Alphatec Holdings Inc (ATEC) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Alphatec second quarter fiscal year 2011 results conference call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I'd now like to introduce your host for today's conference, Mr. Michael O'Neill. You may begin.

Thank you, and good afternoon, everyone. Welcome to Alphatec Spine's conference call to discuss our first quarter ended June 30, 2011 financial and operating results. With me today are Dirk Kuyper, President and Chief Executive Officer; and Ebun Garner, our General Counsel.

By now, you should have seen a copy of today's press release announcing Alphatec Spine's second quarter 2011 financial and operating results. If you do not have a copy of today's press release, you can find it in the Investor Relations sections on our website at www.alphatecspine.com.

Before we start, there are a couple of items we would like to cover. I'd 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 in our Annual Report on Form 10-K, subsequent quarterly reports in Form 10-Q and periodic filings in Form 8-K. These forward-looking statements are made by us 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 any portion of this conference call may only be used with our expressed written permission.

I'll now hand the call over to Dirk Kuyper, Alphatec Spine's President and CEO.

Thank you, Mike. Good afternoon and thank you for joining us today. This afternoon, I'll provide highlights of our operating performance from the second quarter of 2011, I'll then turn the call over to Mike who will provide a more detailed review of our financial performance and guidance for 2011, I'll then come back with closing comments and will open the call up for questions.

Before I begin, I'm pleased to announce that Leslie Cross has joined our team as the Non-Executive Chairman of our Board of Directors. Les recently retired as the President and Chief Executive Officer of DJO Global, a position which he's held since 1995. During his tenure at DJO, the company's revenues grew from $30 million to $966 million, with adjusted EBITDA reaching $262 million in 2010. I and the entire team are looking forward to working closely with Les, as we continue to establish Alphatec as a top five market leader and drive shareholder value.

I'm pleased with the overall revenue performance for the second quarter of 2011 and proud of the team at Alphatec Spine. We achieved revenues of $50.9 million, which represents growth of 12% over the second quarter 2010 revenues. In the US, we grew second quarter 2011 revenues by 17.8%, which significantly outpaced the growth rate of our peers and the broader US spine market. Our broad product portfolio combined with new products drove hospital and surgeon conversions to Alphatec Spine. This is a testament to the strength of our team that we can deliver in a challenging market environment and not only outpace the industry, but accelerate our growth rate from the first quarter.

We reported adjusted EBITDA of $2.7 million in the second quarter of 2011 and a net loss of $3 million or $0.03 per share. Excluding one-time inventory write-downs taken in the quarter, adjusted EBITDA would have been $5.4 million for the quarter or breakeven on a per-share basis. We were cash flow breakeven for the second quarter which puts us on pace to achieving our goal of being cash flow positive for the full year.

Although we're pleased with our revenue performance and our ability to be cash flow breakeven for the quarter, we are not satisfied with our US gross margin or EBITDA performance. We'll be working over the next few quarters to rectify this situation with a set of initiatives aimed at reducing our cost of goods sold. This includes insourcing currently outsourced manufacturing, focusing on the vital few products that most affect our success and driving other initiatives to reduce costs.

Our longer-term goal is to achieve a non-GAAP adjusted EBITDA margin in the 20% range. As an initial step of moving towards that goal, we implemented a 10% reduction in force in our US operations. Although this was a painful step, we believe it is the right first step in terms of fulfilling our commitment to improving our adjusted EBITDA margins and becoming earnings positive.

From a business perspective, we continue to focus and deliver on our strategic growth drivers at Alphatec which are product initiatives addressing the aging spine, MIS and biologics; the continued expansion of our core product portfolio; and expansion of our global distribution network.

Internationally, certain of our technologies such as OsseoFix, OsseoScrew and HeliFix continue to help drive new relationships, surgeon adoption and conversions. In the second quarter, procedures using OsseoFix in Europe were up 32% over the first quarter of 2011 with over 2,600 cases now completed since product launch. The product continues to gain traction as a vertebral body reconstruction implant and is being used in vertebral compression fractures, trauma and in tumor surgeries.

The unique structural scaffold allows a vertebral body to heal, while the implant maintains vertebral height. This is particularly beneficial in younger patients who have suffered a burst fracture in terms of preventing long-term collapse of the vertebral body and preventing the need for a multilevel pedicle screw construct to stabilize the index level.

