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Oculus Innovative Sciences (NASDAQ:OCLS)

Q3 2013 Earnings Call

February 13, 2013 4:30 pm ET

Executives

Dan McFadden - Former Director of Public & Investor Relations

Hojabr Alimi - Co-Founder, Chairman, President of Ruthigen, Inc., Chief Executive Officer of Ruthigen, Inc. and Member of Acquisition & Strategy Committee

James Schutz - Chief Executive Officer, President, Director and Member of Acquisition & Strategy Committee

Robert E. Miller - Chief Financial Officer and Principal Accounting Officer

Sameer Harish - Chief Financial Officer

Analysts

Dan Trang

Jack Wallace - Sidoti & Company, LLC

Operator

Good day, ladies and gentlemen, and welcome to the Oculus Innovative Sciences Fiscal Third Quarter 2013 Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to turn the conference over to your host for today, Mr. Dan McFadden. Sir, you may begin.

Dan McFadden

Good afternoon, and thank you for joining us. With me on the call today are Oculus Founder and Ruthigen CEO, Hoji Alimi; Oculus CEO, Jim Schutz; Oculus CFO, Bob Miller; and Ruthigen CFO, Sameer Harish. We will open the call with Hoji's discussion of our third quarter business development. Next, Jim Schutz will review the company strategic business plan moving forward. This will be followed by Bob Miller's review of our financial results, and finally, Sameer Harish will say a few words on behalf of Ruthigen. This afternoon, Oculus issued a press release detailing fiscal third quarter 2013 financial results and recent corporate developments. Copy of the release can be downloaded from our website, which is oculusis.com, that's O-C-U-L-U-S-I-S dot com or you can call Investor Relations at (425) 753-2105, and we'll be happy to assist you.

Before we begin, I remind listeners that this conference call contains forward-looking statements within the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by use of words such as expect, to expand, would and anticipate, among others. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially, including risk inherent in the development and commercialization of potential products; the risk that potential clinical studies or trials will not proceed as anticipated or may not be successful or sufficient to meet regulatory standards or receive the regulatory clearance or approvals; the company's future capital needs and its ability to obtain additional funding; and other risks detailed from time to time in the company's filings with the Securities and Exchange Commission, including the quarterly report on Form 10-Q and the annual report on Form 10-K.

Identified product applications and/or uses are intended to highlight potential applications for the investment community and does not infer that the company is marketing for these indications. The company does not provide any assurances that such applications will receive regulatory approvals. Oculus disclaims any obligation to update these forward-looking statements.

So I will now turn the call over to Hoji Alimi.

Hojabr Alimi

Thank you. Good afternoon, and thank you for participating on this conference call. Today, I have Jim Schutz, Oculus' new CEO; and Bob Miller, our CFO, who will focus on Oculus' business; and Sameer and I will be discussing the Ruthigen business.

4 years ago, we made a decision to transform Oculus into a commercial health care company. Today, as you're sitting here on this call, Oculus has global reach into at least 21 countries, in several uniquely defined markets, with established partners who are funding the sales and marketing efforts of our 60-plus products. These commercial market opportunities, in aggregate, presents a sustainable rate of growth over the next few years for Oculus, not only to achieve profitability, but to grow the top line, as well as improving the bottom line.

Just as a few highlights, More Pharma, which we closed the sale nearly a few months ago, now with over 1,000 salespeople, they are planning to expand our product reach, not only in Mexico, but into larger markets, including Brazil, Argentina, rest of Latin America and South America.

On the animal health care front, our animal health care partner continues to show sustainable and meaningful growth rates in their market. And in the dermatology market in the U.S., our derma partner has shown almost more than 100% growth even though on small numbers, in product sale in the U.S. And we are now in the process of planning and supporting their additional Microcyn-based product launches and new indications in the current year. So lots of great challenges ahead of us.

