OMRIX Biopharmaceuticals, Inc. Q4 2007 Earnings Call Transcript

OMRIX Biopharmaceuticals, Inc. (OMRI) Q4 2007 Earnings Call March 6, 2008 11:00 AM ET

Executives

Robert Taub - Chief Executive Officer

Nissim Mashiach - President, Chief Operating Officer

Marc Droppert - Executive Vice President

Sophie Hobbs - Interim Chief Financial Officer

Francesca DeMartino - Senior Director, Investor Relations

Analysts

Matthew Dodds - Citigroup

(Don Green - Sphera)

Junaid Husain - Soleil Securities

Amit Hazan - Oppenheimer

(Ray Bower - Lean One Capital Group)

Chris Nagadi

Greg

Operator

Welcome to OMRIX's Fourth Quarter and Full Year 2007 Financial Results Conference Call.

Before we begin, I’d like to remind you that this call contains forward-looking statements. Forward-looking statements provide the Company’s current expectations or forecast of future events. Forward-looking statements include statements about the Company’s “expectations” “beliefs” “plans” “objectives” “intentions” “assumptions” and other statements that are not historical facts. Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements.

The Company’s actual results could differ materially from those anticipated in forward-looking statements for many reasons; including the factors described in the section entitled “Risk Factors” and management’s discussion and analysis of financial condition and results of operations in the Company’s 10-K as filed with the Securities and Exchange Commission on March 30, 2007 and the Company’s most recent Quarterly Report on Form 10-Q and its current reports on Form 8-K.

Unless required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statement to reflect circumstances or events after the date of this call.

At this time, I would like to turn the conference call over to Robert Taub, OMRIX Chief Executive Officer. Mr. Taub, please proceed.

Robert Taub - Chief Executive Officer

Thank you, operator. Good morning and thank you for joining us for today’s conference call to discuss our highlights and financial results for the fourth quarter and the full year of 2007.

I am Robert Taub, Chief Executive Officer of OMRIX Biopharmaceuticals and with me here in the room are Nissim Mashiach, the President and Chief Operating Officer, Marc Droppert, Executive Vice President, Sophie Hobbs, Interim Chief Financial Officer, and Francesca DeMartino, the Senior Director of Investor Relations.

Following our formal remarks, we'll open up the call for questions. We will provide highlights of the company's performance during the fourth quarter and full year 2007, which reflect the successful execution of our strategy to grow top line revenues while continuing to build our R&D pipeline.

Let's now start by having a look at the top line growth and in particular biosurgery. As we stated in our press release issued earlier this morning, biosurgery product sales were $19.3 million in 2007, an increase of 44% over 2006.

We want to emphasize that the FDA approval in January of Evicel with a general hemostasis in surgery indication is the beginning of a new era for us. We together with our partner ETHICON are particularly well positioned to expand the fields of use for biological hemostats, which we believe are significantly underserved today.

We believe that ETHICON's experience across multiple medical specialties and the efficacy of our products will enable us to set the standards for using all surgical applications. A key part of achieving this objective will be working closely with surgeons and training them in the optimal selection from available hemostats.

The use of the available hemostats do overlap, and we believe that the comprehensiveness of our product portfolio will allow us to fully address the surgeons needs. This is probably a good time for me to mention that we will be hosting an Analyst and Investor Day on March 27 in New York City, here where we are. The event would take place during the first half of the day and will focus on our biosurgery product portfolio. It will be a good opportunity for you to gain deeper perspective on our products and product candidates and will also include guest speaker commentary. The event will be webcast, we hope to see in person. So please do save the date and we will provide further details in upcoming press release.

EVICEL is gaining market share at an accelerated rate. In 2007 ETHICON's end-user sales doubled over the previous year and there are currently approximately 500 repeat EVICEL accounts. ETHICON's Johnson &Johnson wound management division has made Adhexil and EVITHROM its priority products for 2008.

Now turning to EVITHROM, since its launch on October 15, 2007, EVITHROM is meeting its penetration targets and has converted many accounts. The stand alone Thrombin market is evolving into a three tier price competitive market. While standalone Thrombin will continue to be a important product, we believe long-term growth will ultimately be driven by Thrombin-based enhanced hemostats where Thrombin is combined with other agents such as various forms of gelatin.

