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DUSA Pharmaceuticals Inc. (NASDAQ:DUSA)

Q2 2012 Results Earnings Call

August 2, 2012 8:30 AM ET

Executives

Bob Doman – President and CEO

Rich Christopher – Vice President, Finance and CFO

Analysts

Henry Scott – Roth Capital

Nick Halen – Sidoti & Company

Seamus Fernandez – Leerink Swann

Ken Trbovich – C.K. Cooper

Operator

Good day, ladies and gentlemen. And welcome to the DUSA Pharmaceuticals Second Quarter 2012 Corporate Highlights and Financial Results Teleconference. At this time, all participants are in a listen-only mode and later, we will conduct a question-and-answer session, and instructions will be given at that time. (Operator Instructions)

As a reminder, this conference is being recorded. I would now like to introduce your host for today’s conference, Bob Doman. Sir, you may begin.

Bob Doman

Good morning, everyone. Thank you for joining us today for our second quarter 2012 corporate highlights and financial results conference call. After some opening comments I’ll turn the call over to Rich Christopher who will cover our financial results.

Please be reminded, while the primary purpose of the call is to review results, be advised that our comments and answers to your questions may contain certain forward-looking statements.

The forward-looking statements are subject to a number of risks and uncertainties associated with the company’s business. Additional information which may affect our business prospects is available in the company’s SEC filings.

We are pleased to report today that DUSA posted a very positive second quarter of the year. Sales results were strong, gross margin dollars were up significantly and we generated $2.3 million in positive cash flow.

But particularly noteworthy, is that while we remain focused on driving topline revenue, a revenue growth we experienced along with the margin expansion allowed us to absorb incremental investment in our business, while at the same time, remaining cash flow positive and profitable on both the GAAP and non-GAAP basis.

This marks the 11th consecutive quarter that we have been either cash flow positive and/or profitable on a non-GAAP basis. We continue to maintain a healthy cash position as we existed the quarter with $31.3 million in cash, up $3.1 million from year end 2011.

Topline revenues of $11.7 million were up 21% over the prior year quarter and what is traditionally our second slowest quarter of the year due to the seasonality in our business our Domestic Kerastick revenue increased 22% versus the prior year quarter.

This was our 27th consecutive quarter of year-over-year Domestic Kerastick volume growth. We continue to see Kerastick volume growth in both our existing customer base and new customers.

We also had another strong BLU-U performance with 66 units sold, up 18% versus the prior year quarter. Over the first six months of this year we have sold a 180 BLU-U’s, up 50% over the first half of last year.

In addition, we placed another 17 units into physician practices during the quarter on our BLU-U evaluation program, for a total of 83 units either sold or placed on the evaluation program for the quarter.

We existed the quarter with 37 evaluation units in the field, compared to 21 [evalu] units in the field at the end of the second quarter last year. As a reminder, we historically closed 90% of the evaluation units that we replaced in physician practices once the evaluation period is up.

As most of you are aware, we have a razor-razorblade business at BLU-U and Kerastick. New BLU-U customers provide us with opportunities to generate new incremental volume on Kerastick, which is the key to driving topline growth.

Shifting to our clinical development programs, as we previously announced we completed enrollment in April on our Phase 2 clinical trial studying the broad area short drug incubation or BASDI method of utilizing Levulan Kerastick and BLU-U for the treatment of AKs on the face and/or scalp. We enrolled 235 patients in the study and we expect to have preliminary results available by the end of the year.

Over to both safety and efficacy, we are following these patients for six months to investigate the potential for the reduction in AK occurrence and the treatment areas with Levulan in combination with BLU-U.

Also in the quarter we completed enrollment of a pilot Phase 2 clinical trial studying the safety and efficacy of treating AKs on the upper extremities. This study enrolled 70 patients at three clinical sites. We expect to have preliminary results available by the end of the third quarter.

Our goals with these studies are to seek FDA approval in order to expand our current approved label, which when once approved we believe will allow us to again more rapid market penetration.

We continue to make progress in our next-generation Levulan project, with the goal of having a candidate chosen by year end to moving the product development with the ultimate goal of improving efficacy and shortening the overall Levulan PDT treatment time for AKs versus our current therapy. This new product if successful will also allow us to enter the international markets with the product that will have patent protection.

