Via
Edgar
December
7, 2010
Jeffrey
Riedler, Assistant Director
Securities
and Exchange Commission
100 F
Street, N.E.
Washington
D.C. 20549
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Re:
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Bacterin
International Holdings, Inc.
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Registration Statement on Form
S-1
Filed September 23, 2010
File No. 333-169620
Form 10-K
Filed March 30, 2010
File No. 333-158426
Dear Mr.
Riedler:
This letter is in response to your
comment letter dated October 26, 2010 to our Registration Statement on Form S-1
filed September 28, 2010 (“Registration Statement”) and our Form 10-K filed on
March 30, 2010. For your convenience, your questions and comments are
restated below in italics, followed by our response. The numbering
corresponds with the comments in your letter.
We have concurrently filed via Edgar
Amendment No. 1 to our Registration Statement, which includes revisions to our
Registration Statement based on your comment letter, as well as other updated
information.
General
1. Please
note that where we provide examples to illustrate what we mean by our comments,
they are examples and not complete lists. If our comments are
applicable to portions of the filing that we have not cited as examples, please
make the appropriate changes in accordance with our comments.
Response:
Comment Noted.
Cover
Page
2. We
note that Greenberg Traurig, LLP is no longer the company’s outside
counsel. Please revise the cover page of your filing to state your
current outside counsel’s contact information.
Response:
We have revised our cover page to state our current outside counsel’s contact
information.
Bacterin International
Holdings, Inc., page 1
3. Please
delete the word “leader” from your statement, “We develop, manufacture and
market biologics products to domestic and international markets through our
biologics division and believe we are emerging into a leader in the field of
biomaterials research, device development and commercialization,” in this
section and elsewhere as applicable. Alternatively, provide us with
the information justifying the characterization of your company as an emerging
leader.
Response:
We have deleted the word “leader” throughout our registration
statement.
4. Please
disclose the reasonable basis for the characterization of your products as set
forth in the following statements:
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“Our proprietary methods
optimize the growth factors in human allografts to create the ideal stem
cell scaffold and promote bone and other tissue
growth;”
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“Such coatings contain active
agents and provide our products with several potential advantages oer
traditional medical devices. They offer a means of protecting
the surface of a medical device from contamination by pathogenic
organisms, thereby minimizing the potential for infection;”
and
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“Other coatings can serve as a
reserve for local delivery of active agents, enhancing a variety of
biological functions such as bone growth and pain
management.”
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Alternatively,
delete these statements from this section and elsewhere as
applicable.
Response:
We have deleted the statements indicated in Comment 4.
Recent Developments, page
1
5. We
note that the private placements through which the selling stockholders acquired
the shares being registered are described on page 2 of the filing; however, it
does not appear that the share amounts mentioned add up to the amount being
registered through this registration statement. Please revise your
disclosure to clarify when, and in what transactions, the entirety of the
11,352,479 shares (including 3,751,621 shares issuable upon the exercise of
warrants) were placed with the selling stockholders.
Response:
We have revised our disclosure to clarify when, and in what transactions, the
shares being registered were placed with the selling stockholders. We
have also revised the number of shares being registered to 11,250,597 (including
4,126,630 shares issuable upon the exercise of warrants).
Risk
Factors
Our success will depend on
our ability to engage and retain….. page 5
6. To
the extent you have experienced problems engaging and retaining qualified
technical personnel in the recent past, please revise your disclosure to
describe these problems. Additionally, if any key technical personnel
have plans to leave your company in the near future, please revise the
discussion to disclose this information.
Response:
We have not had any specific problems engaging and retaining qualified technical
personnel. This risk factor is included as a general risk factor for
our industry and is not related to any specific incidence that we have recently
experienced. Also, we are not aware of any key technical personnel who have
plans to leave our company in the near future.
Loss of key member of our
management who we need to succeed….. page 5
7. To
the extent that you have experienced problems attracting and retaining qualified
key members of your management team in the recent past, please revise your
disclosure to describe these problems. Additionally, if any key
member of your management team has plans to leave your company in the near
future, please revise the discussion to disclose this information.
Response:
We have not experienced problems attracting and retaining qualified key members
of our management team in the recent past. Also, we are not aware of
any key member of management who plans to leave our company in the near
future.
