LifeCell Q4 2006 Earnings Call Transcript

LifeCell (LIFC)
Q4 2006 Earnings Call
January 8, 2007 10:00 am ET

Executives:

Steven T. Sobieski – Vice President, Finance and Administration & Chief Financial Officer
Paul G. Thomas – Chairman of the Board, President and Chief Executive Officer

Analysts:

Raj Denhoy - Piper Jaffray
Wade King – Montgomery & Co.
Ed Shenkin – Needham & Co.
Matt Doland – Becker Capital
Greg Brash – Sedonian Co.
Spencer Mann – Summer Street Research
Bob Hashkarian – Cairos Partners Investment
Tom Bishop – BI Research

Presentation

Operator

Good morning and welcome to the LifeCell Corporation 2007 financial guidance conference call. At this time I would like to turn the conference over to Mr. Steven Sobieski, Chief Financial Officer of LifeCell Corporation. Please go ahead, Sir.

Steven Sobieski

Thanks. Good morning and thanks for joining us on the call this morning. Before we get started I want to remind everyone that certain statements made during this conference call such as our outlook for fourth quarter 2006 and our projected 2007 operating results are forward looking statements made pursuant to the safe harbor provisions of the private securities litigation Reform Act of 1995.

These forward looking statements reflect our current expectations regarding such future performance or events. Although we believe that the expectations reflected in such statements are reasonable, we give no assurance that such expectations will prove to be correct. Our actual future results could differ materially to a number of factors and I refer you to our SEC filings for more information regarding the risk factors that may impact our results in the future. All of our SEC filings are available from our web site.

I will now turn the call over to Paul Thomas, President and CEO of LifeCell for introductory comments.

Paul Thomas

Thanks Steve and good morning everyone. Today we will be providing our outlook for 2007 as well as commenting on our preliminary Q4 2006 results. As Steve stated earlier the financial guidance that we’re providing represents our target expectations. I’ll start by commenting briefly on our preliminary 2006 results and then I’ll turn it over to Steve to present our 2007 guidance. At the end of our prepared remarks we’ll take questions.

This morning we reported preliminary fourth quarter product revenues of $39.2 million, up 45% compared to the prior year quarter and up 12% sequentially from the third quarter. Consistent with the trend throughout 2006 the $12 million increase compared to the prior year same quarter resulted primarily from higher demand from AlloDerm which increased 53% to $33.8 million compared to $22 million in the fourth quarter of 2005.

We’re extremely pleased with the robust product revenue growth achieved in the fourth quarter. Like I said during our third quarter results conference call, we remain confident about the opportunities for AlloDerm and our ability to continue increase market penetration in our key markets. Our orthopedic product revenues which include GraftJacket and AlloCraftDBM increased 39% to $2.8 million in the quarter from $2 million in the fourth quarter of 2005.

Reporform revenues were unchanged at $2 million in both years. Our preliminary full year 2006 product revenues were $140.5 million up 51% compared to $93.3 million in 2005. Based on these preliminary revenues we expect our full year 2006 diluted net income per share to be in the previously guided range of 57-59cents. This compares to full year 2005 diluted net income diluted earnings per share 36 cents which was not adjusted to reflect the impact of the adoption of the 123R which requires the expansion of our share base payments.

Our adjusted EPS would have been 30 cents. Consistent with past practice we plan to release fourth quarter and full year 2006 actual results after the completion of our audit. I will now turn the call over to Steve and ask him to present our financial guidance for 2007.

Steven Sobieski

Thanks Paul. I plan to review the key assumptions underlying the 2007 financial guidance that at we released this morning. Afterwards you’ll have an opportunity for questions.
As reported this morning we expect 2007 product revenues in the range of $175-182 million which represents annualized growth between 25% and 30% compared to our preliminary 2006 product revenues of $140.5 million.

We anticipate that over 90% of the year over year growth will result from increasing market penetration in challenging hernia and breast reconstruction procedures. AlloDerm is expected to comprise approximately 85% of our total product revenue in 2007 which is about the same percentage as in 2006.

With respect to our orthopedic products: GraftJacket and AlloCraftDBM we’re expecting annual revenue growth in the range of 15-20%. We expect that the majority of the increase will come from higher GraftJacket revenues. Orthopedic revenues were expected to represent approximately 7% of our total product revenues for 2007. With respect to Repliform, we expect revenue growth of approximately 10% in 2007. Repliform revenues are expected to represent approximately 6% of our revenues in 2007.