Our focus is now on developing clinical evidence to gain a separate reimbursement code for OsseoFix in key markets and to launch a second-generation product in 2012. In the US, we are working closely with the FDA on the 510(k) study and are meanwhile continuing to enroll patients as we look to bring this exciting product to the US market.

OsseoScrew continues to gain momentum. As of the end of the second quarter, approximately 500 cases utilizing OsseoScrew have been performed. We recently had our first case in Asia, a severely osteoporotic woman was treated utilizing OsseoScrew with extremely positive results. We'll continue to expand the use of the product in other international markets as we get additional regulatory approval.

OsseoScrew is being seen as a go-to product for complex or long constructs, situations where compromised bone requires additional fixation and in trauma and revision cases. Although the actual number of cases done is still relatively small, the numbers are increasing by more than 50% per month. We're pleased with both the momentum behind the product due to its positive results and OsseoScrew's ability to pull through our entire product line into the hospital regardless of contracts or tenders due to its uniqueness.

We resubmitted our 510(k) for OsseoScrew to the FDA in June as planned and hope to hear back from the agency in September. Our resubmission addressed the concerns the FDA had with our original submission, both in terms of the predicate device that was used and retrievability of the implant.

HeliFix, our percutaneous device for lumbar stenosis, was used in numerous countries in Europe in the second quarter and it continues to gain momentum as a minimally invasive alternative to Coflex and X-STOP.

Leading up to EuroSpine in Milan and the North American Spine Society Meeting in Chicago, Alphatec will be launching four new products in our core and MIS product lines to the US and international markets, including a next-generation cervical plate, our Avalon occipital system, a MIS for such screw system called Raptor and outside of the US, we will be launching the next generation of Discocerv, the only ceramic artificial cervical disc on the market with improved packaging and a preloaded disposable implant applier. Discocerv has been implanted in over 7,500 patients since launch in 2006 and we believe that this next-generation device will accelerate our growth in this segment.

We launched the Alphatec Solus to a number of beta sites in the US and in Europe after regulatory approval and conducted a series of surgical procedures. The feedback led us to conclude that the instrumentation as designed did not meet our requirements for reliable deployment in the implants in all conditions, something we have not seen in any prelaunch testing. We halted our limited launch and have redesigned the identified components and expect to re-release Alphatec Solus to our beta sites towards the end of the third quarter. We expect to remain on track for a broader market release by the end of 2011.

While disappointed with the modest delay in the full product launch, we're encouraged to see the beta launch process work, which allowed us to incorporate changes that will substantially improve the performance of the product.

Within our biologics platform, we're pleased with the uptake of the PureGen Osteoprogenitor Cell Allograft. We have enrolled patients in all three of over post-market clinical studies of PureGen, an ACDF study, a Posterior Lateral Fusion study, and a Lumbar Interbody Fusion study. We expect to substantially complete enrollment in all studies in 2011. Early radiographic results continue to look promising.

We recently issued a press release relating to the untitled letter that was sent from the FDA to Parcell Laboratories regarding PureGen. In the letter, the FDA raised questions in connection with Parcell's position that the PureGen product is within the classification of human cell tissue and cellular or tissue-based products regulated solely under Section 361. Parcell Laboratories has responded to the FDA's letter with more complete information of the function of PureGen and why it believes it meets all of the criteria for being marketed under Section 361.

Alphatec, together with Parcell Labs, performed extensive due diligence, utilizing expert consultants in the field before coming to the conclusion that PureGen was within the definition of a 361 tissue. We're fully committed to working closely and collaboratively with the FDA to address the questions related to PureGen. While we cannot guarantee any particular outcome, we're encouraged that PureGen has been successfully implanted in more than 500 patients with no reported adverse events, complications or complaints.

Our final growth driver is our global distribution network. I've spent quite a bit of time in 2011 with our European sales and marketing team and I've come to a much keener understanding of the opportunities and issues that they face. The team is focused on delivering growth and the stability of the business in the last three quarters is a positive sign that we've turned the corner.

We've added sales resources in Italy, the UK and particularly in France. In addition to the sales team, we have also rebuilt the management team in our EMEA headquarters in France, with a new General Manager, Head of HR, Head of Regulatory Affairs and a new VP of Finance, as well as other key members of the team. We look forward to their contribution to the performance of the Company in the months and years ahead. We believe that with the management infrastructure in place, a broad and differentiated product portfolio, and a solid sales team that we will see accelerating growth in the balance of 2011 and into 2012.