We are highly dependent on
the continued availability of our facilities….. page 5
8. Please
disclose your level of business interruption insurance coverage and the cost to
you of such coverage, if material.
Response:
We carry $1 million of business interruption insurance per location as part of
an overall multi-peril policy, and we have added the disclosure to this risk
factor.
We will be required to
invest in facilities and equipment….. page 6
9. To
the extent practicable, please provide the amounts, in this risk factor, that
you have currently budgeted or anticipate spending to increase, expand or update
your capabilities and facilities during the next five years and the extent to
which you have identified sources of funding for this increase, expansion or
update. In addition, please address this comment in more detail in
the section entitled “Cash Requirements” in your Management’s Discussion and
Analysis.
Response:
We anticipate that we will need to spend $4 to $5 million over the next five
years in order to increase, expand or update our existing facilities to meet our
expected growth over that period. We have not yet identified sources
of funding for this increase, expansion or update. However, we have
revised our risk factor to include the anticipated amounts, and we have
addressed this comment in more detail in the section entitled “Cash
Requirements” in our Management’s Discussion and Analysis.
Future revenue will depend
on our ability to develop new sales channels…. Page 6
10. We
note that you are engaging in a major initiative to build and further expand
your direct sales force and that this effort will have significant
costs. Please expand your disclosure in this risk factor to quantify,
to the extent practicable, the amount of funds you will need to build and
further expand your direct sales force. In addition, please quantify
your funding requirements and sources of funding in greater detail in the
section entitled “Cash Requirements” in your Management’s Discussion and
Analysis.
Response:
We have expanded our disclosure in this risk factor to quantify, to the extent
practicable, the amount of funds we will need to build and further expand our
direct sales force. More specifically, we incurred sales and
marketing expense of approximately $8 million for 2010. We have also
quantified our funding requirements and sources of funding in greater detail in
the section entitled “Cash Requirements” in our Management’s Discussion and
Analysis.
Our revenues will depend
upon prompt and adequate reimbursement from . . . . . page 6
11. Please
disclose any problems you have experienced with prompt and adequate
reimbursement from public and private insurers and national health systems and
quantify reimbursement from public and private insurers and national health
systems and quantify the effects of such problems on your company, if
material.
Response:
We have not yet experienced payment problems that we would consider material;
however, the industry generally has a slow payment process, which affects our
ability to receive prompt payment. In general, we are paid by
hospitals, which in turn seek reimbursement from patients, their insurance
companies, Medicare and Medicaid. We did revise this risk factor
slightly to clarify that the third party reimbursement mentioned in this risk
factor is paid to hospitals, not to the Company.
We may be subject to future
product liability litigation….. page 7
12. Please
disclose the level of insurance coverage that you carry relating to the product
liability claims and the cost to you of such coverage, if material.
Response:
We currently carry product liability insurance of up to $10 million at an annual
premium cost of approximately $140,000, and we have revised this risk factor to
include these amounts.
13. Please
disclose the level of reserves you maintain for product liability
disbursements.
Response:
We do not currently maintain any reserves for product liability disbursements,
and we have revised this risk factor to state that “our insurance coverage and
any reserves we may maintain in the future . . . may not be
adequate.” As noted in the response to comment 12 above, we also
added the details of our insurance coverage related to this risk
factor.
We may not be able to obtain
or protect our proprietary rights….. page 10
14. We
note in your “Legal proceedings” section that you have served complaints to
Allosource and Advanced Biologics, Inc. Please discuss these claims
and potential consequences in this risk factor discussion.
Response:
In response to your request, we have expanded this risk factor to include a
discussion of the Allosource and Advanced Biologics claims, including potential
consequences.
If we do not timely file and
have declared effective the registration statement….. page
11
15. We
note that you entered into a registration rights agreement where you “agreed to
file and have declared effective this registration statement by a certain
date.” Please disclose the date that you agreed to file and have this
registration statement declared effective.
Response:
We agreed to file this registration statement by September 28, 2010 and if it is
not effective by December 27, 2010, we are obligated to pay 1% of the aggregate
investment amount per month, subject to a maximum limit of 12% of the aggregate
investment amount. We added the dates to this risk factor in response
to your comment.