With OMRIX and its marketing partner ETHICON's commitment to a broad hemostat product portfolio including EVICEL, EVITHROM and Thrombin enhance hemostats, we expect to continue a strong growth pattern in 2008 and beyond. This is reflecting in our guidance, which we shared with you on February 5, where we stated that we expect 75% growth in our bio-surgery product sales in 2008.

Now moving to our passive immunotherapy business; Product sales in the fourth quarter of 2007 represented slight decrease of 3% as compared to same quarter in 2006, but an increase of 52% when compared to the third quarter of '07. These figures are impacted by one time $3.5 million sale of IVIG to a country within the EU in the fourth of '07 and the aforementioned significant sales of VIG to the UK government in the fourth quarter of '06.

We will continue our long-term focus on growing our biosurgery business and expect moderate growth in our immunotherapy business in 2008. I regret to inform you that we have just received a letter from the French health authorities advising us that we have not been awarded the pending VIG anti-vaccinia immunoglobulin tender. We were very surprised by this decision as we meet all of the stated requirements. However, it is important to note that our current revenue guidance from February the 5th does not include VIG sales and therefore our growth objectives for 2008 remain unchanged.

Before I turn the call over to Sophie, I would like to review our upcoming milestones for the first half of 2008. Now regarding our breakthrough product the Fibrin patch the key product candidate in our hemostat product platform. In November '07 we submitted an IND to start a pivotal study in the US for mild, moderate and severe bleeding. We plan to initiate the study for mild and moderate bleeding in soft tissue in the second quarter of 2008 and are in discussions with the FDA on finalizing the study design for severe bleeding, which is currently an unmet need. We anticipate filing a BLA in 2009.

As we have said in the past, we are also developing products outside of the ETHICON relationship including Adhexil, our Anti-Adhesion product candidate. We expect to complete patient enrollment in Phase I and II clinical study by the end of the second quarter of 2008. This study will evaluate the safety and initial efficacy of the product in preventing and or reducing postoperative adhesions in patients in patients undergoing gynecological surgery.

I'd like now to turn the call over to Sophie Hobbs for a financial review of our fourth quarter and for the full year. Sophie.

Sophie Hobbs - Interim Chief Financial Officer

Thank you Robert and good morning everyone. I’ll begin my prepared remarks by discussing the fourth quarter and full year and then I will provide some brief comments on our financial guidance for '08. So, let's begin with '07 fourth quarter and full year results.

Total revenues for the fourth quarter of '07 were 20.6 million compared with 18 million in the fourth quarter of '06, an increase of 2.6 million or approximately 14%. Were we to exclude the 6 million VIG sales from the fourth quarter of '06, revenues this quarter would have increased by 8.6 million or 72%.

Total revenues in '07 decreased to 61.7 million, a 3% decrease from 63.8 million in '06 due to the positive impact of VIG sales in '06. Were we to exclude the 21.2 million of VIG sales from '06, revenues this year would have increased by 19.1 million or 45%.

Product sales: Product sales in the fourth quarter of ’07 amounted to 17.5 million compared to 15.7 million in '06, an increase of 1.8 million or approximately 11%. Excluding VIG product sales would have increased by 7.8 million or 80%.

Total product sales decreased 9% to 51.9 million in '07 from 56.9 million in '06. Product sales other then VIG increased by 45 in '07 when compared to 35.7 million in 06.

Product sales from our biosurgery line in the fourth quarter of '07 were 6.5 million compared to 4.2 million in the fourth quarter of '06. A 2.2 million or 53% increase. Biosurgery sales for the year increased 44% to 19.3 million in '07 from 13.4 million in '06.

On the immunotherapy side, product sales in the fourth quarter of '07 amounted to 11 million compared to 11.4 million in the fourth quarter of ’06. Excluding VIG sales from the '06 fourth quarter results, our immunotherapy product sales would have increased by approximately 5.6 million or 104%. Remember that fourth quarter '07 include the one time sale of 3.5 million IVIG to a country within the EU.

