BioForm Medical F1Q08 (Qtr End 09/30/07) Earnings Call Transcript

BioForm Medical, Inc. (BFRM)

F1Q08 (Qtr End 09/30/07) Earnings Call

December 13, 2007 5:30 pm ET

Executives

Steve Basta - CEO

Derek Betocci - CFO

Analysts

Adam Green - JP Morgan

Needhi - Piper Jaffray

Presentation

Operator

Welcome to the BioForm Medical first quarter fiscal 2008 financial results conference call hosted by Steve Basta, the CEO of BioForm Medical and Derek Bertocci, CFO of BioForm.

I would now like to turn the conference over to Steve Basta, CEO of BioForm Medical. Please go ahead sir.

Steve Basta

Thank you, Jamie. Good afternoon everyone and thank you for joining us for our first earnings call. By now everyone should have access to the first quarter fiscal 2008 financial results release, which was distributed this afternoon after the market closed. The release is available on the investor relations section of BioForm website at www.bioform.com and with our Form 8-K filed with the SEC which has been evolved also has drawn in and is available. In addition, you can call our office at 6503-640-25 and we will fax one to you if it’s not available to you if you don’t have access online.

Before we get started during the course of this conference call the Company will make projections and may make other statements about the Company’s business. But are forward looking and are subject to many risk and uncertainties that could cause actual results to differ materially from expectations. A detailed discussion of the risks and uncertainties that affect our business is contained in the Company’s SEC filings particularly under the heading risk factors. Copies of these filings are available online with the SEC or on the BioForm website. The Company’s projections and forward-looking statements are based on factors that are subject to change and therefore these statements speak only as of the date they are given. The Company does not undertake to update any projections or forward-looking statements.

With that, let me describe for you a little bit the business aspects of the quarter and then Derek Bertocci will take you through some of the financial aspects of the quarter and our guidance and we will then open this call up to questions.

We had a strong sales quarter in the quarter ended September 30. With $15.2 million in net sales, making a substantial increase of 95% over the prior year September 30 quarter. We are really quite proud of that accomplishment and quite proud of the growth rate that we are achieving in our core business.

The drivers of our revenue growth year-over-year, now first and foremost reflect the aesthetics approval which we received in December '06 and the September '07 quarter obviously is after we’ve had two quarters of growth through the post-aesthetics period and we are maintaining that growth rate for September '06 quarter was prior to that December '06 approval.

Other things that have contributed to the growth rate and are fundamentally driving the growth in our business are two sales force expansions that we’ve done. We expanded our sales force in late calendar year 2006, there in the October-November period of calendar 2006. That sales force expansion was an anticipation of our aesthetic launch which came in December and we have been successfully converting accounts and growing use it through in our existing accounts and we expanded our U.S. sales force and also start an expansion of our European sales force in the July-August timeframe and continue that on through September and October particularly continuing on the international sphere.

The other thing that has driven our growth is a transformation in the marketplace, which is reflected by increase in physician comfort. Physicians are gaining confidence with Radiesse, as they gain more experience with it, as their friends, colleagues and peers gain more experience with it, and they are adopting Radiesse more broadly in their practices, that is all reflected in the successful year-over-year growth.

We're building critical mass in our sales organization, which is enabling us to create frequent touch points with physicians, that allows us to accelerate that physician comfort experience by helping physicians to gain more experience and allows us to get to more accounts.

[Often times], where we find ourselves today, is that we have achieved clear top three status. It is clear in the filler marketplace that Medicis, Allergan and BioForm are viewed as the top-three companies in this space, and we're certainly pleased to being such esteemed company with companies that are leading the medical aesthetic space and being viewed by physicians who are keenly as one of the companies leading the space.

We have a good fortune of participating in the market that is growing rapidly. There are many industry analysts and a variety of sources that indicates that the filler market is growing at greater than in many cases, by many as to as greater than 20% annually.