For the remainder of the year we intend to build upon our strong first half performance with the focus on increasing revenues and further advancing of our commercial and development projects to expand our Levulan PDT franchise.

While we expect the traditional seasonality to play factor in our third quarter results, which is historically our slowest quarter of the year, we believe we are on track for strong second half of the year, which has in the past represented 53% of our total annual U.S. Kerastick volume.

Now, I’d like to turn the call over to Rich who will cover our financial performance.

Rich Christopher

Thank you, Bob, and good morning, everyone. I'd like to review the company’s second quarter 2012 financial highlights which were disclosed in this morning’s earnings release. Since I will only be discussing the highlights of our financial results, I'd like to refer you to our quarterly report on Form 10-Q for more specifics and detail. We expect to file our Form 10-Q with the SEC later today.

Before I get started with the financial highlights, I would like to once again point out that during my comments today, I will be referring to certain non-GAAP financial measures. Management believes that these measures provide meaningful information to investors, as well as better reflect the way that we view the operating performance of the company. You can find the reconciliation of our GAAP to non-GAAP measures at the end of our earnings release under the section entitled Use of Non-GAAP Financial Measures.

In addition, I do want to remind everyone that we continue to encourage investors to measure our performance on a quarter-over-quarter year-over-year basis. Seasonality exits in both our revenue and expense stream, which cause expected fluctuations in our results on a consecutive quarter basis.

With that covered, I will now summarize our financial results for the second quarter of 2012. Once again the company had another solid financial quarter. Total product revenues for the second quarter of 2012 were $11.7 million, representing a $2.1 million, or 21% improvement over the comparable 2011 period.

Our Q2 revenue improvement was entirely driven by our U.S. PDT revenue performance. U.S. PDT revenue for the quarter was $11.7 million, up $2.1 million or 21% over Q2 of last year. The increase in our U.S. PDT business was driven entirely by Kerastick revenue growth.

U.S. Kerastick revenue for the quarter was $11.2 million, representing a $2 million or 22% increase over 2011. The increase in our U.S. Kerastick revenue was due to 14% increase in volume and a 7% increase in price.

During the quarter there were 74,000 Kerastick units sold in the U.S. as compared to the 65,000 units sold in the prior year quarter. At the same time, the average U.S. selling price increase from $141 per stick in Q1 of 2011 to $151 per stick in Q2 of 2012. The increase in our average selling price is as result of the 7% price increase taken on January 1, 2012.

BLU-U revenues for the quarter were flat year-over-year at approximately $500,000. During the second quarter of 2012, there were 66 units sold as compared to the 56 units sold in the prior year period. At the same time, the average selling prices of the BLU-U decreased year-over-year from $7700 per unit in Q2 of last year to $7100 per unit in Q2 of this year. The decrease is attributable to invested pricing offered to customers throughout the first half of 2012.

DUSA’s net income for the quarter on a GAAP basis was $2.1, $2.2 million or $0.08 per share on a diluted basis. This represents a $1.1 million bottom line improvement as compared to the net income of $1.1 million or $0.04 per share reported in the prior year quarter.

Please note that our GAAP financial results in both periods were impacted by significant non-cash gains and losses associated with the fair value accounting of warrants. Changes and DUSA’s stock price overtime has resulted in the recording of these adjustments, which totaled a $1.3 million gain and a $900,000 loss for the second quarter’s of 2012 and 2011, respectively.

It should also be noted that the prior year quarter included a one-time $750,000 gain from the sale of the Nicomide patent. This item is captured in the income from discontinued operation of line in our GAAP income statement.

On a non-GAAP diluted basis DUSA generated $1.6 million or $0.06 per share in income from continuing operations. These results are consistent with the prior year, the company achieves significant year-over-year product margin improvement, which we utilized in its entirety to fund $1.8 million in incremental operating expenses, most notably related to the advancement of our clinical development programs.

On a pure dollar basis, overall margins increased from $8.2 million in Q2 of 2011 to $10 million in Q2 of 2012, a $1.8 million gain. The margin improvement was entirely the result of a $1.8 million expansion of our Kerastick margins. On a percentage basis, blended margins remained very strong at 85%, with continued margin achievement of 89% on our core Kerastick product.

