Alphatec Holdings Inc (ATEC) 2009 Q3 法說會逐字稿

Good day, everyone, and welcome to the Alphatec Holdings third quarter fiscal 2009 results conference call. Today's conference is being recorded. At this time I would like to turn the conference over to Peter C. Wulff, Chief Financial Officer, Vice President and Treasurer.

Please go ahead, sir.

Thank you and good morning, everybody. Welcome to Alphatec Spine's conference call to discuss our third quarter ended September 30, 2009 financial and operating results.

With me today is Dirk Kuyper, our President and Chief Executive Officer. By now you should have seen a copy of today's press release announcing third quarter 2009 financial and operating results. If you do not have a copy of today's press release, you can find it in the Investor Relations section on our Website at www.AlphatecSpine.com.

Before we start there are a couple of items we would like to cover. I would like to remind you that this call is being Webcast live and recorded. A replay of the event will be available later today on our Website and will remain available for at least 30 days following the call.

We would like to remind you that our discussions today include forward-looking statements. These statements are based on certain assumptions made by us, based on historical trends, current conditions, expected future developments, including business prospects, product development objectives, future financial performance and other factors we believe to be appropriate in the circumstances.

Risks and uncertainties may cause our actual results to differ materially from those projected in these forward-looking statements. You can find a discussion of these factors and more information about us in our filings with the SEC, including the risk factors section on our annual report on Form 10K and subsequent quarterly reports on Form 10-Q and periodic filings on Form 8K.

These forward-looking statements are made as of the date of this call and we assume no obligation to update these statements publicly, even if new information becomes available in the future. This broadcast is covered by US copyright laws and any use or rebroadcast of all or in part of this conference call may only be done with our express written permission.

Now I'd like to hand the call over to Dirk Kuyper, Alphatec Spine's President and Chief Executive Officer.

Thank you, Peter. Good morning and thank you for joining us this morning.

We are pleased to report that revenues for the third quarter of 2009 were a record $32.7 million, representing a 27% increase over revenues from the same period last year. This represents the ninth consecutive quarter of record revenues.

Year-to-date revenue of $95.6 million reflects a 31% growth over the same period 2008. In the US, we grew the third-quarter 2009 revenues by approximately 21% over the prior year. Year-to-date revenue growth was 28% as compared to 2008 for the same time period.

International revenues reached $6.6 million in the third quarter, reflecting a 52% growth over the third quarter of 2008. This performance reflects the ongoing strength of our core business.

We're proud to report adjusted EBITDA of $3.6 million for the third quarter, which is a 31% sequential increase over the second quarter 2009 adjusted EBITDA of $2.8 million. Year-to-date EBITDA reached $7.8 million reflecting strengthening operating leverage, while we continue to drive strong topline growth investing in our robust product pipeline and controlling costs.

We continue to grow revenues at rates significantly higher than the growth rate of the spine market through the introduction of innovative new products, the strengthening of our US sales force, and expansion of our international operations.

This morning, we will provide additional highlights on our operating performance for the third quarter of 2009, as well as an overview of new product introductions and accomplishments in the quarter. Consistent with our comments from previous calls, I will focus my remarks on updating you on our four primary growth drivers at Alphatec -- one, the continued expansion of our core product portfolio especially in the area of minimally invasive surgery; two, product development initiatives addressing the aging spine; three, US sales force expansion, and four, international expansion.

Then I will turn the call back over to our CFO, Peter Wulff, who will provide a more detailed review of our financial performance. Following Peter, I will discuss growth initiatives and review our 2009 financial guidance before opening the call for questions.

We set out this year to launch a number of new products addressing our core fusion product portfolio and we're pleased to report that we are on track to meet that objective. We continue to expand our fusion product line by introducing both new products and line extensions as well as securing additional intellectual property and distribution rights.

I will take a minute to highlight a few of these products.

Solis, a stand-alone anterior lumbar intra-fusion, or ALIF device. Illico [SE] posterior fixation device system which is our percutaneous screw system. Amnio Shield, a biologic wound barrier. ProFUSE, demineralized bone matrix, and our new licensing agreement we signed with the ETEX Corporation. We believe these products will allow us to continue to drive strong US revenue growth in the quarters ahead.

