Kerry P. Gray – President and Chief Executive Officer
ULURU Inc. (OTCQB:ULUR) Q3 2013 Earnings Conference Call November 15, 2013 9:00 AM ET
Good morning and welcome to the ULURU Third 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 turn the conference over to Mr. Kerry Gray, President and CEO for the Company. Thank you and have a great conference. You may proceed, Mr. Gray.
Kerry P. Gray
Thank you very much. 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, certain of which are beyond the Company's control. The Company cautions that various factors including industry trends and the food and drug administration could cause actual results to or outcomes to differ materially from those expressed in any forward-looking statements of the Company. Any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation 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.
Let me give now a brief introduction. This conference call is very timely as I recently met with our European partners and this week conducted our first in-person investor meetings. The first of these events will highly uplift experiences having the opportunity to sit back and discuss not only the clinical and commercial activities, with our partners, but also the future directions for Altrazeal and a detailing that we have anticipate. That was truly exciting.
Likewise, not having had face-to-face contact with potential investors in some time, and having the opportunity to communicate are rapidly expanding story and to receive investor feedback, this also was a very positive experience. I believe that we are now well ahead of schedule to achieve our objective of having Altrazeal launch in more than 50 countries by than the end of 2014. I know you’ve heard me say this before, I continue to be amazed at the best of the interest in the commercialization of Altrazeal.
I never would have thought that Altrazeal could have been lowest in Eastern European markets, African markets or many other developing markets including countries such as India. To the country there is significant interest in these markets, which are markets with very high incidences of chronic wounds in particular diabetic foot ulcers.
A major advantage we have as a Company is that Altrazeal has a cost benefit ratio associated with it, which makes it very appealing to potential partners. Also the sales price, unlike many other approaches in the advanced wound care, we are apprised that enables us to compete globally. This represents a major competitive advantage and opportunity for the Company.
Let me now briefly address the financial statements we release this morning. Revenue in the third quarter and year-to-date has been negatively impacted by two factors. Production lead times have been greater than projected, due primarily to translation issues and the power of the lean [ph] equipment. And secondly a reduction of $50,000 in Altrazeal royalty due to the expiration of the licensing agreement.
I will address the filling issue when I discuss production. With regard to the elimination of Altrazeal royalties we are in discussion on ways, this could not only be replaced, but dramatically enhanced. Given extensive work required to produce the initial order for the country and the extensive involvement of the marketing partner in the approval of packaging, it makes it difficult to accurately project order shipment dates.
Once the initial order is completed this unknown is eliminated. Consequently, accurately projecting quarterly revenue performance during this initial loss period can be some what of the challenge. If orders in process could have been filled prior to the end of the quarter, reported revenue would have more than doubled.
During the third quarter, cash expenses were approximately $480,000, a level we are projecting to maintain at least, least until the second quarter of 2014. This is a reduction of over $40,000 from 2012 third quarter levels. On a year-to-date basis our monthly cash expenses have averaged $160,000 monthly, compared to $205,000 monthly in 2012.
I would now like to briefly address a reported cost of goods sold. During the initial launch phase which includes nearest one time cost, no economies associated with production scale and inefficient purchasing of components. Our margins are significantly lower than we projected. In the near future anticipated that margins will occur at 75% to 80%.
As I alluded to during the last conference call, we redeemed the outstanding preferred stock through the cancelation of a note receivable. This preferred stock was convertible at $0.70 and represented a potential cap on stock appreciation in the future. Our capital structure is now simplified being solely common stock and options and warrants to purchase common stock. In addition to that balance restructuring, we’ve also in 2013 reduced liabilities on our balance sheet by over $1,170,000, improving our balance sheet position has been an ongoing objective and will continue.
I now would like to address our CE marks last month I reported the successful combination of our ISO 13485 and ISO 9001 order. Since then we’ve had a further order of our technical file associated with CE marks which was also successfully completed. I’m very pleased to report BSI our notified body responsible for the issuance of that CE marks were highly complementary of our file particularly in light of the fact that this is our first CE mark file. I believe that earning speak highly of the quality of work that has been conducted in the company.
Let me briefly address our activities in Europe. Our activities in Europe continue at a very rapid rate, these activities are not limited to Western Europe but and Eastern Europe the CIS or Commonwealth of Independent States, Turkey the Middle East and the Indian subcontinent. We have an aggressive loan schedule over the upcoming six to eight months where we anticipate launching Altrazeal in an additional 16 major markets.
It is anticipated with the possible exception of Francs Altrazeal will be available throughout the European Union by the end of 2014. With the expanded activity in Europe the data base supporting Altrazeal continues to increase, it is very pleasing to see that the clinical data is very consistent in all markets to-date. Altrazeal has had a presence at numerous regional wound care meeting throughout Europe and has been the subject of many lecturers in our presentations. The response received at these meetings is extremely encouraging.
I would now like to briefly address the diabetes market. As we have expanded our commercialization activities to include many developing markets. We have more closely look at diabetes incidence of diabetes outside the develop world. Due to cost of Altrazeal we are in a position to compete in these very large and rapidly expanding markets. With the exception of U.S. and Japan the remaining eight markets in top 10 diabetes incidence markets in the world are developing countries, including China, India, Brazil, Russia, Mexico, Egypt and Indonesia.