Turning our attention to the balance sheet, the key items of note are cash, cash equivalents and marketable securities, which totaled $31.3 million at the end of the quarter, as compared to the $28.2 million we had on hand as of the end of last year. The company continues to be cash flow positive, generating $2.3 million in cash during the second quarter of 2012.

In closing, we remain pleased with our financial results for the second quarter and first half of 2012. The key takeaways from today’s earnings release are as follows. First, our U.S. PDT business continues to demonstrate strong growth. U.S. revenues were up $2.1 million or 21% for the quarter and are up $4.8 million, or 24% through the first half of the year.

Second, our topline revenue growth has translated into $1.8 million in incremental product gross margin for the quarter and $3.7 million in incremental margin through the first half of the year.

And lastly, the company has chosen to utilize these incremental resources to fund further investment into the business. Even in doing so, we remained both cash flow positive and profitable.

I’m pleased to report that through the first half of the year, the company generated $3.1 million in positive cash flow, as well as $3.6 million in non-GAAP income from continuing operations.

This concludes the financial highlights section of our presentation. I’ll be happy to answer any questions you have as part of the Q&A session.

Operator, we’d now like to open up the call for questions.

Question-and-Answer Session

(Operator Instructions) And our first question comes from the line of Henry Scott of Roth Capital. Your line is open.

Henry Scott – Roth Capital

Thank you, and good morning, guys.

Bob Doman

Good morning.

Henry Scott – Roth Capital

Just a couple of questions. For starters, 14% volume growth, 22% revenue growth, do you think we are finally seeing an annualization of the price increases? I mean, did those look like good kind of core growth rates with the kind of quarterly and seasonal adjustments already in them, just trying to get your thoughts on how you think about those growth rates?

Bob Doman

So, just a little background on Scott’s question. The company made a decision to go to an annual price increase in 2011. Prior to that, the company had taken price at various points throughout the year, which obviously cost some blips in our quarter-over-quarter volume.

So we took price on January 1st this year and January 1st of the prior year. So this will be the first full year in which we’ll have a true clean comp year-over-year. And I think what Scott saying is, it’s been in the 14% range now for the first two quarters and is that reflected of the history.

There has been a lot of noise in the history because of those price increases as well. The seasonality in the business, but certainly, in the 14% to 18% range is what we've seen here historically.

Henry Scott – Roth Capital

Okay. Thank you. That is helpful. And then with regards to SG&A and R&D for the year, any sort of historic color you can give, now that you have the first half kind of in the books?

Bob Doman

Sure. Again, there is a bit of seasonality that goes to our expense line, as well as our revenue line, particularly as it relates to sales and marketing, I think you saw a bigger number in the first quarter of 2012 that relates to sales and marketing.

That tends to slowdown a bit over the summer months here and then pick up again at year end. So there is a bit of high and low in sales and marketing, the highest being Q1 and Q4 with a bit of a dip in Q2 and Q3.

R&D and G&A should be pretty much consistent throughout this year. Certainly, R&D is up this year as compared to the prior year, due to the investment in the additional clinical studies that we took on in 2012. But the run rates that you’ve seen through the first two quarters are pretty true.

Henry Scott – Roth Capital

Should we expect R&D to kind of dip down in the fourth quarter since one of those trials will have already reported and the other one, at least should be pretty much completed?

Bob Doman

As it relates to those trials, you would expect spending to slowdown particularly in the fourth quarter because enrollment has been complete and patient treatments will be complete, certainly before year end. But at the same time, we do have other projects that we are working on, most notably the next-gen formulation of whatnot that will increase spending as it relates to year end.

Henry Scott – Roth Capital

Okay. And then the final question, just on this next-generation Levulan. Could you talk a little bit about, I know you want to have, at least a prototype end development by year-end. What should we think about of the timeline of that product? Is that a primary growth initiative for the company? And then with regards to this international market opportunity, how big do you expect that to be relative to the U.S. opportunity?

