BMP-7 is a signaling protein that is synthesized in the kidney and has been implicated in the maintenance of the normal health of the kidney, the skeleton, and the vascular system. In recent years, several academic researchers from the Beth Israel Deaconess Medical Center, the Harvard Medical School and the Washington University School of Medicine, have demonstrated the potential of using BMP-7 as a treatment to both halt the progression and reverse the effects of chronic progressive kidney disease and prevent the development of renal osteodystrophy, a form of bone disease, and blood vessel complications that are associated with chronic kidney disease. In 2004 there were four additional reports of BMP-7 efficacy in preclinical kidney disease models. They were published in the Journal of Biological Chemistry 2004 December 9 online, the Journal of Molecular Medicine 2004 March;82(3):175-81, Current Opinion in Nephrology and Hypertension 2004 July;13(4):417-22 and in the Journal of the American Society of Nephrology 2004 February;15(2):359-69.

Some of this data suggests that BMP-7 may be similar in some respects to erythropoietin, one of the most successful biotechnology-derived drugs. Erythropoietin is a signaling protein that is made in the kidney. It is secreted into the blood system and controls the process that instructs bone marrow to make new red blood cells. In dialysis patients with end-stage kidney disease, in which their kidneys have mostly or completely stopped functioning, the kidneys are unable to make erythropoietin. These patients therefore develop severe anemia, a critical medical condition caused by a lack of sufficient red blood cells. Administration of erythropoietin restores normal levels of red blood cells thus alleviating the patient’s severe anemia. Dialysis patients develop several other serious complications in addition to severe anemia, including renal osteodystrophy, a form of osteoporosis, and severe vascular calcification resulting in life-threatening cardiovascular complications. The preclinical demonstration that BMP-7 prevents the osteoporosis and vascular calcification that are associated with chronic kidney disease suggests that the market size for BMP-7 in dialysis patients may approximate the market size in the U.S. for erythropoietin in dialysis patients, which is currently estimated to be approximately $2.5 billion annually, of which we would receive a royalty under our license agreement with Ortho Biotech Products on future net sales, if any.

In November 2002, we entered into an agreement with Ortho Biotech Products pursuant to which Ortho Biotech obtained the license rights to our BMP-7 technology and assumed control of the continued development of this kidney disease product candidate. Ortho Biotech Products is a pharmaceutical company with broad expertise in protein-based therapeutic drug development and has an established presence in the kidney disease marketplace. Ortho Biotech Products has assumed all future costs and responsibility for BMP-based product development. We will receive a series of clinical development milestone payments, assuming certain clinical and regulatory milestones are achieved, and royalties on product sales if any BMP-based products are successfully commercialized. Ortho Biotech Products has sole responsibility for deciding if and when human clinical trials of BMP-7 will begin.

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