Alphatec Holdings Inc (ATEC) 2008 Q1 法說會逐字稿

Good day, and welcome to the Alphatec Holdings First Quarter Fiscal 2008 Results Conference. As a reminder, today's call is being recorded. At this time, I'd like to turn the conference over to Mr. Gordon C. Bigler, Vice President of Finance and IR. Please go ahead, sir.

Thank you, Operator, and good afternoon, everyone. And welcome to Alphatec Holdings' conference call to discuss our first quarter fiscal year 2008 financial and operating results. With me today are Mr. Dirk Kuyper, President and Chief Executive Officer, and Mr. Ebun Garner, Vice President and General Counsel.

By now, you should all have seen a copy of today's press release announcing our first quarter fiscal year 2008 financial and operating results. If you do not have a copy of the press release, you can find it in the Investor Relations section on our Website at www.alphatecspine.com.

I would remind you that this conference is being Webcast live and recorded. A replay of the event will be available later today via Webcast on the Investor Relations section of our Website. Before we get into the details, I need to make a few quick disclosure-housekeeping comments.

During this call, we will discuss some factors that are likely to influence our business going forward. These forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995, may include guidance we will provide on future revenue and other operating targets for fiscal year 2008, and other future periods and statements about prospects for our business, product-development status, product potential, financial performance and the planned availability of new products.

These statements are based on management's current expectations and involve risks and uncertainties that may cause results to differ materially from those set forth in the statements. And it should be made clear and clearly understood that our actual results may differ substantially from the forward-looking statements we make today, and that no forward-looking statement can be guaranteed. Alphatec undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

Forward-looking statements on this call should be evaluated together with the many uncertainties that affect Alphatec's business. Specific factors that may affect our business and future results are discussed in the risk factors section of our annual report on form 10-K for 2007, and our prospectus dated August 30, 2007, and any supplements hereto our subsequent quarterly reports on Form 10-Q, and in our other SEC filings.

A partial list of these important risk factors is set forth at the end of today's earnings press release. With that out of the way, I'll now hand the call over to Mr. Dirk Kuyper, Alphatec's President and CEO.

Thank you, Gordon. And good afternoon, everyone. Before I begin, I want to set the agenda for today's call. I will go over selected highlights from the first quarter, and the status of our key development projects in our pipeline, then turn the call back to Gordon, who will provide a more detailed review of our operating and financial performance. And lastly, I will come back and discuss guidance for 2008, before opening up the call for questions.

First, I want to congratulate the Alphatec team on achieving record consolidated quarterly revenues of $23.2 million for the first quarter of 2008. This is an increase of 18.7% from the same period last year, and a sequential increase of 8.7% from the fourth quarter of 2007.

The Alphatec team is coming together nicely, and we are beginning to see it in our ability to accelerate our revenue growth from historic levels. Regarding team-building, we continue to upgrade our team and fill in the gaps where we need deep industry experience to take Alphatec to the next level of growth.

As such, Gary Fredericks has joined Alphatec as Vice President of Corporate Accounts. In his newly created role at Alphatec, Mr. Fredericks will leverage his 30-plus years of experience in the medical-device industry to develop and implement a long-term corporate accounts program that includes developing relationships with integrated delivery networks and group-purchasing organizations. These purchasing organizations are becoming increasingly significant factors, and Gary will be critical in expanding our domestic sales and distribution footprint with these groups.

In addition, J.P. Timm joined us as Vice President of Research and Development on March 10th. J.P. is already making a strong contribution and brings a wealth of spine experience to the Company. Alphatec will leverage JP's substantial product-development and clinical research and development experience in order to successful commercialize our significant product pipeline.

Lastly, Mr. Mitsuo Asai joined Alphatec effective April 1st as the new President of Alphatec Pacific. Mr. Asai comes to us from Tokai, Ltd., a manufacturer of consumer goods with annual sales of approximately JPY10 billion, which is equal to $100 million, and over 285 employees, where he was most recently President, overseeing operations in multiple countries. We will be relying on Mr. Asai's strategic abilities to help us expand our Asian presence.