In addition, we are in preparation of announcing our top line data for our scars management trial in the next, hopefully, 60 days. We have now a healthy and a strong company in form of Oculus, with a robust pipeline of products that they're going to continue to support our partners' commercial efforts, both domestically and internationally. So again, I will let Jim and Bob to further discuss the Q3 results on the call. But at this point, I would like to discuss our business and clinical focus at Ruthigen and what does it mean and how we can unlock the value of the unique drug program in this new entity for our shareholders, for our employees, doctors who use our products, hospitals and patients

The Ruthigen's first market opportunity will be in the surgical and trauma market. There are nearly 46 million surgical and trauma procedures in the United States, and more than 200 procedures are estimated globally each year. At a cost of $100 per procedure in the U.S., the addressable market is significantly large. So our proposed plan moving forward encompasses a clinical trial that is designed -- that provides the highest probability for success in an area we have -- already have had 6 years of clinical experience, trials and feedbacks.

The Ruthigen drug value is to accelerate patient discharge. Ruthigen will focus on the need to reduce hospital stays, accelerate patient discharge and reduce readmission rates due to infection and infection-related complications. So we'll target to be the first to market with the unique drug that is capable of treating and preventing infections due to a broad range of gram positive or gram negative bacteria. It will reduce inflammation. It will induce much faster wound healing. That all results in a faster patient discharge from the hospital almost up to 25% as compared to the standard of care.

So I really believe this drug will be well received, not only by the insurance company and hospitals, but medical centers and patients alike. So we plan to file our proposed clinical trial design with the FDA and receive a feedback with growth to initiate our clinical trial in 2013, only after a successful financing at Ruthigen's level. In that regard, we have retained bankers and counsel to review the IPO market and evaluate financing options for us. And to that end, we are receiving positive level of interest in the market. While conservative estimates include the completion of our Phase II within the year from the start and complete all required pivotal trials as early as 2007. After the completion of an IPO, we plan to issue shares of Ruthigen as dividend on tax-free basis to our Oculus shareholders as of the record date. The ratio amounts will be approved by the Board of Directors and announced during this process.

So for my vision for Oculus, at the time of the consolidation, is that Oculus will be a solid, healthy company, with no need for additional capital raise, moving quickly into positive earnings, grow its top line and bottom line, with current products, as well as acquiring products, that our current and future partners will have an immediate appetite to place them into their distribution and sale channels.

While Ruthigen will be a standalone, [indiscernible] company, focused on its clinical program and to accelerate its drug approval while, in parallel, is going to seek partners specifically in Europe and Asia to expand its global reach. Our shareholders on tax-free basis will own shares of Ruthigen as they own Oculus, and I really would like to truly thank our shareholders, our partners who are some -- on this call, our employees, management, Board of Directors but, more specifically, Jim, who has to step up during this process and to ease this process for all of us.

So at this point, I'll hand the call to Jim.

James Schutz

Thanks so much for the kind words, Hoji. I'd like to take just a few minutes today and cover 3 areas before Bob jumps into our numbers for the quarter. I'll focus, one, on the highlights from the quarter; two, how we're running the business during this exciting time in preparation for Ruthigen and its eventual spin-off; and then three, a peek ahead post-split.

So first of all, current quarter highlights, and I'd like to focus on growth, profitability and then cash. From a growth perspective, we're very pleased with the growth we're seeing south of the border from our new partner, More Pharma, in their first full quarter. Units, pricing, customer feedback, we're getting very good robust feedback on their efforts. Our friends at More Pharma have a saying that, I assume, is an American football saying. They want to catch the business before they run. From what we've seen to date, they've done a good job catching our customers and now, we look forward to a long run.

For our Wall Street analysts, please remember specific to growth in Mexico. Unit volume is up. Dollar volume is down and will remain down for some period of time due to our fall 2012 deal structure, but net-net, our profitability is greater because of the SG&A reduction. So we're very pleased with what we see in -- next on south border.