Bob Doman

Two good questions, Scott. We do think it’s primary growth initiative due to the fact that what -- we've learned a lot about PDT since we’ve been out in the marketplace. And obviously, with -- working with different investigators, have come up with some things that we believe have an impact on the overall treatment time, which is one thing that we think we can cut down with our next-generation, that’s where we are focusing on and then also increase the efficacy. So they are the two goals of this program.

We think it’s, with the timing on this, would probably be 2018 in terms of launch, which is the year before our patent expiration here in the U.S. So we've been looking at launching sometime in 2018 timeframe.

The international markets, which would open up to us, probably have the worldwide opportunity due to the fact that you’ve got, certainly, Europe and South Africa, and Australia as major markets for skin cancers.

And then actually skin cancer is increasing even in lot of the markets around the world, even though there would be incidents that may not be as high as and more the areas where you have fairer skin patients. So, we think it almost doubles the market opportunity overall for us, being able to get in international markets.

Henry Scott – Roth Capital

Okay. And then, would we expect it to enter clinical trials in 2013, how should we --would it be a traditional phase, would you go right into Phase 2 and then a Phase 3 or how should we think about that. I don’t know you have a lot of color at this point.

Bob Doman

What are we thinking about spending on this program over the total period of time, Rich?

Rich Christopher

It's probably a $20 million project over a four, five-year period.

Bob Doman

Yeah. And next year, I think we’d be more into the product developments, some preliminary testing and probably going into the clinic, possibly late next year but more likely in 2014.

Henry Scott – Roth Capital

Okay. Great. Thanks for taking the questions, guys.

Bob Doman

Okay.

Operator

Thank you. Our next question comes from the line of Nick Halen from Sidoti & Company. Your line is open.

Nick Halen – Sidoti & Company

Good morning, guys.

Bob Doman

Good morning.

Nick Halen – Sidoti & Company

Few of the questions, few of the questions I had actually were just asked, but just a few quick follow-ups. Just in terms of the sales growth you saw in Kerastick in the quarter, can you give us a little sense of maybe, I guess the breakdown in terms of new versus existing customers?

Bob Doman

Yeah. I think that, overall increase came 8%, I believe on new customers and 6%, like 6% or 7% on existing customers. So it’s pretty much split through the first half of the year and that’s for the first half of the year, total, yeah.

Nick Halen – Sidoti & Company

For the first half of the year, okay.

Bob Doman

Yeah. Yeah. And we are still seeing growth with existing customers, utilizing more Kerastick and then, obviously, the new customers coming on board, new customers obviously being a smaller part of the overall volume at this point.

One other things we are encouraged about to is, the average sticks per customer use is also up, that was up about 12% versus the second quarter of last year. So the overall usage continues to grow in the overall customer base.

Nick Halen – Sidoti & Company

Okay. In terms of BLU-U, I know you mentioned, I believe 37 units in the field currently. Can you just talk a little bit about, I guess, the timeline in terms of when you get these into a practice? And when you, I know you said, you typically close about 90% of those. I guess just a little bit of the timeline in terms of how long it takes for them to make a decision and eventually actually purchase the unit?

Bob Doman

Yeah. It varies Nick you know. We used to give them a three-month evaluation period. So that’s kind of rolling, if we put one in and two in account on June 25th, it may not close until August, September sometime timeframe. So it’s usually a three-month evaluation.

Sometimes they will go ahead and purchase before that, because they’ve already seeing how things are working. But generally it’s a three-month evaluation period and that’s kind of the way the rep positions there, because they want to get a condition good feel for how the patients are responding to it, reimbursement getting back.

So we encourage them to treat as many patients they can in that three-month period to get that experience and versus cutting it short. So it's usually three months before they wind up acquiring them.

Nick Halen – Sidoti & Company

Okay. And then just lastly, it’s kind of a housekeeping question. Just -- it seems like this is second year in a row, we’ve seen a jump in a share count in the second quarter, just wondering I guess, what’s causing that and what we can expect going forward?

Bob Doman

When you say a jump in the share count…

Nick Halen – Sidoti & Company

Just the diluted share count.

Bob Doman

The diluted share count, we typically have our annual stock option grant that they take place during the first quarter of each and every year. So you see those numbers come through in the second quarter numbers.