Turning now to the rest of the P&L, our growth margins are expected to increase slightly, primarily due to leverage associated with the anticipated higher processing volume. Our total operating expenses, excluding cost of goods, are targeted to increase by approximately 30% compared to 2006.

There are three major areas contributing to the planned increase in operating expenses. First there are the incremental costs associated with increasing the size of our direct sales organization from 55 to 73. As of today all of the incremental territorial managers have been hired and trained and are in their territories.
The second major area is marketing spending associated with our anticipated launch of our Xeno based regenerative tissue matrix product. We’re still targeting a limited launch in the second half of 2007 with a full launch planned for early 2008.

The last area is our research and development spending. Our budget for 2007 is higher than 2006 as a result of clinical studies we have planned to support the launch of our Xeno based regenerative tissue matrix product. These studies will commence once we have received clearance from the FDA. As stated in our press release we expect R&D spending to be at least 10 to 11% of our product revenues in 2007.

Even with the incremental cost associated with increasing our direct sales organization and the planned increase in spending associated with the preparation for launch of our Xeno based regenerative tissue matrix we are targeting total operating expenses to remain basically flat as a percentage of revenue compared to 2006.

The incremental spending will be offset by leverage in our selling, general and administrative expenses. For full year 2007 we expect operating income in the range of $42.5 to $45 million and this represents an operating margin between 24% and 25%. Our diluted net income per share is expected to be in the range of 73-77 cents and that’s based on an estimated fully diluted number of shares of approximately 35 million.

Heading into 2007 we still have approximately $8 million of deferred tax assets to offset our future tax liabilities. Based on our current projections for 2007 these assets will be exhausted some time during 2007.
Consistent with 2006 we expect to generate a significant amount of operating cash flow in 2007. In part due to the non cash expenses such as depreciation and stock compensation as well as the utilization of our deferred tax assets to offset tax liabilities. Part of the cash we expect to generate will be used to fund part of the $15 million in capital expenditures which are necessary to support the growth in our business. At this point I will now turn the call back to Paul Thomas for remarks before we take questions.

Paul Thomas

Thanks Steve. Before we take questions I would like to comment on a few areas. First, I remain convinced that we have significant upside opportunity to increase our market share in key market segments. Our focus as an organization continues to be on driving top line growth. As Steve noted we recently completed our largest ever expansion of the direct sales organization. As of today our direct sales organization is up to 73 folks compared with 55 throughout most of 2006.

Our strategy to grow market share in 2007 also includes a significant investment in marketing and surge in education. Additionally we are committed to carefully managing our operating expenses while making the investments we consider vital to the company’s future. Our investments will be focused on growing and supporting our current business as well as future product opportunities. Steve already noted in his remarks that we’re planning on making significant investments in the current year to prepare for the launch of our Xeno based regenerative tissue matrix.

Additionally, consistent with prior years part of our spending will be focused on our currently marketed products and pursuing new clinical applications for our regenerative tissue matrix. The balance of our spending will be focused on expanding our portfolio of biosurgery surgery based products to remain a leader in true regenerative medicine. I will now be glad to take any questions or comments from the audience.

Question-and-Answer Session

Operator

Thank you, the question and answer session will be conducted electronically. If you would like to ask a question please do so by pressing the star key followed by the digit 1 on your touch-tone telephone. If you are using a speaker phone please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, please press star 1 on your touch telephone to ask a question. And we’ll pause just for a moment to assemble the roster.

We’ll take our first question from Raj Denhoy with Piper Jaffray.

Raj Denhoy - Piper Jaffray

Hi, good morning guys. A couple questions on the top line guidance for ’07. I know you talk a little about the spending on Xenoderm, but did you include anything in the top line guidance for Xenoderm in ’07.

Paul Thomas

Yeah, we have a very modest amount of Xeno revenue in ’07 Raj. Since it will be introduced, or we anticipate it being introduced in the second half of the year, and really in a limited launch mode. From the vast majority of product revenue in 2007 will be based on our AlloDerm product line and then going forward into ’08 we expect the mix to move more significantly towards the Xeno based product.

Raj Denhoy - Piper Jaffray

OK, and then on that AlloDerm side, what about the trauma indication, the new trauma indication that’s rolling out here, is there much included for that.

Paul Thomas

There is a bit included for trauma and in fact one of the things we hope to do on the conference call in the end of February is actually update the investment community of the par estimate of what the trauma market may look like in terms of opportunity. So yes it does include some incremental revenues for the trauma implication.