We would concur with that estimate that the filler market is growing rapidly; we're seeing more and more physicians adapting fillers as a part of their aesthetics practice. We are also seeing physicians that are doing fillers, now doing more fillers than they used to and continually telling us that they believe the filler portion of their practice was growing. We are certainly encouraged by that market trend and that is probably reflected in the success with each of the company's spaces these [inhabit].

From a research and development perspective, beyond the core commercial growth that we are experiencing in Radiesse, both in the US market and internationally, we are also making significant investments there and we are making strides at growing our pipeline of products.

Two noteworthy business development deals over the last 12 months include the Aethoxysklerol licensing deal. We licensed Aethoxysklerol in June of this year, announced it in August. Aethoxysklerol is the leading sclerotherapy product in Europe. We have US distribution rights to that product and we will be bringing that to our existing US commercial organizations. That product is currently in a Phase III clinical trial, which is being conducted pursuant to a special protocol assessment that was agreed to with FDA and the trial is on track. We expect to file that NDA in calendar 2008.

We also licensed late in 2006, BioGlue, which is a surgical adhesive made by CryoLife. The BioGlue product we have exclusive rights to in the aesthetics sphere, for aesthetics applications and we are conducting currently a feasibility study under a protocol agreed to with FDA. That feasibility trial we believe will lead to a pivotal study, which we will initiate in calendar year 2008.

So both of those programs are moving forward and what we are doing in R&D programs, is building a medical aesthetics pipeline that will leverage on the success that we are getting with Radiesse.

I would like to take a moment before we go through the details of our financial results and also to highlight an announcement that we issued yesterday regarding the publication of three noteworthy papers in a special issue of the Journal of Dermatologic Surgery. These papers reflect the core value proposition of Radiesse to lead that excelled our marketplace. First and foremost, the Radiesse Juvederm-Perlane comparative trial is a substantial comparative study conducted with 205 patients at five clinical sites in Europe. This was done in a multi-center, randomized blinded comparative assessment. So, the evaluations were done of the patients by blinded evaluators that in spite -- patients were randomized just to which product they receive. It was a well-controlled clinical study and the conclusions from that are quite significant.

One, patients were substantially more satisfied that they received Radiesse, than if they received either Juvederm or Perlane in the clinical trials. And that is one of the foremost thing that the physicians are pursuing on a regular basis, is to achieve high patient satisfaction to Radiesse, and simply a more satisfying product in the experience of this clinical study. Patients who received Radiesse also indicated that they would be substantially more likely to return for future treatments. And the authors of the study noted, specifically, that Radiesse dermal filler offers advantages in durability and costs, while exhibiting a similar safety profile for the other products. That's the core value proposition that we believe is enabling us to win share in this marketplace. Radiesse provides better patient satisfaction, better durability, terrific value, to both the physician and the patient, and does so with an excellent safety profile.

The same set of characteristics was evidenced in our US based labial fold pivotal study which was published in the same journal. This was the 117 patient prospective randomized study comparing Radiesse versus CosmoPlast. This study was the basis of our USPMA approval and the publication which just appeared in the journal from project survey, in the first period of the publication of that data [set]. In addition, three leading physicians, Dr. Sadick, Dr. Katz, and Dr. Roy published in this journal their own clinical experience over 47 months with over 100 patients concluding the same thing, high patient satisfaction, excellent result and an excellent safety profile.

These studies exemplify the unique value proposition that Radiesse brings and why we are wining share. We have -- we offer a product that delivers higher patient satisfaction, both higher initial satisfaction and better longevity. It is still fully resolvable and therefore offers an excel safety profile that is quite comfortable for physicians.

Radiesse results were superior in these clinical trials and greater than 90% of patients satisfied and indicating the favorable return for future treatments. The hyaluronic acid products tested didn't even achieve anywhere near that level of either of satisfaction or likelihood to return for additional treatments.

We believe that these reflect the core value propositions that Radiesse, of: why we are winning share? And: why we are winning share, candidly, against too much larger well established companies in this industry? Which is a question we often get: How is that we are able to win share against those companies? And that, maybe, reflects the quality of augmentation that Radiesse provides.

