ULURU Inc. (OTCQB:ULUR) Q4 2012 Earnings Conference Call April 1, 2013 9:00 AM ET
Kerry Gray - Chairman, President & Chief Executive Officer
Good morning and welcome to the ULURU Inc. 2012 financial results business update conference call. All lines will be muted during the presentation portions of the call with an opportunity for questions-and-answers at the end.
At this time I would like to introduce your host, Mr. Kerry Gray. Thank you and enjoy the conference. You may proceed Mr. Gray.
Thank you. Good morning and thank you for joining the year end conference call. Let me start by reading the Safe Harbor language. This conference call will contain certain statements that are forward-looking within the meaning of section 27A of the Securities Act of 1933 as amended, including but not limited to statements made relating to the future product and financial performance of ULURU Inc., expected business development, projections of product sales, plans and strategic relationships, including foreign markets, technical advances and our commercialization of Altrazeal.
When used in this conference call, the words may, targets, goal, could, should, would, believe, feel, expect, confident, anticipate, estimate, intend, plan, potential and similar expressions may be indicative of forward-looking statements.
These statements by their nature involve substantial risk and uncertainties, some of which are beyond the company’s control. The company cautions that various factors, including industry trends, the food and drug administration regulations, could result in outcomes that differ materially from those expressed in any forward-looking statements that the company made by or on behalf of the company.
Any forward-looking statements presenting as of the date in which these statement was made, the company undertakes no obligations to update any forward looking statements or statements to reflect the events or circumstances after the date in which that statement is made.
These factors emerge from time to time and it is not possible for management to predict all such factors. These statements are subject to risks and uncertainties, including but not limited to the risk factors detailed in the company’s Annual Report on Form 10-K for the year ended December 31, 2012, and other reports filed by us at the Securities and Exchange Commission.
That being said, I would now like to move on and firstly I’ll just give a brief introduction. I believe 2012 was an outstanding year for the company. On reviewing the objectives that we had established for ourselves in 2012, with the exception of China, which has been a little disappointing, we substantially achieved all the objectives that we had communicated in the prior call.
In a number of instances the timing was a little delayed, however in many circumstances we have limited control over timing issues. Also it is important to understand that we have struggled with limited financial resources, which can have significant impact upon timing where acquisition expense of equipment is involved. More importantly, we believe that the achievements of 2012 have placed us in a strong position to 2013 and beyond.
A very important achievement in 2012 was securing the funding, which given our position was on quite favorable terms, particularly the funding from our European partners, which is an outstanding transaction for our shareholders.
In addition, in 2012 through significant expansion in our international activities we shipped our first veterinary order, we shipped our product for the launch of Altrazeal in Australia and Austria and we entered into a major strategic collaboration for the development of the oral applications of OraDisc™ mucoadhesive film technology. These achievements have placed us in a strong position for outstanding growth in 2013 and beyond.
That being said, I’d like to now briefly address the financial statements and then I will provide an update on our commercial activities. With the exception of two items, our fourth quarter performance was in line with our projection. One, our first European shipment which we had planned for the fourth quarter, here the weather in the northeast through this month was just another [carry on] (ph) from the first day of January, which reduced our sales by approximately $80,000.
And the second is our research expenditure is higher than we projected as we engaged additional consultants that help and provide. We also provide the clinical supplies for a major European clinical study. This resulted in the strength of seeing the profit $50,000 higher than projected.
The fourth quarter reported operating loss was $869,000, which was $30,000 higher than the 2011 quarterly loss. It resulted in the net loss of $990,000 or $0.10 per share as compared to $960,000 or $0.13 a share in 2011. The difference between the operating loss and the net loss in 2012 is the significant increase in interest expense associated with the amount in convertible note. Not only is the actual interest expense, daily dilution discount and the value placed on the warrants is also expense, which resulted in a significant increase in expense.
For the full year, the net reported loss was $3.6 million, a $500,000 improvement of the loss sustained in 2011. It should be noted that in excess of $1 million of this non-cash item, including depreciation, amortization, interest expense and inventory write offs.
One further item on the financial statement I would like to address is our cost of goods sold. The cost of goods sold in the fourth quarter was approximately 70%. This includes production start -upexpenses. This is forecasted to be reduced to 40% in the upcoming quarters, with an objective of a further reduction to 25% by the fourth quarter of 2013.
I would now like to discuss one item in the orders report. We are very pleased to report that our 2012 orders financial statements do not include the going concern opinion. In the prior three years, our financial statements have been qualified by going concern opinion. This opinion reflected the company being unable to demonstrate that they have sufficient liquidity to fund ongoing operations for 12 to 18 months.
Given our Inter-Mountain financing and the financing from IPMD and the revenue projections of the company, we’ve been able to demonstrate that we have the liquidity to operate our business. This is a very favorable development for the company and reflects the financial progress the company has made over the past 12 months.
I’d now like to move on to discuss our commercial activities. In the United States, we’ve continued with our limited activity for Altrazeal. Our plan is to have our international activities drive our short-term growth, which will then translate into a significant strategic partnership in the United States.