As we announced in our last quarterly call, we are developing a zero profile self-locking interbody device, initially for ALIF, and in the future for cervical procedures, based on intellectual property that we acquired earlier this year. We have fast-tracked the development efforts of this product. And I am pleased to report that we submitted Solis standalone ALIF device to the FDA for 5 10 clearance as of last Friday, November 6.

We anticipate launching the Solis standalone ALIF product in the first quarter of 2010.

We believe that a zero profile single action locking implant is a substantial improvement over devices requiring screws or additional steps to lock. This standalone device will be unique in that it will be designed to be inserted and locked into the superior and inferior vertebral endplates in a single step. The simple insertion and fixation will result in a quicker procedure that we believe will reduce the risk to the patient and cost to the hospital.

We will be demonstrating the product for the first time at the upcoming North American Spine Meeting in San Francisco, November 11-13.

The 2009 interbody fusion market in the US is estimated to be more than $950 million. According to Millennium Research, the ALIF market represents the largest segment of the inner body market with an estimated 2009 revenue opportunity exceeding $350 million.

In August we launched the Illico SE percutaneous fusion system to the market. This system and accommodation with the Illico retractor which was launched last year completes our lumbar MIS portfolio and allows us to compete in the fast-growing MIS segment of lumbar fusion. As you recall, in the second half of 2008 we brought on a number of new distributors that have substantial amounts of MIS business and we are pleased that we can now offer an elegant and simple solution that will allow them to convert that business to Alphatec Spine.

While we saw modest revenue contribution from Illico SE in the third quarter, we are encouraged by early trends and uptake among surgeons and expect demand for the product to accelerate in the upcoming months.

Our ProFUSE demineralized bone scaffold provides us with a substantial growth opportunity. Our proprietary VIP packaging allows for rapid uniform hydration of the bone scaffold with any liquid. Once hydrated, ProFUSE can be squeezed and formed much like a sponge and is designed to fit compactly inside our peak and allograft spacers.

At [NAS], we will be demonstrating for the first time the unique advantage of ProFUSE in the fusion process as a result of Wolff's Law. According to Wolff's Law, bone responds to being in a loaded environment by remodeling new bone in the area under load.

ProFUSE provides for consistent bone to bone endplate contact which allows for direct load sharing between the patient's natural bone and ProFUSE. This load sharing environment should then result in improved bony incorporation of the graft and increased fusion as the bone remodels.

We think this can be particularly useful in surgical procedures where certain products such as BMPs are contraindicated.

ProFUSE provides our sales force with an opportunity to add additional revenue per procedure. When our spacers are used, ProFUSE adds potentially $1,000 per revenue -- of revenue per procedure.

In the second quarter, we secured the distribution rights to a tissue-based [embiva] wound covering product initially called AmnioClear. We have rebranded the product Amnio Shield and sell it under our own private label. We feel as though Amnio Shield better describes the unique aspects of this tissue, which is derived from the inner lining of the placenta, an area that is called the amnion. The amnion has natural anti-adhesive immunogenic and anti-inflammatory properties and has been used for decades were corneal repair as well as a protective wound covering.

Two recently published animal studies, one in the European Spine Journal and the AATB which is the American Association of Tissue Banks support the use of amnion tissue in the spine as an anti-adhesion and anti-inflammatory barrier.

Intuitively, adhesions likely play some role in recurrent pain following posterior lumbar spine surgery. It is estimated that over 20% of patients undergoing these procedures experience failed back syndrome. These complications can require the surgeon to reenter the surgical site and remove the adherent fibrous tissue, a costly and time-consuming process with inherent risks to the patient.

The European canine laminectomy study showed significantly reduced periepidural scar formation and reduced recruitment of fibroblast to the surgical site when amnion was used during the procedure as a wound covering.

Last week, we announced the execution of our distribution agreement with the ETEX Corporation to distribute its EquivaBone and CarriGen products in the US and Europe, excluding Spain. ETEX is a leader in bone biology and biomaterials and has developed a proprietary nanocrystalline calcium phosphate-based platform of products that promote the repair and regeneration of bone.

