Cytomedix's CEO Discusses Q4 2013 Results - Earnings Call Transcript

| About: Nuo Therapeutics, (NUOTQ)

Cytomedix, Inc. (CMXI) Q4 2013 Results Earnings Conference Call April 1, 2014 8:00 AM ET


Michael Wood - MD, LifeSci Advisors, Investor Relations.

Martin Rosendale - CEO

Steven A. Shallcross - EVP, CFO, Secretary and Treasurer

Dean Tozer - EVP and Chief Commercial Officer


Jason Napodano - Zacks Investment Research

Steven E. Freed - GreenWave Financial Markets, LLC


Good day, ladies and gentlemen. And welcome to the Quarter Four 2013 Cytomedix Earnings Conference Call. My name is Carol and I will be your operator for today.

At this time all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (Operator Instructions). As a reminder the call is being recorded for replay purposes.

And now I’d like to turn the call over to Mr. Michael Wood, Managing Director of LifeSci Advisors. Please go ahead.

Michael Wood

Good morning. This is Michael Wood with LifeSci Advisors. I would like to thank you for participating in today’s Cytomedix fourth quarter 2013 earnings conference call.

Joining me from the company this morning are Martin Rosendale, Chief Executive Officer; Steve Shallcross, Chief Financial Officer; and Dean Tozer, Chief Commercial Officer. Here is an outline for today’s call. First, Marty will provide an update on the recent Deerfield financing announced last night, AutoloGel launch initiatives as well as research and development activities. He will then hand over the call to Steve who will provide you with a summary of the fourth quarter and full year 2013 financial results. Then Dean Tozer, newly appointed Chief Commercial Officer of the company will join the call. Finally Martin will conclude with an outlook for early 2014 before opening the call to questions.

After the market closed yesterday, Cytomedix announced financial results for the fourth quarter and full year 2013. If you have not yet received this news release or if you would like to be added to the company’s distribution list please call LifeSci Advisors in New York at 646-597-6992 and speak with Paul Arndt.

Before we begin today’s call I would like to caution that comments made during the conference call will contain forward-looking statements that involve risks and uncertainties regarding the operations and future results of Cytomedix. Actual results could differ materially from those projected. I encourage you to review the company’s filings with the Securities and Exchange Commission, including without limitation the company’s Forms 10-K, 10-Q, including the most recently filed 10-K which identifies specific risk factors that may cause actual results or events to differ materially from those described in the forward-looking statements.

Furthermore, the content of this conference call contains time sensitive information that is accurate only as of the date of this live broadcast, Tuesday, April 1, 2014. Cytomedix undertakes no obligation to revise or update any statements that reflect events or circumstances after the date of this conference call.

I'd now like to turn the call over to CEO, Martin Rosendale.

Martin Rosendale

Thank you, Michael. Good morning everyone and thank you for joining us. I am Martin Rosendale, Chief Executive Officer of Cytomedix. First of all this morning we are very pleased to announce that we have entered into financing agreements with the Deerfield Management Company and the Anson Group.

Under the terms of the Deerfield financing they are providing us with up to $35 million in funding under a convertible debt financing. This facility provides us with an initial draw of $9 million at closing and we will receive a further $26 million once we have received authorization by our shareholders to increase our authorized capital stock at a special shareholder meeting. The tranche structure of this financing will also allow the company to evaluate the RECOVER-Stroke study data and under specific circumstances related to the study results allow the company to elect to pursue alternative financing options in lieu of taking the second tranche.

Concurrent with the Deerfield financing the Anson Group has agreed to provide an addition $2 million in equity funding. This financing arrangement in total gives us the resources to execute on our plan of building a profitable and successful commercially focused wound care business through 2015. We are happy to have Deerfield as a partner and encouraged by the confidence both Deerfield and Anson have shown in the potential of AutoloGel. Steve will provide more details in his discussion later on.

Regarding AutoloGel our main focus now is the commercial launch of our wound care product under the Coverage with Evidence Development Program. The AutoloGel system is our proprietary point of care device for the production of a platelet-based bioactive therapy for the management of wounds. It's been cleared by the FDA for use in a variety of exuding wounds and we are in the process of launching it now with Medicare coverage and sufficient payment into the estimated $3.4 billion U.S. chronic wound market.