Our ability to attract such high-caliber executives is indicative of the team and the culture that we are building here at Alphatec. Regarding our development pipeline, Alphatec has several revolutionary product development platform technologies in our strategic focus area. These technologies enable us to engage surgeons with differentiated products, as well as expand the market for our Alphatec products.

In regards to V-Stent, which is our expandable titanium cage that can be implanted minimally invasively to treat vertebral compression fractures, we've completed several clinical-observation cadaver labs in the first quarter, and the product is performing extremely well.

Initial results suggest that V-Stent exhibits superior performance to traditional vertebroplasty or kyphoplasty. The V-Stent has shown the potential for the following product advantages -- improved clinical efficacy, as the V-Stent provides sustained height restoration of the collapsed vertebrae; improved safety, as the V-Stent technology reduces both the amount of cement required and the pressure required, which reduces the risk of extravasation; and improved biomechanical properties. The V-Stent has an enormous market potential, as there are currently over 2.5 million vertebral compression fractures globally.

Let me quickly sketch out the market potential. In a typical procedure, there are approximately 1.7 levels that are treated. We have estimated the market opportunity related to V-Stent to be approximately $1 billion. We expect V-Stent to be submitted to the FDA for 510k clearance in June 2008. And clinical evaluation sites have been established in Europe, Japan, China and the U.S., with full U.S. market release expected around NAS 2008.

On the Osteo Screw, we are making significant development advances on this revolutionary and unique pedicle-screw solution for dealing with patients with poor bone quality. It is estimated, in the U.S. alone, over 42 million people either have osteopenia or osteoporosis. And current pedicle-screw designs do not offer an adequate solution for surgeons.

The Osteo Screw is designed to be implanted into the pedicle and then expanded to achieve increased purchase, if the surgeon desires a more secure fixation. With the over-65 population expected to more than double over the next 20 years, the Osteo Screw will lead the way in providing solutions for the aging demographic. Although aimed at providing a superior solution for patients with poor bone quality, this screw may also become a new standard of care for all pedicle-screw technology.

We're extremely excited about the potential market opportunity for Osteo Screw. In the U.S. alone, there are expected to be 280,000 thoracolumbar fixation procedures this year. We are typically seeing, on average, 1.5 levels constructs per procedure, which would equate, on average, to five Osteo Screws to complete the procedure.

We estimate the market opportunity for Osteo Screw, therefore, to be approximately $2.8 billion. We expect Osteo Screw to be submitted to the FDA for 510 clearance by December of 2008, with full-market release sometime in the first quarter of 2009.

On our minimally invasive product offering and pipeline, we expect to be releasing our comprehensive Illico MIS platform to the market in stages, beginning with a cannulated screw and MIS retractor system in June of 2008. This will be followed by a fully percutaneous screw and a innovated -- innovative rod-delivery system in the fourth quarter. Complementing the Illico MIS platform solution, we've completed several successful development milestones in the first quarter for our next-generation minimally -- minimal-access system, which call GLIF.

The GLIF is a breakthrough access system that provides a lateral approach to the spine, with the patient in a natural, face-down position. The GLIF is designed to allow surgeons to perform a 360-degree, minimally invasive, procedure without the need for a second incision or repositioning of the patient, which will both reduce the length of stay of the procedure -- or the length of the procedure -- reduce the trauma to the patient and the postoperative recovery period. We expect the GLIF project to progress throughout 2008 and to be available for launch in the first half of 2009.

All of these products in development are examples of Alphatec's mission to be the leading independent spine company by focusing on the aging spine demographic. We will focus on providing solutions for spine patients with osteoporosis, improved solutions for treating aging-spine deformities, improved products for minimally invasive techniques and integrated biologics to support every phase of our platforms.

Our goal, in short, is to improve the agings' quality of life. And we are re-branding Alphatec to align the entire company with this mission. Gordon will now talk through the first quarter 2008 financial and operating highlights.

Thank you, Dirk. As Dirk mentioned, during the first quarter of 2008, we achieved record consolidated revenues of $23.2 million. This is a sequential increase of 8.7% from the $21.3 million reported for the fourth quarter of 2007 and an increase of $18.7 million (sic - see press release) from the $19.6 million reported for the first quarter of 2007.

