to impact second half of the year numbers?

It would be toward the end of the second half, Raj, because we are not going to process at risk. We are going to wait for the FDA decision. We are not going to anticipate anything from them and, therefore, divert some of our production capability to SynerGraft, meaning the CryoValve SG, until it is approved.

Okay. Maybe you can just remind us again when that product was available before you withdrew it from the market. What percentage of your valves were you processing with SynerGraft?

Essentially all of our pulmonary valves we were processing with SynerGraft technology, Raj and we were starting to convert our aortic valve business. But I think if you look at our revenues as a whole, I think it was -- we were approaching approximately 60% of our cardiac revenues being processed with SynerGraft technology.

There are approximately 3,000 of those valves implanted in patients throughout the United States, Raj, and the additional data that we assembled for the FDA at their request was about 300 patients, but the experience with that particular pulmonary valve is vast. At least I think 3,000 implants is vast.

Yes, I do remember it being a pretty big deal. So it is 60%, I mean, of the potential -- your valve is 60% potentially being converted to SynerGraft. Will it be at roughly the same premium that it was before it was withdrawn from the market as well?

Yes. I think our premium previously was between 20% and 30% and I would expect a similar type premium going forward.

Okay. Very good. I will get back in line. Thanks.

Thank you.

Thank you. The next question is from Raymond Myers with Emerging Growth Equities. Please state your question.

Thank you. Congratulations on yet another good quarter.

Thank you. Good morning.

I notice the research grant revenue, it is not probably that terribly significant at $122,000, but it piqued my interest because that's the largest quarterly research grant revenue that I've seen you report in several years. And we have all been waiting for the BioFoam development to accelerate, and there was quite a lot of Department of Defense funding already appropriated for that program. So, I am interested to know does that foreshadow that that program is finally making some traction?

That is correct. I think that you will start to see the spending under that particular grant accelerate during 2007, and we have recently completed some animal studies that have cleared the way for us to proceed further down the pathway, and we would expect to see a significant increase in spending in 2007 under that grant.

Roughly I think -- I don't remember it exactly. $4 million or $8 million has been appropriated across a couple different grants. In 2007, what proportion of that appropriation do you think can be taken down?

Well, I think that you could potentially see us spend in excess of $1 million on that particular project this year.

Okay. That's very positive. I know, Ashley, you went through all the procurement trends in detail, but I was interested in particular, what are the trends in the vascular business? That seems to be the only business that was a little off its positive trend in the fourth quarter.

On the top line?

Yes.

We looked at that very carefully, Ray, and we really saw nothing that gave us any concern. And based on what we are seeing so far in the first quarter of this year, we just think that it was an anomaly, and that business continues to perform very well in the first quarter of this year.

Great. Thanks.

The efficiencies that you are seeing as a result of the Regeneration Technologies transaction, can you elaborate a little on specifically what those efficiencies might be, either in cost, or I imagine there are some very good sales synergies when you take -- put more salespeople behind your products with more supply.

Yes. And I'll touch on those briefly, Ray, but if you look at our former orthopedic business, we were working through an indirect distribution model, going through distributors, and as such, we were paying roughly 20% of our revenues out as commissions. I think that is pretty standard within the industry.

You will continue to see that especially early this year as we continue to distribute our existing orthopedic inventory. But later in the year with the gradual decrease in our orthopedic revenues, you should see those type of expenditures go away.

Additionally, we attended several orthopedic surgery congresses throughout the year, and the costs associated with attending those various congresses or conventions will go away during 2007. And other than that, we are looking to -- we have essentially acquired a book of business as part of this swath with Regeneration Technologies, and we expect to be able to leverage our existing direct distribution network and fold all of that product, as well as CardioWrap, into this distribution channel going forward.

I would like to add a little bit to that, Ray. My recollection is that we picked up three sizable teaching institutions as a result -- cardiac teaching institutions as a result of the RTI deal. And we've also, on our own, had great success in converting large teaching institutions to return to our product offerings in the cardiovascular area. It is very encouraging. And we are very pleased with that. And I think that that will contribute significantly to the growth of our cardiovascular business going forward.

Excellent. Good, thanks, Steve. And you mentioned you were going to have eight more salespeople hired this year. Where are we starting the year? How many salespeople do we have now?

We have about 32 direct salespeople and about five managers, including a director of sales, and we expect to expand our sales force by up to eight people during the course of the year.

Perfect. And then the last question. You mentioned you were going to do this 300-patient follow-on study for the BioDisc. How much do you expect --

That is 150.

150, sorry. How much do you expect that to cost and when will we start to feel that effect?

Well, we won't begin incurring any expenses until we get the CE Mark approval. So it is all contingent upon when we actually receive that. Assuming that we hear something positive toward -- during the second quarter, you would see us starting to spend money under that particular study in the latter part of 2007, and that has been included in the R&D guidance that we gave out for this year. So that's already been contemplated in that number.

Okay, great. Well, thanks again. And you really are moving forward on a lot of fronts here.

Thanks.

Thank you. The next question comes from Keith Markey with Value Line. Please state your question.

Good morning, and thank you for taking my question.

Good morning, Keith, how are you?

Fine, thanks. Two quick questions for you. One, I was wondering, should we not expect too much from CardioWrap this year based upon the overall estimates you were giving for the BioGlue? I assume that that includes -- the estimate for BioGlue this year included CardioWrap?

It did not. We did not give any guidance for CardioWrap. It was not included in the tissue numbers, nor in the BioGlue numbers. We do expect to generate CardioWrap revenues of up to $0.5 million during 2007. We hope that ends up being conservative, but that's kind of what we have modeled into 2007.

Great. Thanks. And then secondly, I was wondering, should we expect any price increases on either BioGlue or on your tissue processing business this year outside of the SynerGraft?

We had some nominal price increases at the beginning of this year. They weren't across the board, and they were in select product lines and tissue lines. But they went into effect at the very beginning of this year, and they were probably in the mid-single digits on average. But it wasn't across all tissue lines or products lines.

Okay. Thank you very much.

Our next question is from Raj Denhoy from Piper Jaffray. Please state your question.

Hi. Just a quick follow-up. I'm not sure if you guys gave an update on the ProPatch product. I think you submitted a 510k. But I'm not sure whether you have received anything back yet?

We did get a 510k clearance from the FDA on that particular project, Raj, and as we have indicated in some of our previous conference calls, there were two areas that we were really focusing on. The first being rotator cuff repair. And as a result of the transaction that we completed with Regeneration Technologies, we are now in the process of seeking a partner to work with us on the distribution of ProPatch for sports medicine injuries.

With that being said, we remain focused on ProPatch for hernia repair. We are in the process of evaluating our pathway to commercialization in that area, and we can probably have more details to share with you in our next conference call about when you would expect us to launch in that particular market.

When might you be able to share some data on that product? And how it compares to some of the other products on the market?

We have a lot of bench data right now, Raj. One of the things that we had anticipated doing with ProPatch and sports medicine was conducting a post-approval study. That study had already been designed and approved, but again, with the RTI transaction, we had put that study on hold.

We are in the process of doing the same thing for ProPatch's use in general surgery and hernia repair, designing a study, recruiting investigators, and we will have more color on that particular study probably in our next conference call.

Fair enough. Thank you.

There are no further questions at this time. I would now like to turn the floor back over to Mr. Anderson for closing comments.

Thank you for joining us today. And we look forward to speaking with you after the close of the first quarter.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.