We had to go through a fairly lengthy process to get the appropriate reimbursement coverage but we're pleased with the final decision by CMS in November 2013 regarding payment regulations for the hospital outpatient perspective payment system and the Medicare physician fee schedule. To remind you Coverage with Evidence Development or CED is a program under which CMS agrees to provide reimbursement for certain products and services, such as AutoloGel while at the same time generating additional clinical data to demonstrate the impact on health outcomes.

The reimbursement quota assigned to AutoloGel under the CMS final decision allows for reimbursement at a national average rate of $411 per treatment. The payment decision which came into effect on January 1st this year significantly expands the coverage for AutoloGel and allows providers in the outpatient setting to treat a broad patient population with a variety of wounds.

We believe this outcome provides Cytomedix with a substantial and economically viable business opportunity and we are now in a position to sell AutoloGel into this market at attractive gross margins. For the Medicare physician fee schedule which covers AutoloGel using physician's offices and which represents a separate market from the outpatient setting, the final payment rules were consistent with those initially proposed by CMS in July of last year. The Medicare Administrative Contactors or MACs had been directed to set the payment rates for claims for AutoloGel based on the claims and invoices they are submitted by healthcare providers. This effectively allows the individual contractors to determine the level of reimbursement.

With favorable reimbursement in place and ample financial resources we are now in a position to undertake a major launch in wound clinics. We've begun treating Medicare patients and our current focus is on completing CED requirements. Our launch strategies are focused on key high density markets that we believe will offer the greatest revenue generating options. We have been recruiting for and building out our commercial teams to support market requirements and CED activities. You will see that we also issued a separate press release last night announcing two key strategic management hires.

Dean Tozer, who is coming on board as our Chief Commercial Officer and Jennifer Linsky, who is our Senior Director of National Accounts. You should expect further additions and announcements in the future. Dean has been consulting for Cytomedix for about six months now and we are very excited to have him join us full time. He's an accomplished healthcare executive with a particular expertise in wound healing and a proven track record of launching products into that space.

He has been five years with Advanced BioHealing, where he led the acquisition and relaunch of Dermagraft and was responsible for the reintroduction of that product into the U.S. wound care market. Within just a few years of launch Dermagraft achieved annual U.S. sales of almost a $150 million prior to being acquired by Shire. We feel very fortunate to have Dean join our team. We think he is one of the top people nationwide in wound care and we see him playing a pivotal role in building our AutoloGel business and establishing the brand.

Following Steve's review of the financials Dean will take a few minutes this morning to provide some additional commentary on what he sees as the market opportunity in wound care and our plans for AutoloGel. Jennifer Linsky, our Senior Director of National Accounts has more than 16 years experience in sales and marketing. She also brings to us a very strong background in wound care having recently spent five years at Shire Regenerative Medicine where she launched a successful business development and disease management program aimed at the diabetic foot ulcer market.

Turning now to our Bright Cell technology program, we announced in January that we had completed enrollment of the RECOVER-Stroke trial, a landmark study of ALD-401 cells used to treat ischemic stroke. Based on an interim resizing analysis that we conducted at that time we concluded that the trial is adequately powered based on pre-specified assumptions at an enrollment of 48 patients. Specifically this analysis determined that the trial was adequately powered to demonstrate a clinically appropriate difference in the primary efficacy endpoint. We stopped screening or enrolling any new patients with that announcement and look forward to announcing top line results in May this year.

We announced last year a strategic reorganization of our R&D operations and with this trial now fully enrolled our financial obligations to this study and the program have been substantially reduced. We're continuing to investigate various potential options for maximizing the value of the Bright Cell technology and we will keep you updated once the clinical data is released.

We also announced last year the decision to license our Angel concentrated PRP system to Arthrex, a greater than $1 billion revenue company and an established leader in developing and marketing products for the orthopedic market. We received a $5 million upfront payment at the time and importantly we still retain a commercial interest in Angel through a royalty from Arthrex. Arthrex is now at the advanced stages of preparing a full scale launch of Angel and highlighted the product at the recent American Academy of Orthopedic Surgeons Meeting in New Orleans.