Let's talk about some of the segments, then. The U.S. revenues for the first quarter of 2008 were $18.6 million, a sequential increase of 9.2% from the $17.1 million reported for the fourth quarter of 2007 and an increase of 12% from the $16.6 million reported for the first quarter of 2007.

This strength in year-over-year revenues in the U.S. was primarily driven by higher procedure volumes and revenues from our biologics, our TRESTLE anterior cervical, our SOLANAS posterior cervical and NOVEL interbody product lines, which were slightly offset by lower case volumes and revenues from our ZODIAC thoracolumbar posterior-fixation product.

We're seeing significant increase in surgeon-adoption of our products. During the first quarter of 2008, 280 different surgeons used our products. This is a sequential increase of 16.2% from the 241 surgeons that used our products in the fourth quarter of 2007 and an increase of 13.4% from the 247 surgeons that used our products in the first quarter of 2007. We expect to continue to leverage these relationships by utilizing our broad suite of products to be more relevant to each surgeon in every procedure.

Now, let's move over to Asia revenue. Asia revenues for the first quarter of 2008 were $4.6 million, an increase of 6.7% from the $4.3 million reported for the fourth quarter of 2007 and an increase of 56.7% from the $2.9 million reported for the first quarter of 2007.

Strength in year-over-year revenues in Asia was primarily driven by the addition of a new distributor, which we brought on in May of 2007 and favorable foreign-currency exchange rates. We are confident about our ability to have a presence in the very robust Japanese orthopedic marketplace and feel that this growth is an indicator of our future success.

Consolidated gross-profit margin, computed in accordance to U.S. generally accepted accounting principals, or GAAP, during the first quarter of 2008 were 66%. This is versus 59% for the fourth quarter of 2007 and 64.8% for the first quarter of 2007.

Strength in year-over-year gross-profit margin was primarily due to increased efficiency in our manufacturing operations, and as we mentioned in our fourth quarter call, changing the depreciable lives of our instruments from two to four years.

Net loss computed in accordance to GAAP for the first quarter of 2008 was $4.8 million, or $0.10 per share, fully diluted. This compares with a GAAP net loss of $11.2 million, or $0.24 per share, fully diluted, for the fourth quarter of 2007 and a GAAP net loss of $2.7 million, or $0.08 per fully diluted share for the first quarter of 2007.

GAAP net loss for the first quarter of 2008 includes $1.3 million of in-process research and development, expense associated with acquiring the worldwide license to develop and commercialize an expandable interbody vertebral-body-replacement technology that utilizes an extremely unique geometric-design configuration that can be expanded once the device is place in the disc space and is designed to be used in percutaneous, minimally invasive, as well as open-delivery procedures.

In Q1, we also acquired an exclusive license to a dynamic anterior cervical-plate technology that incorporates a unique, self-locking -- self-ratcheting, pardon me -- mechanism that enables the dynamic anterior cervical plate to allow for axial settling in order to increase the load-sharing with a graft and thereby, improve fusion rates.

Similar to our TRESTLE anterior cervical plate, this dynamic plate will be designed to contain a large graft window that will enable graft-site visualization and in-plate visualization. And it will also be designed to have a slender profile for aesthetic and anatomical union. I now want to touch on the two non-GAAP, or adjusted financial measures that we report.

EBITDA, as adjusted for the first quarter of 2008, was a negative $637,000, compared to adjusted EBITDA of $540,000 for the fourth quarter of 2007 and compared to an adjusted EBITDA of $47,000 for the first quarter of 2007. The decrease in EBITDA, as adjusted, was primarily driven by increased research-and-development and marketing spending to support our product launches and development pipeline.

Non-GAAP net loss, as adjusted for the first quarter of 2008, was $2.6 million, or approximately $0.06 per fully diluted share, compared with a non-GAAP net loss of $2.3 million or $0.05 per fully diluted share for the fourth quarter of 2007 and non-GAAP net loss of $2.4 million, or $0.07 per fully diluted share for the first quarter of 2007.

Many of these expenses were rather front-loaded into 2008 and we expect these expenses to slow sequentially into 2008 and for Alphatec to achieve significant operating leverage as we build into GAAP profitability into 2009. Now, let's move to the balance sheet.