Nick Halen – Sidoti & Company

Okay. All right. Great. Thanks, guys.

Operator

Thank you. Our next question comes from the line of Seamus Fernandez with Leerink Swann. Your line is open.

Seamus Fernandez – Leerink Swann

Thanks for the question and congratulations on the quarter. So, Bob, maybe can you just talk to us a little bit about -- that it seems like we are still seeing an inflection in BLU-U placements, why don’t you get a better sense of really what’s driving that and I think historically, when we talk, the driving force now would be to really gain incremental pull through of the Kerastick’s. But with the current trend, I just want to know what the motivation, what’s really driving the sales force as we head through to the back half for this year and into 2013.

Separately, as we think about some of the -- obviously, you’ve got $33 million. So I think its $33 million net of cash in the balance sheet. Correct me, if I’m wrong. But with that amount of cash, I mean is it starting to burn a little bit of hole in your pocket relative to opportunities out there. Do you see any opportunities to build up the business and leverage the sales force. Are you pretty happy with how the business is running at this point in time?

Bob Doman

Yeah. Number of questions there, Seamus. Let me see if I can get to them -- it’s always good to have cash as you know, as there is a time before where I was reaching in my path and we didn’t have a lot. So we are in a good position, feeling good about that.

And our attention here obviously is to reinvest back into the business. And obviously, we’re doing that this year. We try to be fairly disciplined on this in terms of controlling the P&L just because of some historical issues that we have dealt with in terms of where we were in the past.

But we’ve got good investment going on in our number of programs right now. We will continue to invest in those R&D programs and hopefully move them along quickly next year. We are -- we have expanded a little this year and outside of our existing sales force with the addition of these Medical Science Liaisons, which we put in this year to help work with KOL’s.

As we go into next year and we’re just beginning our planning processes for next year, we will be looking at adding more resources to the sales organization again. And possibly expanding this MSL program, because we’re having -- we believe a lot of success with that in terms of working with key opinion leaders.

So, we are going to be continuing to reinvest those dollars. And as you aware we’re constantly on the lookout for China bring something else in that add to the portfolio in the derm space. So, we will continue on this business development side of things.

On the BLU-U placement, I do think the sales force tends to -- there is a couple times in the year, where the sales force tends to be highly motivated to get things done, that’s year end. Because they have targets on BLU-U, so yeah that’s why we’re right. I think we have always a pretty strong fourth quarter on BLU-Us.

Customers tend to be -- they’ve had a good year. They are looking to spend some money and I have some write-offs. So that helps us. I think on BLU-U placements towards the end of each year.

And the I think the rest of -- a lot of our focus in the beginning of the year on getting the BLU-Us out there early because they drives volume in the later part of the year.

So, I think that drives -- that’s what pushes it. We did have a promotion in the first quarter at AAD and we closed a lot of BLU-Us in the month of March in that first quarter. A lot of times when they place -- buy BLU-Us, they’ll buy their initial stock of Kerastick’s. They may not come back for another six months and order again.

Because they bought some and they are getting up and running just learning how the process works and treatments. So we get at the late response before we start seeing alert on the BLU-Us. That’s why we feel pretty good about year-end, because of the BLU-Us we’ve got now this year.

Seamus Fernandez – Leerink Swann

And any update on the reimbursement environment overall, you guys have had a good trajectory historically, particularly with Medicare-based reimbursement. Just wondering if there are any update that we should be aware of and what your hopes are going forward there?

Bob Doman

Yeah. I mean on the larger scale, as we know, what happens with the elections and what goes on at year-end. But we are working with our consultants, the preliminary and I’ll use that word make sure we understand it’s preliminary indications back that we’re getting, we’re going to get a little incremental bump in the CPT code again like $2.50 or something like that.

So, we don’t see any significant changes up or down based on the information we’re receiving from our consultant groups and working with the people with AAD. I think we will see little incremental improvement each year, but we don’t expect anything as a game changer on the PDT side.

I mean there has been a lot of talk around cryosurgery coming down that is up for review as there are committees in 2013. So, if that goes in the opposite direction, which most people are saying that’s likely to happen that could help us.