Management’s Discussion and
Analysis of Financial Condition and Results of Operations, page
16
Comparison of Twelve Months
Ended December 31, 2009 and December 31, 2008….. page 18 Revenue, page
19
16. We
note that the cost of tissue sales as a percentage to the tissue sales
temporarily increased from 18% during the six months ended June 30, 2009 to 48%
during the six months ended December 31, 2009, then decreased to 19% during the
six months ended June 30, 2010. Please revise your discussion to
identify which product temporarily increased demand and why. Quantify
the sales volume and revenue by product to supplement your
discussion.
Response:
We have modified our discussion in response to your comment.
17. We
note that your largest customer accounted for 12% and 37% of the total
consolidated revenues for the years ended 2009 and 2008,
respectively. We also note that the relationship with the customer is
governed by a contract, which identifies prices for the services to be rendered
and payments to be made by the customer, that expires in February
2011. Please disclose the name of this customer and describe, in the
“Business” section, the material terms of the agreement including the pricing
and payment, term and termination and any other material provisions of the
agreement. Please note that the termination date should also include
the day on which the contract terminates. Also, please file the
contract as an exhibit, or alternatively, tell us the basis for your belief that
you are not required to file the agreement pursuant to Item 601(b)(10)(ii)(B) of
Regulation S-K.
Response:
We have revised our disclosure to disclose the names of the customers described
in this comment. However, upon further review, we discovered that the
contracts with these customers were terminated in the third quarter of 2009 when
the Company migrated to a direct sales model from a distributor based
model. We revised our disclosure accordingly; however, since we no
longer have contracts with these customers, we did not add this discussion to
the Business section and have not attached the contracts as
exhibits.
Business, page
23
Overview of Our Business,
page 23
18. We
note that you will continue to use the proceeds from prior financings and the
private placements to expand your direct sales network and your production
capacity. To the extent practicable, please disclose the amount of
funds you will allocate to each. Also, with respect to expanding your
production capacity, please clarify whether you intend to use funds to open new
facilities, increase the capacity of your current facility or
both. If you intend to increase your current capacity and open new
facilities, clarify the portion of funds you expect to allocate to each and
indicate where you expect to open new facilities.
Response:
We have revised our disclosure to disclose amounts incurred for expansion of our
direct sales force and amounts we anticipate that we will need to increase,
expand or update our existing facilities over the next five
years. Also, in response to the first part of your comment, we have
deleted “and our production capacity” from the sentence regarding the use of
funds from our bridge financing and private placement.
19. Please
provide the basis for your statement that the Center for Biofilm Engineering at
Montana State is “internationally acclaimed.”
Response:
We have deleted this statement in response to your comment.
20. We
note that you generate revenue from a number of revenue sources including the
following: license fees and royalties from collaborative product
development efforts, sales from products developed and manufactured by you under
your own label and contract revenue from analytical testing and development
services provided to medical device manufacturer clients, which tailor your
coating process to the client’s specific product/medical
application. Please disclose whether you have entered into any
license or collaboration agreements or contracts with respect to these revenue
generating sources and describe the material terms of these agreements or
contracts including the obligations of the parties, term and termination,
royalty rate and any other material provisions of the agreements or
contracts. Also, please file the agreements or contracts as exhibits,
or alternatively, tell us the basis for your belief that you are not required to
file the agreements or contracts pursuant to Item 601(b)(10(ii)(B) or Regulation
S-K.
Response:
We have revised our disclosure in response to your comment to indicate that
revenues from license fees and royalties have not been material and occur to a
much lesser extent than other sources of revenue. We do not believe
we are required to file any of these agreements because the revenue generated
from these sources is not material.
Products and Services, page
24
21. We
note that your discussion on products and services distinguishes between your
Biologics Division and your Medical Device Products. However, we also
note that products such as your OsteoSelect DBM putty appear in both
sections. Please clarify which of your products are regulated as HCT
and which are regulated as medical devices.
Response:
In general, the products in our biologics division are composed of tissue that
is minimally processed, while our medical device products are not considered
minimally processed. Although we thought it was accurate to classify
OsteoSelect DBM putty as both a tissue and a medical device because it is
regulated as a combination product, in response to your comment, we have moved
the discussion of OsteoSelect DBM putty to the medical device
section.