Raj Denhoy - Piper Jaffray

OK, and then I guess maybe just a broader question you know obviously with what happened in the third quarter and a lot of the concerns around competition and market saturation, I mean is there anything you can really offer now that we have what’s a fairly good fourth quarter result here backed up against what was pretty weak third quarter results. I mean is there a comment you can offer on the overall market complexion at this point?

Paul Thomas

Sure, and there’s really two questions there Raj. The first is what is the size of the market and to what extent is it penetrated. And I think we’ve indicated in the past, we think that there are about 130,000 procedures. These challenging hernia applications and we think we’re penetrated in the 20+ percent range.

We continue to have a great deal of confidence in the fact that market is that large and that there’s still plenty of room for us to grow. We feel that we’ve confirmed that with some significant primary market research as well as continued growth in our top line.

The second question relates to competition and what impact that may have on life?? Going forward. I think we’re gaining more confidence as we move forward. AlloDerm continues to be the gold standard in these challenging hernia applications as we have a chance to see more and more what the competition looks like.

So, we feel pretty comfortable about our ’07 guidance quite frankly. We think the market is large; there is significant opportunity for continued market sharing. We are beginning to better understand the competitive threat and feel that we still have the premier product in this space. Alright, thank you very much, great quarter.

Operator

Thank you, we'll take our next question from Wade King with Montgomery & Co.

Wade King – Montgomery & Co.

Hey Paul and Steve Good morning, can you hear me?

Paul Thomas

Yeah, thanks Wade.

Wade King – Montgomery & Co.

Thanks for your comments. I have two questions please. Could you just clarify the sales reps. number Paul indicated 55 for ‘06 and then 73 for ‘07 but you also mentioned -- you suggested that they are all in place, could you just clarify how many reps. are today in place and how many additions you will make in the year 2007.

Paul Thomas

Sure, we actually have 73 in place today Wade, and we began hiring those folks in Q4. So, we went into the Q4 with 55 folks, over the course of Q4 we hired 18 folks, we trained those folks, we had them shadow existing reps for the quarter so we will go into ’07 with a full compliment of 73 folks.

Then consistent with our past practice we will again look towards with Q4 ’07 to do an additional expansion of the sales force and in fact I believe some of the increased spend in the sales and marketing line reflect that we plan on doing that in the fourth quarter.

Wade King – Montgomery & Co.

Ok, so you’ve already got the people on board you expect to be the nucleus of your selling effort for ’07 and if anything subsequent additions you will consider in a similar timeline as of the fourth quarter of this year. You don’t expect any additional folks in any great numbers through this ’07 year of the fourth quarter.

Paul Thomas

No, we’ve added in the fourth quarter, the only difference is that this year, this year being ’07 we actually budgeted for the expansion whereas in the past we didn’t budget for them but absorbed the expense with the upside revenue that we had.

Wade King – Montgomery & Co.

Very good, thank you. Second question for either you or Steve, can you elaborate on the commentary about estimated $15 million of CAPX expenditures for the company in ’07, I presume a lot of this relates to your initiatives regarding Matador, can you talk more specifically about the $15 million figure that was referenced.

Steven Sobieski

Sure, this is Steve, Wade. Let me break it down in maybe a couple of big areas. The first area, there’s about $8 million of spending related to facility modifications and that would include expansion of our clean rooms, as well as expansion of the R&D labs and some office space build out, so those are facility modifications to our existing facility here.

Additionally there’s about $5 million for manufacturing related equipment, some of that Xeno equipment, some of that related to the outdoor product line, and then the balance is for R&D equipment as well as some IT upgrades.

Paul Thomas

The only thing that I would add for Steve’s remarks is that as we’ve communicated in the past we actually have our Xeno pilot facility constructed and validated and we believe that facility will provide us with sufficient materials for launch plus one, so what Steve is referring to is Xeno filled out, is the commercial facility which would then take us beyond the first year of launch.

Wade King – Montgomery & Co.

OK, gentleman, thank you very much.

Operator

I’ll take our next question from Ed Shenkin with Needham & Co.

Ed Shenkin – Needham & Co.

Great quarter all. As far as the trauma roll out, can you give us details of how you’re going about that market? Any special clinical data, how much time you’re going to spend with general surgeon versus the trauma surgeon now that we’re getting ready for launch. Any more details?

Paul Thomas

Actually, what I’d like to do is defer that question until the February call, as we can give you a lot more granularity in terms of how we’re approaching that market. If you don’t mind I’ll defer that until next call.

