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

| About: BioForm Medical (BFRM)

BioFormMedical, Inc. (BFRM) F1Q08 (Qtr End 09/30/07) Earnings Call December 13, 2007 5:30 PM ET


Steve Basta - CEO

Derek Betocci - CFO


Adam Green - JP Morgan

Needhi - Piper Jaffray


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

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

Steve Basta

Thank you, Jamie. Good afternooneveryone and thank you for joining us for our first earnings call. By noweveryone should have access to the first quarter fiscal 2008 financial resultsrelease, which was distributed this afternoon after the market closed. Therelease is available on the investor relations section of BioForm website and with our Form 8-K filed with the SEC which has been evolvedalso has drawn in and is available. In addition, you can call our office at6503-640-25 and we will fax one to you if it’s not available to you if youdon’t have access online.

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

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

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

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

Other things that havecontributed to the growth rate and are fundamentally driving the growth in ourbusiness are two sales force expansions that we’ve done. We expanded our salesforce in late calendar year 2006, there in the October-November period ofcalendar 2006. That sales force expansion was an anticipation of our aestheticlaunch which came in December and we have been successfully converting accountsand 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 theJuly-August timeframe and continue that on through September and Octoberparticularly continuing on the international sphere.

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

We're building critical mass inour sales organization, which is enabling us to create frequent touch pointswith physicians, that allows us to accelerate that physician comfort experienceby helping physicians to gain more experience and allows us to get to moreaccounts.

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

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

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

From a research and developmentperspective, beyond the core commercial growth that we are experiencing in Radiesse,both in the USmarket and internationally, we are also making significant investments thereand we are making strides at growing our pipeline of products.

Two noteworthy businessdevelopment deals over the last 12 months include the Aethoxysklerol licensingdeal. 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 toour existing UScommercial organizations. That product is currently in a Phase III clinicaltrial, which is being conducted pursuant to a special protocol assessment thatwas agreed to with FDA and the trial is on track. We expect to file that NDA incalendar 2008.

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

So both of those programs aremoving forward and what we are doing in R&D programs, is building a medicalaesthetics pipeline that will leverage on the success that we are getting withRadiesse.

I would like to take a momentbefore we go through the details of our financial results and also to highlightan announcement that we issued yesterday regarding the publication of threenoteworthy papers in a special issue of the Journal of Dermatologic Surgery.These papers reflect the core value proposition of Radiesse tolead that excelled our marketplace. First and foremost, the Radiesse Juvederm-Perlanecomparative trial is a substantial comparative study conducted with 205patients at five clinical sites in Europe. Thiswas done in a multi-center, randomized blinded comparative assessment. So, theevaluations were done of the patients by blinded evaluators that in spite --patients were randomized just to which product they receive. It was awell-controlled clinical study and the conclusions from that are quitesignificant.

One, patientswere substantially more satisfied that they received Radiesse, than if theyreceived either Juvederm or Perlane in the clinical trials. And that is one ofthe foremost thing that the physicians are pursuing on a regular basis, is toachieve high patient satisfaction to Radiesse, and simply a more satisfyingproduct in the experience of this clinical study. Patients who receivedRadiesse also indicated that they would be substantially more likely to returnfor future treatments. And the authors of the study noted, specifically, thatRadiesse dermal filler offers advantages in durability and costs, whileexhibiting a similar safety profile for the other products. That's the corevalue proposition that we believe is enabling us to win share in thismarketplace. Radiesse provides better patient satisfaction, better durability,terrific value, to both the physician and the patient, and does so with anexcellent safety profile.

The same set ofcharacteristics was evidenced in our US based labial fold pivotal study whichwas published in the same journal. This was the 117 patient prospectiverandomized study comparing Radiesse versus CosmoPlast. This study was the basisof our USPMA approval and the publication which just appeared in the journalfrom 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 publishedin this journal their own clinical experience over 47 months with over 100patients concluding the same thing, high patient satisfaction, excellent resultand an excellent safety profile.

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

Radiesse results were superior inthese clinical trials and greater than 90% of patients satisfied and indicatingthe favorable return for future treatments. The hyaluronic acid products testeddidn't even achieve anywhere near that level of either of satisfaction or likelihoodto return for additional treatments.

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

Let me end my prepared commentswith a quick outline of our overall business strategy and this is our firstearnings call. I will take this opportunity to give you a sense of where we aregoing.

Based on the clinical data that wejust discussed regarding Radiesse that appeared in these publications, it may bereasonable to believe that Radiesse could ultimately become the number one dermalfiller in the market. That the opportunity is there to achieve that leadingposition it is incumbent upon us as an organization to build our organizationcapabilities around that goal and deliver on that opportunity for our shareholders.

If we realized our position as theleader in the dermal filler space we believe that creates a leverage point thatmay ultimately provide us the opportunity to become one of the leaders in themedical aesthetics space more broadly and that's why we are making the substantialinvestment that we are in the both US sales organization and the Europeandirect sales organization and while we are making the substantial investmentsthat we made over the past years in expanding our product portfolio, that webelieve will ultimately enable us to deliver a portfolio to medical aestheticsproviders that brings unique product values and a unique proposition in ourability to help them grow their business.

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

Lastly, a quick point on the IPOwe did complete in November, our initial public offerings. And we’re quitepleased that we have gotten it done, and what many have described as adifficult 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 ofshare, raising in excess of $80 million.

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

Derek Bertocci

Thank you, Steve. So, revenuegrowth was excellent for us in this first quarter of fiscal 2008, up 95% fromthe comparable period of the prior year. In the United States growth continued tobe strong with revenue up 85% from prior year. Radiesse sales accounted for allof this increase. We saw significant increases in both the number of accountspurchasing Radiesse and the average number of syringes purchased by eachaccount.