We would encourage investors to visit the Arthrex website where you can see some of the new promotional materials they have prepared. We entered into this partnership with the goal of accelerating growth for this best-in-class product. We remain confident that Arthrex is the right partner and we expect a more substantial and growing royalty contribution as the launch momentum picks up.

Now I'd like to turn the call over to Steve for an overview of the quarter. Steve?

Steven A. Shallcross

Thanks, Marty. I'll first discuss the fourth quarter and full year financial results for 2013, then provide more details on the terms of the financings with Deerfield and Anson that we announced last night.

Total revenues were $3.5 million in the quarter ended December 31, 2013 compared to $2.1 million recognized in the same period last year. The increase was primarily due to an increase in Angel product sales of $0.9 million. Also during the quarter the company recognized $0.3 million of Angel royalties, $0.1 million of Angel license fees, $0.1 million of related transition services revenue. AutoloGel sales for the quarter were $0.2 million.

As we continue into 2014 we expect our pass-through sales of Angel centrifuges and disposable products to mirror Arthrex sales performance with a negative gross margin impact of these sales to be offset by an increase in related royalty revenue.

Overall gross margins decreased to 14% from 48% for the quarter as compared to the same period last year. The decrease was primarily due to the sale of centrifuges and disposable products under the Arthrex agreement signed last year. Although the cost of the company's products has remained constant the contractual selling price of Angel disposable product, Arthrex is significant lower than historical average.

Furthermore the negative impact on gross margins is primarily the result of the generally accepted accounting principle requirement to record revenues and costs of sales related to Angel product sales on a pass-through basis. In the future we expect to realize the economic benefit from the Arthrex license agreement in the form of quarterly royalty revenues. We also expect future reported gross margins to recover as the launch of AutoloGel in the wound care space gathers momentum and these related sales begin to account for a more significant portion of overall revenues. Current and future Arthrex revenue will have no associated cost.

Finally the decrease in margin for the quarter was partially offset by gross margin realized from licensing fee, royalty and other revenues. For a detailed explanation on the profitability of product sales and the impact of the Arthrex agreement I refer you to tables published and our Form 10-K filed with the SEC yesterday.

Total operating expenses in the fourth quarter were $4.3 million compared to $4.6 million in the fourth quarter of 2012. Salaries and wages in the fourth quarter were $1.3 million, compared to $1.5 million reported last year. The decrease was primarily due to lower bonus expenses of $0.3 million. Consulting expenses were $0.6 million compared to $0.5 million reported in the same period last year. The increase was primarily due to higher expenses related to CED protocol development and CMS reimbursement items.

Professional fees were $0.3 million compared to $0.2 million reported in the same period last year. The increase was primarily due to legal costs related to fourth quarter financing activities. R&D expenses were $0.8 million compared to $0.9 million reported in the same period last year. The decrease was primarily due to lower design cost related to Angel products and lower clinical trial expenses.

General and administrative expenses were $1.4 million compared to $1.5 million reported in the same period last year. The decrease is primarily due to lower franchise taxes, stock-based compensation expense and Angel sales commissions. This was partially offset by an increase in recruitment fees and outside administrative service costs.

Other expenses for the quarter were approximately $1.1 million compared to $0.2 million reported in the same period last year. The difference is primarily due to non-cash charges for a change in the fair value of derivative liabilities and a net increase in interest expense and debt issuance fees related to various finance activities in 2013.

We reported net loss to common stockholders of $4.9 million or $0.05 per share for the quarter. This compares to a net loss of $3.8 million or $0.04 per share in the prior year.

Turning briefly to the operating results for the 12 months ended December 31, 2013; total revenues were $11.6 million compared to $10.6 million in the same period last year. The increase was primarily due to the $2 million in higher Angel product sales, the recognition of one-time non-recurring revenue related to the sale of $1.3 million in existing placed Angel centrifuges to Arthrex, made pursuant to the terms and provisions of the Arthrex agreement, and $0.5 million higher royalty revenue. This was offset by a decrease in 2012 license fee revenue of $3 million, AutoloGel sales for the full year of $0.6 million.

