BioForm Medical, Inc. (BFRM) F4Q09 (Qtr End 06/30/09) Earnings Call August 19, 2009 5:00 PM ET
Steve Basta - CEO
Tom Gunderson - Piper Jaffray
Peter Bye - Jefferies & Co.
Welcome to the BioForm Medical fourth quarter and year end fiscal 2009 financial results conference call, hosted by Steve Basta, the CEO of BioForm Medical. During today's presentation, all parties will be in a listen-only mode, and following the conference, all lines will be opened for the questions. This conference is being recorded, Wednesday, August 19.
I would now like to turn the conference over to Steve Basta, CEO of BioForm Medical. Please go ahead.
Thank you. Good afternoon and thank you for joining us for our fourth quarter and year end fiscal 2009 earnings call. Before I begin my remarks, I would like to remind those attending that during this call we will make projections, and may make other statements about the company's business that are forward-looking and are subject to many risks and uncertainties that could cause actual results to differ materially from expectations.
A detailed discussion of the risks and uncertainties that affect our business is contained in the company's periodic SEC filings, particularly under the heading Risk Factors. Copies of these filings are available online from the SEC or on the BioForm website. The company's projections and forward-looking statements are based on factors that are subject to change, and therefore these statements speak only as of the date that they are given. The company does not undertake to update any projections or forward-looking statements.
By now, everyone should have access to the fiscal 2009 financial results release, which was distributed this afternoon. The release is also available on the Investor Relations section of the BioForm website at www.bioform.com, and our financial results release will be available on Form 8-K filed with the SEC today. If you do not have online access, you can call our office at 650-286-4003, and we will fax one to you.
Joining me today is Adam Gridley, Senior Vice President of Corporate Development; and Fred Lwee, our Corporate Controller and Principal Financial Officer. Let me describe for you in summary the business and financial aspects of the fourth quarter and the fiscal year 2009, and we will then take questions after the prepared remarks.
Fiscal 2009 was both a challenging and a significant year for BioForm Medical. In the dermal filler market generally, revenues overall in the industry have been down in the last 12 months versus the prior 12 months. By contrast, and we are certainly pleased with the results that we've reported, our fiscal 2009 revenue was relatively flat as compared to fiscal 2008, reflecting we believe, market share gains, and particularly our fourth quarter revenue which was significantly ahead of the fourth quarter last year, again, consistent with that same pattern of market share gains over the past year.
In the context of the anticipated weakness in the dermal filler market, in November of 2008, we undertook a significant cost reduction action, which realigned our business and enhanced our product offering to drive market share and revenue growth while maintaining significant cost controls.
We are managing our business closely during this economic period and executing our growth strategies with the target of reaching profitability within the next 24 months without any assumption in that expectation of an economic recovery, which obviously would provide upside versus the current state.
Our revenues in the June quarter was $19.2 million, compared to $16.7 million in the comparable quarter in the prior year. We are very pleased to report that this was our highest revenue quarter ever, and the growth was primarily driven by market share gains in the US market.
The increase in revenue during this recent quarter likely reflects several factors, including a moderate stabilization of the dermal filler market. We certainly believe the market was stronger in the most recent quarter than in the prior quarter. We also believe that market share gains as I described contributed to this growth, and we are certainly very pleased with quite positive physician responses to our 0.8cc and 1.5cc RADIESSE product segmentation strategy.
In the United States, revenue from sales of the RADIESSE dermal filler in the fourth quarter was $15.5 million, compared to $13.2 million for the fourth quarter of fiscal 2008, an increase of 17%. In international markets, revenue in the fourth quarter was $3.7 million, compared to $3.5 million for the fourth quarter of fiscal 2008, an increase of greater than 5%.
Looking back over the last year on a quarterly basis, when you look at the our fiscal year, and if you look at the September, December, March and June quarters sequentially, our revenue was $15.7 million in the September quarter, $16.7 million in the December quarter, $15.0 million in the March quarter and $19.2 million in the June quarter. That reflects our normal seasonal pattern. We normally see that the December and the June quarters are stronger than the September and the March quarters.
We are also heartened by the relative stability of our business during this economic downturn, despite the very significant and profound weakness of the US economy more generally, and therefore concern about discretionary procedures.
