ABSTRACT Spine fusion is often the procedure of choice for various spine conditions, including degenerative spine, trauma, tumors and deformities. The goal of the procedure is to bridge the defect by filling the void and promoting bone regeneration. Pseudarthrosis is one of the major challenges in spine fusion, with a reported incidence of 5-35%, and requires further surgical intervention to correct the defect. Improvements in spine operative techniques, instrumentations, grafting materials, and understanding of bone biology have contributed to better outcomes, however, the challenge of achieving 100% fusion remains an unmet medical need. The discovery of BMP2 as a potent bone growth factor and the development of rhBMP2 for achieving 100% fusion rates led to its FDA approval for ALIF in 2002. However, its use has since been expanded to other procedures including posterior lumbar spine fusion and cervical spine fusion. Unfortunately, significant life-threatening adverse effects of rhBMP2 have been reported including soft tissue edema and inflammation associated with its use in cervical spine that can lead to airway compromise and dysphagia. Other drawbacks of using rhBMP2 have been noted such as its high cost, inferior quality of the new bone that often contains a large number of adipocytes, bone resorption and osteolysis, and heterotopic bone formation. There is a need for an alternative to rhBMP2 that would be equally or more efficacious in stimulating bone formation but with a more favorable safety profile and lower cost. We previously reported that Oxy133, a potent semi-synthetic proprietary osteoinductive oxysterol, robustly stimulates osteogenic differentiation of osteoprogenitor cells, including mesenchymal stem cells, in vitro and induces robust bone formation in animal models of localized bone formation including spine fusion and maxillofacial and cranial bone regeneration in rats and rabbits. These activities of Oxy133 were shown to be equal or superior to those of rhBMP2 without any apparent adverse effects such as adipogenesis, infiltration of inflammatory cells in the fusion mass, and heterotopic bone formation. Oxy133 production is highly scalable and much less expensive than rhBMP2 and it can be delivered as a drug-device combination via a collagen sponge in the operating room following the same protocols as for rhBMP2 (Infuse). To continue the therapeutic development of Oxy133 for spine fusion, in this direct to Phase 2 SBIR application, we propose studies including formulation optimization, efficacy testing, and IND-enabling safety and toxicology studies based on FDA guidelines for a Class III drug-device combination. Given the known features and qualities of Oxy133 as a small molecule osteoinductive oxysterol, its successful development will provide orthopedic surgeons and neurosurgeons a safer and more efficacious alternative to rhBMP2 for performing spine fusion in their patients.