Overall gross margin decreased to 27% from 63% for the 12 months ended December 31, 2013 as compared to the same period last year. The decrease was primarily due to the approximately $3.2 million in licensing fee revenue recorded in 2012 that had no associated costs. Sale of products under Arthrex agreement had a contractual selling price significantly lower than historical average and the sale of existing placed Angel assets to Arthrex at book value.

Total operating expenses for 2013 were $21.2 million compared with $19.5 million reported in 2012. The company reported a net loss of $20.2 million or $0.20 per share for the 12 month period ended December 31, 2013 compared to a net loss of $19.8 million or $0.24 per share in the same period last year.

Cash used in operating activities for the 12 months ended December 31, 2013 was $11.4 million. Cash and cash equivalents were approximately $3.3 million at December 31, 2013 and there were approximately 110.8 million shares of common stock issued and outstanding as of March 10, 2014.

Finally I'll give you an overview of the financings we announced last night with Deerfield and Anson. Last night we announced that we entered into a financing agreement with Deerfield Management Company. Under the terms of this agreement Deerfield agreed to provide the company up to $35 million through a senior secured convertible debt facility with a conversion price of $0.52.

The commitment will be funded in two separate tranches. Deerfield has initially provided $9 million at the closing of the transaction and will invest an additional $26 million after shareholder approval to authorize the additional shares of the company's common stock required for the potential conversion of the note, warrants, fees and interest under the agreement. The facility will be due in full on the fifth anniversary of the closing and is structured as a convertible note which bears interest to 5.75% per year. Interest is payable quarterly in arrears and cash or at the company's election after the second draw in registered shares of the company's common stock.

In connection with this facility we will issue seven year warrants to purchase shares of the company's common stock at $0.52 per share. We were subject the certain performance requirements and customary covenants as well.

We also announced last night that the Anson Group has agreed to provide a $2 million of equity investment. Under the terms of the financing agreement Anson agreed to purchase approximately 3.8 million common shares of the company's common stock at $0.52 per share. Anson will also be issued five year warrants to purchase approximately 2.9 million common shares of the company's common stock at an exercise price of $0.52 per share. In addition Anson agreed to execute a lockup agreement that will be subject to sales restrictions under the agreement.

Also concurrent to the Deerfield and Anson financings the company paid approximately $3.8 million to extinguish the secured debt including accrued interest and fees owed to MidCap under the February, 2013 note, therefore fully discharging its obligation. In addition all except one of the holders of the company's outstanding $3 million 10% subordinated convertible notes purchased in the December 2013 private placement converted their notes and accrued interest into approximately 6 million shares of common stock.

Net proceeds from these initial fundings and related activities of approximately $6 million will be used primarily for expanding the commercialization capabilities of the company and specifically the launch of AutoloGel. Please refer to the company’s Form 10-K filed with the SEC yesterday for the complete disclosures related to these financing transactions.

Now I'd like to turn the call over to Dean.

Dean Tozer

Thanks Steve and good morning everyone. Marty asked me to spend a few moments this morning introducing myself, explaining why I choose to join the Cytomedix team and finally review the opportunity I see for our lead commercial product, AutoloGel.

So first let me share a little bit of my background. I started my career in healthcare with DuPont and Searle Pharmaceuticals and during my ten years in the global pharmaceutical industry I held positions in accounting and finance, sales, corporate strategy, international marketing and an international assignment in Japan.

In 1999 while in Japan I made the decision to leave the pharmaceutical industry and move back to the United States. Once back in the U.S., I started my own consulting practice in which I worked with start-up bio-pharmaceutical companies to help them formulate their commercial strategies and plans for launching or improving the sales performance of the commercial stage product.

After six years of successful independent consulting I was asked by a venture firm to assist with diligence on a potential acquisition of a failed wound care product being divested by Smith & Nephew. That product was called Dermagraft and for those of you who are not familiar with Dermagraft it is bio-engineered tissue product used in treatment of diabetic foot ulcers and commonly referred to as a skin substitute or an advanced wound care product.