For the year, immunotherapy product sales decreased 25% to 32.6 million from 43.3. However, excluding 21.2 million of VIG sales in ‘06, immunotherapy sales in ‘07 increased by 48%. The increase is primarily due to increased unit and price per unit.

Moving on to gross profit, gross profit on product sales in the fourth quarter of ‘07 was 6.8 million or 39% of sales compared to gross profit of 8.8 million or 56% of sales in '06.

Total gross profit for the fourth quarter of ’07 was 8.2 million or 40% of sales compared to 9.1 million or 50% of sales for the fourth quarter of '06. Gross profit for the year was 24 million or 39% of total revenue compared to 34.2 million or 54% of total revenues in '06. The decrease in gross profit is related to the absence of VIG sales in '07 and to a lesser degree to the decline in the value of dollar against the Israeli shekel.

R&D clinical and regulatory expenses for the fourth quarter of '07 were1.4 million, compared to 800,000 for the fourth quarter of '06. For the year, these expenses were 4.5 million compared to 3.4 million in '06, a 32% increase. The expenses included cost associated with the development of product. We are pursuing on our own, and the increase reflects our commitment to remain innovative. We expect our R&D expenses to continue growing.

SG&A expenses amounted to 5 million for the fourth quarter of ‘07, versus 2.8 for the fourth quarter ‘06. For the year SG&A expenses increased to 13.6 million from 9.9 million in ’06. And the increase primarily due to our growing presence in the US, hiring of key personal, stock-based compensation expenses, and compliant cost related to being a public company. We expect that some of these expenses will not be recurring. However, from a financial modeling point of view the ’07 annual SG&A expenses should be used as a way.

The year include $904,000 of other income recorded in the second quarter, which reflects the value of Plasma, we received at no cost from the American Red Cross as part of the 2004 termination agreement. We do not expect to receive additional free Plasma in ’07 as well as in ’06.

OMRIX did not incur any tax expenses. However, in ’08 we expect to start paying some income tax and we expect this tax rate of approximately 10% starting in ’08.

Net income for the fourth quarter of ‘07 was 3.3 million, or $0.19 per diluted share, compared to 6.4 million, or $0.41 per diluted share for the fourth quarter of ‘06. Net income for the year was 11.9 million or $0.69 per share on a diluted basis, compared to 23.1 million or $1.65 per share in ’06. Remember that ’06 was positively impacted by VIG sales.

In addition to the lower net income in ’07 EPS was computed using 17.3 million diluted shares compared to 14 million in ’06. We expect our fully diluted shares in ’08 to be approximately 17.6 million.

On the balance sheet side now, as of December 31, ’07 we had 80.9 million in cash and short-term investments and working capital of 110.4 million. We invested approximately 7 million in fixed assets mostly in our new facility in Jerusalem.

Now turning to our full year 2008 guidance on product revenue. We are confirming the product sales guidance we provided on the 5th of February. We continue to expect product sales to be in the rage of 64 to 67 million. This guidance is based on the following key assumptions: The current biosurgery sales forecast provided to us by ETHICON. No product or business acquisition and no VIG product sales.

I will now turn the call back to Robert for some final remarks. Robert.

Robert Taub - Chief Executive Officer

Thank you, Sophie. In conclusion, as CEO and as significant shareholder, I want to convey my continued confidence in OMRIX’s long-term potential. I see a company that has the ability to dramatically expand within the next few years.

I wish to thank you all for you attention and for your ongoing support of the company. And I’d now like to open up the call for questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Matthew Dodds with Citigroup. Please proceed.

Greg

Good morning. This is actually Greg call in for Matt, he is out today (inaudible) on the call.

Robert Taub

Good morning Greg.

Greg

Hi, how are you doing? There are two things that I would like to focus on this morning, product mix and the product margins. Certainly, I think a lot of that pressure on shares this morning outside, they announced loss of the France (inaudible) is that correct.

Robert Taub

Can you speak up a little Greg, because it’s difficult to hear you?

Greg

Can you hear me better now?

Robert Taub

Yes.

Sophie Hobbs

Thank you.