22. We
note that you are beginning trials to establish the ability to market
OsteoSponge SC as a cartilage re-generation scaffold, and that you are also
initiating clinical studies to further support BacFast’s
effectiveness. Please specify in your disclosure what you and the FDA
will have to do and, if applicable, have already done prior to clinically
testing the products, and what you and the FDA will have to do to commercially
market the products.
Response:
We have a letter from the FDA which outlines the marketing claims we are
currently allowed to make and we are conducting clinical trials in an effort to
expand the claims to include cartilage re-generation.
23. We
note that you are using part of the proceeds of the private placements to fund
your clinical trials for OsteoSponge SC and BacFast. To the extent
practicable, please disclose the amount of funds you will allocate to the trials
for each product.
Response:
We have allocated approximately $750,000 of the proceeds from our private
placement for the clinical trials of OsteoSponge SC and approximately $100,000
for the trial of BacFast.
24. We
note that you are hoping to expand your product definition for certain of your
products to claim cartilage regeneration capability. We also note
that 15 patients have undergone knee, foot or ankle surgery for the purposes of
the trial to make such claims, and that you plan to have 200 patients in the
trial by year end. Lastly, we note that one of these products is
OsteoSponge SC. Please disclose the other products for which you are
hoping to expand your product definition to claim cartilage regeneration
capability. Additionally, please disclose whether you are conducting
trials for these products as well. If you are conducting trials for
your other products, please specify in your disclosure what you and the FDA will
have to do and, if applicable, have already done prior to clinically testing the
products, and what you and the FDA will have to do to commercially market the
products.
Response:
The only product for which we are currently seeking to expand our product
definition to claim cartilage regeneration capability is OsteoSponge
SC.
25. Please
provide the basis for your statement “We believe that the ultimate size of the
market for wound drains is $80 million per year.” Alternatively,
delete these statements from this section and elsewhere as
applicable.
Response:
We have deleted this statement in response to your comment.
26. We
note that in a joint development project between RyMed and your company, the In
Vision-Plus CS is treated with your patented antimicrobial
technology. We also note that you will receive a royalty on all
devices treated for RyMed. Please disclose whether you have entered
into a collaboration agreement with RyMed and describe the material terms of the
agreement including the obligations of the parties, term and termination,
royalty rate and any other material provisions of the
agreement. Also, please file the agreement as an exhibit, or
alternatively, tell us the basis for your belief that you are not required to
file the agreement pursuant to Item 601(b)(10)(ii)(B) of Regulation
S-K.
Response:
In November of 2006, we entered into an agreement with RyMed Technologies, Inc.
to develop an antimicrobial coating to be incorporated into RyMed’s Needle-free
Injection Port Device. On August 10, 2010 we announced that the FDA
cleared RyMed’s InVision-Plus CS needleless IV connector for
commercialization. At this point in time, we do not consider this
contract material to our business or operations.
Technology and Intellectual
Property, page 26
27. We
note your table containing your patent information. Under the section
for your in-licensed intellectual property, please disclose the expiration date
for these patents and the jurisdictions in which they were granted.
Response:
The patents in the last 2 entries in the table containing our patent information
expire in April 2011 and we have added that information to our
table.
Sales and Marketing, page
30
28. Please
disclose the material terms of the contract with Broadlane, Inc., including the
term and termination provisions, and file the contract as an exhibit, or
alternatively, tell us the basis for your belief that you are not required to
file the contract pursuant to Item 601(b)(10)(ii)(B) of Regulation
S-K.
Response:
We have disclosed the material terms of our contract with Broadlane, Inc.,
including the term and termination provisions, and we have attached the contract
as an exhibit.
Legal Proceedings, pages
32-33
29. Please
disclose the relief sought in your lawsuits with Yanaki and Activatek,
Allosource and minSURG.
Response:
We have added disclosure of the relief sought in our lawsuits with Yanaki and
Activatek, Allosource and minSURG.
Potential Payments Upon
termination of Change-in-Control, page 40
30. We
note that you state, “Except for Mr. Gandolfo’s employment agreement described
below, we currently have no employment agreements with any of our named
executive officers…” However, on page 38 of your filing, you state
that you intend to keep the current employment agreements between Bacterin and
Guy Cook, Mitchell Godfrey, Jesus Hernandez and Darrel Holmes, and that these
employment agreements are set forth as exhibits to the registration
statement. Please revise your disclosure to reconcile this apparent
discrepancy.