My role in that diligence effort was to assess whether that product Dermagraft could be re-launched in the U.S. market, if so how could that be done successfully. I am happy to say we did see a commercial pathway for relaunching and I was fortunate to be one of the executives who helped create and lead Advanced BioHealing from 2006 to 2007.

In ABH I led a number of commercial functions within the company. In 2011 we had grown the company to approximately 500 employees with Dermagraft sales approaching a $200 million annual run-rate basis. We were able to create significant shareholder value with the sale of ABH to Shire Pharmaceuticals in 2011 for $750 million. Incidentally we closed that transaction just four hours before we were to price our IPO.

From the acquisition until June of 2013 I was inducted by Shire as VP of Corporate Development for the Regenerative Medicine Division. In October of last year I joined Cytomedix as consultant to help formulate the commercial plan for AutoloGel.

So now why have I joined Cytomedix full time? I think if I distil it down to one word it would be opportunity. I see tremendous opportunity for AutoloGel, much like I saw with Dermagraft in 2006. The first reason is that I believe AutoloGel AutoloGel works. There's compelling clinical data and enough practical experience with the product for me to know that it works. Given that, the need in wound care to treat chronic wounds continues to be overwhelming in the [inaudible]. Even with continued advancements in treatment options the market need for efficacious products like AutoloGel is still great.

Second, AutoloGel has a great clearance from the FDA. There are three primary wound types, diabetic foot ulcers, venous ulcers and pressure ulcers that constitute almost the entire chronic pain care market. AutoloGel is cleared by the FDA for all three of these wound types.

Third, AutoloGel as of January has reimbursement from CMS for treatment of all of these treatment types in Medicare beneficiary population under the CED program. And finally the chronic wound care market in the U.S. is in the period of significant change following the packaging or bundling decision of it for advance wound care product that CMS implemented in January of this year. And for those of you who are not familiar with what that means in the wound care space, packaging in January affected many of the skin substitute products, where they took a pass-through toward the price of the product and the application fee and put them together and reduced that amount -- quite a substantial amount. So as you can imagine that had a significant impact, has had a significant impact on this market.

So the chance to re-launch a great product with a great label that's reimbursed by CMS into a very large changing market place was just too intriguing for me not to grab the opportunity.

So how will we be successful? Obviously it's my first day on the job, so I don’t have every detail yet. With that being said I do know enough about the market and AutoloGel and know most of the elements for success are in place. We have a great product, with tremendous unmet medical need and market undergoing tremendous and great change, change which I believe is very beneficial to AutoloGel.

So now basically it comes down to execution, and execution is all about the talent you have on your team. My primary goal over the next 90 days is to continue to build-out our team of professionals that I know can execute on this opportunity. Obviously I know quite a few people in my -- from my years in the wound care market. I also believe in finding absolute best talent regardless of specific content expertise. So talent is number one, two and three on my list right now.

Second is getting our demand model refined. And what I mean by this is we will need to define exactly how we address the various elements of the customer interaction. We'll need to refine the sales model, the reimbursement support functions, product logistics and various things as such. All the things that make it easy as possible for the healthcare provider to utilize AutoloGel in treating chronic wounds. So hopefully this has given you an overview who I am, how I plan to lead the commercial team at Cytomedix over the next coming months and years.

We have great opportunity ahead of us and we'll be intently focused on successful execution for the benefit of patient, clinicians and shareholders. Back to you Marty.

Martin Rosendale

Thank you and welcome onboard. So in summary this morning today we've established a commercial opportunity for AutoloGel and acquired the financing to execute our commercial plans. To that end we've recruited one of the market's leading commercial executives and we are building up the team necessary to succeed.

With the completion of our landmark study in ischemic stroke we have reduced our R&D cash burn and ensured our ability to capitalize on the study outcome if it is favorable. The Angel system is in the hands of a skilled partner with significant resources, so we are expecting good results from their launch later this month. Overall we're well positioned to focus at AutoloGel and succeed in the wound care marketplace.