Greg

Sure, certainly a great deal of pressure this morning on the shares as a result of the, I think derived from the concern that EVICEL sales are slowing prematurely. And I know you guys don't break out between your EVITHROM and EVICEL sales, but based on and I assumed $800,000 contribution for EVITHROM, it would appear that EVICEL sales were up just roughly 100,000 from Q3 if you back out the 1 million in additional shipment that you got during Q3. So, I was just wondering, what if you could explain the sequential result there as a result of the continued market share gains that you guys seemed to have achieved over the course of '07?

Sophie Hobbs

Hi Greg, this is Sophie. Just to make sure, I understood the number part of the question. Biosurgery sales in quarter three included 1 million of EVICEL sales that were not shipped in the second quarter of '07 as a result of the FDA delay with Cryo. So if you adjust the quarters, you would read the second quarter at 4.3, the third quarter at 5.8, and the fourth quarter at 6.5.

Robert Taub

And Greg, I want to add again, we have given the guidance that our biosurgery sales are increasing 75% this year. So I could tell you the IMS figures may already be available also although they are not always very reliable, but what I said about EVICEL and accelerating rate market share et cetera it’s all real.

Greg

I understand. I guess if you, looking at Q3 and Q4 and kind of excluding our assumption for EVITHROM sales though because obviously I would imagine EVITHROM contributed more to Q4 results than the Q3. Again the concern I think is that EVICEL sales did not really move up much sequentially and despite the outlook for the 75%, what I'm trying to get out is obviously I think there is a lot of, even prior to the announcement of the VIG contract loss for France, the shares were under a significant amount of pressure. And what I'm trying to get out is can you guys provide an explanation of what might have caused that product shift away from biosurgery; perhaps the slowdown in EVICEL sales in the quarter sequentially?

Sophie Hobbs

It is difficult for us to answer, because we don't fully understand where you see your decrease. There is actually an increase in sales. Our forecast is based on ETHICON's forecast. So when we expect 75% growth in '08, we may…

Greg

It would just be helpful maybe if you could just provide what the EVICEL sales were in Q4?

Sophie Hobbs

We do not provide this kind of information, if you understand.

Greg

I think that’s troubling, but I guess maybe and if you look out at 2008 do you expect continued sequential up tick for EVICEL and when do you expect to start to see the benefit from the label expansion.

Sophie Hobbs

Well, there is a clear patent that first quarter sales have been lower than the preceding quarters. So, we expect the same thing for the first quarter of '08. But as you know, how we have given the guidance of the 75% growth in biosurgery for the full year, and we're really confident, the whole management team, that we will fulfill this guidance. Robert, anything to add?

Robert Taub

No. I mean, we are gaining market share in the market. We are not at liberty to disclose the details of the market share and the product is actually doing very well. So whatever impression you may have is not substantiated by the facts.

Greg

Alright. And then with respect to the product margins, they appear to be down sequentially from 41.3% in Q3 to 39% in Q4. Just wondering if you could explain the impact of that as well as what might have created the sequential uptick in development in grant services margins over the same time period?

Sophie Hobbs

Can you please repeat?

Greg

Sure, the product gross margins were at 39% in the quarter which was down from 41.3% in Q3, while the development in grant margins were up to 44.9% as we calculate them. And I was just wondering, if you could characterize why the gross margins for products is downs sequentially?

Sophie Hobbs

It's actually the product mix. It's not a trend, definitely not.

Greg

Just historically, you guys have characterized your IVIG, or I guess your immunotherapy sales margin is being higher relative to your biosurgery product sales margins. I guess, I would have expected that the product mix that you have would have actually had a benefit to the quarter.

Sophie Hobbs

Greg, I believe it was VIG, we can not have said IVIG and it is correct that '06 has VIG sales that had a very positive impact not only on sales, but of course on gross profit and margin as a percentage of sales in '06. In '07 as we do not have this positive impact.

Greg

Yeah, I was talking about sequentially though from Q3 to Q4.

Sophie Hobbs

It's really just product mix. There is nothing different. There is no trend going down.

Greg

Okay. I will get back in a queue. Thank you.

Sophie Hobbs

Thank you very much Greg.

Operator

Your next question comes from the line of (Chris Nagadi). Please proceed.

Chris Nagadi

Yeah, hi. Thanks for taking my question. I have a couple. Can you give us guidance for the cost of goods for '08, of the biosurgery?