Seamus Fernandez – Leerink Swann

Great. And then maybe just a final question. As we kind of look forward to the BASDI trial in the fourth quarter. Can you just again update us on what your hopes and expectations are for the short incubation outcome relative to the competitors?

Bob Doman

Yeah. I mean when you say competitors, are you talking to about other…

Seamus Fernandez – Leerink Swann

Prior -- your own competitors. So where your hope would be for -- well, I guess there are couple ways to think about it. One would be versus your long drug incubation and then separately versus what the topicals that are out there right now.

Bob Doman

Certainly our goal -- we would imagine that we’re not going to -- I mean, I think we do not believe we’re going to get the same type of efficacy that we had on overnight drug incubation. I think we expect to see what we had in the literature, which tends to be higher than the topicals that any of the independent investigator studies that have been published in general articles would indicate. That would be somewhere between what the topicals are and where our current label is with overnight drug incubation.

And the other important aspect of this trial and that’s what we’ve obviously been seeing and hearing anecdotally. And actually when we see it with some of our customers, who adopt this therapy completely is that we hopefully we will be able to show that we prevent the occurrence of new lesions. We think that’s a very strong data for us.

Now, once we get through this, I mean, as you know, we’re limited and how we can promote our current product. We do think that lessens the overall selling process for us. So, I think getting this label enhance is very, very important for us in terms of being able to market it more aggressively to the physician practice.

But also not only the physician but the patients, so we can’t really show patient photos right now to patients that show the two clinical benefits of our therapy, because it’s only spot treatment. And as you know, there is a really good cosmetic response on this too. So we think that’s going to be powerful stuffs once we get that data and get it on the label.

Seamus Fernandez – Leerink Swann

Okay. Thank you.

Bob Doman

Maybe we can increase our market penetration. We think it can also cutdown on the overall selling time in cycle.

Seamus Fernandez – Leerink Swann

Bob, I’ll jump back and come back if I have more questions.

Bob Doman

Okay. Thank you.

Operator

(Operator Instructions) And our next question comes from the line of Ken Trbovich with C.K. Cooper. Your line is open.

Ken Trbovich – C.K. Cooper

Thank you. Good morning, guys. I guess I wanted to follow-up on the questions that Scott Henry sort of asked initially regarding R&D. Certainly, we’re cross-ended to these R&D trials being very front-end loaded with regard to training investigators, the fees associated with patient enrollment and there is -- there tends to be less expense in the middle.

And obviously going into third quarter, where there is always the expectation of lower revenues just because of the seasonal patterns that we talked about. Can you give us some sense as to whether you think total R&D in the back half is higher or lower than the first half?

Bob Doman

I guess the answer to your question Ken is certainly R&D as it relates to those two particular projects would be lower in the second half than they had been in the first half. But at the same time, there are a portfolio of other things we are looking at including that NexGen formulation, which would result in incremental spending during the second half of the year which would kind of balance that off.

Ken Trbovich – C.K. Cooper

Okay. So it just gives us a better sense from the seasonal pattern, what you expect on that side. And trust me, you guys have done great job in terms of demonstrating that cost control on the G&A and even frankly with the growth of the sales force you still got really nice discipline on the marketing and selling expense.

I think the challenge for us is not seeing some visibility on the R&D side. Since clearly, we don’t know to what extent the cost of those other trials are so appreciate the help on that side. With regard to some of the comments Bob that you made on reorder rates from existing and current customers.

Can you give us some sense from a total customer perspective? What do you think your customer base as completely adopted or sort of understood the changes in the price increases, as they relate to the once a year. And to what extent you see similarities or differences between this year and last year in that regard?

Bob Doman

Ken, that’s a real tough one for us. Because we slice and dice these ordering patterns. And we spend hours with our sales and analytic groups going through these numbers, trying to get some idea on how customer trends, orders and how they order. And it’s just all over the board. So it’s really hard to come up with some thing. I do think that we have a fair amount of customers who order once a year now.

I’m not sure why they do that. I certainly wouldn’t have hit but they -- I don’t know whether they are looking at year end. And they are having good positive years and they think they can buy in before the price increase and they buy heavy because fourth quarter is such a huge quarter for us right before the price increase.