Our balance of cash and cash equivalents, as of March 31, 2008, was $26.9 million. Accounts-receivable days remain consistent, at approximately 55 days during the first quarter of 2008. And inventory turns during the first quarter of 2008 decreased from 1.7 times in the fourth quarter of 2007 to 1.5 times, as we are ramping up inventory to support our 2008 product launches. I will now hand the call back over to Dirk to give our guidance for 2008.

Thank you, Gordon. Before I go over guidance, I want to touch on the termination of the license with Scient'x for the technology related to the DYNAMO semi-rigid rod system. The previous management saw this license as a significant opportunity for Alphatec.

As we reviewed our portfolio, the fact that this was a non-exclusive license and that significant resources would have to be expended in order to develop the market for DYAMO and frankly, strategically, it does not fit with the aging-spine strategy, we felt that we have better opportunities to create value, by allocating our resources in areas other than DYNAMO.

I am pleased with the outcome and look forward to redeploying these resources into our higher-value projects that fit into Alphatec's strategy of providing solutions for the aging spine and that offer higher returns on our capital and marketing expenditures.

For the full-year 2008, we had indicated that DYNAMO would contribute approximately $2 million to $3 million in revenue. Based on current run rate and expectations, we see no negative impact to the termination of this license, and are reiterating guidance, as we expect consolidated revenues for the entire company to be approximately $95 million in 2008. This is a year-over-year increase of approximately 19% from 2007.

For our U.S. business, in 2008, we expect revenue of approximately $80 million. This is roughly a 19% to 20% growth rate from 2007. We continue to see our growth in U.S. revenue driven by several factors, including new product launches, including the Illico MIS platform, full realization of the potential of the TRESTLE anterior cervical plate, our NOVEL-TL interbody product line and the SOLANAS posterior cervical system and by continued expansion of and moving towards an exclusive sales-distribution network.

We are extremely pleased that we've been able to add several new key distributors in the first quarter, including distributors in New England, Ohio, Michigan and Texas, and we've already realized revenue growth from these distributors.

For our Japan business, in 2008, we expect revenue of approximately $15 million. This is roughly a 15% growth rate from 2007. In 2008, the team is tasked with increasing the amount of spine revenue as a percentage of the total, and Q1 showed a doubling of Alphatec's spine revenue in Japan over the prior year. We have submitted several additional spine products to the Ministry of Health for approval. Likely, this approval process will take a year, but we are making substantial headway in our Japanese business.

In addition, as it relates to the V-Stent product, Japan is the second-largest market for vertebral compression fractures, with over 500,000 annually. And we plan on initiating a clinical trial at multiple sites in the fall of this year. Plans for expansion into the European market continue to be on track, and we expect to begin shipping product in the second half of 2008.

Regarding EBITDA visibility during our original fiscal 2008 guidance call in December, we laid out the plan for 2008, where we said we would double our research-and-development spending to approximately 10% or 11% of '08 revenue. The primary cause of the negative EBITDA in Q1 of 2008 is from this planned action, which we believe is the right strategy in order to bring to market our innovative products that will give Alphatec a distinct competitive advantage, compared to our competitors.

There are currently 21 distinct R&D projects ongoing at this time. Many of these planned 2008 expenses were front-loaded as we built out our research-and-development team. And we expect that we will generate additional leverage from these expenditures in the back half of 2008 and into 2009.

Lastly, I expect the second quarter of 2008 to be sequentially improved over the first quarter, and our growth rate to continue to accelerate as we continue to achieve surgeon-adoption of our broad-based product portfolio, and increase surgeon interest from our innovative development pipeline.

Alphatec is positioning itself as a leader in the aging-spine market and we will continue to manage priorities and set the foundation for Alphatec to achieve consistent future growth. We will continue to support our surgeons with the products and solutions they need for their patients by delivering to the market a full suite of innovative and unique products. At this time, we will open the lines up for questioning.

Thank you.

(OPERATOR INSTRUCTIONS)

And we'll take our first question today from Tao Levy, Deutsche Bank.

Yes. Hi, guys. This is Seth for Tao. Thanks for taking the question.

You're welcome.