Let me end my prepared comments with a quick outline of our overall business strategy and this is our first earnings call. I will take this opportunity to give you a sense of where we are going.

Based on the clinical data that we just discussed regarding Radiesse that appeared in these publications, it may be reasonable to believe that Radiesse could ultimately become the number one dermal filler in the market. That the opportunity is there to achieve that leading position it is incumbent upon us as an organization to build our organization capabilities around that goal and deliver on that opportunity for our shareholders.

If we realized our position as the leader in the dermal filler space we believe that creates a leverage point that may ultimately provide us the opportunity to become one of the leaders in the medical aesthetics space more broadly and that's why we are making the substantial investment that we are in the both US sales organization and the European direct sales organization and while we are making the substantial investments that we made over the past years in expanding our product portfolio, that we believe will ultimately enable us to deliver a portfolio to medical aesthetics providers that brings unique product values and a unique proposition in our ability to help them grow their business.

As oppose to offering similar product portfolios to each of our competitors, what we believe we are going to bring to the physicians is a differentiated product portfolio with a sclerotherapy product that helps to improve outcomes for patients in new areas of the aesthetics practice and a surgical adhesive that helps them to perform new procedures that they might otherwise not be able to do as easily, that will help our physician customers to grow their practices, and will differentiate our portfolio in the coming years.

Lastly, a quick point on the IPO we did complete in November, our initial public offerings. And we’re quite pleased that we have gotten it done, and what many have described as a difficult market over the last couple of months. We saw 11.5 million shares, when you include the debenture which was exercised by the underwriters at $8 of share, raising in excess of $80 million.

With that I’ll turn over to Derek to go through the financial results.

Derek Bertocci

Thank you, Steve. So, revenue growth was excellent for us in this first quarter of fiscal 2008, up 95% from the comparable period of the prior year. In the United States growth continued to be strong with revenue up 85% from prior year. Radiesse sales accounted for all of this increase. We saw significant increases in both the number of accounts purchasing Radiesse and the average number of syringes purchased by each account.

Our average selling price declined modestly due to customers purchasing larger quantities of Radiesse and thereby qualifying for lower volume based prices. In international markets growth was even higher than in the United States, with revenue up 164% from the prior year. We experienced strong growth in sales through our direct sales force in Western Europe; sales through our distributors in other markets were also exceptionally strong this quarter.

We anticipate that we will generate revenue in the range of $76 million to $81 million in fiscal 2008, up from $47 million of revenue in fiscal 2007. Historically, we have experienced seasonal variations in our revenue growth within each year in the following patterns. During our second and fourth quarters, which end on December 31st and June 30th respectively revenues have increased significantly from the immediately preceding quarters.

Conversely, revenue generated in our first quarter and third quarter, which end on September 30 and March 31 respectively, have been approximately unchanged from the revenue posted in the immediately prior quarters. We anticipate that this pattern of seasonal variations will continue through fiscal 2008.

Our gross profit margin improved modestly to 81.6% in the first quarter of fiscal 2008, from 80% in the same period of the prior year. The improvement was due to lower overheads and royalty expense per unit, partially offset by the modest decline in average selling prices.

Overhead expense per unit declined due to volume related efficiencies, as we produced more units of Radiesse. Royalty expense was lower, because amortization of the Artes Medical license prepayment over the remaining life of the related pattern, yielded expense that was lower than the royalty due under the original agreement.

We anticipate that our gross margins will be approximately 81% to 82% for the remainder of fiscal 2008. The most notable driver of our operating expenses is our sales and marketing expenditure, which represented 77% of total revenues in the quarter, ended September 30, 2007. We are building our direct sales and clinical training team and marketing capabilities in the United States and Europe to compete effectively with the leading companies in our industry. We believe these resources are a core asset that will maximize the sales potential of Radiesse and the additional products in our pipeline.

Sales and marketing expenses increased $5.3 million or 82% in the first quarter of fiscal 2008 from the same period of prior year. We expanded our direct sales team and added a direct clinical training team. In the first quarter of fiscal 2008, we grew sales territories from 56 to 80 in the United States. In fiscal 2007, we did not increase our direct sales team in the United States until the second quarter, approximately November of 2006, when we grew from 39 to 56 territories. In Europe, we increased sales territories from 16 to 25 in the quarter ended September 30, 2007, and initiated recruiting for these new positions during the quarter.