What is significant, however, and a major importance are the accounts that have had success that continue to extensively use Altrazeal, despite not being called on by sales representatives. In fact, we have a number of significant accounts that have adopted Altrazeal despite never being seen by our sales representatives.
As the landscape of healthcare changed in the U.S., Altrazeal is ideally placed to take advantage of the shifts in emphasis to an outcome -based system as compared to the current fee for service system. The greater the international success, the more valuable Altrazeal becomes in the United States. We intend to leverage our international success to achieve the most lucrative partnership for the U.S. market.
I’d now like to discuss our ongoing European operations. As I’ve previously stated, great progress is being made establishing the European network of distributor and marketing partners. A key underpinning of these activities is the establishment and expansion of key opinion leader support within the region and worldwide.
Altrazeal Trading Ltd. has been highly successful recruiting the leaders in the major markets to join the advisory board. The major European Wound Care Meeting, the EWMA, the European Wound Management Association meeting will occur in Copenhagen in May. There will be an extensive Altrazeal presence at this meeting, together with an anticipated free podium presentation by leading clinicians on Altrazeal.
In addition a symposium will be held which will bring together leaders from around the world to discuss Altrazeal and help the company outline the strategic direction for future development of Altrazeal. It is anticipated that these activities will further expose Altrazeal on the international wound care market.
Also, this will accelerate the adoption of Altrazeal on the international markets and assist with marketing activities where Altrazeal is already marketed. This is an extremely important meeting to have a significant presence and presentation by internationally recognized clinicians.
I’d now like to address Australia. We continue to receive positive feedback from the Australian market. There have been many positive clinical outcomes reported. Importantly, the favorable economics of Altrazeal has been a very positive benefit seen by the clinicians. Based upon the feedback we have received, we anticipate receiving our next order for shipment in the second quarter of this year.
Our veterinary market, we are anticipating an update on the launch of Derazil in the next 30 days together with a strategic outline for the commercial expansion of activities. As previously stated, there are significant limitations of what we can say at this point. This is principally due to competitive reasons. I’m looking forward to be able to provide additional information as soon as I’m in a position to do so.
China. As I previously stated, China has been somewhat of a disappointment. Communication difficulties make it a challenge to effectively operate with our current partner. We have been advised that only eight to 10 SFDA questions remain to be answered prior to receiving approval. Together with our partners in Altrazeal Trading Ltd., we are reassessing our current relationship in China, with the objective of maximizing this opportunity (indiscernible) short and the long term.
I’d now like to address strategic relationships that we are evaluating. Altrazeal Trading Ltd., our 25% owned company in Europe who has the rights to Western Europe, the Middle East, Australia, and New Zeeland for Altrazeal, are in the process of developing a network of distribution in marketing partners throughout the region. Outstanding progress has been made, and I anticipate that this network will be expanded to cover all major markets and many minor markets prior to the end of 2013.
In addition to the activities in this territory, Altrazeal Trading is also assisting the company expanding the international collaborations in Western Europe, Africa, and Asia. Also activates have commenced in South Korea, Canada, and shortly we anticipate activities in Japan and Latin America.
Now with the extensive experience internationally with Altrazeal, there is strong interest in securing the marketing rights for Altrazeal. In numerous markets now, two to three companies are competing for the rights to market Altrazeal.
I’d now like to address some product development. The decision has been made only to launch blister packs in the international markets. An initial order has been received for a 2-gram blister pack and is pending our manufacturing of this product. To fill this order, extensive tooling is required and packaging tests have to be conducted. The lead-time on the tooling is approximately 10 to 12 weeks; consequently we anticipate our first shipment in the third quarter.
Over time, we anticipate producing this packaging configuration for all markets to treat larger wounds. An evaluation will be conducted on whether it is necessary for a 5-gram blister pack. We believe for the veterinary market, a 5-gram blister pack would be a major advance in the convenience of administration of the product to large animals.
I’d now like to just address the whole situation of ordering and production and why that takes some time to commercialize the products in the international market. To better understand what is required to supply in new markets, I thought I would take a moment to outline the process for the first order you receive from a market and explain why it can be so time consuming.
There have been numerous challenges we’ve had to overcome to ship the initial 0.75 gram pack, including the production tooling, which had a 12 week lead-time, purchasing billing equipment, purchasing the printed packaging components which have an eight to 10 week lead time, and then qualifying the production process of the integration of the various equipment components.
Fortunately, this is now completed for the 0.75-gram blister. We have now started this process as I mentioned for the 2-gram blister. However, it is quite time consuming to produce the product for a new international market. Invariably, this requires new printed packaging components, which in most cases is a new foreign language.
After receipt of an order, we have to be provided with the certified translation of all the printed components, which includes the lidding of the blister, the carton, and the package inserts and in some cases there are two to three languages required on this printed material.
On receipt of the translations, our graphic designer has to prepare proofs with the customer approval. Once these are approved, we send them to our suppliers, who in turn provides proofs for approval. Once this has been approved, we then have to get a place in the production schedule, which can take four to eight weeks for these packaging components.