EquivaBone is a proprietary combination of demineralized bone matrix and nanocrystalline calcium phosphate that sets hard in vivo and is FDA cleared for use in posterior lateral spinal fusion. These unique product delivers both osteoinductive and osteoconductive properties.

With hard setting characteristics, the material will stay in place once set in surgery. Alphatec Spine will begin immediately distributing EquivaBone in the US.

CarriGen is a synthetic bone substitute utilizing the same proprietary nanocrystalline calcium phosphate technology that is found in EquivaBone. The 510(k) for this product is currently under FDA review. As a pure synthetic, CarriGen has the ability to set hard with strength levels comparable to that of cancellous bone.

CarriGen has high porosity which allows it to absorb saline and/or blood when it is mixed with CarriGen. Alphatec Spine expects to distribute CarriGen in the US and Europe in the first half of 2010.

Additionally, pursuant to the distribution agreement we signed with ETEX, they have granted us rights of first negotiation with respect to nonexclusive access to future proprietary synthetics that have a variety of potential applications ranging from posterior lateral fusion to the treatment of vertebral compression fractures.

Next, I will discuss our second growth driver initiatives addressing the aging spine. We believe that throughout the last year and a half, we have successfully positioned Alphatec as the market leader in providing solutions for the aging spine.

We invested heavily in research and development to in license developing new and innovative products to treat pathologies of the aging spine. We continue to expect that the majority of these products will not make significant contributions to our revenues until 2010 and thereafter. Key products addressing the aging spine that I will discuss are OsseoFIX, OsseoScrew and Helifuse, Helifix.

One of our key aging spine initiatives is the OsseoFIX spinal fracture reduction system. We are pleased to announce that in third quarter we began enrollment in our OsseoFIX 510(k) clinical study in the US. This is in line with previous expectations.

We expect to enroll 100 patients at 15 clinical sites with a 12-month follow-up. We currently have eight out of the 15 sites up and running and expect all sites to be enrolling patients by the end of the year.

As a reminder, we began the commercial introduction of OsseoFIX in Europe in 2009 and year-to-date. As of the quarter end we have treated over 300 patients representing more than 400 vertebral levels. This is up from the 200 patients we reported having been treated as of the end of the second quarter.

We are enthusiastic about the strong initial response to OsseoFIX and look forward to continued uptake of the product.

As many of you may recall we had originally hoped to submit the 510(k) for OsseoScrew by the end of March 2009, but we pushed out our timing to conduct additional testing. We are pleased to announce that the OsseoScrew 510(k) was filed with the FDA at the end of June. We expect to receive CE Mark clearance in the fourth quarter of 2009 and will launch the OsseoScrew, together with our Illico SE MIS system, in Europe in the first quarter of 2010.

We are currently in discussions with the FDA regarding the OsseoScrew 510(k) submission and we responded to the FDA's original questions back on October 22.

We continue to work on expanding our pipeline for the aging spine and will be highlighting Helifix which we acquired earlier this year from Helix Point, LLC at NAS. We anticipate applying for a CE mark for Helifix in the first quarter of 2010 and launching the product in Europe in the first half of the year.

Helifix and Helifuse are both designed for the treatment of lumbar spinal stenosis, which is the leading cause of spine surgery in patients over 65. Helifix, which is a non-fusion product, will be the first percutaneous self-distracting interspinous implant on the market. Helifuse, which is a fusion device, will have the same MIS and self-distracting features with the additional locking capabilities that affix it to the spinous process to facilitate fusion. We currently plan on launching Helifuse in the US market in the second half of 2010.

In terms of US distribution at the end of the third quarter, we had over 90 total distributor organizations in the US which we believe represent 267 individual sales representatives. We remain committed to our goal in 2009 of achieving 85% exclusivity among our distributors.

Finally, I will discuss our fourth growth driver -- international expansion. We continue to expand internationally. In the third quarter, we recorded $1 million in revenue from Europe and $5.6 million from Asia.

We are encouraged by early interest in and the uptake of OsseoFIX in Europe which has, in a short time, driven new distributor relationships and increased surgeon adoption of all of our products. We are proud to have just reported our ninth consecutive quarter of record revenue growth and our third consecutive quarter of positive-adjusted EBITDA.