In Latin America and Asia, we continue to grow and enhance our footprint with new distribution partners. In particular, we've added new regional partners in Brazil and we continue to build out our Latin American operations following our [CyberMed] acquisition.

In Asia, we continue to see robust growth and are working towards obtaining approval of Discocerv in China. Japan continues to be a solid contributor to our growth and the team there has delivered sequential record revenue in spite of the difficulties Japan has faced in 2011. We now hold the number four market share position in Japan and with the recent approval of our flagship MIS system, Illico, we see the growth continuing at a very strong pace.

We recently have held symposiums and category training sessions, both in Europe and Asia, with more than 160 physicians participating in the second quarter alone. Physician education and training is a key component of our international growth strategy and through the solid foundation established by Scient'x with programs such as INSPIRATION and BASIC'X as well as others, we're continuing to expand our commitment to education.

In the US, we are benefiting from the growth of our sales team. Several new distributors that were added late in 2010 are delivering solid growth in hospital conversions.

Lastly, there has been considerable discussion within the industry about physician-owned distributors, PODs, their legality and the role they play within the spine industry and more specifically speculation around Alphatec Spine's sales volume related to these entities. As a company that actually manufactures its spinal implants versus acting as a reseller, we have relationships with several stocking distributors in the US and most do not fall under the definition of a POD.

While we don't disclose individual customers or distributors, either by name or as a percentage of sales, the sales to entities with physician ownership that purchase both implants and instruments from us and resell them to hospitals are comfortably below a level of materiality in terms of its contribution to US and global revenues.

Alphatec Spine has an extremely comprehensive compliance policy for all stocking distributors in the US, which was developed with outside counselors that are healthcare compliance experts. This rigorous policy sets forth the business practices that any stocking distributor must follow before we will contemplate doing business with them. In many cases, we've chosen to lose business because a stocking distributor could or would not comply with our criteria. We welcome the Senate Finance Committee's and Office of Inspector General's issuance of more definitive guidelines with respect to physician-invested entities.

Alphatec Spine is committed to helping to drive down the overall cost of spinal surgery and we believe that certain of the physician-invested entities have the same goal and are doing so by focusing on the cost of the entire [episodic] care. We believe that those entities whose goals are aligned with reducing healthcare costs and have demonstrated their ability to do so while acting in compliance with our policy will not be in conflict with the intent of the Senate Finance Committee.

In conclusion, we're pleased with our topline growth in the second quarter of 2011 which was driven by new product contributions and our strengthening global distribution network. While we pursue approval for key differentiated products in the US and internationally, we expect to achieve ongoing revenue growth rates greater than the broader spine market.

I'll now turn the call over to Mike to discuss the second quarter 2011 financial results and to provide financial guidance for 2011. I'll then offer concluding remarks and open the call to questions.

Thank you, Dirk. The following remarks are related to our reported operating performance for the quarter ended June 30, 2011. To present comparative revenue results between 2010 and 2011, we are utilizing pro forma revenue schedules. The Company's pro forma revenues include Scient'x for all periods of 2010 and do not include IMC for all periods of 2010.

The press release issued today provides our geographic sales segment performance on both a GAAP and pro forma basis. On this call, I'll be discussing the actual performance of our business on a GAAP basis and if applicable, referencing pro forma comparisons.

As previously mentioned, consolidated revenues for Q2 2011 were $50.9 million, an increase of 12% from the $45.4 million reported for Q2 2010. US revenues for Q2 2011 were $34.5 million, representing 17.8% growth over Q2 2010. International revenues for Q2 2011 of $16.3 million were 1.3% over Q2 2010 revenues of $16.1 million. Strong performances in Japan and Asia-Pacific drove the growth in the international revenues, and we were pleased to see Japan deliver robust strength for the second quarter in a row.

Gross profit for Q2 2011 was $29.9 million, an increase of $1 million over Q2 2010 of $28.8 million. Q2 2011 gross margin of 58.7% was below Q2 2010 gross margin of 63.5% and below the gross margin of 64.3% recorded in the first quarter of 2011. Q2 2011 cost of goods sold includes $2.7 million in write-downs taken in the quarter. These expenses were partly the result of re-engineering the Alphatec Solus instrumentation and partly the result of recognizing certain field inventory losses. Excluding these write-downs, gross profit was $32.6 million, and our gross margin was 64% for Q2 2011.