And a lot of times, when we sell new BLU-Us into an account, they may buy their initial order when they get the BLU-U and make the purchase on the BLU-U. Then their start-up time becomes, it takes some three to six months before they really get everybody trained, get patients coming in, lot of times after dupe these certifications for insurance coverage and all that. So they have the backup patients.

So we really see a delayed response on that. But I do think, our customers are now anticipating once a year and a lot of them just hold off. They start to run down their inventory. You normally think they would order in. They will hold off until right before price increase and those type of things.

Ken Trbovich – C.K. Cooper

Sure.

Bob Doman

Ken, I don’t know whether I answered your question. I guess, the real answer is, our ordering patterns from our customers are just all over the board.

Ken Trbovich – C.K. Cooper

Sure. No, no. I understand and I guess, I was just trying to get a sense if the total number of customers who place orders in the first half, maybe even compared to the total number who placed orders in the first half of last year because again they may not be the same customers but I think, it gives us an idea as to whether reorder rates are sort of consistent from year-to-year if there is some sort of underlying change in that pattern?

Bob Doman

I think the total number of customers were -- their order are relatively consistent on a quarter-to-quarter basis.

Rich Christopher

Yeah.

Ken Trbovich – C.K. Cooper

Okay.

Bob Doman

… prior year, but some of them are new, some of them are old, some didn’t order. So it’s that routine. I do think we continue to add new customers. One of the things that we see, Ken, and this is one of the other factors that always confuses us in terms of ordering patterns and try to project. If we have a practice that gets up under this and we have a number of them. They’ll treat every -- just about every AK patients they have with PDT.

And what will happen is the next year, their volumes will go down. And what we’re saying what’s going on here. And I think we finally started realizing having conversations of these practices is that when their patients are coming back, they are not having any case.

Ken Trbovich – C.K. Cooper

Sure.

Bob Doman

So we see this big spike and they are treating everybody and then it drops down the following year. And then at the following year, it goes up again and then kind of -- kind of stays pretty stable, with little ups and downs on that point on.

So we think its part of what we’re seeing, it has been done in clinical trial that if you fully adopt this and you’re treating all your patients with this, you are going to probably have less lesions to treat the next year but then they eventually come back again.

Ken Trbovich – C.K. Cooper

So that, BASDI is encouraging -- from the BASDI perspective that’s an encouraging sign if that plays out?

Bob Doman

Yeah. Yeah.

Ken Trbovich – C.K. Cooper

And then, I have a follow-up related to the BASDI trial and obviously the noise in the market place. And it certainly one of the best leading indicators that we have for continued growth of the business is the adoption of the BLU-U units themselves. And clearly, this is just an amazing start to the year.

And especially, in light of the fact, that there are new topicals in the category. And I’m sure a kind of noise that you are facing from much, much large competitors. Can you speak to some of the success you’ve had in driving that growth despite the fact that you don’t have this data from the BASDI trial and the upper extremities trial. I mean certainly, that’s a kind of growth that we would normally anticipate following from new studies and new understanding of other technology.

But you haven’t necessarily had that benefit, yet you’ve had this tremendous growth and certainly they are encouraged by that. But I want to get a sense from you anecdotally as to how you’re faring in the field against all that noise and how that success has played out for you?

Bob Doman

I think we have a lot of focus on driving new customers because obviously placing BLU-U’s are extremely important to us strategically. I think we’ve got a very good story for the clinician, right now in terms of PDT because it’s a pretty flexible therapy that they can utilize with their patients. And the other key thing for us that has been good for us over the last few years has been the reimbursement.

So financially, we’ve got a good story along with a good clinical story right now. I think what we’re seeing as we grow this business that you are starting -- we're starting to get more peer-to-peer pressure of physicians and any regional area that’s fairly penetrative to BLU-Us.

Other docs needing to get into the therapy because they are hearing about it from patients who come in. We hear a lot of stories about patients talking to other patients on the golf course, why you’re doing this? I have had this done. Then they are going in and asking you’re hearing, so you heard new customers saying I’ve been having a lot of patients coming in and asking us about PDT.