We believe that through the strength of our core product offering and distribution network, we will continue to expand both our revenue base and market share. We have created a platform to support the vision at Alphatec of being the leader in aging spine.

Now I'd like to turn the call back over to Peter to discuss the third quarter financial results. And I will conclude with an update on 2009 product initiatives and financial guidance.

Thank you, Dirk. The following remarks are about our reported financial results for the three months ended September 30, 2009.

Consolidated revenues for the third quarter of 2009 were $32.7 million, an increase of 26.6% from the $25.8 million reported for the third quarter 2008. US revenues for the third quarter 2009 were $26.1 million, an increase of 21.4% from the $21.5 million reported for the third quarter of 2008.

Asia revenues for the third quarter 2009 were $5.6 million, an increase of 44.5% from the $3.9 million reported for the third quarter 2008. European revenues for the third quarter 2009 were $1 million, an increase of $500,000 from the $500,000 previously reported in the third quarter 2008. Deferred revenues recorded on our balance sheet as of September 30, 2009 were $2.1 million, of which $1.2 million relates to our European distributors.

Consolidated gross profit for the third quarter 2009 was $20.8 million, an increase of $4.1 million over third quarter 2008 of $16.7 million. The third quarter 2009 gross margin of 63.7% was lower than the third quarter 2008 gross margin of 64.7%. The US gross margin in the third quarter of 2009 was 68.9%, an increase of 1.1 percentage points over the 2008 third quarter US gross margin of 67.8.

The overall decrease in gross margin was primarily due to increased European and Asian sales mix, which have a lower gross margin and higher instrument depreciation expense, partially offset by decreased royalty expenses and improved manufacturing efficiencies.

Total operating expenses for the third quarter 2009 were $21.5 million, an increase of $300,000 compared to the third quarter 2008 of $21.2 million. The increase in third quarter 2009 was primarily due to increased sales and marketing expenses to support revenue growth, partially offset by reduced in-process food, research and development expenses.

Research and development expenses for the third quarter 2009 were $3.6 million, an increase of $200,000 compared to the third quarter of 2008 of $3.4 million. Sales and marketing expenses for the third quarter 2009 were $12.6 million, an increase of $1.9 million compared to the third quarter 2008 of $10.7 million. The increase is primarily due to an increase in sales commissions expenses related to the increased US sales volume and increased sales expenses in Asia.

General and administrative expenses for the third quarter 2009 were $5.2 million, a decrease of $600,000 compared to the third quarter 2008 of $5.8 million. The net loss for the third quarter 2009 was $1.3 million, or negative $0.02 per share both basic and diluted compared with a net loss of $4.9 million or negative $0.10 per share both basic and diluted for the third quarter 2008.

The net loss of negative $0.02 per share represents a sequential increase of $0.11 per share from the second quarter of 2009. When excluding IP R&D expenses, it represents an increase of $0.02 per share or a 50% improvement over the second quarter 2009.

Adjusted EBITDA of $3.6 million was reported for the third quarter Phase IV 2009 compared to a negative $91,000 for the third quarter of 2008. Adjusted EBITDA of $3.6 million represents a 31% increase over the second quarter of 2009 of $2.8 million.

As of September 30, 2009, the Company had a $14.1 million position in cash and cash equivalents. The sequential decline on our cash position in the quarter was primarily due to one-time payments, mainly a litigation settlement, the OsseoScrew development milestone payment and a paydown on our working capital line of credit as well as continued investment in surgical instruments to support product launches in the quarter.

We are beginning to realize inventory efficiencies resulting from the realignment of our manufacturing operations and, more importantly, through heightened emphasis on receivable management, our US hospital DSOs dropped seven days in the third quarter compared to the second quarter of 2009. We are very pleased with the results of these internal measures and will continue to closely monitor our cash management efforts to ensure that we meet our stated 2009 guidance.

Now I would like to turn the call back over to Dirk.

Thank you, Peter. As you may recall, we set out this year to launch a number of new products in 2009, both addressing our core spinal product portfolio and addressing the aging spine market.