US gross margins for Q2 2011 were 62.8% versus US gross margin of 71.4% reported in Q2 2010. Excluding the write-downs, US gross margin would have been 70.6% in Q2 2011. US gross margins are still being negatively impacted by reduced manufacturing activity that occurred during the first quarter of 2011 and continued into the second quarter.

The international gross margin of 50.1% for Q2 2011 increased modestly on a year-over-year basis from 49% in Q2 of 2010 and is attributable to regional mix and our sales performance in Japan and Asia-Pacific. On a sequential basis, our international gross margin improved to 50.1% from 47.5% in Q1 of 2011. Overall, and after adjusting for the write-downs, we've seen a modest improvement in gross margin performance versus the year-ago quarter and a modest decline sequentially versus Q1 of 2011.

Total operating expenses for Q2 2011 were $33.2 million, an increase of $1.3 million compared to Q2 2010 of $31.9 million. Decreases in R&D spending were more than offset by an increasing selling, marketing and general administrative functions, largely attributable to the expansion of our international direct sales and marketing organizations as well as the administrative expenses required to manage a global business.

Net loss for the second quarter 2011 was $3 million, or negative $0.03 per share compared with a net loss of $3 million, or negative $0.04 per share for the second quarter of 2010. Excluding the $2.7 million in write-downs taken in Q2 of 2011, net loss was $300,000 or breakeven on a per-share basis.

Adjusted EBITDA was $2.7 million in the second quarter of 2011, a decrease of $1.1 million, compared to the $3.8 million reported for Q2 of 2010. The decline in adjusted EBITDA was primarily due to the previously mentioned inventory write-offs, which when added back yield an adjusted EBITDA of $5.4 million.

Adjusted EBITDA represents net income or loss excluding the effects of interest, taxes, depreciation, amortization, stock-based comp and other recurring items such as restructuring expenses, IPR&D and transaction-related expenses.

Cash and cash equivalents were $21.8 million at June 30, 2011, which is a $300,000 increase from the $21.5 million at March 31, 2011. We remain focused on the working capital contributions of inventory and receivables to bolster our cash generation capabilities.

As of June 30, 2011, our net inventory position was $48 million, which represents 24% of annualized second-quarter sales. Even allowing for the adjustments that we have taken in the current quarter, we're pleased with the underlying reduction in inventory levels that we have seen as the year progressed. This will continue to be our focus as we move forward.

Our net accounts receivable at the end of Q2 2011 was $41.7 million, a decrease of 3.7% versus Q1 2011. With a sequential sales increase of 2.3%, we have witnessed a decrease in our DSOs in the quarter across all geographic regions.

As Dirk has mentioned, we're pleased with our revenue performance in the quarter, but we still need to focus our attention with respect to gross margin performance and our overall level of profitability. To that end, we have undertaken restructuring activities this week in the US that we expect to have a positive contribution as the year progresses.

We have eliminated approximately 10% of our US-based work force, representing an annualized 12-month savings of $3.8 million before associated restructuring charges of $400,000 that will be taken in Q3 of 2011. We are anticipating being able to realize approximately $1.3 million in savings this year before the restructuring charges. The reduction in force coupled with additional activities to focus our manufacturing capabilities and further expense reductions demonstrate that we're committed to profitability in the second half of the year.

For 2011 guidance, we are leaving our annual revenue guidance unchanged with a range of $195 million to $205 million. We are revising our adjusted EBITDA guidance to a range of $22 million to $25 million, approximately 11% to 12% of revenue and we anticipate generating positive cash flow for the full year of 2011. However, as a result of the change to the adjusted EBITDA range, full-year GAAP profitability in 2011 is unlikely.

Now, I'd like to turn the call back over to Dirk.

Thank you, Mike. We are continuing to broaden our reach through the launch of products in the US and international markets. In addition, we've invested in building out our infrastructure and sales organizations globally.

We're having notable success in Latin America, Asia-Pacific and in particular in Japan where we're optimistic that with the recent regulatory clearance and launch of Illico into the Japanese market, this could propel our growth rates even further. In Europe, we have a stable base from which to accelerate growth. We're harmonizing our product portfolio and supply chain operations and with our cost-cutting initiatives, we expect to leverage our P&L in the second half of 2011 and beyond.