Ed Shenkin – Needham & Co.

A question for Steve on the R&D tax credit in late December...we heard that congress passed that. What’s the impact for you guys for tax rate in ’07?

Paul Thomas

We do, you’re right that we do generate R&D tax credit, but they’re really not significant to us because it’s really based on increasing amounts of R&D each year. I think our tax rate is probably still going to be in that 45% range and again the biggest item affecting that tax rate is the non-deductibility of certain stock related expenses or stock comp expense which is still going to take another year or so before that starts rolling through and we actually get the benefit.

Ed Shenkin – Needham & Co.

And last question on international roll out. Any thoughts here, now that we’re getting closer to Xeno product on international markets going in alone or with partners? Any additional details and look forward to seeing you guys at our growth conference tomorrow.

Paul Thomas

Yeah, actually that’s a good question on the globalization of this business. The first step is we’re actually in the process of beginning to look at some market research to help us size the market and understand the competitive situation and the opportunity of starting in Europe. Concurrently we are planning on initiation of some partnership discussions while at the same time we also look at the option of direct distribution ourselves.

So, I would really characterize ’07 in the global market as getting ready, and I think it would be closer to ’08, with the second half of ’07 certainly before we pull the trigger on globalization strategy in the business.

Ed Shenkin – Needham & Co.

Thanks guys, see you tomorrow.

Paul Thomas

Yeah, thanks Ed.

Operator

We’ll take our next question from Matt Doland with Becker Capital.

Matt Doland – Becker Capital

Hey guys, good morning. A quick follow-up on the sales force question; it sounds like everyone was hired as of the beginning of January. Can you just remind us how that compares to prior years, say ’05 going into ’06.

Paul Thomas

Yeah, I think we added 12 or 13 going into ’06. Brad and Steve are not in our midst yet, so 12 or 13 going into ’06. We added 18 going into ’07. So we added another 6 folks.

Matt Doland – Becker Capital

So as far as the timing, it is relatively consistent?

Paul Thomas

Yes, the timing this year was consistent with what we had done in the previous year in terms of bringing them on board in Q4, training them, having them shadow existing reps so that hopefully come January, and after our sales meeting at the end of this week, these folks will be up and ready to go.

Matt Doland – Becker Capital

OK, very good. In terms of the P&L guy that’s looking at the gross margin, if I look back historically looks backs ’06 over ’05 margin was at least 100 basis point improvements including stock based, depending on where EPS shakes out here for Q4. Can you give us any...broadly speaking any guidance there as it relates to as AlloDerm becomes a bigger proportion of sales, how does that gross margin of that business implicate that rest of the P&L.

Paul Thomas

Well Matt, of course margin has been driven primarily by AlloDerm because AlloDerm is a significant amount of our revenue so I think the way you think about ’07 and try and gauge my comment about slight increases probably in that same range of up to 100 basis points. If your question is what does the gross margin for AlloDerm look like as Xenographs becomes a more important element of our product mix. Is that the question you were asking Matt?

Matt Doland – Becker Capital

Right, longer team speaking.

Paul Thomas

In ’07 it’s still primarily an AlloDerm story and in ’08, you’re right Xeno becomes more significant and then the challenge, and we feel pretty comfortable about this is that although we won’t have the same volume benefits in our AlloDerm manufacturer perhaps as we’ve had in the past, we do think that some of the investments were making in efficiency will help us maintain and perhaps even improve our AlloDerm margins going forward.

So, I would characterize the gains in gross margin up at this point as primarily volume related but going forward we think some of the investments that we’re making in the manufacturing area will actually allow us to gain some efficiencies as well as we go forward.

Matt Doland – Becker Capital

OK, I appreciate that. One more quick one, talking about Xeno, I think the last call we discussed the marketing strategy was still being molded at that point. Are there any broad stroke comments you can give us on the marketing plan for Xeno as it relates to its position relative to AlloDerm and then maybe as that ties into some of the clinical studies that you mentioned.

Paul Thomas

Yeah, probably not at this point Matt. We still feel pretty good, or we still feel good about getting the product approved in the first half of ’07 as we have communicated in the past. We will be making a significant investment in the clinical evaluation of that product and in fact a similar investment in marketing and surgeon education on the product.

So, I think that we’re getting close but we’re not quite prepared to communicate some of the details of our marketing strategy. But, certainly as ’07 progresses we will provide you some more details on what that may look like.