Response:
We have revised our disclosure to clarify that Mr. Gandolfo is the only named
executive officer who has an employment agreement that provides for payment in
the event of a change in control. Although the other named executives
do have employment agreements, which we have attached as exhibits, their
agreements do not provide for payment in the event of a change in
control.
Director Independence, page
41
31. We
note your statement that during the year ended December 31, 2009, you did not
have any independent directors on your board. However, in your
discussion on board committees, for example, you list Mr. Swanson as a member of
your audit committee and compensation committee and state that he is an
independent director of your company under Nasdaq listing standards as well as
under rules adopted by the SEC. Mr. Swanson was a director as of the
your ended December 31, 2009. Please revise your disclosure to
reconcile this apparent discrepancy to explain whether you did or did not have
any independent directors on your board during the year ended December 31,
2009.
Response:
You are correct, we did have an independent director on our board during the
year ended December 31, 2009, and we have revised our disclosure to state that
Mr. Swanson was the only independent director on our board during the year ended
December 31, 2009.
Selling Stockholders, page
45
32. Please
revise your disclosure to indicate the nature of any position, office or other
material relationship which the selling security holders have had within the
past three years with the company or any of its predecessors or
affiliates. Please refer to Item 507 of Regulation S-K for
guidance.
Response:
We have revised our disclosure to indicate the material relationships we have
had with the selling security holders.
Other Rights To Acquire Our
common Stock, page 57
33. We
note that you are contractually obligated to issue shares of your common stock
to one of your stockholders. Pease disclose the name of such
stockholder and file as an exhibit the contract underlying such obligation or
alternatively, tell us the basis for your belief that you are not required to
file the agreement pursuant to Item 601(b)(10) of Regulation S-K.
Response:
Instruction
10(i) to the Exhibit Table in Item 601of Regulation S-K requires a company to
file as an exhibit any agreement that is material to a company. Such a
determination by a company must be based on a facts-and-circumstances basis from
the perspective of a reasonable investor in light of established standards of
materiality. While we are contractually obligated to issue the
shares described in this comment to Harborview Advisors, LLC, we do not
believe the underlying contract is material to us because the
obligation is contingent on several
factors (including the performance of our stock 7 months and 13
months from the closing date of our reverse merger). In
addition, the shares we may be required to
issue, if all of the contingencies are
satisfied, would only constitute approximately 1.5% of
our current issued and outstanding shares,
or approximately 1% on a fully diluted basis. We therefore believe
that, based on the facts and circumstances, the agreement is immaterial and is
therefore not required to be filed as an exhibit to the registration
statement.
Legal Matters, page
58
34. We
note that Greenberg Traurig, LLP is no longer your outside legal
counsel. Please revise your disclosure to state who will pass a legal
opinion regarding the validity of the securities in this offering.
Response:
We have revised our disclosure in response to your comment.
Financial Statements for the
Quarterly Period Ended June 30, 2010
(1) Business
Description and Summary of Significant Accounting Policies
Reverse Merger Transaction,
page F-8
35. Please
revise your disclosure to describe what happened to the operations of
K-Kitz. If K-Kitz’s operations were terminated (e.g. through sales or
discontinuation), also disclose the timing of termination. If
K-Kitz’s operations were not terminated prior to or at the time of your reverse
merger, please explain to us why you qualify for the recapitalization
accounting.
Response:
K-Kitz’s operations were terminated at the time of the reverse
merger.
Financial Statements for the
Year Ended December 31, 2009
General
36. Your
“de facto one-for-two reverse stock split” effective June 30, 2010 should be
retroactively reflected throughout your document, including your financial
statements for the year ended December 31, 2009. Please revise your
document to discuss share counts and per share pricing information in a
consistent manner.
Response:
We have revised our document to in response to your comment.