While we set an extremely aggressive target, the Alphatec team has risen to the challenge, and we are pleased that we are basically on track to meet the objective and have as of now launched 11 products either into beta or full commercial launch in the market. Our core product launches span the breadth of the offering.

I'm going to take a moment to talk about our exciting new minimally invasive ARC Portal system and GLIF technique, which we believe addresses a $200 million market opportunity in the US. The ARC Portal access system and instrumentation is our breakthrough access system that provides a far lateral approach to the spine with the patient in a natural face down position.

The G-Width technique, which is an acronym for guided lumbar inner body fusion, is designed to allow surgeons to perform a 360-degree minimally invasive procedure without the need for repositioning the patient. When augmented with posterior pedicel fixation, the ARC and GLIF are designed to reduce the overall length of the lateral lumbar procedure, thereby reducing operating room costs and trauma to the patient.

We recently initiated limited beta launch with the GLIF and our portal system for far lateral lumbar fusion procedures. We met our objectives and confirmed that the system works. The purpose of this beta launch was to validate the system in real operative conditions to make any necessary final changes prior to full commercial launch.

We made minor modifications to the portal following our initial experience and have reinitiated the use of the product at the beta sites. We now expect to make our full market introduction in the first quarter of 2010.

In terms of financial guidance for 2009, we are reiterating our guidance of annual revenues of $128 million to $130 million and at this time are comfortable with the high end of the range. We are reiterating our annual 2009 adjusted EBIDTA of $12.5 million to $14.5 million.

As Peter mentioned in his financial comments, the third quarter gross margin of 63.7% was below the 64.7% reported in the same period in 2008 and slightly below our expectations. While our overall sales reported for the third quarter were in line with expectations, the US international mix was weighted towards international sales, which negatively impacted our gross margin. This was attributed to lighter than expected case volume in July and August reflecting a slower seasonal trend and a slight delay in the launch of the ILLICO SE.

We are pleased that case volume picked up significantly in September and has remained strong through October. ILLICO SE volume has picked up strongly since the launch and is now contributing to sales growth.

We continue to expect gross margin expansion over the next two years, driven by manufacturing efficiencies, product mix, and new product launches and re-designs that are intended to reduce commitments to third parties.

For 2009 gross margin, we now anticipate a range of 64% to 65% for the full year, which compares favorably to the 63.9% margin we had for the full year 2008. While we are pleased with our third quarter results, we continue to invest significantly in future development initiatives and product launches, which negatively impacted our EPS results in the quarter.

We expect fourth quarter EPS to be breakeven or slightly positive.

The Board of Directors and I are extremely pleased with the performance of the entire Alphatec team. We have a team of talented and dedicated employees that exhibit a can-do attitude every day. This team has excelled in every way during the third quarter.

We believe we are well-positioned for the future and continue to drive growth and shareholder value going forward.

Lastly, we hope that many of you are coming out to San Francisco to attend the North American Spine and Society Conference. Many of the products we discussed on today's call will be showcased at our booth.

We are also hosting an investor breakfast on Wednesday morning at 7:30am at the Intercontinental Hotel in San Francisco, where we will showcase several of our new products including hands-on demonstrations and information sessions. We look forward to seeing you there.

Thank you and, now, I'd like to open the call up for your questions.

(Operator Instructions). Bill Plovanic. Canaccord Adams.

First, on the OsseoScrew, you said that you submitted to the FDA and received questions back. Can you give us a little color on the types of questions you're receiving on that?

It wasn't anything that we hadn't really anticipated. The primary one related to bony integration, because the screw is slightly different then a traditional screw, they wanted to know that that bone would actually grow around the screw which we showed them histology slides from an animal study that we had done.

The second one had to do with retrievability post-surgery. And we showed them both immediately at the time of surgery it could be undeployed and removed and also after six weeks that it could be undeployed and removed. That study is continuing and we will give them additional results after they're in.

Do they need those additional results for the approval?

They haven't asked for them at this time.

Do you think that this will get approved before year end or early January-ish?

We're hopeful. We think that we addressed their questions in a very substantive way.

We're hopeful. They have 30 days basically to get back to us from the 22nd so we should hear right before Thanksgiving. Always, the holidays make that a little more difficult as things definitely slow down at the FDA but I think -- worst case -- certainly early first quarter.