First, congratulations. It's a nice revenue number -- pretty impressive. Just first I wanted to start off with the business model, in general. And I wanted to see if you could give a little bit of color on it. It seems that OpEx is -- it's growing at a rate equal to or greater than sales. And it looks like you burned about maybe $7 million or $8 million in cash during the quarter. So I wanted to know if you have any plans to slow growth on the OpEx line, or are you planning on raising additional capital.

Seth, you snuck in a last question there, so -- but on the OpEx answer -- no. Certainly, as Dirk and I pointed out, we wanted to address that in our prepared comments and knew that would be a question. We -- we're engaged in the product-development pipeline, as Dirk talked about. And we're bringing the significant Osteo Screw, V-Stent, GLIF and Illico -- the real game-changers -- into our product portfolio.

And so some of our headcount, frankly, was front-loaded into Q1. We don't anticipate that sort of growth rate similarly. So we'll start to see significant leverage there on the OpEx side. On the cash side, there were several one-time events in Q1 that deserve calling out. We had a $2 million license -- frankly, that was paid January 4th -- for the Osteo Screw. That's $2 million. We had $500,000 payment relative to the expandable interbody license.

In our Japan operations, we needed to pay off a $1.9 million loan there that's, certainly, one-time. And then, as you know, with most companies, Q1 is a time when you have bonuses for the last year. And that was paid to the tune of around $800,000.

So the real one-time charge there was -- or one-time cash outlay -- was about $5.2 million, Seth. So as you mentioned, there was a sort of a burn there of around $8 million. And as we've talked about previously, that computes to right around $1 million a quarter, which we feel pretty comfortable with, given our capital structure.

Okay, Gordon. And then, to follow on that, then -- so in the past -- and I mean, I know, with all the investment, the $80 million break-even EBITDA probably doesn't stand anymore. Is like -- is $100 million a better place to think about where you guys would be break-even for an EBITDA?

Yes, well, we're -- Seth, this is Dirk. We're still looking to break even by the end of the year. So we needed to, obviously, expend the money to get the R&D ramped up. I don't see other costs increasing.

In fact, we have a very aggressive program to continue to increase efficiency and manufacturing. So we're still working towards that year-end -- it may be first quarter of '09. But we believe we can reach probability.

Okay. And just one clarification and a follow up, and then I'll jump back in. So for profitability, you mean EBITDA profitability, I assume, right?

Well, Seth, that was actually a -- certainly, EBITDA profitability. But I think the goal is, frankly, to be GAAP-earnings profitable here, as we're exiting '08, but we -- certainly, into '09. So yes, I would look for -- I would look for EBITDA profitability in the next quarter.

That's great. And just last -- and I'll jump back in. The profit margin in Japan -- it was down year-on-year. And just any color on that? Thanks.

Yes. That primarily had to do with -- in the second quarter of 2007, the Company acquired a distribution company, JOM. And that is -- so that's just reflective of the assimilation of that acquisition and -- which is primarily flow-through product. So we don't see a real change in the margins in Japan. That's just reflective of consolidating in that acquisition.

Great. Thank you.

Next, we'll hear from Steve Ogilvie, ThinkEquity Partners.

Hey, guys -- just two questions. One -- how much V-Stent are you counting on in your '08 guidance? And then, second, could you give us a little more color on why Asia grew so quickly this quarter, and why gross margins in Asia were so poor?

Okay. Hi, Steve. It's Dirk. In regards to the V-Stent, we have not planned very much into the '08 numbers. As you know, the FDA -- we anticipate approval, certainly, by NAS. But you never can be quite sure.

So actually, my thought process has been to not plan new products into your numbers. And that's certainly true with V-Stent as well. So there's a very small number attached to that. So if we were to get approval earlier, that could be positive.

In regards to Japan, again, the large growth rate -- we saw a positive development of the spine business in Japan, first off. The percentage of spine revenue, of Alphatec revenue, is going up. We're very pleased with that.

In terms of the growth rate, it's partially due to exchange rate. That accounts, certainly, for a portion of it. And otherwise, as we acquired JOM in Q2 of last year, those numbers were not reflective in the first quarter. So you're seeing that in the first quarter of '08. And it's the same for the margins. The consolidation of that distributor into our results is -- looks like there is a big decrease in margin, but actually from the fourth quarter. I think we're in very good shape there.

Great. Thank you.

Thanks.