When we look at the last two quarters, there is a trend that also should be taken into consideration and looking at the $15 million revenue number in the March quarter and the $19 million revenue number in the June quarter, in that we saw, in addition to the normal seasonality, a tendency on the part of physicians, particularly in the January to March period to reduce inventory in offices, whereas physicians sentiment improved somewhat in the April to June quarter and order patterns appeared to move back to more normal patterns rather than the movement of smaller order sizes in January to March period.
So, we saw some likely lighting of inventory and physician offices in the January to March period and possibly it returned to more normal levels in the April to June period.
Our gross profit margin in the fourth quarter of fiscal 2009 was 76%, compared to 86% in the prior year. Of note in looking at those numbers, we experienced a one-time charge in this recent quarter associated with the $1.4 million write-off inventory related to our ACI acquisition, we will discuss that a bit later, but the effect of that on our gross margin was a reduction in gross margin by about 7%. So, reversing that we would have been in the normal range of 80% to 83%, which is consistent with our guidance range for fiscal 2009.
Our full year gross margin for 2009 again including that one-time charge taken in the fourth quarter was 80.4% and its worth noting that without that one-time inventory write-off, our gross margin would have been in approximately 82% again both of those numbers are consistent with our 80% to 83% gross margin range.
We have consistently over the past year's guided that our gross margin will be in the range of 80% to 83% with some quarterly fluctuation be outside of that range and that is again consistent with our guidance going forward for fiscal 2010, as I will describe in a minute.
Operating expenses in the fourth quarter of fiscal 2009 were $16.5 million, which was down substantially from the prior year period. The prior year period included the ACI acquisition, but of note when you look at operating expenses over the past few quarters you will note the significant decline associated with our cost reduction actions.
Cash as of June 30, 2009 was greater than $42 million and cash in fact increased by approximately $750,000 during the most recent quarter. That reflects the higher revenues that we have realized and reflects the significant cost control we have put in place.
Our goal is to achieve sustain profitability within the next 24 months with the organization and a key assumption in that timeframe is that, we are not assuming in that an economic recovery. We view an economic recovery as upside, but we see that the current economic climate could be persistent and weak for significant period of time. We have evolved our business to the point, where we believe internally through the growth drivers that we have available we can reach that sustained profitability without any macroeconomic recovery assumption.
We took significant cost reduction actions in November 2008, as previously described and for those of you, who are new investors to the company or are on the call for the first time to describe the context of those. We made a determination in November 2008 that we are going to reduce our operating expense run rate by approximately $20 million annually. That's reflected in the quarterly operating expense numbers. So, when you look at fiscal 2009 in the September and the December quarters, which are respectively Q1 and Q2 of our fiscal year, our operating expenses for both of those quarters were in the $20 million to $22 million range.
In the March and June quarter, Q3 and Q4 of our most recent fiscal year, our operating expenses respectively were $15.5 million and $16.5 million, reflecting the savings of approximately $5 million per quarter, or $20 million per year. We have effectively implemented the cost reduction actions that we intended and that we announced in November of 2008 and we have done so while maintaining a full strength field organization in terms of our sales and clinical training capabilities and we believe the consistent success of our field organization is reflected in the performance of the fourth quarter.
Our operating expense estimates for the coming fiscal year, $64 million to $68 million is consistent with, where we have in fact operated for the last two quarters. We are already operating at that level for the last six months.
The effect of this cost reduction is to reduce the breakeven point for our business to approximately $80 million in revenue. If we reach approximately $80 million in revenue, we should go breakeven or profitable and our target is clearly to get to exceed that level within the next 24 months.
We are setting the following revenue and operating expense and net loss guidance for fiscal 2010. Revenues are expected to be approximately $64 million to $70 million. This reflects two factors; one, our optimism about our recent market share gains and our belief that we can continue those associated with the recent syringe size strategy and its adoption by physicians and additionally our approval in July of this year to promote mixing RADIESSE with lidocaine, a procedure that will enhance patient comfort and we believe we will accelerate utilization by physicians overtime.