On GLIF, could you give us some color on the changes that you made and is this the final tweak and you're ready to go, start manufacturing instrumentation sets?

We've actually already started manufacturing the instrumentation sets. What we found in the initial surgery was with -- and a lot of time lumbar surgery is done on people who are obese and one of the first patients that we got was extremely obese. And we saw that the portal was a little bit too short for that type of scenario and wouldn't stay in place so we actually lengthened it a little bit and then also added a couple of pins to it to lock it down into the vertebral body.

That's been done, we confirmed it in a lab a couple of weeks ago. And so we believe we've got the final solution now. We'll do some more cases in the beta. And then, the idea is to launch basically right after the beginning of the year.

On the adjusted EBITDA guidance for the quarter, you did $3.6 million. If I look at the guidance you'd have to do between $4.7 million and $5.7 million in the fourth quarter.

It sounds like you're probably going to be more towards the lower end of that given the EPS guidance. Is that fair?

We don't comment on the range. But we are very comfortable with the guidance we have and with the revenue increase that we expect to continue growing in the fourth quarter.

Yes, we see a reacceleration of the US growth rate. We're very pleased with September and October. And that should help that quite a bit.

I know you said you'd be 85% exclusive by year end. Can you give us an update on where the number of distributors are today, the number of agents, reps and your exclusivity to date?

Yes. We're about -- over 90 distributor agencies, which represents about 267 sales people and exclusivity I think is around 75%.

Yes, in the mid 70s.

Matt Dolan. Roth Capital.

A follow-up on the distributor. Can you take that point one step further and give us your targets? I know we've talked about 385% in the past. When are you comfortable with getting there so we can factor that into growth expectations?

In the third quarter we really were working on consolidating a lot of the distributors that we had added earlier in the year. We didn't see a large growth in the distribution network. We do anticipate that also reaccelerating this quarter and going into the first quarter.

So, I can't give you an exact number because it really depends on when people sign up. But we are in negotiation to add to the distribution group and increase that number here in the fourth quarter and the first quarter of 2010 as well.

You should start to see that number go up when we report the fourth quarter.

Maybe a longer term type growth question. You had a number of positive variables here -- distribution expansion, new products this year, probably some MIS conversion competitively, and you continue to grow well above the market growth rate.

Can you talk about how things are tracking and your expectations? Do you think a double market growth rate is something that you can sustain, given the pipeline you put out there this year?

Absolutely. I think double market growth rate just with our core products is absolutely feasible.

We're very excited about the Solis. You know, standalone inner bodies have picked up very dramatically in the last year with a couple of other product introductions. We fasttracked that from the time we acquired the IP in March. We were, basically, in six months went from concept to a fully tested and submitted product.

And we think that has some very exciting opportunity for us next year in the US in terms of core products. And our growth rate really still at this state reflects very little in terms of aging spine. I think that'll start to come into play in 2010 once we get approval for OsseoScrew.

On the aging spine, you're getting some good experience in Europe with OsseoFix. Do you expect to see any clinical data published out of that experience that you're getting here in the near term? If so, can you describe what forum that might be presented in?

Getting data published obviously always takes some time. We have or we are in the process of initiating several studies in Europe to gather some good scientific data.

For instance, at NAS, we actually have several European surgeons presenting in the booth. And there are a couple posters on OsseoFix. There are some surgeons that will be presenting their cases for us and the results are quite exciting and very encouraging.

The Q4 guidance I think would require about a 67% gross margin in Q4. It's still a pretty good tick up. Is that just a mix issue cleaning itself up? And what do we think about your ability to continue to expand those gross margins into the next year or two?

I think in the near term for the fourth quarter we're expecting the margins to be in the 64% to 65% range. We are comfortable with the EBITDA guidance for the fourth quarter, based on our expected sales growth and improvements in there.

The guidance for March and in the future periods, we do expect that to up-tick over time -- really through three areas; one is our continued development and production efficiencies, second is abatement of the royalty expense we have, third is through new product launches that inherently have a higher margin profile.

Glenn Novarro. RBC Capital Markets.