So with that Carol I would like to open the call to questions.

Question-and-Answer Session


Thank you. (Operator Instructions). Please standby for your first question, that comes from the line of Jason Napodano from Zacks.

Jason Napodano - Zacks Investment Research

Good morning, guys.

Martin Rosendale

Good morning, Jason.

Jason Napodano - Zacks Investment Research

So let me kind of start out with a big picture question here, what changes have you noticed in the wound care market over the past three months? Are you noticing any changes with respect to -- I mean obviously CMS had a pretty huge decision last January, so we saw the shakeout there with Dermagraft and Apligraf and Shire divesting. But just wondering in terms of prescribing and when you go to physicians' offices and clinics and outpatient services are you actually seeing a change in how they are using products?

Martin Rosendale

So, Jason this is Martin, I'll start and then I am going to pass the question to Dean. But certainly we're having those changes and we've been conducting, or I should say Dean's been conducting quite a bit of market research that has demonstrated not only has there has been change going on with respect to decisions around advanced wound care products like Apligraf and Dermagraft but there is change to come. And so Dean with that, I'll pass the question to you.

Dean Tozer

Yeah, good morning, Jason. Yeah, I think what I would characterize it is the market's entered a period of reflection or stepping back and saying how long are we going to treat these patients. The CMS decision obviously made a big impact on the skin substitute products and they had a very substantial part of the market that people were using [inaudible] and they will continue to use them.

But I think the decision by CMS has caused the market to do a quiet a bit of a reset where both health providers, the practicing physicians and the administrators have stepped back and are taking a look at what they are doing to treat these patients, what products they are using and our market research as we're gearing up now with the financing to get our full launch going we're doing a lot of market research and we're getting a lot of very positive interest in AutoloGel as an option for those physicians and administrators to use in treating these patients.

So I think it's what's characterized as a period of change and I think that's great change, great opportunity for us.

Jason Napodano - Zacks Investment Research

And are you noticing that with the private payors as well or is this just within Medicare or Medicaid?

Dean Tozer

Yeah, right now with the privates AutoloGel is not at this moment reimbursed by private payors. So right now that's purely an exercise of what I would call us just exploring with payors what the impact is and I haven't seen it as significantly as you would see with the Medicare beneficiaries. Privates tend to be a little bit perhaps behind Medicare in that regard, they tend to be a watch what happens with Medicare. So that's what we're trying to get our arms around is are the privates going to follow some of these decisions by Medicare. But right now I would say the lion's share of the impact is on the Medicare beneficiaries.

Jason Napodano - Zacks Investment Research

Okay, and in terms of where you expect to see the biggest growth coming from in 2014 and forward now that CED is in place, you guys were focusing on physicians, obviously after the July decision in 2013, is that still a focus for you guys or has effort kind of shifted more towards the outpatient centers? And if you are still focusing on or just what you focused on in physicians' offices were you seeing reimbursement within those places or was that process kind of still being worked out?

Martin Rosendale

So Jason, just to begin we made some good progress in the physicians' office, we picked up a couple of significant customers. We've been treating Medicare patients. The bill, the claims have been submitted. As is often the case in these situations the government isn't keeping up with itself in many respects and so the Medicare administrative contractors have kicked back the claims for not understanding the codes, not having the codes placed in the right blanks and there has been no indication that the claims won't get paid in full. And so we're expecting that going forward but we won't have that information probably before another week or two.

With respect to where we expect to see the growth going forward Dean I'll pass it to you again.

Dean Tozer

Yeah, so I think there is kind of two parts to this. One is where we are today. And where we are today is getting CED put in place and we have great folks working on making sure we understand how that's going to work and [how so] outpatient. So today we're spending time generating demand at LTAC and some physician, private physician offices. But as my first kind of statement on what I'd see over the next half year or so, 60 days, my absolute focus is how are we going to drive business at the hospital and outpatient departments.

And so that is on the back half of the year is where we will really see the growth, that is what we absolutely expect where we will get things in place and that is where the majority of these patients reside and where the majority of the advanced wound care products are used. So near-term we're focused on getting CED in place, getting the right people on our team and then back half of the year really drive into hospital outpatient as our ultimate demand generating area.