Our average selling pricedeclined modestly due to customers purchasing larger quantities of Radiesse andthereby qualifying for lower volume based prices. Ininternational 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 directsales force in Western Europe; sales throughour distributors in other markets were also exceptionally strong this quarter.

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

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

Our grossprofit 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 loweroverheads and royalty expense per unit, partially offset by the modest declinein average selling prices.

Overheadexpense per unit declined due to volume related efficiencies, as we producedmore units of Radiesse. Royalty expense was lower, because amortization of theArtes Medical license prepayment over the remaining life of the relatedpattern, yielded expense that was lower than the royalty due under the originalagreement.

We anticipate that our grossmargins will be approximately 81% to 82% for the remainder of fiscal 2008. Themost notable driver of our operating expenses is our sales and marketingexpenditure, which represented 77% of total revenues in the quarter, ended September 30, 2007. We arebuilding our direct sales and clinical training team and marketing capabilitiesin the United States and Europe to compete effectively with the leading companiesin our industry. We believe these resources are a core asset that will maximizethe sales potential of Radiesse and the additionalproducts in our pipeline.

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

We anticipate that operatingexpenses 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 andclinical training teams, during the first quarter, higher R&D spending onclinical trials and product development, and additional costs associated withbeing a public company.

Our operating loss in the firstquarter 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 anticipateexhausting these NOLs for sometime.

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

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

Question-and-Answer Session


(Operator Instructions). Andwe'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 competitivepressures meaning any price discounting from your competitors that wereimpacting that?

Steve Basta

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

Adam Green - JP Morgan

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

Steve Basta

The ASP impact -- we've notactually changed our price structure. So, our list price on Radiesse in United Statesis $295 per syringe. We have a standing volume discount program that anyone whoorders 30 syringes and more can purchase the product at $235 per syringe. Andthen periodically, from quarter-to-quarter, we run various promotions, wherethe ASPs or the order may have slightly different pricing associated withdifferent volume, but there is a fundamental pattern that we always have whichis: if you buy more product, you got a slightly lower price and that's commonprice in our industry.

The ASP impact that occurred inthis quarter indicating that there is a slight increase in price, principallyvoted from the fact that physicians were moving their order patterns to largerorders. So, we typically would get an order up 5 units or 10 units whereinphysician 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 inphysician order patterns to larger and larger orders, which results in a loweraverage price at which the physicians are purchasing the product.

Adam Green - JP Morgan

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

Steve Basta

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

Adam Green - JP Morgan

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

Steve Basta

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

Adam Green - JP Morgan

Okay. Thank you.


We'll take our next question fromTom 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 theeconomic environment: Can you give us any more color to as far as what you areseeing in the market and issues that people are concerned with the housing andcredit 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, thatindicate anything specific related to that, but I don't want to forecast thatthe filler market will be immune to any impacts from the downturn in theeconomy 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 thefiller market is certainly much bigger today than it was at any time in priorrecessions, so there isn't a precedent to look back, or to say, the last time wehad a recession, this is what happened to the filler marketplace. We don't havethat kind of a clear precedent to look at and it's unclear, which productwhether one would look at, both types injections as the paradigm for what'sgoing to happen in downturn or looking at other products it's just hard topredict.

Needhi - Piper Jaffray

Okay. And then, you have bothmentioned the sales force expansions that you have done, so you took it up to80 and in this most recent quarter: can you give us a sense or amount? Are allthose territories built as of today?

Steve Basta

At the current time, all of the USterritories are filled and most of the European territories are filled, but I'dlove to go and check the exact number. So, we are pretty close to our fullstrength, 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 ofexactly how many people accepted. But we are nearing the end of that expansionin Europe.

Needhi - Piper Jaffray

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

Steve Basta

We have very low sales repturnover.

Needhi - Piper Jaffray


Steve Basta

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

Needhi - Piper Jaffray

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

Steve Basta

We show them not to do that interms of going to specific accounts because any sort of formulae we have actuallylooked at this to some extent as how we would describe that any specificformulae that we might give will end up altering numbers on the quarterlybasis, if we emphasize one quarter converting new accounts then it may impact adifferent parameter. We emphasize growing existing accounts, because we haverun various outreach programs to physician, any foreign metrics that we usewouldn’t give a broadened up picture. And so we chose not to provide anyspecificity on how many accounts we are ordering in a particular quarter.

What I can give you a sense of isthat we have over 6000 physicians who have ordered product and that representsa very significant penetration now. That is not 6000 physicians, who orderproduct every month or every quarter, but since we have launched Radiesse, morethan 6000 physicians have put in a revenue order and in that process we thinkwhat 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 newaccounts and substantial growth to be had within those existing accounts justbecause an account holder wants, it doesn’t mean that we really have capturedmajor share in that account, but a lot of work to be done within those existingaccounts because we need to grow Radiesse users.

Needhi - Piper Jaffray

Got it, thank you.


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

Steve Basta

Okay, well thank you to Adammainly for the questions and helping us to clarify things for all of theinvestors in this call. And my thanks to each of the investors, who have takenthe time to join us today. And even more sort of all of the investors whoparticipated in our initial public offering and the vote of confidence, we takeplace since yearly lets say substantial, who do share responsibility on ourperspective to work diligently to deliver for you in the opportunity at handand delighted that our organization has posted a terrific December quarter, butmore so with the team that we have build and the success that we are having andappreciate the confidence in the public marketplace.

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


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

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