We anticipate that operating expenses would be in the range of $79 million to $81 million for fiscal 2008. The increases will result principally from the additions to our sales and clinical training teams, during the first quarter, higher R&D spending on clinical trials and product development, and additional costs associated with being a public company.

Our operating loss in the first quarter was $3.6 million. Our net loss in the first quarter was $3.4 million. Income tax expenses related to our European subsidiary. In the United States, we have significant net operating loss carryforwards. We do not anticipate exhausting these NOLs for sometime.

Loss per share was $0.82 per share based on 4,166,000 common shares outstanding before the IPO. After the IPO in which we sold 11.5 million new common shares and converted all preferred shares into common stock. We had outstanding 46,213,000 common shares and options to purchase approximately 5.5 million shares.

This concludes our prepared remarks and with that, we'll open it up for questions. Jamie?

Question-and-Answer Session

Operator

(Operator Instructions). And we'll take our first question from Adam Green with JP Morgan.

Adam Green - JP Morgan

Hi, good afternoon everyone.

Steve Basta

Hi Adam.

Adam Green - JP Morgan

Two questions, first.

Steve Basta

Adam you are cutting out there.

Adam Green - JP Morgan

And also any impact on ASP from competitive pressures meaning any price discounting from your competitors that were impacting that?

Steve Basta

I am sorry, Adam. I apologize; our phone somehow didn't catch the first part of your question, could you repeat the question?

Adam Green - JP Morgan

Sure. The ASP coming down because of the volume discounts: should we expect that to continue in future? Or: is that going to bounce around, depending upon the purchasing from the customers?

Steve Basta

The ASP impact -- we've not actually changed our price structure. So, our list price on Radiesse in United States is $295 per syringe. We have a standing volume discount program that anyone who orders 30 syringes and more can purchase the product at $235 per syringe. And then periodically, from quarter-to-quarter, we run various promotions, where the ASPs or the order may have slightly different pricing associated with different volume, but there is a fundamental pattern that we always have which is: if you buy more product, you got a slightly lower price and that's common price in our industry.

The ASP impact that occurred in this quarter indicating that there is a slight increase in price, principally voted from the fact that physicians were moving their order patterns to larger orders. So, we typically would get an order up 5 units or 10 units wherein physician may be buying at $295. If they increase their order size to 30 units, they would be buying at $235. And we are seeing, over time, some shift in physician order patterns to larger and larger orders, which results in a lower average price at which the physicians are purchasing the product.

Adam Green - JP Morgan

Okay. So: it's not because of any competitive pricing, more volume pricing?

Steve Basta

Yes. We have volume discount pricing and as physicians gain acceptance of Radiesse and increase their usage, they increased their purchase price that qualifies them for greater discounts and therefore lowers our ASP.

Adam Green - JP Morgan

Okay. And just one last question, you mentioned December being a strong quarter typically, this quarter relative to other December quarters: any impact from broad economic issues that you are seeing? Or: does it look like any other December quarter from your perspective?

Steve Basta

We are not going to adopt a pattern of giving quarterly guidance and the unusual timing of this call being just three weeks before we finished this quarter, thus put us in an unusual place, but we don't want to be in position of signaling a specific quarterly number or indicating a quarterly pattern vis-à-vis last year. What we are comfortable with is: whether the annual guidance that we've provided should give you some sense of where we think the year that is.

Adam Green - JP Morgan

Okay. Thank you.

Operator

We'll take our next question from Tom Gunderson with Piper Jaffray.

Needhi - Piper Jaffray

Hi guys, it's actually [Needhi] calling in for Tom.

Steve Basta

Needhi how are you?

Needhi - Piper Jaffray

I'm good. Just back to the economic environment: Can you give us any more color to as far as what you are seeing in the market and issues that people are concerned with the housing and credit market? And the impact that could have on lots of procedures or, may be: what you are hearing from your customers, from the doctors?