Jason Napodano - Zacks Investment Research

Okay, you guys aren't providing guidance for 2014 but maybe you can give me a sense of patient numbers. You've got four CED programs that were enrolled in 2014, I assume and correct me if I am wrong, but the 280 patients randomized, the clinical trial will probably enroll this year, whereas the other three larger programs will probably take more or like two years. But in 2013 you did $600,000 or so in revenues without CED. So now that you've got the CMS, now you've CED, now you've got changes to the reimbursement from CMS, can you give us a sense of what happens to that $600,000 run rate that you guys did in 2013 without CED, does that stay the same, does that continue to kind of grow a little bit on the same pace?

And then the second question if these registry programs enroll as expected would you expect to see more revenues and more patients in those trials generating business in 2014 than we saw in 2013 with that kind of base line business?

Martin Rosendale

Jason, you have a lot of questions embedded in there so I'll try to touch on all of them. First of all what we call the randomized control trial, it is not [because it] falls under CED, it's also registry base and the reason we refer to it as the RCT is because the controls are randomized. But one thing to keep in mind each one of those patients under CED represents a sale because Medicare covers the cost of the product, and CED is a form of coverage. So it's important that we always keep that in mind.

So your assessment on the enrollment of that trial is accurate with -- our expectation is about a year to get that enrolled. The other study protocols will take a bit longer, they have more patients there is 750 patients in each one of those protocols. But your point as far as sales growth, again without giving specific guidance which we're not prepared to do quite yet, we do expect 2014 to be better than 2013. We do expect to get some significant enrollment in those protocols going forward.

And you can also expect us to have further interaction with CMS, potentially even get approval for additional protocols that will allow us to expand into broader markets and other types of care that again will help us to expand and help us to establish significant amount of growth in the sales of the product over 2014.

Dean, do you want to add anything to that?

Dean Tozer

One thing I would say add is, as Marty said I always want to remind people that CED as reimbursement, it's covered by Medicare. So every patient that we bring into one of our registries or into the randomized trials is revenue. And so our goal is to do both, is to drive CED enrollment because there is a genuine interest on our part to do that one to satisfy CED requirement. But probably more importantly it's revenue. And so it's a protocol trial of registry that in essence CMS is partially paying for to reimbursing a product.

So we're going to be entirely focused on putting those patients into those registries and satisfying the requirements.

Jason Napodano - Zacks Investment Research

Okay and in terms of the kind of the sales staff and what you are directing them to do, can you give us a sense of the size of the staff right now, do you have a goal in mind in terms of a size by the end of the year or any thoughts on what the ultimate size of the sales staff might be to maximize the potential for AutoloGel?

Martin Rosendale


Dean Tozer

Yeah, as I said earlier, it's my first day on the job even though I have been consulting for a few months. We are nine people right now in the field, so we've had a small sales team. What I expect is we're going to hold that steady for a while until we get some of these things just totally ironed out with the CED process which I expect to see happening over the next few months.

I don't think that's going to take a tremendous amount of time because we've already done a great deal of work on it. And then on the back half of the year we will start adding some sales professionals. Do I know the exact number? No. Is it going to be 100? No. We are going to this in a measured way to make sure that we get the right people on board, that we generate demand in a predictable way for the near future.

We've got to do it right. You don't get a second chance to launch a product. And so I will say now that we are going to be strategic and thoughtful in how we do this. My goal is that '14 is -- we are starting to build the base, so that we can in '15, '16 and beyond really start to capitalize on the opportunity we have.

But I don't want to rush out of the gate, now that we have money in our hands and just do things potentially get us into a bad place from building a little too quickly at the beginning. So what we're going to do is be measured, we're going to get it, put together properly so that we have the base in place that we can really build on this in the years beyond '14.

Jason Napodano - Zacks Investment Research

Okay, I am going to jump back in queue and thanks for answering the question guys.

Martin Rosendale

Thanks, Jason.