That optimism is balanced by a cautious outlook for the dermal filler market as a whole. Certainly we see that the macroeconomic conditions remain weak, unemployment remain high, consumer sentiment remains low and we have a cautious view on the overall macroeconomic picture, the balance of that caution with the macroeconomic picture which might, in fact, result in some further decline overall in the dermal filler market, balanced by our belief that we're winning and can continue to win share leads to the guidance range of $64 million to $70 million.
As I mentioned earlier, our gross profit for the coming year is expected to be approximately 80% to 83%, and that's as a gross profit margin, with some possible fluctuations outside of that range on a quarterly basis, as we've experienced in the past.
Our operating expense guidance for the coming year is $64 million to $68 million. That is consistent with what we announced last November, that our cost reduction actions were targeted to get to that expense range for fiscal 2010. We've maintained that, and we in fact will be operating at that level for fiscal 2010, that is our operating expense guidance.
We expect quarterly, our operating expenses will fluctuate somewhat associated with the timing of specific expenses and specific programs that we may run, so that operating expenses on a quarterly basis may range from $15 million to $18 million per quarter. Net loss for fiscal 2010, our guidance is that it will be less than $14 million, and we also believe that we will use less than $10 million of net cash burn through the course of fiscal 2010.
Our strategy is to continue to grow the business to further establish ourselves as one of the leading medical aesthetics companies worldwide. Our path to profitability involves growing revenue while not adding significantly to our selling and marketing cost structure. We believe that the expense reductions we have implemented will enable us to turn profitable at approximately $80 million in annual revenue. We obviously need to drive growth in order to get there, and we believe that the additional revenue to reach and surpass this level can come from a number of sources.
We have outlined previously four key strategies that we're implementing for that revenue growth. They are as follows: One, to grow RADIESSE market share. Two, the development of new indications for RADIESSE. Three is the future launch of Polidocanol, a sclerotherapy product that we believe can be the market leader in that category, and four, the development of the Relaxed Expressions device which we acquired in the ACI acquisition approximately a year ago, and developing the treatment protocols associated with that.
We have experienced some delays in the Relaxed Expressions program, and some uncertainty around box improvements that are needed in order to achieve the consistency in results that we would want. That uncertainty led to the write-down that we took in the fourth quarter. We are continuing significant development work on that program. It will take somewhat longer than we expected as we continue that development activity.
We're already executing on the first of these four strategies, and that is, growing RADIESSE market share, primarily reflected by the success of the 0.8cc and 1.5cc launch. We're quite optimistic about the impact that the RADIESSE mixed with lidocaine approval will have over the future quarters.
We are also quite pleased with the NDA Amendment submission which took place in July for the Polidocanol manufacturing validations that were required to complete the submission for FDA's review, and we look forward to an active FDA review in that process and working through NDA to ultimately get to the Polidocanol launch, assuming the successful review of that NDA.
Now, I'd like to turn the call back to the operator for questions from the investors.
(Operator Instructions) We will take our first question from Tom Gunderson with Piper Jaffray.
Tom Gunderson - Piper Jaffray
Steve, you're being calm in the face of significant beat, at least, from what we are estimating for the quarter. I want to attribute the beat to the change in strategy, particularly the 1.5 and 0.8cc. Is that a wrong view to take? If not, can you give us a little bit more color on how that's playing out with your customers?
I don't think that's a wrong view. I think that actually would be a right view. I think that we believe that the success of the last quarter was in large part impacted by the response that physicians had to the 1.5cc and 0.8cc launch. As we have described in the past, the real value that we think is inherent in that new strategy is two fold. The first element of it is that the 1.5cc delivers the best value in the industry. If you want to produce a significant augmentation for patient, there isn't another dermal filler that can produce as much augmentation per unit volume as RADIESSE. So, it is already is more efficient, because we are delivering it at 1.5cc format, you can get as much augmentation for many patients as you could get with two syringes of a typical hyaluronic acid products, and do so much more cost effectively.
So we think that 1.5 delivers excellent value for people who need significant augmentation, and we believe the 0.8cc now allows us to penetrate a market segment that's through our market research we discovered we really were missing and that is patients with more moderate folds. Patient typically in her 30s or 40s that might come in for nasolabial fold treatment but might have more moderate folds treatment would often be perceived by a physician to not require RADIESSE. They use RADIESSE on a patient would be pre-fold that might need more volume to produce good correction, but in our old syringe at 1.3 sort of overkill for those patients.
