Liquids that grow bone in humans? Sounds crazy but they are now commonly used in all sorts of Orthopedic applications. In addition, two weeks ago the FDA approved another product called Augment from Biomimetics (http://www.biomimetics.com/). Biomimetics was purchased by Wright medical in 2013.
Here is a little history. The “gold standard” in Orthopedics has long been bone graft harvested from the patient’s Iliac crest. The Iliac Crest is the top of the Illium. It is part of the pelvic bone that you can feel along your waist line. To harvest the graft the surgeon would make an incision over the bone and cut into the illium. Then scoop out bone to be used during the procedure.
Often the patients would complain that the graft sight was more painful than the surgery itself. Complications associated with this procedure include infections and continued pain. This was a problem that really needed a modern solution. Then in 2001 and 2002, the FDA approved the first liquid proteins for human use.
They were BMP-7 (Stryker) and BMP-2 (Medtronic) respectively. These BMP’s or “bone morphogenic proteins” trigger the body to grow bone where it is needed when implanted at the time of surgery. BMP-2 marketed under the brand name “Infuse” was a blockbuster product that quickly achieved $1 Billion in sales within a few years. Conversely, BMP-7 marketed under the brand name OP-1 struggled with a reduced use labeling from the FDA. It was sold off to Olympus Biotech and eventually they stopped producing it all together and is no longer available.
So the recent approval of Augment is the first new bone growing liquid approved in years. However, it too had a bumpy road getting through the FDA. After an extensive, expensive but well done study, the product was recommended by the Orthopedic panel that precedes the FDA approval. Typically, this means you are in! During this time, Medtronic was coming under fire for possibly hiding the cancer risk associate with Infuse during their trial.
This set off alarms at the FDA, so they were very careful to review this part of the Augment study with extra scrutiny. They decided that the product needed additional study and stunned Biomimetics with a “not approvable” decision.
During the run up to the FDA decision Biomimetics received an offer from Wright Medical to be purchased. This offered the insiders some hedge against the FDA risk. Wright offered the company $380 million, or $12.97 per share. However, the shareholders had to wait for half of their money.
They received an upfront payment of $6.47 per share. In addition, each BioMimetic shareholder received shares in a new tracking stock ticker WMGIZ which entitled its holder to receive additional cash payments of up to $6.50 per share, which would be payable upon receipt of FDA approval of Augment® Bone Graft and upon achieving certain revenue milestones. The payments were structured as follows:
- $3.50 would be paid out per share upon FDA approval of Augment® Bone Graft;
- $1.50 per share upon the achievement of $40 million in trailing twelve month sales for all products contributed by BioMimetic;
- $1.50 per share upon the achievement of $70 million in trailing twelve month sales for all products contributed by BioMimetic.
On the day the FDA reached it’s decision the stock dropped from around $3 per share (shareholders believe the approval was coming) to near zero as everyone rushed to sell their shares. It would appear they were done. Or were they?
Wright medical is a big company with deep pockets. They decided to retrench with the FDA and asked them to review the data again. They felt they could address the FDA’s concerns without doing another big study. After trading at 20 cents or so from August of 2013 to March of 2014, the FDA announced they would give Augment one more look before sending them back to a clinical trial.
The stock jumped 200% on the day this was announced and continued to rise over the next few months. Investors speculated that they just might pull it off even though an FDA reversal had only occurred a few times before in its history. On October 27th, the FDA approved Augment for use. The stock, trading around $1.88 per share shot up to $4.50.
On the same day as the approval, Wright agreed to be sold to Tornier for $3 billion. Assuming the product is as good as the study suggests the tracking stock will finally top out at $6.5 as the final milestone payments are paid out.
An amazing story that ends well for shareholders and I believe patients too. These liquids are a vast improvement for those undergoing surgery that requires a bone graft procedure. For once it seems that everyone wins.
by Tim Graves