Robert Taub

Sophie.

Sophie Hobbs

We usually do not give this guidance.

Chris Nagadi

Okay. And my second question is, can you give us an idea or what your thinking is about EVITHROM'S approval in EU in '08 or when it will come up?

Robert Taub

Yeah hold on a second Nissim Mashiach is going to answer that EVITHROM approval in EU?

Nissim Mashiach

We are now in a process in filing the EVITHROM in EU and we believe that this product would be approved early 2009.

Chris Nagadi

Okay. The filing process will – when do you plan to file?

Nissim Mashiach

In the next few weeks.

Chris Nagadi

Okay. Thanks you.

Robert Taub

Thank you.

Operator

Your next question comes from the line of (Don Green with Sphera). Please proceed

Don Green

Hey. Good Evening you guys.

Sophie Hobbs

Good Morning.

Don Green

Sorry for that you know, the time difference is.

Nissim Mashiach

Okay. Good Evening.

Don Green

Good Morning to you guys. We are kind of looking at probably the markets focusing beat on the close term issues rather on the long strategic potential of the company. And one of the ways that to deal with this issue usually is to make use of ones large cash position to enhance shareholders value even in the short-to-medium terms. Have you given thought to the use of that cash balance to maybe enhanced shareholders value even in the short term? Thank you.

Robert Taub

I mean are you referring to M&A and partnering plans or anything like that. Is that what you are talking about?

Don Green

Yeah. I mean it looks like the market has taken a view that the short and medium term is the more important part of the company and are you looking at M&A buybacks all of these sort of options in the near future?

Robert Taub

First of all, as you know we are long-term players here I felt. Regarding M&A or partnering plans of course we can't make any comment. You know these things are not the kind of things that can be discussed in advance. And about buying back, you are talking about buying back stock?

Don Green

That might be, we have one possibility.

Robert Taub

I think that we have better use of our cash, but again I don't think we can talk about that in advance.

Don Green

Okay. Thank you very much and good luck.

Robert Taub

Thank you.

Sophie Hobbs

Thank you.

Operator

Question comes from the line of Junaid Husain with Soleil Securities. Please proceed

Junaid Husain

Good morning guys.

Robert Taub

Good morning.

Sophie Hobbs

Good morning.

Junaid Husain

Just a few quick questions for you, Robert you mentioned in the last call that you had an active campaign with hospital P&T committees to get EVITHROM into the hospital pharmacy. So just a few questions, help us understand how the P&T committee process works, do they typically meet on a pretty regular basis or that may be once or twice a year.

Robert Taub

It all depends on the hospitals and some of them meet more often and some of them meet less often. So I mean first of all you have to get direction from obviously the surgeons and then is to brought to P&T committee. The P&T committee meets and that's the process. They have to plan. They have to know when they meet. I mean it's not a public information, when they meet also.

Junaid Husain

I appreciate that. Just given the rolling nature when P&T committees meet how comfortable are you with EVITHROM getting in front of the right focus at this P&T committees in 2008. Would you say that you will be able to get in front of every hospital customers P&T committee in 2008 and then when would you expect this to happen. Would it be like the first quarter or may be the first half of the year?

Robert Taub

Yeah, Marc.

Marc Droppert

I think that process really varies in. No we won't get in front of every hospital. Obviously this is something that ETHICON has a leadership role on and they have obviously prioritized the customer base. Our initial focus will be on EVICEL customers then we will continue to move from there.

Junaid Husain

Okay. Good enough and then Robert relative to your VIG program, you know, I do understand that VIG is not part of your guidance for 2008. But are your business development folks still looking for VIG contract in '08 with other government customers. Are there any outstanding tenders that should be on our radar screen?

Robert Taub

I mean for sure, we remained opportunist on this, but we can't disclose what we are doing.

Junaid Husain

Okay. And then last question for you relative search with the new CFO have you started interviewing candidates and then secondarily to that should we assume at least a call it three to six month for the search and then may be another couple of months before the candidate actually comes on board, so may be best case by the end of the summer for the position to be filled?

Robert Taub

Marc.