Now with our 0.8cc, we have an attractively priced option for the physician that is appropriate for those patients and delivers excellent correction for patients with more moderate folds at a competitive price with better value to the patient, because we can produce potentially better longevity.
So, I think the 0.8 really goes after a new market segment that we haven't adequately tapped before, the 1.5 really cements our leadership in the market segment that we already had. I believe been players and therefore together those create market share gains, what we heard from physician through the course of the June quarter was very positive reaction to launch of those two syringe sizes. So, I actually think that your interpretation of why we got our beat is probably appropriate.
Tom Gunderson - Piper Jaffray
On the 0.8, I know you are talking about patient penetration, but did you find that the accelerated new account acceptances during the quarter?
Our primary focus in the quarter was actually taking the 0.8 into our existing accounts. We believe that the lowest hanging fruit was physicians, who already like RADIESSE were already using it, but weren't using that's on their average patient or their moderate fold patient and so we can get market share gains and existing offices.
That said, we have offices and we have numerous examples of offices that wouldn't have bought the RADIESSE product previously, because they perceived it to be too expensive and now perceive the 0.8 to be priced competitive with HAs and therefore founded to be an attractive option and in fact we have new account opened only with 0.8s and haven't purchased any 1.5s.
Tom Gunderson - Piper Jaffray
Okay. Two quick questions, one is, is there any update on the use of RADIESSE in the hands?
The only comment that I'll make about new indications as we clearly intend to pursue clinical work and regulatory work associated with new indications for competitive reasons we have not described specifically, which indications and what our status is in each of those and I will differ answer again a specific questions as to where we might be in that process.
Tom Gunderson - Piper Jaffray
Then just with an eye to cash management. I believe there is some payments due to KREUSSLER that I thought might have come in Q4, but apparently didn't can you update us on that?
Yes. Our next milestone payment to KREUSSLER is $700,000 payment that is likely to be paid at the coming months.
Tom Gunderson - Piper Jaffray
In the current quarter?
I would expect it in the current. The specific definition of the trigger in the contract and what are the hit list quarter of next, there is the language that would, I want to be careful about committing to exact timing, but it should be soon that we make $700,000 payment.
We'll hear next question from Peter Bye with Jefferies & Co.
Peter Bye - Jefferies & Co.
Just a couple of quick ones, can you give us any more qualitative, quantitative assessment in terms of, where you are in terms of accounts you are selling to in the US, just to remind us again, where the sales force is, and what if any kind of turnover there has been?
So, on each of those, those are sort of general categories of questions. In terms of accounts, we generally not provided significant specificity on exact numbers of account. We are well north of 7,000 accounts that have purchased RADIESSE in the US market and obviously additional accounts internationally and we are growing our business both in existing accounts and through continued conversion of new accounts.
As for the sales organization, we have approximately 75 reps in the field. We have north of a 100 people in the field total including sales reps, clinical trainers etcetera and that reflects very little turnover over the past year. I have been just delighted absolutely delighted with the sentiments on the part of our sales organization and their absolute conviction and the fact that they are selling what they believe is the best product in the category.
The nature of their interactions with physicians and patients are gratifying because we deliver excellent outcomes and I at least hear from our reps on a regular basis that they are pleased as punch with the position that they have got. The tangible evidence I've got related to that is our turnover has been very low in the sales organization.
Peter Bye - Jefferies & Co.
Okay, great. On the ordering, you talked about maybe some of the docs maybe returning to more of a “normalized ordering pattern”. Still most guys still on a three-month or still kind of spread out between some guys are every six months, some guys are once a year, and some guys are every quarter?
Some guys are every month. It very much ranges. There are physicians, who have a preference for not holding significant inventory and they will put in regular standing orders every month. Also, some of our larger accounts, because we've got programs that also promote that kind of consistency, will order on a monthly basis.
There are other accounts, who will order enough inventory for three or four months in order to take advantage of volume discounts, and we regularly see that the pattern is they will order every three months or every four months. So there is a range of behaviors on the part of accounts. What I was trying to describe in the earlier conversation was really the characteristics of the conversations we were having with accounts in the January to March period that were different than we had before, and the fact that that's not been the case in the April to June period.
