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BBLG: Bone Biologics

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By Brad Sorensen, CFA

NASDAQ:BBLG

65 million Americans reported a recent case of back pain in the past year, while 16 million have what would be considered chronic back pain. According to the Georgetown Health Policy Institute, health care costs and indirect costs due to back pain are more than $12 billion per year. No doubt a big problem, and that’s just in the US, but what is being done about it?

That’s where Bone Biologics (NASDAQ:BBLG) comes in. Bone Biologics, in partnerships with leaders in the industry, is building on research done on the NELL-1 protein and has produced results that show a more targeted and more cost-effective solution that produces a more rapid rate of bone regeneration and is taking aim at the spinal fusion market. Spinal fusion is a procedure meant to reduce back pain in certain circumstances accounting for $6.3 billion worth of spending worldwide (according to Grand View Research). It is estimated that lumbar fusions are performed over 350,000 times a year in the US and as part of the over 1.2 million spinal surgeries performed each year according to the National Center for Health Statistics.

The Pain of Spinal Fusion

Spinal fusion surgery is performed with the goal of stimulating bone growth between two or more vertebrae using bone grafting. Once the new bone forms, the vertebrae will be linked together, limiting movement between the segments. Conditions that may be relieved with spinal fusion surgery include:1

- Degenerative disk disease

- Spondylolisthesis

- Spinal stenosis

- Scoliosis

- Fractured vertebra

- Infection

- Herniated disk

- Tumor

Spinal fusion surgery is extensive and can take months to recover from and has shown to have mixed results, often based on the success of the bone growth process between the two vertebrae. The major challenge in making spinal fusion procedures successful is the effective regeneration of bone. The current dominant technology in the arena is rhBMP (Recombinant Human Bone Morphogenic Protein), which has shown great success (avoids need for tissue harvesting and induces rapid bone formation) but is also accompanied by some challenges inherent in the process, including: not target specific, inflammation, uncontrolled burst release, and ectopic bone formation.

The NELL-1 technology aims to address those challenge and has been reviewed by more than 45 Peer Reviewed Publications and been tested in three animal species (rodent, sheep and nonhuman primate) and shown to be effective and the potential to address the above challenges by:

- Inducing rapid, controlled, guided bone growth that avoids abnormal bone formation

- Forming bone in a target specific fashion later in the cascade without inducing inflammation

- Not initiating bone formation in surrounding tissue

Additionally, systemic administration of NELL-1 in mice showed a marked anabolic effect, which could lead to a potential osteoporosis therapy.

Bone Biologics Aiming to Ease the Pain

Bone Biologics has entered into strategic partnerships and is testing the NELL-1 protein discussed above that has been shown to speed the rate of bone regeneration and increase the rigidity of the bone created in an effort to improve the results of the spinal fusion procedure and quicken the recovery time. The genesis of this endeavor was in 2004 when a couple of professors founded a company with the proprietary technology that has been validated in sheep and non-human primate models to facilitate bone growth. Fast forward to 2014, and Bone Biologics was formed to pursue potential commercial applications of this technology. This medical device company is focused on bone regeneration in spinal fusion using the recombinant human protein knows as NELL-1/DBM. The combination product is an osteostimulative recombinant protein that provides target specific control over bone regeneration. The protein, as part of the UCB-2 technology platform, has been licensed exclusively to Bone Biologics for worldwide application by the UCLA Technology Development Group (UCLA TDG). Bone Biologics pays an annual maintenance fee of $10,000 to UCLA TDG as well as various payments based on milestones reached and royalties on licensed products or methods that may result.

There have been various studies showing the effectiveness of the NELL-1 protein in bone regeneration in rats, a couple of which can be found here The osteoinductive properties of Nell-1 in a rat spinal fusion model - PubMed (nih.gov) and here Nell-1 Enhances Bone Regeneration in a Rat Critical-Sized Femoral Segmental Defect Model (nih.gov). The effectiveness of the protein is just one piece of the puzzle. A company has to be willing and able to take it through the testing gauntlet in order to get it approved for human use and there has to be a way to get the protein into the spine and adhere to the vertebrae. Bone Biologics appears to have been drifting along since 2019, making little progress toward bring any viable product to market due to funding constraints. But a recent capital raise is demonstrating things are getting back on track and bringing the NELL-1/DBM solution to market is in sight.

