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BBLG: Bone Biologics Inks Important Supply Agreement

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By Brad Sorensen, CFA



In prior research reports we have expressed the importance we believed the partnership with the Musculoskeletal Transplant Foundation (MTF) was to Bone Biologics (NASDAQ:BBLG). Bone has been partnering with the Musculoskeletal Transplant Foundation (MTF), who has been an investor in Bone Biologics for several years. 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.

Up until recently, however, Bone lacked a formal supply agreement with MTF to supply Bone with demineralized bone matrix (DBM) needed for the progression of Bone’s NELL-1 technologies (the science details of DBM and NELL-1 are described below). The recent announcement from Bone management that the company has now entered into a supply agreement with MTF for the next five years is a significant one. The agreement will allow testing of NELL-1 to continue and, importantly for investors, again reiterates in our minds the confidence that MTF has in the possibilities of NELL-1. Though not a surprise due to the quality of the product we believe exists and the ongoing relationship between MTF and Bone, this recent formal agreement is undoubtedly a positive development.

BBLG also recently announced year-end 2021 financial results. There were no big surprises in the report that we found and nothing we saw to alter our relatively positive view toward BBLG and our current valuation of $8.00/share. As for the results:

• The company continues to earn no revenue and posted a modestly lower loss for 2021 in the amount of $1.6 million, down from $1.8 million. Unfortunately, that lower loss was largely due to research and development costs dropping from $340,000 in 2020 to $82,000 in 2021.

• We would be concerned about the drop in R&D expenditures at this stage of the company, but the drop due to a lack of funding has been resolved with a capital raise, giving the company room to expand research efforts, which management has said it plans to do.

• We are continuing to watch funding issues as, without revenues at this point, continued funding is critical to the potential success of the company.

• Cash increased from 0 at the end of 2020 to $6.7 million at the end of 2021, giving us more confidence in Bone Biologics’ ability to continue operations.

We are optimistic about the prospects of NELL-1/DBM receiving FDA approval and of the subsequent commercial demand for this spinal fusion technology. Additionally, we believe that, as the company obtains more funding and begins to recognize revenue from the spinal fusion procedures, other, profitable uses will be found. A technology that provides more efficient and targeted bone replacement and that regenerates that bone more quickly will find multiple uses in our view.

A delay in approval of the NELL-1/DBM technology or competing technology with similar characteristics coming to market at around the same time represent a risk to our valuation and could cause shares to decline. But we believe the risk/reward ratio could be attractive for investors who have a higher-than-average risk tolerance and longer time horizon.

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