Matt Doland – Becker Capital

OK, would that clinical evaluation include some type of head to head assessment?

Paul Thomas

We have a number of different clinical trials planned that will involve comparison with a variety of different products.

Matt Doland – Becker Capital

Very good, OK, nice quarter guys, thanks a lot.

Operator

We’ll go next to Greg Brash with Sedonian Co.

Greg Brash – Sedonian Co.

Hi guys, thanks for taking my call. Along those lines of clinical trials for the Xenograph, how long would we expect to receive such results once you receive approval.

Paul Thomas

Yeah, we actually have a variety of clinical trials. Some of them have endpoints as short as 30 days. Some of them have endpoints as long as several years. So, we will have a rolling body of clinical feedback on the Xeno product going forward.

I would say however that the majority of the clinical endpoints should become evident in six months or less. So, while there are some short endpoints and some longer endpoints, I would guess on average that the significant feedback that we would receive would be in the 3-6 month time frame.

Greg Brash – Sedonian Co.

OK great, and as far as you know, or as far as you’ve heard, do your competitors have any clinical data out on any of their new human or animal based products.

Paul Thomas

I mean you can do a Google search and see what you come up with in terms of published studies on competitive products. I think it’s fair to say that clearly AlloDerm is well in advance of any competitive publication on our product.

Greg Brash – Sedonian Co.

As far as physician trialing, I know that in the last quarter you mentioned that there were some physicians trailing the Colamand product. Could you comment on the trends of physician trialing in the quarter and the hope for Colamand or Alamax.

Paul Thomas

You know I imagine that Boret will be announcing their results over the next month or two and you can get it directly from Boret in terms of what sort of progress their making with Colamand and Alamax. I think it’s fair to say that AlloDerm continues to be the gold standard, we continue to see good opportunities for the grower market share and I think that our Q4 results are an indicator that we’re moving in the right direction on that.

Greg Brash – Sedonian Co.

OK, but you don’t think that the trialings picked up significantly. Not much of a change from the prior quarter?

Paul Thomas

Not from our perspective, but again, I think the folks at Boret, or other competitors who have products in this area could better speak to that.

Greg Brash – Sedonian Co.

OK, one quick question on my model about the selling and marketing costs. Should I assume that the uptake in expenses will largely occur in the second half of the year when you plan to start marketing the Xenograph.

Paul Thomas

Yeah, the cost related to the additional reps, Greg, obviously starts right at the beginning of the year but the other costs that we had talked about would uptake in the second half of the year.

Greg Brash – Sedonian Co.

OK, and would the Xeno, would that have similar handling characteristics as AlloDerm?

Paul Thomas

Yes.

Greg Brash – Sedonian Co.

OK, thank you for taking my call.

Operator

We’ll go next to Spencer Mann with Summer Street Research.

Spencer Mann – Summer Street Research

Good morning, thanks for taking my questions. I just have a couple of quick questions. First of all, in terms of the approval pathways, what kind of time frame are we thinking in terms of the FDA approval here?

Paul Thomas

The regulatory pathway for our Xeno product is 510K and as we communicated, we anticipate a clearance of 510k in the first half of 2007.

Spencer Mann – Summer Street Research

You are not planning to indicate when you would be filing for the 510k or anything like that?

Paul Thomas

No, I don't believe so. We think that the more relevant bench mark is the actual clearance of the product. So, somehow we won't communicate when we file.

Spencer Mann – Summer Street Research

Great. And then, just in terms of the sales force wrap up, you had it at about 18, 18- 20 new sales reps over the last few months. At what point do you expect these individuals to really add substantial value in terms of the revenue generation?

Paul Thomas

Well, I hope immediately. However, our experience has been that typically, new representatives take about 6 months or so to fully cover their costs and then beyond that really start adding on a productive basis to our business.

So, I think that we're hopeful that we have the same pattern that we have enjoyed in previous years where the
reps come up to speed relatively quickly and certainly our experience has been within a six month time frame.

Spencer Mann – Summer Street Research

Great. And the final question I have is, in terms of the Xenoderm limited rollout, what are you guys envisioning? Is that going to be limited to hospitals or users that are going to try this out? What are you seeing right now?

Paul Thomas

It will be limited both by the number of surgeons as well as the number of hospitals that have access to the product initially, but that will evolve over time as we gain more confidence in the product. We will broaden distribution and then we anticipate going, as always, going ahead with full distribution of product

Spencer Mann – Summer Street Research

And how will you determine the hospitals or the users initially?