One potential provider of the DBM material needed is the Musculoskeletal Transplant Foundation (MTF), which has been a long-time investor in Bone Biologics and could license the company to use their proprietary bone matrix (DBX) to deliver the protein to the impacted area. We view this relationship as one of the key developments for Bone Biologics. As a respected nonprofit in the biologics industry with over 30 years of experience, MTF has a proven track record of bringing products to market around the world and has worked with authorizing organizations from numerous countries. Their decision to invest with Bone Biologics, in our view, speaks to the confidence that they have in both the product and the management team that is in place to shepherd this project to completion.

The combination product is expected to be purified NELL-1 mixed with 510(k) cleared Demineralized Bone Putty (DBM) recommended for use in conjunction with the applicable hardware consistent with the indication. The NELL-1/DBM Device will be comprised of a single dose vial of NELL-1 recombinant protein mixed with DBM putty in the operating room. A vial of NELL-1 plus DBM will be sold in a convenience kit with a diluent and a syringe of 510(k) cleared demineralized bone (DBM putty) produced by MTF. A delivery device will allow the surgeon to mix the reconstituted NELL-1 with the appropriate quantity of DBM Putty just prior to implantation. Since committing to this process and bring in new leadership Bone Biologics has already surpassed four milestones:

- Demonstrating a successful small laboratory scale pilot run for the manufacturing of the recombinant NELL-1 protein in Chinese hamster ovary cells

- Validation of protein dosing and efficacy in established large animal sheep models pilot study

- Completed pivotal animal study

- Filed for a Pilot clinical trial outside the US

And now Bone Biologics has received Human Research Ethics Committee (HREC) approval for a multicenter pilot clinical trial to evaluate NELL-1/DBM in 30 patients in Australia with degenerative disc disease. Additionally, UCLA TDG and Bone Biologics received guidance from the FDA that NELL-1/DBM will be classified as a combination product with a device lead—meaning the PMA approval process will likely be less onerous than if it was a pure drug or classified as a drug lead.

Process Picking up Speed

The pursuit of ultimate approval by the FDA for human use was slowed last year due to funding issues. As a research company, with its focus on one product and no revenue at this point, investor money was running low, curtailing activity at the company. But Bone Biologics recently underwent a capital raise that netted $6.7 million and moved BBLG to the NASDAQ exchange. That should get the company through the next 14 months—with estimated operating expenses of $6.6 million. We will be watching these expenditures carefully, as it represents a giant leap from the $340,000 spent in the year ended December 31, 2020. Their potential eventual success will continue to depend heavily on either third parties performing manufacturing and research function or bringing aboard some in-house people to perform some of those critical functions. Additionally, they will need more funding, as most companies at this stage will, with the company estimating it will need $8-$10 million in further funding to complete first in man studies. They will ultimately require an additional ~$27 million to achieve FDA approval for spine interbody fusion.

Opportunities

We view Bone Biologics’ ability to obtain additional funding and ultimately launch a successful product as more likely than not at this point, although it is certainly not assured. But the market opportunities that exist make this an intriguing situation. Within the $3 billion worldwide orthobiologics market, the bone growth product market is estimated to be roughly $630,000,000 and we estimate a continuing 5% annual growth rate of that market—although if the process became less onerous the demand could conceivably accelerate. Bone Biologics is targeting FDA approval in 2027 and if they can achieve that we would expect, based on current information, the company to earn its first annual profit in 2028.

The spinal fusion market is their current target and we’ve discussed the opportunities there but there are also several other medical areas that the NELL-1/DBM product could be used including:

- Spine implant—this is the largest market for bone substitute product—representing more than 70% of the total US market according to Transparency Market Research.

- Non-Union Trauma Cases—while the majority of fractures heal without the need or osteosynthetic products, bone substitutes are used in complicated breaks where bone does not mend naturally. Management believes that NELL-1 is expected to perform as well as high-priced growth factors in this market.

- Osteoporosis—The medical need to find a solution to counter a decrease in bone mass and density is a major medical challenge. The systemic us of NELL-1 to stimulate bone regeneration throughout the body thereby increasing bone density could have a very significant impact on the treatment of osteoporosis.

There are still many steps to take for Bone Biologics and the approval process is somewhat unpredictable and BBLG is firmly in the speculative investment category but for those with a higher risk tolerance a company with a promising solution to a widespread problem, new leadership, great partnerships and fresh funding may be worth a look.

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1. American Academy of Orthopaedic Surgeons