Marc Droppert

Yeah, we have started the process. We had started interviewing and have the search actively underway. We do have very clear in professional interim arrangements in place so we are not going to do anything quickly. We are going to be considered and make sure that we have the best candidate possible. What the exact timing will be, will just depend on how that process evolves, but we are pursuing it diligently and will make sure that we make the right choice.

Junaid Husain

Okay, thank guys. That's all I have got.

Sophie Hobbs

Thank you.

Operator

Your next question comes from the line of Amit Hazan with Oppenheimer. Please proceed.

Amit Hazan

Thanks. Hey good morning guys.

Robert Taub

Good Morning Amit.

Sophie Hobbs

Good morning Amit.

Amit Hazan

Just a quick clarification question, we haven’t seen Cangene put out a press release yet. Can you tell us when you found out about the VIG contract and if you know for sure that it has actually been awarded?

Robert Taub

Just now.

Amit Hazan

At its meeting, today. So it has been awarded. I just want to make sure.

Robert Taub

No I didn't say that.

Amit Hazan

Okay. I am just trying to figure out from the letter, if it's actually been awarded or if you just don't know. Do you know that it has been awarded to someone?

Marc Droppert

I mean we actually don't know that it has been awarded. So we don't know exactly where they are in their process.

Robert Taub

And as we said we were very surprised and we actually do not quite understand the reasons.

Amit Hazan

Okay. But what they told you unequivocally is that they don't need your VIG anytime in the future.

Sophie Hobbs

No.

Marc Droppert

And unequivocally is a hard word to qualify, but as a practical matter they have indicated that they were not awarding the tender to us. We have asked them to provide us clarification and they have not to our knowledge made it award to anybody else.

Amit Hazan

Okay. And then just moving along to the P&L, I think that in the past it’s very much being the case that part of the issue for the stock was that because you don't give EPS guidance people have gotten on (inaudible) way ahead of you. I am hoping you can help us out a little bit with some of the line items here and may be just starting with gross margin and how we think about that, may be just giving us a little bit of comment and what might be going on with Talecris and their supply and how that might impact margin in '08 and what might be going on with your recovered plasma plan? And how we should think about the gross margin line in 2008, first of all? And then I'm going to ask about SG&A and R&D as well.

Nissim Mashiach

Okay. Maybe first qualitatively I will answer. There is no absolutely impact on to OMRIX regarding whatever problems or whatever you are referring to with Talecris. So there is nothing in terms of supply or in terms of increased cost or anything like that. Regarding recovered plasma….

Robert Taub

I think in both case both on cryo and recovered plasma and I think we mentioned in the past that we have long term supply agreements. And those who we signed with are meeting our demands and there is no problem whatsoever in getting those raw materials.

Nissim Mashiach

At the same price?

Robert Taub

Yes

Nissim Mashiach

Because they are under contract, and now more general comment on the on the gross margin company wide not product-by-product, maybe Sophia will say few words.

Sophia Hobbs

We expect the gross margin to improve from about 40%. The goal is to reach 50% by 2009. Do you want to go now down the P&L?

Amit Hazan

Sure that would be great.

Sophia Hobbs

Okay

Amit Hazan

And just on the 50%, is that by the end of 2009 or is that by the beginning of 2009?

Sophia Hobbs

Sometime in 2009.

Amit Hazan

Okay

Sophia Hobbs

Okay, now &D. We expect R&D to continue growing in absolute dollars and as a percent of revenue as we are committed to remain innovative. SG&A, we expect SG&A to remain relatively static as a percent of revenue. However, in the first quarter we do expect some non-recurring expenses for example some severance related cost in the….

Robert Taub

First quarter.

Sophia Hobbs

In the first quarter, yeah, but otherwise it should remain static as a percent of revenue in '08.

Robert Taub

One another thing I want to say about the timing of the gross margin of course, the new plant in Jerusalem will have an impact on that which will come up and running by the second half of 2009.

Amit Hazan

Okay, that’s great. And then just one last question from me would be on Israel IVIG? It looks like it must be a very strong number in the quarter. I know you guys addressed some of the rumors that were incorrect in your prior press release a few weeks ago. But maybe just give us a sense of what's going on in that market and if you do expect that kind of growth to continue in 2008?