Our annual health partner, speaking of growth, as Hoji mentioned, their unit volume growth is up 33% for the quarter. And then finally, our dermatology partner, I had the pleasure of seeing Dan just outside of Philadelphia last weekend, we're very pleased with their efforts to date and their forward plan of attack.

Continuing on for the current quarter highlights, profitability, you will see in our press release and in our Q that our EBITDAS, earnings before interest taxes, depreciation, amortization and stock comp charges, for the first 9 months of the year was a negative $398,000 versus a negative $2.4 million for the same period last year. So we see solid progress towards our goal of profitability. And then finally, cash. Cash, as you can see from Q and then press release, our cash is $6.6 million.

So how are we running the business, while the exciting news about Ruthigen is in the air? In large parts through the effort of Hoji, Bob and now, Sameer, they're freeing me up to spend time with our employees, customers and shareholders in that order. Good news from the employees and the business, in general, the trains are running on time. The employees are doing a great job. I've been hearing quite a bit, lately, very good signs here as to how we're running the business, too. I've being able to pay attention to our customers, both at the patient level and from our partners at Innovacyn, Eloquest; in derma, Quinnova. And I'd like to spend a little bit more time with our new partners in More Pharma, and I'll make that a priority in the near future.

I'm also being given the opportunity to listen to our shareholders, and I do want to relay one -- certain notes from the meeting I had last week with a money manager, longtime supporter and Oculus shareholder, and I thought he had an interesting way of looking at the risk profile of Oculus going forward, and I just like to share a few notes. But these are not quotes from him.

He first was looking at the risk associated with the compound or the active in our products. His analysis was this was about the lowest-risk drug or device he's ever invested in. 4 million patients to date, without report of a serious adverse event to the FDA; 7 FDA clearances to date, with more in the pipeline. He was talking then about therapeutic indication risk. His analysis was our compounds, our products, our SKUs have more markets, more large markets, more indications than any drug or device he's ever invested in. From derm to acute care to chronic, wounds to surgical to ophthalmic, you get the point.

He then switched to FDA risk. What are the risks associated with our current and future regulatory path, and his analysis was that Oculus does not have a binary event, where we are betting the farm on one compound, one indication with significant clinical or FDA risk. Commercialization risk. Frankly, it's lower than we would all like to date, but we are pretty good royalty story. Our customers and partners like the products, we see low risk going forward, and it's our hard target to increase our sales efforts as fast as we can.

Finally, our future risk. Can we show continued growth and profitability? His thoughts, and I love this analysis, was at our closing price today -- per share price today, this is a low risk, almost a call, if you understand the put and call business, this was a good investment at a low price at a really interesting company. We liked his thinking and I appreciated his insights and wanted to share some of those with you today.

So a peek ahead, where are we going post split? Our customers love our products because they work and they matter in this health care environment. We're financially healthy. Cash, again, $6.6 million. We've averaged 42% in product growth over the last 4 years. As you can see from the press release, our product revenue is up 32% for the first 9 months of our fiscal year. We have a high product margins, and they're near and dear to our hearts. We are close to EBITDAS breakeven. EBITDAS for the first 9 months of the year was negative $398,000 versus $2.4 million for the same period last year. We have a strong pipeline of products for our future growth in dermatology, acute care, hospital call points and animal health.

So some final thoughts before he jumps with the numbers with Bob. Our growth mantra here in Oculus is, one, new products from our own R&D and via acquisition to our current partners; two, add new partners; and three, expand our international footprint. As Hoji mentioned, 20-plus countries to date and a hard target to increase that. Stay tuned for more information there.

So I covered the highlights from our quarter, how we're running the business, while Hoji and Sameer are maximally focused on creating shareholder value through Ruthigen. And finally, a peek over the hills at what we look like post spin-off.

So thanks so much, and I'll hand the microphone to Bob, our CFO.