Next, we'll hear from Bruce Jackson, RBC Capital Markets.

Good afternoon.

Hi, Bruce.

Hi, Bruce.

Last call, you were talking about doing some updates of the sets and a revamp on ZODIAC. How did that all roll out?

Those -- that has rolled out very well. The last 50 sets of ZODIAC are actually going out this month, so we are 100% complete as of the end of this month with the revamp of ZODIAC. SOLANAS is complete now and in the field. And all TRESTLE is in the field. So we've accomplished all of those goals.

Okay. And then, if we could just go back to the decision to not work with the DYNAMO anymore, how do you -- could you just walk us through the thought process about why you didn't think you needed posterior dynamic stabilization and just the whole portfolio decision that you made?

Okay. Well, as you know, we decided strategically to focus very much on the aging-spine demographic, which we see as the fastest-growing demographic group. And we've licensed some very key technologies in that area -- the V-Stent, Osteo Screw. We see the GLIF and our whole MIS platform playing into that very extensively, as well -- in addition, some other products.

So as we looked at the amount of effort it would take to really drive the number we were looking for with DYNAMO and the amount of resources we had. We just felt that, at this time, it just didn't fit strategically with that whole aging-spine strategy.

There may come a time when motion preservation comes back into focus for us. But certainly, for the short term, we felt that we have enough on our plate and enough opportunities and don't want to diminish the ability of our distribution network to take on these new products by having them focused on what, frankly, was a non-exclusive lower-margin product.

Okay. That's helpful. And then, in terms of the sales and distribution, where do you stand right now in terms of the number of feet on the street? And what percent of that is direct or exclusive?

Okay. We're currently at about 40% exclusive. And we -- as we mentioned in the fourth-quarter call, we're trying to move that to 60%. And we feel very good about that -- that we are slowly converting a number of distributors to more exclusive. And as we bring on new distributors, it is on an exclusive basis. And currently, we estimate that we have about 180 feet on the street.

Okay. And then, just to wrap up with the operating expenses, is this the kind of run rate that we should expect for the remainder of the year?

We're looking to gain some efficiency in manufacturing. Obviously, that would be reflected in improved margins. R&D spending -- I think we're at the level, certainly, that we want to be at. We have the team built out and we'll be looking for other opportunities to, maybe, cut OpEx where we can. But certainly -- well, I wouldn't see any increase going forward. So if anything, maybe a slight decrease.

All right, thank you.

Thanks.

From Global Hunter Securities, Bud Leedom.

Hi. Good afternoon. I was wondering, just given the timing, previously, of Osteo Screw, potentially at the NAS there -- if you could just provide some color on what's taking place clinically -- what you're seeing -- and if everything appears to be within what your expectations were previously on the product.

We're -- that's a very good question.

Osteo Screw, we're tremendously excited about. And obviously, the key is not just to get the product to market, but to ensure that it is absolutely the best product that it can be, and that it performs the way that surgeons need it perform -- to perform -- in poor-quality bone. And so, as such, we're taking a little more time than we had originally anticipated to go through the process of ensuring that it has the strength and that it deploys in exactly the fashion that we want.

So we're working through that right now. So we anticipate still being able to display the product at NAS, possibly be into evaluations with our development -- developing surgeons. But we're probably looking -- I think we originally anticipated a full release at NAS. And that, probably, is pushed back to the first quarter of 2009.

And then, also, just regarding GLIF, I know that there was some technologies that you were potentially looking to embed. And I just wonder if you might have an update, at least, in terms of a nerve-detection monitor -- if you've found any suitable technology that might meet the product specs there. Because it seems like you're -- you continue to be on a hard date there for the first half of 2009.

Yes. There were two technology issues. One was visualization. The other was neuro-monitoring. On the visualization, we -- in the first quarter, in working with our developing surgeons, we think we've reached a breakthrough there, in fact, that avoids the need for visualization by an adaptation of the cannulae. And so we're very excited about that prospect, because it solves one of the challenges we had.

On the neuro-monitoring side, we are in active discussions with a potential product offering. And we're weighing that against what the impact or market acceptance would be if we just used the product with already existing equipment.

Generally, every surgical procedure already has some type of monitoring. And so we're weighing, really, the opportunity of having our own versus not having our own. So either way, we have a solution for the neuro-monitoring aspect.