Nissim Mashiach

I think in terms of the market in Israel as a market is stable. And we do see some growth and we believe that we will maintain this growth in 2008.

Amit Hazan

Okay guys I would get back in queue. Thanks.

Sophia Hobbs

Thanks Amit.

Robert Taub

Thanks

Operator

You have a follow-up question from the line of Matthew Dodds with Citigroup. Please proceed.

Matthew Dodds

Thanks. Robert, it's actually Matt this time. Can you hear me okay?

Robert Taub

Yeah, Matt. Hi.

Sophia Hobbs

Good morning.

Matthew Dodds

Hi. I wanted to follow-up on a couple of Greg's questions. When you look at the J&J forecast, it's obviously very critical to your numbers in 2008. Can you give us an idea of how they get there? How much visibility they're giving you? Where that inventory tells? Some parameters so we have some confidence in that number as you're getting it from J&J. And that’s one, and I know you're breaking out the sales of EVICEL and EVITHROM although I really hope you do at some point. Can you tell us when you talk to J&J where there focus is? Is the profitability more skewed to one product than the other so their sales force when they are selling those two products do they have, you think do they have a preference on one versus the other. You don't have to tell us where you think each one is going to split but is there a preference that you see?

Robert Taub

I'll start with the answer to your last question and maybe Marc will comment on the first one. But I could tell you that the EVICEL, EVITHROM, and there old product SURGI-FLO, these are the three top priority products in the bags of the Johnson & Johnson wound management brands. So I don't that there is a preference for one or the other.

Marc Droppert

I think, as a practical matter these products EVICEL and EVITHROM are their priority products for Johnson & Johnson wound management this year and they have designated them as their sort of top products for the year. So, from our perspective, what they sell or between them is something that we are not as focused on. We just want them to sell one or both. In terms of how they develop their forecast, I think, Johnson & Johnson historically is a conservative company and we are confident that when we base guidance on forecast that we are being conservative as well.

Matthew Dodds

And you say when they have given you that full year forecast, how far out they are forecasting in any type of concrete amount. Is that possible?

Marc Droppert

It’s a rolling forecast. But yes we don't really provide that level of details.

Matthew Dodds

I guess it was a level that they have to give you a set number just given the way that supply and manufacturing works here?

Marc Droppert

That's just not a level of information that we provided. That's competitive information.

Matthew Dodds

Alright, thanks guys.

Marc Droppert

Sure thanks.

Sophie Hobbs

Thanks Matt.

Operator

At this time, you have a question from the line of (Ray Bower with Lean One Capital Group). Please proceed.

Ray Bower

Hi, thanks for taking my question. I just wanted to clarify your SG&A spend; when you state that it is going to be relatively static from '07, are you extrapolating that Q4 forward, in other words the five times four, or are you extrapolating the '07 numbers total year '07 SG&A forward?

Sophie Hobbs

Hi Ray, we really mean that the SG&A will remain static as a percent of revenue and I think that's what I would recommend you would do.

Ray Bower

No SG&A, that's what I was asking about, so is it the '07 SG&A as a percentage of revenue will remain static or Q4 as a percent of revenue will remain static in '08?

Sophie Hobbs

For the year.

Ray Bower

For the year, okay and the same for R&D?

Sophie Hobbs

No, actually we are continuing to grow in asset dollars and also as definitive revenue.

Ray Bower

Can you clarify a little bit about how much more that will grow, I know you have got some steady starting.

Sophie Hobbs

It is difficult because it depends on some of the programs that we are working on some of the new products.

Ray Bower

The stuff that you haven't announced or that (inaudible) 3:04 and those sorts of things?

Robert Taub

Sorry, we can't comment any further on that.

Ray Bower

Alright. Thank you very much.

Sophie Hobbs

Thank you.

Robert Taub

Thank you.

Operator

At this time, you do not have any more questions in queue. And I would like to turn the presentation back to management for closing remarks.

Robert Taub

Well, thank you everyone for the interest that you continue to have in OMRIX. And I look forward to seeing some of you in the Analyst Day in New York on March 27. Thanks a lot.

Operator

Thank you for your participation in today’s conference. This concludes the presentation and you may now disconnect. Good day.

Copyright policy: All transcripts on this site are the copyright of 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.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!