Robert E. Miller

Okay. Thank you, Jim. I'll first discuss the status of our listing requirements on the NASDAQ; secondly, I will indicate how we did in our guidance for the December quarter; third, provide the guidance for the fourth quarter of fiscal year 2013; and lastly, summarize our financial results for the third quarter.

At this time, there are 2 primary criteria we need to maintain or exceed to remain listed on the NASDAQ. One is the net worth test, which needs to remain above $2.5 million. As of December 31, 2012, our net worth was $3.1 million, which is obviously above the required guideline. The second is that the stock price of Oculus must be above $1. To comply with this guideline, Oculus has filed a proxy statement with the SEC, which was sent to shareholders, proposing a reverse split of the shares. As a result of complying with the net worth test and setting in place a reverse split plan and our intent to execute it, we believe we will remain listed on the NASDAQ.

How did we do on our financial guidance for the quarter ending December 31, 2012? We provided guidance of $3.2 million to $3.4 million for total revenue and achieved $3.5 million. We provided guidance of the $2.8 million range for cash operating expenses and achieved $2.7 million. We were well below the $1 million negative EBITDAS range, with the negative only $163,000 for the quarter.

What is our guidance for the quarter ending March 31, 2013? For that quarter, we expect total revenue to be in the $3.8 million to $3.6 million range, cash operating expenses to be in the $2.8 million range and EBITDAS to be less than $500,000 negative.

In the last several earnings calls, we provided revenue growth rate guidance for our 3 business groups for our full fiscal year 2013. How did we do for the 9 months in the third quarter of fiscal year '13 compared to our earlier fiscal year guidance? Number one, for the Innovacyn Group, which includes the animal health care and human over-the-counter products, last quarter, we provided revenue growth guidance of 0% to 20% for the full year. For the 9 months, we achieved a revenue growth rate of 35% much of which was due to the higher royalty, compared with the same period last year and a strong 33% growth, and as Jim mentioned earlier, for the third quarter. We are increasing our growth guidance for the full year -- fiscal year for this group to a range of 20% to 30%.

Number two, for the Rx U.S. group, which includes all other non-Innovacyn U.S. markets, such as dermatology and wound care. Last quarter, we provided revenue growth guidance of 40% to 60% for the full year. We achieved a revenue growth of 163% for 9 months. This growth reflected the growth of the derma partners with new product launches and a recognition of $250,000 upfront fees. Due to these factors, we're increasing our revenue growth guidance for the year to 175% to 200%.

Number three, for the international group, we have a revenue growth guidance of 5% to 10% for the full year. We achieved a growth of 8% for the 9 months, and we'll keep the same revenue growth guidance for international.

Number four, for the total product revenue growth for the fiscal year 2013, we provided product revenue guidance of 15% to 30% growth, initially, with a 33% -- 32% product revenue growth for the 9 months and 29% for the third quarter. We will forecast a product revenue growth range of 25% to 30% for the full year.

Moving now to the results for the third fiscal quarter ending December 31, 2012. Product revenues increased $760,000 or 29% compared to the same quarter last year, with increases in the United States, Mexico and Singapore, are partially offset by declines in other international regions. Product revenue in the United States increased $648,000 or 64% due to a 33% higher unit growth of our -- from our animal health care partner, Innovacyn. The revenue recorded from Innovacyn of $883,000 for the 3 months ended December was up $218,000 from the same period last year. Also, the revenue from the prescription business increased $420,000 or 124% to $760,000, driven by the growth in sales to dermatologists and the recognition of $250,000 upfront fees.

We are pleased, as Jim mentioned, with the progress growth and clinical success of our Microcyn-based products in the dermatology market. Furthermore, Quinnova is launching 3 new Microcyn-based products over the next 9 months.