Paul Thomas

Yeah, that is still being worked out, quite frankly, with our marketing group and as I said Spencer, that’s probably going to change over time, where in the first month may be more limited than in the fourth month for example.

Spencer Mann – Summer Street Research

Great, thanks.

Paul Thomas

You're welcome.

Operator:

We will go next to Bob Hashkarian with Cairos Partners Investment

Bob Hashkarian – Cairos Partners Investment

Hi guys. Thanks for taking my call but everything has been answered so I am all set.

Paul Thomas

OK, thanks Bob.

Operator

We'll go next to Tom Bishop with bi research

Tom Bishop – BI Research

Hi, that's B.I. research and I had a question on, actually a couple of questions, one on Xeno. How will that actually add sales, in terms of maybe different uses as compared to cannibalizing AlloDerm sales?

Paul Thomas

I think that it will do both. I think that it will both cannibalize AlloDerm sales as well as expand the market opportunity for the applications that we are currently marketing to, as well as future applications that we think will be very manifold to the use of that product.

And I think that if you anticipate a similar price of a rezina based material to AlloDerm, we also have a very significant expansion of our gross margins, since our product cogs are probably going to be on the order of 50% lower with Xeno than they are with AlloDerm. So, while there may be some product or sales cannibalization at there will certainly be margin expansion.

Tom Bishop – BI Research

That's interesting to know. But in terms of the different uses that might expand the opportunity where it would be adding revenues versus taking away from AlloDerm, the gross margin comment is very helpful but what are those other uses?

Paul Thomas

Sure. Well, two clear examples would be our international expansion because AlloDerm is really not well suited for a variety of reasons to be marketed on a global basis. So, that would clearly be incremental. Another clear example of incremental opportunity with Xeno would be if we chose to expand into the aesthetic market. Since, we do not market a human based product in the aesthetic market. Again, those would be two examples of what would be considered absolute incremental business.

If you go down the list of applications both current and future some of them will be purely incremental and some of them will be a combination of cannibalization of AlloDerm, as well as an expansion o the opportunity.

Tom Bishop – BI Research

OK. I missed that 2007 tax rate comment. What was that again?

Paul Thomas

Yes, I think that it will be consistent with what we experienced in 2006 which is approximately 45% effective tax rate.

Tom Bishop – BI Research

OK, and with regards to trauma, that was sort of the new application for this year, I think, and I was just wondering what percentage of the business that ended up capturing?

Paul Thomas

We are not coming to break out the AlloDerm business by trauma-

Tom Bishop – BI Research

Yes, I'm sorry.

Paul Thomas

All that is part of the challenging cardiac business.

Tom Bishop – BI Research

Ok, and is there a new application for the year ahead or is that pretty much Xeno?

Paul Thomas

I think that is going to be largely Xeno and trauma. Yes.

Tom Bishop – BI Research

Where are our international sales at this point? Do you know?

Paul Thomas

They are very small. They are less than 1% sales.

Tom Bishop – BI Research

But Xeno might help there because in terms, because the gross margin is 50% better?

Paul Thomas

Well there are a number of reasons-

Tom Bishop – BI Research

You will be able to charge a lower price, right?

Paul Thomas

Well, the cost structure certainly helps in markets where reimbursement is more of a challenge. But I would also note that the regulatory status of a human tissue based product globally, is different. For example, in Germany it is regulated as a pharmaceutical product.

I would also note that in certain markets from a cultural basis human tissue or human based products are not well accepted. For example, France, as you recall they had an unfortunate incident several years ago where they distributed HIV infected blood products, so human based products are looked at very differently in France. So a Xeno product, yes, it gives you better cost structure to enter these global markets but the regulatory, cultural barriers are also lower than with a human tissue based product.

Tom Bishop – BI Research

OK, thank you.

Paul Thomas

You're welcome

Operator

And as a reminder ladies and gentlemen please press star 1 for questions at this time, please press star 1 for questions.

And it appears that we have no further questions. I'll turn the conference back over to Mr. Paul Thomas for any additional or closing remarks.

Paul Thomas

Thank you, Bolla. Actually, I would just like to thank everyone for participating in the conference call and towards the end of February we will review our final audited results and also give a little bit more detail on the outlook for the year ahead. Thanks a lot everyone.

Operator

Thank you ladies and gentlemen, that does conclude today's conference we do appreciate your participation.

Copyright policy: All transcripts on this site are copyright Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.