There are an estimated 14.7 million diabetic foot ulcers patients in the top 10 markets in 2011 and this is projected to grow to almost 22 million by 2013. This represents a tremendous opportunity for Altrazeal. Obviously not all of the population of these nations have access to healthcare; however, the percentage is high and increasing. Importantly, due to the cost benefit profile of Altrazeal, pricing in these markets has not been a significant issue and we anticipate being able to realize very close to our worldwide pricing objective in these markets.
Strategic meeting, as I discussed on our last call, we were planning to have a strategic meeting to discuss the future development of Altrazeal with our European partners, European medical adviser and U.S. medical adviser. We conducted this meeting during the quarter. It is important to receive advice from both Europe and United States as these are quite significantly different markets in that products used for wound healing are quite different in both areas.
Europe is clearly cost benefit based and as such products including bio engineering materials minimally if at all used in Europe. The direction of this meeting was clear, continue to develop and establish Altrazeal prior to looking to extend the product line. In the area of antimicrobials, the advice was to promote the use of Altrazeal in combination with many of the effective liquid antimicrobials that are on the market.
The focus coming out of this meeting was, continue to develop on the clinical data packages to supports presentation to CMS and the integrated delivery networks. The major hospital changes here in the United States. Aggressively pursued publication include key clinical data. To develop that we established Altrazeal is a new gold standard of care in wound such as venous leg ulcers and diabetic foot ulcers. And work to create pharmacoeconomic data set. This is our focus, which is designed to have Altrazeal rapidly adopted in the global markets. Providing pharmacoeconomic data to our partners is an extremely important objective. Initial data generated is very encouraging and we anticipate that we’ll have a data set available in the first quarter of 2014.
Let me now address strategic partnerships. As you may have seen during the quarter, we extended a strategic relationship with our European partner to include Latin America, the Commonwealth of Independent States and the remaining part of Africa including South Africa. Already, there are marketing agreements in place in the expanded territory and it is anticipated that further agreements will be announced shortly.
We are extremely pleased with the performance of our partners who have extensive worldwide contacts in these areas developed in the prior business. It should be noted that ULURU maintains a 25% non-diluteable ownership position in Altrazeal Trading Limited and Altrazeal GmbH.
The company is responsible for the commercialization activities in many of the global markets. This is an important appreciating asset of ULURU. In addition, ULURU has the right to purchase the 75% ownership of these entities that it currently does not control at an agreed, pre-agreed value.
As we’ve previously stated all of our – almost all of our entire focus has been on Altrazeal. However of late that has been interest expressed in our RO technology. We are currently advancing discussions in this area, but our primary focus on Altrazeal.
Now, let me address production, with the introduction of a highly innovative new product, you must anticipate that there will be numerous production and packaging issues, we have been confronted with these issues and are now confident that we have resolved these issues.
Initially Altrazeal was launched in a foil pack, which was quite well received that had limitations in applying the product and the doctors being able to see the product flow. This was corrected by the introduction in the booster pack with a built-in product applicator.
The next issued confronted was filling in the product. Conventional all the fillers are not appropriate for Altrazeal as they change the product physical characteristics. We move to the volumetric fill up, however due to the density of this product which is 33 times less dense than water, and has somewhat of a variable densities this was not considered the long-term solution.
Today we receive a weight-based filler that has the ability to accurately fill Altrazeal to levels well inside the required standard. This filler has the capacity on a two shift basis to fill over 6 million blister annually, which will certainly satisfy on near-term requirements. We’ve also put in place the logistic systems the process orders with the objective of a 60-day turnaround after the initial order, as volume increases our goal is to further reduce this lead time, while inventorying more components more to product.
Let me read publications, during the past quarter the clinical paper on the randomized clinical study on skin graft donor sites was published in the International Wound Journal. As I have previously stated it is the high priority of the Company to gain additional publications, in peer-reviewed journals.
Since the last call we have made further progress in this regard and I’ve identified numerous publication opportunities, over the up coming 12 months this is plan to have a further four to six papers published in peer-reviewed journals. From the response I’ve received in this period that the credibility and visibility are achieved with these publications.
I would now like to address investor relations. After the numerous disappointments we have experienced with investor relations firms and resulting frustration for both you and the Company. I now believe that we are on track to resolve this issue. As I’ve stated on the last call, we have opted to take more traditional approach to investor relations, by now you will hopefully have had the opportunity to read the outstanding and comprehensive report that was issued by exec research.
I was very impressed by the detail and depth of this report, which I believe is a very helpful marketing tool for the Company and it will be a great resource moving forward. This report not only provided in the analysis of ULURU, but also in sides into the future direction of wound care.
In addition to this activity we have recently appointed a new investor relations firm to assist us with investor relations. I was very pleased with the quality of the meetings that they arrange for me this week, it is our plan to conduct two to three days of in-person meetings with 20 to 40 potential investors monthly depending on the numbers they diverted to this activity.