The results in Mexico represent the first full quarter after the More Pharma transaction, shifting from 30-person sales force that we had internally to More Pharma's 200 sales person force in Mexico only. Revenue in Mexico increased $188,000 or 16% when compared to the same period last year. The increase was driven by a 97% increase in the units sold and recognition of $378,000 related to the amortization with the upfront fees paid by More Pharma, partially offset by a 45% reduction in the transfer price. Due to the transfer of the sales function to More Pharma, Oculus transferred the cost of the sales in people and promotions. As a result, during the quarter, SG&A expenses in Mexico were $646,000 lower than they were in the same period last year, improving our profitability as Jim had referred to earlier.

Our gross profitability for the quarter was 73% compared to 71% for the same period last year. And our operating expenses, minus non-cash expenses during the quarter, were $2.7 million, down 15%, from $3.2 million in the same period last year, primarily due, as I mentioned, to the lower expenses in Mexico.

EBITDAS for the quarter ended December was a negative $163,000 compared to a negative $1.3 million for the same period last year due to higher sales and gross margins and lower operating expenses. This demonstrates our progress toward profitability.

What are the results for the first 9 months of the fiscal year 2013? In summary, product revenue was up 32%, gross profitability was 74%, and cash operating expenses were about flat for the same period last year. As a result of the strong sales growth and flat expenses, and Jim mentioned just a couple of times, the operating loss, minus non-cash expenses, EBITDAS for the 9 months was only $389,000, including onetime severance costs of $410,000 in Mexico related to the More Pharma transaction, compared to $2.4 million in the same period last year, a $2 million improvement. This, again, demonstrates our significant process on our road to profitability.

This concludes my remarks, and I'll turn it over to Sameer for his comments.

Sameer Harish

Thank you, Bob. And thank you also, Hoji, Jim, the Oculus employees and our Board of Directors, for the warm welcome.

The past few weeks as a company has truly reinforced my excitement about the tremendous opportunity to unlock the drug potential for RUT58-60 through Ruthigen by establishing 2 independently managed and funded companies. To take forward our unique technologies into distinct commercial markets, we must first ensure the health and stability for each entity. We are actively engaged with financial advisors, as well as our accounting and legal advisors to pursue external funding for our Phase II and Phase III clinical programs, surrounding RUT58-60, Ruthigen's unique anti-infective drug candidate during this calendar year.

By shifting the burden of the high-expense drug development program to Ruthigen, our intent is to structure Oculus towards profitability and financial independence. We're all excited about the prospects for a cash flow positive Oculus going forward, with its strong partnership and M&A growth strategy. We have structured Ruthigen with an experienced team to optimize performance in achieving our development time line, while maintaining a lean internal cost structure. And we are focused only on activities that, we believe, will enhance shareholder returns through a structured and systematic approach in manufacturing and clinical programs, leading to potential regulatory approval.

We believe RUT58-60 is positioned to improve economics surrounding surgical and traumatic markets in the U.S. And this market represents nearly 46-million-patient opportunity for the company. RUT58-60 is formulated to be compatible with internal organs and has increased concentration of active ingredients and can be sterilized, all very important features for the NDA process and to gain entry to the surgical suite.

Commercially, I'm particularly excited about the potential for Ruthigen. Our health care environment is changing, and the time and degree of economic pressures to hospitals, payers and consumers adds to the uncertainty throughout the system. What is clear from our market research is the need for cost containment and improved hospital efficiency measures. We believe RUT58-60 has the potential to demonstrate significant improvement in economic and clinical measures, such as post-surgical time to discharge, post-surgical infection rates and hospital readmission [ph] rates.

We thank you all for your interest in Oculus and Ruthigen. Ben, please open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Marco Rodriguez from Stonegate Securities.

Dan Trang

This is Dan Trang, sitting in for Marco Rodriguez. I'm wondering if you could give some color into what capital expenditures are going to look like post the spin-off and also going to SG&A?

Hojabr Alimi

Again, this is Hoji. Let me give you a comment, and then maybe I'll turn the call to Bob.

Dan Trang

Yes. Maybe I should have directed my -- I guess, my question toward Bob. But I mean, Hoji, please.

