Kerry Gray - President and CEO
J.J. Hart - Analyst
Charles Gramy - Analyst
ULURU Inc. (OTCQB:ULUR) Q2 2013 Results Earnings Call August 15, 2013 9:00 AM ET
Good morning. And welcome to the ULURU Second Quarter 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, Kerry Gray, President and CEO. Thank you and enjoy your conference. You may proceed, Mr. Gray.
Thank you. Good morning and thank you for joining the earnings 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, 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 other similar expressions maybe indicative of forward-looking statements.
These statements by their nature involve substantial risks and uncertainties, some of which are beyond the company’s control. The company cautions that various factors, industry trends and the food and drug administration regulations could cause actual results to or outcomes to differ materially from those expressed in any forward-looking statements of the company.
Any forward-looking statements presenting as the date in which these statements are made, and the company undertakes no obligations to update any forward-looking statement or statements.
These statements are subject to numerous 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 with the Securities and Exchange Commission.
That being said, let me now start -- let me just give a brief introduction. Over the past 12 months, the character of the company has totally changed. A significant portion of the company’s resources is now diverted to production related activities, including the documentation associated with complying with our quality system.
The logistics associated with rolling out -- Altrazeal out into many international markets is not trivial. There is extensive internal paperwork and approvals required for all foreign language components.
Where possible, we are trying to anticipate the product rollout by getting dropped, cartons and lidding materials produced to review by our international partner. Currently, we are producing Altrazeal for launch in four countries, which we anticipate shipping by the end of August beginning of September.
In conjunction with our European partners, we continue to make solid progress. Now that summer vacation in Europe is concluding, we anticipate that we will be shortly updating you on further progress.
Despite all of the increased workload that production has given, we have maintained a constant headcount during the past nine months. We will continue with this headcount until our quality systems demand an increase in employee to comply with the requirements of the increased volumes.
Let me briefly discuss the financial statements. As stated in our press release of the delay in the shipment of our orders to Czech Republic, Slovakia, South Africa and Portugal, which reduced our revenue below our prior projection.
Our expenses continued to be below prior year, despite the increase in activities within the company. The cash expenses incurred in the second quarter were slightly above $500,000. It is planned to maintain our expenses at these levels to the balance of 2013 with the exception of special item such as potential clinical trial expense.
Over the balance of the year, we will be committing a small amount of capital expenditure to improve the production process for Altrazeal. Otherwise, we don’t anticipate any major changes to our financial statements for the balance of this year with the exception of increases in product revenue.
Let me move on to a very important issue that is our ISO audit. I am very pleased to report that this week we successfully completed our ISO 9001 and ISO 13485 audits. There were no non-compliance findings by the BSI auditor who is unidentified body.
For an organization of our size, I believe this is an outstanding result and reflects the quality of the individuals within the company. Compliance with ISO 13485 is essential for maintaining the CE Mark.
Given the number of issues within the medical devices in Europe, going forward it is anticipated that regulations will become more stringent and that ordering will be more demanding and unannounced orders will occur. As an organization, we are committed to maintaining the highest compliance standards and compliance with the regulations in our quality system.
Let me now move on to, update you on some activities in the United States. During the next 60 days we intend to initiate a clinical study within the United States with a highly influential clinician to provide additional credibility to support marketing activities for Altrazeal worldwide.
This study will be designed to show accelerated healings and pharmacoeconomic benefits compared to current standard of care. It is anticipated that in the not too distant future there will be a major change to the reimbursement program for wound care in the United States where it will be no longer fee-for-service which promotes the use of highly expensive ineffective treatments such as hyperbaric oxygen, but rather it will be capitative fee structure where cost effective products become the standard of care. We are very well-positioned to compete in that market and we are preparing to be able to take advantage of the opportunities this will present in the United States.
Having an additional randomized clinical study to support Altrazeal will further distance us from the competition. This with our ongoing European study should provide us with all the necessary control clinical data we require to differentiate Altrazeal from all of our competitors.
Now, I’d like to move on and discuss Europe. Our activities in Europe continue at a high paced, although the vacation periods tend to slow things down a little in June, July and August.
The activities are basically fourfold, launching Altrazeal in new markets, expanding the market and distribution partnership (inaudible), developing additional clinical support for Altrazeal and concluding clinical studies.
As we have reported, we are in the final stages of launching Altrazeal in Portugal, Czech Republic, Slovakia and South Africa. Shortly, we should be announcing additional market where we plan launching Altrazeal this year. It is accurate to say that the interest in Altrazeal is much broader than we had anticipated and in markets where we had thought pricing would have been an issue.