Okay, great. And then, finally, do you have a FX figure for the Japan operation, there, in the quarter?

Sure. So sequentially, it -- the FX really went from around $110 million to start the quarter in Q4, to right around $98 million. And I would think of that as right around $300,000. So it would have been -- it was a nice quarter from Japan. Certainly, we're on a elevated run rate, relative to where we were before JOM. But that FX is right around $300,000 sequentially.

Great. Thanks a lot.

(OPERATOR INSTRUCTIONS)

Next, we'll hear from William Plovanic, Canaccord Adams.

Good afternoon. This is [Anup], for Bill. How are you?

Good, Anup.

It seems like most of the questions have been asked. A couple quick ones -- any timeline regarding the dynamic cervical plate or the expandable interbody?

Because we already have such a large number of projects in active development, those are, right now, on the backburner. We're just starting to ramp up the development team for the dynamic cervical plate. So I really can't give you a solid date.

And the same with the expandable interbody -- we're -- we have not established our development team yet. We're very excited about the opportunity for that product. But we don't want to overwhelm the group in terms of what the key focuses are.

So right now, clearly, the focuses are getting the V-Stent, the Osteo Screw, our MIS platform and GLIF to market. And then, as we start to free-up resources, we'll start to layer in these additional development projects. So there -- I really can't, on either of those -- can't give you a definitive date at this point.

All right. Well, great quarter. Thank you very much.

Okay. Thank you.

(OPERATOR INSTRUCTIONS)

Next, we'll hear from Al Kildani, SF Capital.

Good afternoon.

Hey, Al.

A couple of -- just of housekeeping items. On the goal of reaching moving 60% of your distribution to exclusive, what's the timeframe? Or have you put out a -- put a timeframe around that?

Yes. We want to get to that 60% level by the end of the year.

Okay.

And then, if you could help me out -- sorry if this is going to be a little repetitive, but there were a lot of different sort of benchmarks thrown out for different profitability or break-even, et cetera. I wanted to make sure I got it down right.

So EBITDA break-even -- was that by the end of the year, or maybe beginning of '09? I thought I heard another point that it could be next quarter. I just wanted to clarify that timeframe, if we could.

Yes, sure, Al. This is Gordon.

We absolutely anticipate being EBITDA-positive by next quarter. And we think we're running the Company, at this point, with the type of operating leverage to have GAAP-EPS profitability the Q1 2009 -- as we exit '08. But I would think about that as sort of Q1 '09.

Okay, great. And then -- you said the operating burn, after we back out all the one-time items -- did you say that was $1 million a quarter or $1 million a month?

About $2 million --

$2 million? Okay.

A quarter.

-- a quarter, Al -- $2 million a quarter.

Great. Thank you.

You're welcome.

Moving on is Sean McMahon, Kennedy Capital Management.

Mr. McMahon, your line is open. Please go ahead.

Hi, guys. I apologize I missed this, but when were you planning to launch V-Stent and Osteo Screw?

V-Stent, we expect to have fully launched by NAS, so mid-October of 2008. And V-Stent, in -- I'm sorry -- Osteo Screw, in terms of a full-market launch, will be in the first quarter of 2009.

Okay. And then, I think you commented that you're seeing better performance than kyphoplasty. Is that correct? Is this -- ?

In the initial work that we're doing, we're very encouraged by the results we're seeing. Yes.

Is there any kind of data or is there any publication out on that? Or is it just from the doctors that are doing the cadaver work or -- ?

No. We're collecting the data and it certainly would be our intent to publish it at some point in the near future.

Great. Thank you.

Thanks.

I hear no further questions at this time. I'll turn the conference back over to you for any additional or closing comments.

Okay. Thank you, Operator. Just in final closing, we feel Alphatec has a strong foundation from which to build into the future and we're taking the steps to enable us to achieve our goal of being a leader in providing solutions for the aging spine.

We're looking forward to executing on our plan and delivering the benefits to the shareholders of Alphatec and to the employees alike. With that, I'd like to thank everyone for their participation in the call. And we look forward to next quarter. Thank you.

That does conclude today's Alphatec Holdings conference. I thank you all for joining us.