Hojabr Alimi

The way we are restructuring the business is so that the expenses are increased, and they're really focused on profitability. But again, I'm going to let Bob talk.

Robert E. Miller

So we gave guidance last time that we said that our normal -- after the More Pharma deal, we gave a guidance of operating -- cash operating expenses of up to $5 million going forward after the More Pharma, with the reduction of some -- of the sales and marketing expenses in Mexico and with some increases in the U.S. The expenses, if your question is, after we spin-off Ruthigen or is that your question?

Dan Trang

Yes, yes, that's my question. Spin-off kind of what CapEx is going to look like kind of going forward and then going into SG&A and some of the operating costs.

Robert E. Miller

Our CapEx expenditure as a company is fairly low. The machines to make the product is not as huge cost just like a paper machine. It's a very proprietary machine. It doesn't -- it's well less than $1 million to make. And we have a lot of that manufacturing in place already. So there's not going to be a lot of CapEx needed. There will be some, but it's relative -- a relatively small number, well under the -- probably even the $300,000, $500,000 level. The -- in terms of our operating expenses, the major change -- there are 2 people that would be on the spin-off. They would basically be not -- would be on the Ruthigen payroll and not the payroll for Oculus, and that would be Hoji and our Director of Regulatory. And therefore, we would see those expenses -- a reduction relating to those expenses.

Hojabr Alimi

And then, can I jump into this, Hoji. Maybe I can just -- I don't know how familiar you are with the story. But specific to the capital structure, you have 11 manufacturing lines already established. Each of the manufacturing line can produce roughly around $6 million in revenue annually. So really, for us to have need -- additional need to expand manufacturing lines, we got to exceed that $60 million in revenue. And each line, really, is going to cost us roughly, around, maybe less than $100,000 to build one and put in place, it takes about 3 months. In terms of SG&A, Oculus has no plans to increase SG&A cost. We just reduced our SG&A in Mexico, so it truly is relying on existing partners to fund, to sell the marketing efforts. I hope that answers your question.

Dan Trang

Okay. And just a follow-up to that, as far as headcount concern, I mean, how much of the Oculus team -- is it just you and your Director of Regulatory? But I...

Hojabr Alimi

No, Dan, let me jump in. It's a little bit more than that. We are currently going through that process and we have to ask for your patience. Because there is an opening [ph] agreement and a licensing agreement will be signed between the 2 entities based on the opening [ph] agreement. So it's just obviously, from a control standpoint. You don't want any consolidation between the 2 companies, and that's why management is shifting. So we will have different boards and different managements allocated to each company. However, some internal resources will be shared, and the costs will be shared. And those are the areas that is still we are in discussions and have time to really cancel those out. And all that needs to be reviewed and approved, not only by the Board of Directors, but by our auditors and also get to SEC because, again, we don't want to trigger any control issue.

Operator

[Operator Instructions] Our next question is from the line of Jack Wallace of Sidoti & Company.

Jack Wallace - Sidoti & Company, LLC

A question for you, in terms of the legacy organic Oculus moving forward, there -- there's talk about -- there's some M&A activity, maybe acquiring a product or 2 here and there. I guess my question is, what types of products would be looked at? The Microcyn Technology has phenomenal track record, both efficacy and safety. Is -- will these opportunities be standalone products? Or will these be other products, maybe even technology, that would work in tandem with the current Microcyn Technology?

Hojabr Alimi

Yes, Jack, the short answer to this is we are going to continue to provide a robust pipeline of Microcyn-based products to our partners. As we have demonstrated in animal health care, they have 40 plus; dermatology, they have 2, we are adding 3 more; and then wound care 7, and we are adding more. But in order to wrap revenues up, we also wanted to listen, being in listening mode to our partners, and ask them what else do you need that we can provide to you. For example, there are areas where Microcyn can be packaged with another product as a chip and then be sold in the market. And you can piggyback right on another product. So I'm not telling you that this is what we're going to do. I'm just giving you an example, like skin graft plus Microcyn. One of the major issues with the skin grafts are, when there's an infection, it won't take. But when you add Microcyn, it significantly increases the rate of take on skin grafts. So there are a lot of areas for Microcyn, number one, there will be synergy between Microcyn and another product. But more importantly, there needs to be an appetite by an existing partner or a future partner to immediately put it into sale and distribution and invest behind that product. So those are the areas that we are looking at. And obviously, we will look at the rate of ROI, making sure that this -- really, this is an added value. It's not a diluted event.