As we move into the second half of 2011, we continue to believe that the US spine market has stabilized versus 2010, both in terms of reimbursement push back and pricing pressure. In the second quarter of 2011, we experienced a sequential decline of price of less than 1% from the first quarter of 2011 and low-single-digit decline year-over-year.

Consistent with our comments from the first quarter 2011 call, we expect the US spine market to grow in 2011 by 2% to 3%, which will be driven by increased procedure volumes and offset by continued modest pricing pressure. Internationally, we believe the European market will continue to be under pressure from potential structural healthcare budget reductions and we expect this market to be flat in 2011. We anticipate that Asia-Pacific and Latin America will continue to enjoy robust market growth of the high single digits. Overall, we expect the 2011 global spine market to be a more stable environment than it was in 2010.

We have re-accelerated our growth engine and continue to take market share, a testament to our team and our products. Our focus by the end of 2011 is to be able to achieve sustained profitability and free cash flow, while continuing to take global market share. We look forward to sharing our success with you in the quarters to come as we achieve our goal of being the leading independent spine company in the market.

Thank you. Now, I'd like to open it up for questions.

Thank you. (Operator Instructions) Our first question comes from Raj Denhoy. Your line is open.

Great. Thanks. This is [Amy] in for Raj today. Thanks for taking my question. I'd just like to start with PureGen first. If you all could provide a little perspective on what you're seeing out there in the field. I imagine the competition is out there in full force noting the FDA letter. Has that impacted the momentum of PureGen adoption?

Hi, Amy. That's a good question. At this point, certainly, we wouldn't have any reason to believe that they're not out there. We do have, I think, some strong arguments put together for the sales team as to what exactly we believe the letter means and what our position is. And so at this time, we're out ensuring that people understand what the real story is and not be impacted by that. We're not aware of any significant impact at this point and we believe that the product is speaking for itself.

Great, thank you. And then, just a quick question for Mike, on the adjusted EBITDA guidance, the $22 million to $25 million, is that -- that's backing out the inventory write-down from this quarter? (inaudible), okay.

Yes. We just took that as a chunk now.

Okay. I just want to make sure. And then, just regarding the fixed reduction in force, did that impact the sales force in the US or is that primarily back office and in-house functions?

It did not impact the sales organization based out of the office, it impacted all other organizations in the buildings here.

Okay, great. That's it from me. Thank you very much.

[Thank you].

Thank you. Our next question comes from Charles Chon of Stifel. Your line is open.

Great, thank you.

Hey, Charlie.

And so, just a follow-up on that 10% US work force reduction. So if we're not affecting the sales force, how big is the sales force at this point? Would you mind sharing the headcount number with us?

Hi, Charlie, it's Dirk. I don't believe that it's changed much from what we've said in the first quarter. It's still around in the US 270 to 280 feet on the street. What we're seeing is a definite increase in productivity from the group, but in terms of sheer numbers, it hasn't grown much.

Okay. So the growth that we saw during the second quarter, all of it was driven by just incremental contributions from new products and then increases in productivity and that's pretty much it, it's not as if we've been adding more feet to the street?

That's correct.

Great. And then, just in terms of gross margins, as we think about gross margins here going forward, well, first of all, what was the -- was there an FX contribution to gross margins, Michael?

No. It was more on the revenue side than it was on the gross margin side.

I see. So as we think about gross margins here going forward, should we think of step function like increases in gross margins as we exit 2011 and go into 2012?

Yes. I think it's rather than being a step function, I think what you're going to see is an in-line increase quarter-over-quarter. Obviously, we anticipate higher gross margins in the second half of '11 than we accomplished in the first half and we anticipate that continuing to roll through into 2012. So while I don't want to get into necessarily forward-looking comments on the actual margin numbers, we also anticipate some favorable mix impact in the overall margin picture. But clearly, we see a trend upwards in margin from here on out.

Great. Thank you.

Thank you. Our next question comes from Glenn Novarro of RBC Capital Markets. Your line is open.

Thank you. I had a question on the international revenues. So international revenues were up a little bit and it seemed like Japan, Asia was the biggest driver. So that tells me, Europe was down in the quarter. So a couple of questions on Europe. Were there -- was this a difficult comp, is question number one.