I’m convinced that this is the way to most effectively communicate a story and gaining market awareness. While social media, news letters and e-mails may play a role in investor relations. I believe there is no substitute in person and telephonic meetings through these activities I’m optimistic, that we can generate much greater investor awareness and have the value of that technology in advanced commercialization reflected in a market capitalization in the upcoming months.
I would now like to address some investor questions that I most frequently hear. The first question regards the cash position of the company. The way in which we have structured the company’s financing it means that at quarter end, we do not have large cash balances on your balance sheet. In slightly over three months from the end of the second quarter a strategic investors will invest a further $800,000 in the company. Also there is a potential for warrant exercise for a further $1.8 million. We believe that if this was to occur, we would not access the financial markets for additional funding. We have also access to $700,000 from the promissory note, if this is needed.
I now like to address stock trading and the share price. The only comment I can make is I believe that we now have in place the necessary pieces to improve our liquidity and build shareholder value. This is a process and will take some period of time for our capitalization to reflect what we collectively believe is the true value of the company’s assets. As you’re aware, we will previously disappointed with the efforts or like there of prior IR consultants, I’m confidentially now have in place a group with the necessary programs to correct the situation.
In summary, I apologize that this has been a little long; there are many thing happenings that we rollout Altrazeal around the world. This is a very exciting time for the company. Currently almost all of our resources at various stages support of our commercial activities. We’ve established aggressive goals for the company. And I believe that these will be achieved on a timely basis. I believe that we are well ahead of schedule to get Altrazeal on the market in 50 countries by the end of 2014, and we are committed to achieving this objective. Also we are focusing on efforts on providing all the necessary data and tools to enable Altrazeal to become a major participant in the advanced wound care market.
I would now like to open the floor for questions that you may have.
Certainly. (Operator Instructions). Our first question comes from the line of Jason Napodano [ph]. Please proceed.
Kerry P. Gray
Good morning, Jason.
I appreciate the update their Kerry that was thorough. Just wanted to get a little bit more detail if you would about the pharmacoeconomic data that you guys are generating and hope to have by the first quarter of next year. Can you give us a sense of where you are generating the data and kind of what you’re kind of hoping to demonstrate there? And then as far as where you are in Europe, I believe you got a the VLU studies ongoing in Europe with data sometime maybe next year, early next year, so any update on that as well would be helpful?
Kerry P. Gray
Very good. With me got to pharmacoeconomic data. There is a company in Germany, that you can submit all group of patients to and all of their history, and they will put it into their model and they will tell you how much conventional wound treatment that being very [indiscernible] something such as that would have cost to treat that patient.
I will then tell you what the more advanced moist wound healing, the advanced dressing time that would cost then it will tell you how much Altrazeal will costs. So, it’s a well regarded database that you can fit to most European markets that have all of the reimbursement clearly defined. So this should – we would anticipate putting many patients through this and get a very good database.
The second one is the update on the venous leg ulcer study; it’s basically on track for getting data in the first half of next year. I haven’t had any great update since in the last 60 days, but we know that there has been good patient accrual and so we should be on track to deliver that.
And then your plans in the U.S. I suppose at some point I mean you are going want to come to the U.S. and do either a VLU or DFU study at some point. Any kind of thoughts on and when that might happen.
Kerry P. Gray
We’re hoping to the start a DFU study in the first quarter of next year. That’s our plan.
Very interesting. And then finally just from a big picture standpoint CMS is going to issue an update, final guidelines I guess for whether they are moving towards packaging for wound care products, I think at the end of this month so we are about two weeks delay from a CMS decision in that regard and just would love to kind to hear your thoughts about CMS and packaging and where you think they maybe heading in 2014, the preliminary decision made it seem like they were absolutely heading towards packaging, but I know there is a lot of lobbying on both sides and whether or not they can go bold or kind of we pushed around I guess by some of the opponents of packaging remains to be seen, but we would love to hear your thought.
Kerry P. Gray
My thought on this is, I don’t think ultimately packaging is going to be the big issue, I think and for those people on the line packaging is where Doctors be and the product is all combined and there is one reimbursement price, and that would result in a lot on the expensive products, their prices coming down by more than – all most two-thirds which would cause a lot of economic hardships to those companies.
I think the big issue going forward is a pace of performance, I don’t think that the U.S system going forward could continue with the current system and I believe and a number of my advisors believe that in the next through maybe 18 months to 24 months is going to be a capitation where a person goes in and the doctor says okay you have got grade-A venous leg ulcer and I right that up and Medicare gets up there and says okay, for that we will give you $4000 to treat it until healing. I think down the line that is even a bigger issue and a favorable issue for us because at that point in time people are going to be looking for cost effective treatment.
Correct, appreciate your thoughts there on that Kerry and congrats on all the progress that you being made.
Kerry P. Gray
Thank you very much Jason.
Thank you. (Operator Instructions). There are no additional questions waiting from the phone line.
Kerry P. Gray
Well thank you very much for your participation, I know a lot of you have been very supportive and very patient that I believe the company rapidly approaching a position where I think you will be excited as we are with the progress that we are making and hopefully that translates into a significant increase in shareholder values. Thank you very much.
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