By year end we are looking forward to receive clinical results that we believe will clearly demonstrate the cost effectiveness and clinical benefits of Altrazeal, which are currently being conducted in Europe.
Let me now move to strategic relationships. There are significant activities regarding the expansion of Altrazeal marketing partnership network and also extending the areas where we are looking to launch Altrazeal.
Over the part 90 days, activities have increased or commenced in the Indian subcontinent, Southeast Asia, Korea, Latin America, Eastern Europe and the Commonwealth of Independent States.
I look forward to sharing with you our progress in this area in the near future. In addition, work has commenced on partner activities in muco-adhesive film technology. There are some near-term opportunities that have been pursued in this area.
Let me now move on to discuss our production. Now that our production is ongoing on the quarterly basis, we have assist ways in which we can reduce our production costs. Given the fluffy, light-weight and need to handle a powder carefully, not to change its transformation characteristics, conventional feeling systems are inappropriate to fill this material. Despite adverse issue that we modified volumetric fill up, a contract manufacturer has experienced some difficulties filling over that.
A weight-based system has been identified which will substantially increase accuracy and filling speed and reduce material waste. This system should be operative by year end. We are now in the process of identifying economic order qualities with carton, lidding and blister material. We are projecting significant cost savings from this project.
Also we are in the process of changing manufacturer of our bulk powder as our previous manufacturer no longer manufacture pharmaceutical grade materials, but it’s focused more in the area of serials and (inaudible) utilization of fruits.
As it’s anticipated by mid 2014, our cost of bulk powder will be reduced by approximately 60%. By implementing the above programs the cost of the finished product should be reduced by 40% by this time next year.
Let me now discuss the strategic meeting that will take place next week. In conjunction with the business from our European partners, we intend to discuss the strategic direction of the Altrazeal franchise. We are now in the position to focus on new product development for Altrazeal.
There are many possibilities including antimicrobial, growth factors, collagen and the [breeding] agents. To maximize the global opportunity we intend receiving input from both U.S. and European wound retail experts. Products that are widely used in Europe are not so commonly used in United States and vice versa.
One opportunity that will be evaluating there is a possibility to utilize Altrazeal with antimicrobial solutions to reduce antibiotic use. This is becoming a major issue worldwide given the increase in resistance to antibiotics.
The ability to remove antibiotic used in wound care will be a very positive development and a significant cost saving for the medical system. Initial work with those factors indicates we could have a highly cost effective approach compared with current treatments for the delivery of biological active compounds. This could place us at major competitive advantage as current approaches would be 10 to 25 times more expensive than our approach.
Given the versatility of Altrazeal and the many potential product opportunities, it is important that any new development be carefully prioritized.
Let me move on now to publications. Currently, we are working with three groups to publish both clinical and pre-clinical work that is being conducted on Altrazeal. Extensive work was previously conducted with the University of Texas Southwestern Medical Center. This work is now being evaluated for publication.
We are working with the Wound Care practice in Australia to present with the outstanding clinical data in Copenhagen to assist in the publication of this outstanding data in -- which includes 10 extremely difficult patients to treat.
In addition, we are assisting our European partners and make clinical advices, publishing clinical data obtained both in Europe and the United States, as well as a paper on bacterial inhibition which was reported in the second quarter. A paper on skin graft donor side has been accepted to publication and a paper on most control negative pressure will shortly be submitted for publication. Publications peer-reviewed journal led significant creditability to Altrazeal and increase awareness levels.
I’d now like to move on to discuss the number of activities we have ongoing, one is restructuring our balance sheet. We currently working on restructuring a number of our past financing to simplify our capital structure and reduce potential shareholder dilution. It is anticipated that will be in a position to announce this restructuring shortly.
We continue to evaluate ways in which we confirmed the operations with as minimal dilution as possible. This is a high priority with in the company. I’m very pleased with the amount of transactions that we ended into last June. It has provided us the necessary funding on the timely basis and relative to alternative structures has resulted in the significantly less dilution.
This financing together with a strategic investment made by Melmed Holdings have proved to be very positive for the company. If we would have used conventional pipe transactions, we would have to have given discounts of 30% to 40% with the 100% warrant coverage when our stock was only $0.27. This quarter resulted in dramatically more dilution.
I’d now like to move onto an area where we haven’t experienced the success I would have liked in managing investor relations. Frankly, we’re struggling in the area of investor relations. Despite this struggle, there has been significant appreciation in our market capitalization during the second quarter.
We are focused on attracting a medium-to-long term holders to invest in the company. Finding such investments -- investors is more difficult than investor to gamble in substance and stocks which trade massive volumes based on newsletters and other social media communications. We have may progress which should become more apparent in September.