Number two, if it wasn't a difficult comp, is European softness a function more of the macro environment there or are you still having Scient'x integration issues? I'm particularly curious because you've got very good results at OsseoFix and OsseoScrew. So just a little bit more color on Europe would be great. Thank you.

You bet, Glenn. Hi, this is Dirk. It actually was a difficult comp. In the second quarter of 2010, we had a very large stocking order to one international distributor in Europe. And if you back that out actually, it looks basically flat.

What we're very encouraged about is second quarter of 2011 versus first quarter of 2011, we actually saw revenue increase in Europe. So we basically have three quarters of stable sales and are now actually starting to see an uptrend. So we believe that we're there.

In terms of the integration, we feel very good about where we were at. We've rebuilt the infrastructure. We've rebuilt the sales teams. So we think it's full steam ahead from here.

Okay. Thanks. I thought there was a tough comp there in Europe. And then, just one last question. Is PureGen a meaningful product for you right now? The reason I'm asking is what if the FDA comes back and says, we want you to reclassify the product or we may need a clinical trial. I'm just trying to think of the worst case with the FDA and if it does occur, is it meaningful to the Company? Thanks.

PureGen obviously has been an exciting product. It has a lot of positive momentum around it. But in terms of its overall sales impact year-to-date, it's actually quite modest still. So there would be an impact, but we don't feel that it's significant.

Okay. And when do we have an official sign-off from the FDA that they're comfortable with the current regulatory status of the product?

That's a very good question. We don't know. It's obviously August. A lot of vacations that tends to be sort of a low time at the FDA. So it could be quick or it could be after Labor Day before we get any type of indication. Obviously, in the meantime, we're aggressively pursuing strategies to meet with them and to work out what we believe should be the outcome.

Okay. Great. Thank you, guys.

Okay. Thanks, Glenn.

Thank you. Our next question comes from Bill Plovanic of Canaccord. Your line is open.

Great. Thanks. Good evening.

Hi, Bill.

Hey, Bill.

A couple of questions here. First, your commentary on PODs was very helpful. Just want to make sure your definition of material would be 10% or less, correct?

Material is generally defined as 10% and we are significantly below that.

Fantastic. Secondly, the $3.8 million in savings going forward, I think is that number right? And then, is that in G&A, R&D, marketing, kind of how do you split that out?

Yes, so the $3.8 million is, it's the full 12 months, is going to roll through cost of goods and it is going to roll through SG&A to a greater extent than R&D.

Okay. So basically, you took some people out of manufacturing, some probably out of G&A and a little marketing and very little out of R&D is the way to think about it.

Yes. And it's -- I don't want to get into the precise split.

Okay. And then, just I know there's going to be a lot of questions on PureGen, I mean, do you -- from now until end of the year, while you're in discussions with the FDA, do you pull off the throttle a bit until you get full clarity from FDA, a self-imposed restriction on selling? I mean, how does this position the product for now?

Well, our position right now is that we're actively responding to the FDA to try to answer their issue. We believe that our position was correct in terms of how we classified the product. The more clinical data we can develop, the better. And so, for us, we're continuing to push forward like we were before until we get more clarity from the FDA on their position.

Yeah, but to ask Glenn's question in a different way, I mean, if you look at your biologics year-over-year, what type of growth did you post in that vertical?

We had quite significant growth year-over-year.

Although realize that that isn't just...

Not just PureGen.

Yes, there are other products in there that are also doing quite well.

All right. That's all I had for now. Thank you very much.

All right. Thanks, Bill.

Thank you. (Operator Instructions) I'm showing no further questions in the queue at this time.

Okay. Thank you. The takeaways from the second quarter are that we continue to experience strong topline growth momentum particularly in the US. We were cash flow neutral in the quarter and excluding one-time events, adjusted EBITDA reached $5.4 million which was a 42% improvement versus the second quarter of 2010 adjusted EBITDA.

As we strive for operational excellence, we're taking the necessary steps to improve our cost structure and manufacturing efficiencies. With our broad and differentiated product portfolio, our new product pipeline and global distribution platform, we're uniquely positioned to take market share. Thank you and good afternoon.

Thank you. Ladies and gentlemen, this concludes the conference for today. You may all disconnect and have a wonderful day.