So I think a lot of these factors are doing it. I’m a little concerned. I’ll tell you that, I think our sales force may be a little attuned too much to driving new business. And I think there are opportunities to increase our volumes in our existing customers a lot more.

I think we spend a lot of time. And our sales cycle is difficult in terms of timing, generating new business. And I think what we tend to do and this is my feeling on this is that our reps spend a lot of time working the pipeline trying to get new BLU-Us out there during the course of the quarter. And then at the end of the quarter, they run back and get an order out of their existing customers.

I don’t think we’re doing a very -- I think there is room for improvement in working our existing customer get base to get more utilization in individual camps.

Ken Trbovich – C.K. Cooper

Got it. And then last question, I know you’ve already mentioned that the possibility of a planned expansion of sales organization. Can you give us a sense as to your confidence level on the ability to manage that transition? Obviously, you guys have been through this now, couple of times here in the last few years. What do you think the sort of bandwidth is for reasonable expansion and being able to manage that profits that you don’t have too much disruption within those territories?

Bob Doman

We use the -- I like to expand the sales force. You make a very good point. You disrupt the customer relationships every time you do that. So it’s important that we do it in selective markets where we need to due to the volume growing back to my point of managing the existing customer base and trying to grow it also.

So I think we would be looking at, may be, five heads again in the sales force as we go into next year. I mentioned -- you mentioned one of the factors about why BLU-Us growing in the uptick we’re getting. I think we’ll also be looking at expanding this MSL organization too because I think they’ve helped a lot because of the off label nature of – about the use of our product lot, cutting down on the sales cycle because they can answer questions that rep can’t.

And we’re also getting a lot more people on the podium delivering the messages regarding our clinical and scientific data that we have because the KOLs are working, excuse me, the MSLs are working with they key opinion leaders to make sure that they’ve got all the up-to-date information when they are getting on the podium.

So we’ll be expanding there also as we go into next year.

Ken Trbovich – C.K. Cooper

Terrific. Thanks so much for taking the questions.

Bob Doman

You’re welcome. Thank you.

Operator

Our next question comes from the line of Seamus Fernandez with Leerink Swann. Your line is open.

Seamus Fernandez – Leerink Swann

Thanks. Thanks for the follow-up. So Bob, just to clarify on the follow-up. As we kind of think about the BASDI trial and some of the R&D incremental, R&D spend. Do you think you’re actually seeing a little bit of a return as you kind of bring those trials forward to physicians in terms of incremental BLU-U replacements and then potential follow through in that regard?

Bob Doman

Seamus, I think, once the -- it's our goal to have that BASDI results presented at the American Academy of Derm meeting next year. I think it’s in February next year, February, March timeframe next year.

So we believe we’ll have that data to be able to present it there. While there has been some independent studies on this whole issue associated with prevention of new lesions. I think the size of the study that we have some way, it is powered and is much more significant than the independent studies which are relatively small.

I think just having that data is going to create a fair amount of interest and excitement about therapy. We’ve got to work longer to get to be able to actually promote it but obviously, we’ll have that published, we’ll have it presented. The key opinion leaders will be speaking about it at symposium around the country because there is multiple dermato -- you can go to dermatology meeting almost every weekend in the U.S.

So our goal would be to make sure that that information gets out there as we’re working through the clinical development plan to get approval.

Seamus Fernandez – Leerink Swann

Great. Thank you.

Operator

Thank you. That does conclude today’s Q&A session. I’d like to turn the call back over to Bob Doman for any closing remarks.

Bob Doman

Thank you. In closing, we’ve had a very good first half of the year, not only from a sales perspective with U.S. Kerastick revenues up 23% and BLU-U volume up 50% versus the prior six months but we also have made significant progress on some of our strategic initiatives.

We believe the increase in BLU-U sales units puts us in a good position to continue to drive Kerastick volume growth. We believe we have a significant market opportunity in front of us. And we remain focussed on increasing customer adoption and utilization of our therapy in the short term while taking steps to ensure the long-term prospects of our business.

Thank you for taking the time to be with us today. And we look forward to updating you on our progress on our next quarterly call.

Operator

Ladies and gentlemen, this does conclude your conference. You all may disconnect and have a good day.

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