This will take the form of more traditional approach including securing investment banking grade, market research from the company. Our objective is to get the market capitalization of the company to a level where we can attract small microcap institutional investors and our current market cap, even a small institution isn’t capable of participating because to make a meaningful investments, would necessitate accounting in excess of 10% holder which they wish to avoid.
This has been a very difficult process. So it was shifting through many potential alternatives, many of which are not entirely scrupulous. The progress of the business, the result we have achieved and the excitement we have in the near term has enabled us to attract higher caliber groups to take an interest in the company. I will divulge necessary time to this activity to maximize exposure to the correct investor audience.
I would now like to address investor questions that have come to my attention. The major question I see in here revolves around the appreciation in our market capitalization. I believe that I have just now addressed that situation. There are a number of diligent investors who do due diligence on our activity and keep abreast of the competition and follow product information releases from our competitors.
Recently, I became aware of a question regarding living skin equivalent products. There are many such products and approaches in this area. I believe there are greater than 20 to 25 products with Dermagraft and Apligraf being the dominant players.
Each products are highly expensive costing between $500 and $2,500 per application depending upon the size of the wound. Currently, the reimbursement system in the U.S. not only pay for these products but pay physicians a sizable fee to apply the product.
Like all categories in wound care, there are many similar products that are not differentiated. I repeatedly see small companies that are launching a new collagen product, a new silver product and these living skin equivalents. There are greater than 20 products in all of these categories which is also the case for other treatments such as alginate wounds, hydrogel and other approaches.
Consequently, a company has to convince the doctor that his silver or collagen is better than the competitor’s silver or collagen. This is a very difficult sale, particularly when the competitor may have 10 to 15 times the sales power of the smaller company. Altrazeal, on the other hand, is unique. Nobody has a similar approach and there cannot be a similar approach based upon our patent position until 2029. This provides us with a major advantage as we move forward.
Also with a number of the expensive approaches, with cost capitation looming, where a doctor will receive a fixed fee of say $2,500 to $4,000 to heal a patient, the doctor will be then focused on the most cost-effective treatment because that is how he is going to maximize his competition, which we believe will be a major benefit for Altrazeal. Utilizing 100% of his compensation on one visit does not appear likely going forward.
In summary, we continue to execute our business plans. With so much activity ongoing, it is very important that both ULURU and our partners maintain focus on systematically expanding the launch of Altrazeal.
We’re confronted with many opportunities which must be carefully prioritized. Great progress has been made on numerous fronts in the first half of 2013. We are significantly stronger company than we were 12 months ago, with the quality system in place and working which will enable us to keep pace with the ever expanding international demand for Altrazeal.
We’re focused on execution, being able to support our global activities from the clinical, marketing, production and logistics viewpoint. I’m confident that we’re positioned to do this at the required level. The second half of 2013 is shaping us to being a period of very high activity. I look forward to updating you on our progress.
Thank you. I’ll now answer any questions you may have.
(Operator Instructions) Our first question comes from the line of [J.J. Hart]. You may proceed.
J.J. Hart - Analyst
J.J. Hart - Analyst
Could you provide an update on their results, please?
The update is that the product is on the market. I get very little feedback as I would anticipate given the company we’re dealing with. I would expect that we will be hearing further information probably in the next 60 days.
J.J. Hart - Analyst
Great. Thank you.
Thank you. There are currently no additional questions waiting from the phone lines.
Well, thank you very much. I believe that we’ve made some significant progress. I’m totally convinced that it will take not too much of the time now before we’re going to be able to see some pretty exciting results coming from the company. And we’re totally committed to delivering this for our shareholders. Thank you very much. Sorry?
We do have a question from [Charles Gramy].
Charles Gramy - Analyst
Mr. Kerry, my compliments on your -- the strategic accomplishments that have been very impressive over the last six months to a year. My question though is a little bit more about as opposed to the strategic -- the more nuts and bolts of production. You mentioned that there was a small problem with the fill of some of the packages for delivery. Are we actually at a point where we are seeing orders and actually shipping in many of these markets? I know you mentioned five of the markets were actually delayed for shipment.
Yeah. We’re in the process of manufacturing right now. We’re not at right now producing it at the speed we would like in terms of -- we would like to get this process to producing 30-35 packs per minute.
We’re not at that level yet, but we do have as I mentioned -- we have identified the way in which we can get to that level by the end of the fourth quarter this year and that will be just changing our filling system. But we’ve now manufactured -- we’ll have manufactured by the end of this month nine batches of the product over the last 12 months. We’re supplying and fulfilling orders now.
Charles Gramy - Analyst
Thank you. There are no additional questions.
Thank you very much.