Jack Wallace - Sidoti & Company, LLC

Got you, that's certainly helpful. And my next question is kind of a piggybacking, although the last one's asked about the -- just kind of the people in the facilities going through the transition and then a segregation of the 2 companies. You mentioned that both yourself and another head in the high place will be moving, plus maybe some underlying staff. But the real question I have is about the facilities. I know you said that there's plenty of capacity, and there's -- it's not very difficult nor expensive to create more. And he's also mentioned that some of the costs are going to be shared. I was wondering if you can give us a little more detail on how those costs might be allocated, and maybe this is too early a question...

Hojabr Alimi

Jack, I think, a general -- I can give you a general view, but I can't give you much detail on [indiscernible]. We have the details all sketched out. But I can tell you where we are going with our Board of Directors, as well as with our accountants. The thing that we want to accomplish is, as Sameer mentioned earlier, is Oculus has been ramping up its revenue. And I think that's done a great job in terms of getting close and close to profitability. So one of the issues are, when you start increasing expenses to develop your R&D for drug trials, you will never achieve profitability. And it will be disappointing to the market and shareholders. So by separating the 2 entities, the goal is really for Ruthigen to take realistic cost out of Oculus. There'll be no longer have to burden on the shoulders and make them more profitable. For example, areas of R&D that applies to Ruthigen. They have a significantly developed quality team, that they do a lot of quality testing on routine batch-to-batch basis. Ruthigen can pay for the services. We shouldn't be paying other laboratories. That will be an added. So there will be actually a revenue stream coming back to Oculus for services that are being provided to Ruthigen, and we don't have to duplicate those. We have 30 [ph] consultants here. They do a lot of QA consulting -- RA consulting. So we're going to continue [indiscernible]. And in terms of manufacturing, we would like to initially utilize as much as we can of Oculus. But again, keep in mind, Oculus is a cGMP device organization. They are not drug certified. So at some point down in the future, not tomorrow, but then Ruthigen needs to before drug approval, establish its own facility to pass the FDA drug inspection.

Jack Wallace - Sidoti & Company, LLC

Got you, that's very helpful. And maybe if there's any estimate as to the burn that will be taken out of the Oculus cost structure now, maybe pre- any M&A activity down the road, do you guys feel comfortable giving an either a number, a range of the operating expenses that might be taken out?

Hojabr Alimi

Right now, just on top of my head, I can add 2, 3 people that they're moving forward and a couple of expenses is about $500,000. But really, the more we go through it, there will be more solid number coming out. But whatever it is, I think it will accelerate the profitability for Oculus. So I appreciate your patience, and we're working, believe me, diligently to get through this process, as we are trying to call bankers for future funding for Ruthigen as well so...

Operator

And ladies and gentlemen, that does conclude our question-and-answer period. I'd like to turn the call back to Mr. Hoji Alimi for any closing remarks.

Hojabr Alimi

Well, again, I would like to thank everyone on the call. I am pleased everyone's really is -- there's been a Hercules kind of attempt to really create Ruthigen and have Oculus with all the support 24/7, helping us pull this business together, all in the hopes of giving value back to our shareholders. So we appreciate your patience through this process, but we're definitely looking forward to make very near-term exciting announcements in regards to both Ruthigen and Oculus. And we'll be on standby, if there are any further questions. Thank you, operator. And everyone, have a good afternoon.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may all disconnect. Have a great rest of the day.

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