Steve Basta

We're not hearing a lot yet, that indicate anything specific related to that, but I don't want to forecast that the filler market will be immune to any impacts from the downturn in the economy or predict exactly what's going to happen in the filler marketplace. And it's unclear what happens if we really do go until recession. And the filler market is certainly much bigger today than it was at any time in prior recessions, so there isn't a precedent to look back, or to say, the last time we had a recession, this is what happened to the filler marketplace. We don't have that kind of a clear precedent to look at and it's unclear, which product whether one would look at, both types injections as the paradigm for what's going to happen in downturn or looking at other products it's just hard to predict.

Needhi - Piper Jaffray

Okay. And then, you have both mentioned the sales force expansions that you have done, so you took it up to 80 and in this most recent quarter: can you give us a sense or amount? Are all those territories built as of today?

Steve Basta

At the current time, all of the US territories are filled and most of the European territories are filled, but I'd love to go and check the exact number. So, we are pretty close to our full strength, we are between the 20 and 25 number in Europe. I just I know we've got a number of offers out and I don’t get daily updates of exactly how many people accepted. But we are nearing the end of that expansion in Europe.

Needhi - Piper Jaffray

Okay. Can you give us any sense of what the turnover you guys tend to see especially --

Steve Basta

We have very low sales rep turnover.

Needhi - Piper Jaffray

Okay.

Steve Basta

We just historically, we don’t have reps, but leave to go to competitors and the only time we ever have rep turnover is because people didn’t want to work as hard as our reps work, which they tend to be in offices in the evening, running Radiesse events. They tend to be at demos early in the morning, but it's has been a very low number.

Needhi - Piper Jaffray

Okay. Thanks. And then just one quick last one on the, you made the comments that there has been and that you saw significant growth in both the new accounts and [showing just] per accounts. Can you give us any more “granularity” as far as, maybe, the number of backed up accounts at the end of the quarter or any other stuff you are willing to give us?

Steve Basta

We show them not to do that in terms of going to specific accounts because any sort of formulae we have actually looked at this to some extent as how we would describe that any specific formulae that we might give will end up altering numbers on the quarterly basis, if we emphasize one quarter converting new accounts then it may impact a different parameter. We emphasize growing existing accounts, because we have run various outreach programs to physician, any foreign metrics that we use wouldn’t give a broadened up picture. And so we chose not to provide any specificity on how many accounts we are ordering in a particular quarter.

What I can give you a sense of is that we have over 6000 physicians who have ordered product and that represents a very significant penetration now. That is not 6000 physicians, who order product every month or every quarter, but since we have launched Radiesse, more than 6000 physicians have put in a revenue order and in that process we think what we have leached more than half of the core accounts in the market price, but there is substantial growth both yet to be had in terms of converting new accounts and substantial growth to be had within those existing accounts just because an account holder wants, it doesn’t mean that we really have captured major share in that account, but a lot of work to be done within those existing accounts because we need to grow Radiesse users.

Needhi - Piper Jaffray

Got it, thank you.

Operator

(Operator Instructions). And there appear to be no further questions. At this time, I’d like to turn everything back over to you Mr. Basta for any additional or closing remarks.

Steve Basta

Okay, well thank you to Adam mainly for the questions and helping us to clarify things for all of the investors in this call. And my thanks to each of the investors, who have taken the time to join us today. And even more sort of all of the investors who participated in our initial public offering and the vote of confidence, we take place since yearly lets say substantial, who do share responsibility on our perspective to work diligently to deliver for you in the opportunity at hand and delighted that our organization has posted a terrific December quarter, but more so with the team that we have build and the success that we are having and appreciate the confidence in the public marketplace.

Thank you for taking the time today and if you have any future questions, we look forward to the future earnings calls. We will be doing what I believe in the late January for our second quarter numbers ending December 31. Thank you very much for your time today.

Operator

And that does conclude today’s conference. Thank you for your participation. You may disconnect at this time.

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