Thank you for that question. We got no current questions. (Operator Instructions)

Martin Rosendale

Caroline, did we lose our connection?


No, sorry, I am just waiting to see who the next line is from.

Martin Rosendale

Oh, sorry, it went quiet, so I felt…


Okay, the next question comes from the line of [Don Akowich] from Maxim Group. Please go ahead.

Unidentified Analyst

Good morning, guys quick question for you, what do you guys see as the long-term anticipated split between sort of your organic sales and what you expect from royalties and licensing?

Martin Rosendale

Good question, Steve do you want to take that?

Steven A. Shallcross

Yeah, I would expect in the near term that the royalty income will be just shy of what one might expect to see in AutoloGel sales. Going forward obviously AutoloGel sales are going to become a much more significant part of our revenue stream and there would be a point in the future where the royalty stream will sort of probably reach a steady state. And we haven't given specific guidance on this so it's a little bit difficult to answer the question.

Unidentified Analyst

Okay. And then which markets did you guys say would provide the highest revenue for AutoloGel from a penetration standpoint?

Martin Rosendale

Dean, do you want to take that?

Dean Tozer

Sure, so the long-term, the area that we see as been the largest opportunity for AutoloGel will be hospital outpatients. So that is what we commonly focus, specialized wound care centers. So that will be the lion's share of the business if we do this correctly, which I expect we will. Long-term there are other opportunities. The great thing about his product has a very broad clearance, has properties that can have it be used in multiple sites of care.

So you could expect that down the road you would see, that the DA may be an option, we are compiling various things right now. We actually sell in LTAC, long-term acute care faculties and there is a lot of interest in the product area as well. So I think there is a lot of possibility to drive revenue, but my feeling is and my guidance is going to be that we will in the near term, and for the next number of years see the lion's share of our business coming out of the hospital outpatient department.

Unidentified Analyst

Got it, okay, great, thank you.

Martin Rosendale

Thank you.


Thank you for the question. The next question we have comes from the line of Steven Freed from Greenwave Financial Markets. Please go ahead.

Steven E. Freed - GreenWave Financial Markets, LLC

Hi, good morning everyone. I just kind of [wasn't clear if] have I caught everything but is this a new strategy whereby where are no longer looking for let's say a partner medical company with a larger sales force to help sell the product.

Martin Rosendale

So Steven, we don't currently have any discussions like that ongoing for AutoloGel. As we go forward, as we establish our success in the marketplace might those discussions resume, yes, it's certainly possible. But our objective and our reason for bringing talented professionals like Dean and Jennifer and the others that we've hired on board is to establish that success in the marketplace and be prepared to go on and succeed on our own.

Steven E. Freed - GreenWave Financial Markets, LLC

Okay. All right. Thank you.

Martin Rosendale

Thank you.


Thank you. (Operator Instructions). Thank you, ladies and gentlemen, that's the end of the question and answers. I would now like to turn the call back over to Martin for closing remarks.

Martin Rosendale

Thank you, Caroline. So everyone it's taken us a while to get this financing in place and get the company to the position that we're in today. I realize that during that time we've been relatively silent. I also remember that in 2008 when I joined the company I promised to keep our shareholders informed of our progress going forward. I haven't forgotten that promise and you can expect to hear regular updates from us now going forward. We will have our next earnings call in I believe so even as little as 45 days from now. So you can expect more frequent communication and update from us going forward.

We are all excited about the opportunity before us. Anson has proven to be a good investor and good partner. This is not the first time they have invested in the company. Deerfield, I am very pleased to have Deerfield as a financial partner. They have shown themselves to be beneficial in areas beyond just financing, the staff that they have, the executives that they have, their ability to assess markets, help us with decisions is tremendous. I am looking forward to that partnership going forward.

We're in a good place. We're going to capitalize on it and we've got talented people on board, Dean, as he mentioned one of his main roles going forward is to bring more talented people into the company. So we're looking forward to these opportunities and I personally am looking forward to keeping you informed. Thank you very much for joining us this morning.


Thank you, Martin. Ladies and gentlemen, that concludes -- sorry that concludes today's conference. You may now disconnect. Have a good day.

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