Statement of Operations,
page F-22
37. Your
operating expense captions on the 2009 and 2010 statements of operation are not
the same and do not allow for comparability. Please revise to use the
same captions for all periods. If the caption “Stock options
compensation expense” is retained, disclose on the face of the statement of
operations which other captions each amount would be included in if it were
non-stock compensation. Disclose why depreciation is not included in
cost of sales or parenthetically disclose in the caption “cost of sales” that
that caption excludes depreciation presented below.
Response:
We have revised our captions to allow for comparability.
(1) Business
Description and Summary of Significant Accounting Policies
Grants, page
F-26
38. Please
quantify the amount of grants you awarded and received during the periods
presented. In addition, please revise your disclosure to describe how
you account for the grants you awarded and received.
Response:
The Company has not received any grant income for the periods
presented.
Revenue Recgnition, page
F-27
39. On
page F-25, you disclose that you principally derive revenues from sale or
license of medical products, coatings and device implants. Since your
obligations may be different under sales and license transactions, please
disclose your accounting policy separately and disclose the line item under
which the license revenues are presented on your statements of
operations. If you recognize revenues from licenses upon delivery,
rather than over the license term, provide additional discussion to support your
accounting.
Response:
We have deleted “or license” from the statement you reference that was formerly
on page F-25, as our revenue from licensing is not material.
Net Income (Loss) Per Share,
page F-27
40. Please
disclose the number of common stock equivalents that were excluded in the
calculation of earnings per share for the reason that they were
anti-dilutive.
Response:
We have disclosed the number of common stock equivalents that were excluded in
the calculation of earnings per share for the reason that they were
anti-dilutive.
(8) Convertible
Notes Payable, page F-30
41. The
conversion price of your notes appears adjustable based on your future qualified
financing. Please tell us how you have accounted for the conversion
feature and provide us a scope analysis under ASC 815-40-15. If the
conversion feature is included within the scope of ASC 815-40, please also
provide us an analysis under ASC 815-40-25 to support your
accounting.
Response:
Here is our analysis:
Evaluation
of Conversion Feature in accordance with ASC 815
ASC
815-15-25-1 states “an embedded derivative shall be separated from the host
contract and accounted for as a derivative instrument pursuant to Subtopic
815-10 if and only if all of the following criteria are met”
b. The hybrid
instrument is not remeasured at fair
value under otherwise applicable generally accepted accounting principles
(GAAP) with changes in fair value reported in earnings as they occur. [FAS 133,
paragraph 12] ]
c. A separate instrument with the same terms as the embedded
derivative would, pursuant to Section 815-10-15, be a
derivative instrument subject to the requirements of this Subtopic. [FAS 133,
paragraph 12] ] [ (The initial net investment for
the hybrid instrument shall not be considered to be the initial net investment
for the embedded derivative.) [FAS 133, paragraph
12] ]
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a.
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Are
the economic characteristics and risks of the conversion feature clearly
and closely related to the economic characteristics and risk of the host
contract (conventional debt instrument)? The conversion feature
bears market risk while the host contract bears interest rate risk;
however, due to the ratchet provision of the conversion feature the market
risk has been significantly reduced. The ratchet provision of
the conversion rate helps maintain the clear and close relationship of the
risks between the conversion feature and the host contract. The
interest rate risk of the host contract has been preserved along with the
principal amount of convertible debt instrument. Because
the risk of the conversion feature and the host instrument are clearly and
closely related it would not be separated from the host contract and
accounted for pursuant Subtopic
815-10.
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ASC
815-40-15-2 states “The guidance in this Subtopic applies to freestanding
contracts that are indexed to, and potentially settled in, and entity’s own
stock”
Because
the embedded conversion feature is not considered a freestanding instrument per
ASC 815-15-25-1 it is not within the scope of ASC 815-40-15
Exhibits
42. Please
file your remaining exhibits, including the legal opinion, as soon as
practicable. We will need time to review these exhibits prior to
granting effectiveness of the registration statement.
Response:
We have filed our remaining exhibits.
* * * * *
Should you have any questions or
comments regarding our responses to your comment letter or Amendment No. 1 to
our Registration Statement, please do not hesitate to call me at (406)
388-0480.
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Very
truly yours,
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| Bacterin International Holdings, Inc. | |||
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By:
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/s/ John P. Gandolfo | |
| Name: |
John
P. Gandolfo
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| Title: | Chief Financial Officer | ||