Two questions. Specifically to your US business, you mentioned earlier that the US business was impacted by seasonality. We cover a lot of other spine companies and its looked like the US for some of the other spine companies was quite strong.

It appears to me that the US market did well in the third quarter. I'm wondering if you can clarify a few things.

One was, for Alphatec, was your business impacted by the overall market or was it Alphatec-specific? If you can clarify and provide a little bit more there.

The second question has to do with the enrollment for the OsseoFix in the US. You have eight enrolling centers. How many patients have you so far enrolled in that trial?

Our growth rate in the third quarter for the US was 21%, which we think still compares very favorably with the overall market as being quite strong. I would say that the market has not necessarily gone down. We did have, within our surgeon group, a decrease in just number of procedures that we think was seasonal -- related to vacations or whatever. We saw that pick up significantly.

The other thing is, we had obviously planned to launch the ILLICO SE about 30 days earlier then we actually did. And that had an impact obviously on the third quarter. We saw an immediate uptick but it wasn't near as much as we had originally anticipated, obviously, with the delay.

So, we feel very good about where our growth rate is going in the US and saw both in September and October, again, a very nice pick up back to the levels that we had anticipated.

In terms of OsseoFix, getting these sites up and running we had 15 sites trained prior to getting the nod from the FDA to start enrolling patients. But then you still have to go through the IRB process and a lot of hurdles to get these sites. So that's been quite a task.

So, as I mentioned we have eight out of the 15 fully up and running and looking for patients. As of this date we have about a handful of patients that have been actually enrolled into the trial. So we're still very much at the beginning stage.

On OsseoFix for the 100 patients, what's your best guess at this time as to when you can get enrollment complete? The reason why I'm asking is. obviously with 12 months follow-up and then we've got to take into consideration FDA review time, it looks like this is probably a 2012 launch. Just your thoughts there.

I don't know if it's going to be 2012 but it's certainly 2011. As I mentioned, everything takes longer than you think it's going to and certainly getting these sites up and running has taken us a little longer just getting through all the IRB processes.

Now that we have more then half of the sites up and running, we hope to accelerate the enrollment process. This is a very prevalent procedure so we don't see a lot of problems getting the enrollment done.

So we're hopeful that certainly, first, we'd like to see it completed in the first quarter. It might be first half before we've got all 100. You actually have to do more than 100 because you have some fall out.

So, certainly by the first half. I think it's still late 2011. I don't believe that it pushes into 2012 for US approval.

One more follow-up. I'm assuming pricing, price per case was stable to up in the quarter. Is that fair?

That's correct.

Bud Leedom. Global Hunter Securities.

One question related to OsseoScrew. Given the specificity of the questions from the FDA, would you believe that a more formal clinical pathway requirement is off the table at this point?

I don't know that you can ever say anything is completely off the table. But we feel very good about the answers that we provided, and we had a lot of substantive data to support the answers that we gave them.

We feel very good about it. We're hopeful that we will get approval without any other significant questions or requirements to do a clinical.

Peter, do you have a CapEx figure for the third quarter?

In the third quarter, we spent approximately $1.5 million for surgical instrumentation to support the roll out of the ILLICO SE. Our core PP&E was several hundred thousand dollars, it was relatively low. Most of our core PP&E capital was front end loaded for the year as we had consolidated and moved our manufacturing facility into one site back in March and April.

At this time, with no further questions I'd like to turn the conference back over to management for any additional or closing remarks.

Thank you. Our mission is to be the leading independent full line spine company with a focus on solutions for the aging spine. And our goal is to improve the aging patient's quality of life.

The aging population is a global phenomenon. It's estimated that by 2030 over 1 billion people worldwide will be over the age of 65. This represents a tremendous opportunity for Alphatec going forward.

As surgeons continue to see a shift in their practices to increasingly older patients, we plan on being their spine company of choice, worldwide. As such, we have invested heavily in proprietary products that will outperform current standards in aging patients which position the Company for market leadership position in what we believe represents the fastest growing segment of the global spine market.

Thank you very much for your time this morning and we look forward to seeing you in San Francisco.

That does conclude today's conference, ladies and gentlemen. We appreciate everyone's participation today.