Once we receive all the package material, we then depending upon contract packager schedule the production, and that can take to further three to six weeks to pack the product and have it sterilized. Therefore, shipments of the initial order can take anywhere between 10 to 17 weeks from the receipt of the order. This is the principal reason why it’s difficult at this stage to accurately project what our quarterly revenues will be.
I would now like to address financing. With the completion of financing from our European partners, we believe that it’s a revenue projection that we have received or achieved, there is a high likelihood that we will not have to access the financial markets for additional capital. However, if we can improve on the financing terms or if we have an opportunity to require additional financing, we would seek capital to achieve our objectives. We will evaluate opportunities to reduce our cost of capital as they arise and consider business opportunities as they are presented to us.
I’d now like to move on to investor relations, which I know is a major interest of all of you. Over the past 27 months, we had associations with nine to 10 investor relations group or individuals, all of who believe that they could dramatically enhance investor visibility either by direct contact with their databases or through Internet contact.
With the exception of the group we engaged in December 2011 through March 2012, who ceased to operate once it was announced that we were moving to the OTC Bulletin Board, we have had very little or no success with these investor relations group. The most recent group, who is engaged from December 2012 through the middle of March of this year, although coming highly recommended by reliable sources, failed miserably despite all the enthusiasm and excitement.
In fact our daily average trading volume, which is the only metric I believe appropriate to evaluate their performance dropped from October and November, which was in excess of 70,000, down into the mid-35,000 range. Despite repeated promises, nothing materialized, and we were forced to terminate the relationship.
Fortunately, with the exception of the groups that were successful, we have been able to recover all stock compensation and have only lost the cash component of what we’ve given all of these groups. I think this is a very favorable outcome. It is substantial that we implement an effective IR program to attract long-term holders to the company.
I’ve avoided engaging newsletters to charge outrageous fees, which results in a spike in volume and share price only to see an equally rapid decline to where you started from or even lower. I’ve recently engaged another individual to implement an investor awareness campaign.
The company is also being exposed to European investors, and with the increase in our activities and visibility in Europe, we believe that a sizable shareholder base can be established in Europe. We will continue to strive to implement an effective investor awareness campaign, and as the business develops, we will devote more attention to this activity.
I would now like to address some investor questions that have been proposed to me, and I’ve taken ones that I receive the most often. Obviously, investor relations is the number one concern that I am presented with, and their release of PR. I believe that I have already answered the investor relations situation. It’s a high priority of the company and we intend getting this situation corrected.
With regard to the press releases, it has been our policy only to make meaningful announcements. That can be somewhat frustrating and it normally takes longer to compete important agreements and milestones and it can become sometimes between events. Ultimately we believe it is more credible for the company to limit press releases to important events rather than recording on insignificant items just to keep our name out there.
Lead to both IR and PR is our share price, which is a continuing frustration to our shareholders and frankly is also a frustration to our self. And like many of you we get a little frustrated with the current market capitalization, particular when you consider the capitalization of other companies and the outstanding progress that has been reported over the past 24 to 36 months. We will continue to work diligently to get our value recognized in the capitalization. It may take a little more time, but ultimately this objective will be achieved.
I’d now like to just briefly discuss strategic partnerships. This subject is quite often raised and people ask why don’t we disclose more of our activities. For competitive reasons made on many occasions we are asked not to disclose certain of our activates. We recently announced significant process in Europe, but we are precluded from announcing the country, as they did not want to alert the competition of their activities.
Given what we have achieved in numerous international markets, we are now firmly on the radar screen of may of the major wound care competitors. Consequently we don’t want to give advance notice of the timing of that market entrance.
I’m also asked about projections and guidance. I am reluctant to provide guidance at this point, as the time of one shipment can dramatically impact us in entry results. I believe that we should in a position to provide guidance commencing at the fourth quarter of this year. We have already stated that we anticipate achieving positive cash flow and earnings before interest, appreciation and amortization and taxes in the fourth quarter of this year.
In summary, during 2011 and 2012 we have established a base for our future success. With the financings we ended in 2012, we now have the resources to move forward aggressively to implement our business plan. We have overcome many adversities during this time and thank the core shareholders who have stuck with us during these difficult trying times.
We have always believed in our technology in Altrazeal. We’ve experienced effects that will convince that ultimately Altrazeal will be recognized as significant advance it is in the wound care market. We believe that we have now reached that point. I am now convinced that over the upcoming 24 months, Altrazeal will become a major presence in the global wound care market, and will be available extensively throughout the world.
The company, we focus on providing the necessarily support to our global partners to successfully market Altrazeal in their territories. This is a very exciting time for the company. By achieving what I have outlined over the upcoming call, the 24-month period, I believe that our shareholders who have a share and great patience will be rewarded.
I would now like to answer any questions you may have.
(Operator Instructions). There are currently no questions waiting from the phone lines.
Very good. Well, I’d like to thank everyone for participating. I’m truly excited about where the company is and the direction of the company at this point. I’m looking forward to communicating to you significant progress in the commercialization of Altrazeal throughout Europe and to share their successes, and I believe that 2013 is going to be a very, very good year for the company.
Thank you very much.
Ladies and gentlemen, this now concludes the conference.
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