In the January to March period, I had heard consistently from our reps and regional managers and from accounts that I spoke with in particular that physicians were starting to instruct their office managers to not hold significant inventory of virtually to any product.
They were trying to reduce their inventory levels. They would put a cap on the number of syringes they would buy and so there was a significant tendency to not want to hold lots of inventory, be it RADIESSE, Restylane and Juvederm and Botox whatever it was, just because they were anxious.
If you recall, the sentiment in the economy of the January to March period, there was reason to be anxious about whether or not the business is going to drop further. That sentiment seems to change and lightened substantially in approximately April, associated with the recovery more generally of consumer sentiment. So we actually believe consumer sentiment as a pretty strong indicator for this behavior, but the nature of conversations we are having with physicians have much lesser of that character of, I don't want to hold a lot of inventory. It's much more, a little bit of caution still about patient flow and about economic circumstances, but more normal behavior patterns.
Peter Bye - Jefferies & Co.
I know you commented a little bit of an odd macro time, but coming out through the IPO, and since then you have talked about how RADIESSE has the ability to maybe a multiplier affect on the market because you get the return of the repeat patients. You don't have the drop out effect like you did with AHA. You've been collecting lot of data on this sort of stuff. Is there something there you could share with us, may be little bit more specifically about what's going on there? What you are seeing on dropouts?
There are two elements of it. The anecdotal evidence consistently still supports that view. That is, I hear things from physicians that go along the following path. When I treat my patients with hyaluronic acid, they come back in for a treatment; I can pretty much talk them into anything. When I treat them with RADIESSE and then come back in, they won't accept anything else. That tells us that the stickiness of this product, patient satisfaction with this product is meaningfully different and meaningfully better.
I believe that's what driving our market share gains. I believe fundamentally, it is better clinical outcomes. It's a fact that physicians could see that the outcome is really better with RADIESSE. That's what drives our market share gains and drives continued uptake by physicians despite the fact that at least one of our competitors is a substantially larger organizations than ours, but we're still being very successful in this process.
The flipside to that is, on a macro economic level, has that turned around and grown dermal filler market? I think it's impossible to read in the last 18 months. As you said, we are in an odd economic time, and it would be so hard to predict or to try to guess at what the dermal filler market would have been absent this economic downturn, because the dominance factor in all of this is a slowing on a macro economic level to a degree that dwarves everything else.
Peter Bye - Jefferies & Co.
I thought you were going to collect some survey data on just about the repeat customers?
We have gathered more anecdotal physician feedback rather than trying to capture specific patient survey data. The challenge with specific patient survey data is over what period of time. If you have a satisfied RADIESSE customer, they might not come back for 18 months, but they are still in the aesthetics market. They are still in the dermal filler market, but they just might have a treatment that lasts for 18 months.
So, it's harder over a defined period. If you try to look at a six month window, and you treat RADIESSE patients, and not that many of them come back just because it lasted for more than that, and they're really happy, but they are coming in for other treatments. So, the best way to try to answer that is through our physician surveys and through feedback from physicians about reactions that their patients are having, and the qualitative feedback that we're getting from physicians is a very high patient satisfaction associated with our RADIESSE treatment. The best evidence I can give you of that is that, in this weak economic time, more of them are switching to RADIESSE.
Peter Bye - Jefferies & Co.
You've continued pretty successfully against one bundler out there. There's sort of another one if you want to call it rebates or whatever you want to call it, the couponing that will go out there with combining of botulinum toxin with the filler. What are sort of your expectations through fiscal '09 on how that can change the pricing dynamics again going forward in the filler market?
I am not certain that the entry of a second toxin HA combination changes the pricing dynamics meaningfully versus the first toxin HA bundling dynamic. If you think about the strength of competitors, we competed effectively against and grew market share in the face of the Restylane significant market penetration that Medicis had prior to our aesthetics approval, and so, we were able to win market share against the established market leader.
Over the last year, by many accounts, Juvederm has actually had even higher market share than Restylane. So, our current competitive environment is against an organization, if we think about, who our lead competitors are, I'll tell you candidly, I think more about Allergan than Medicis and thinking about Allergan, both with Juvederm as a market leader and with Botox and the strength of the Botox franchise, if there is a bundle that's going to have an impact, it's a bundle with Botox, given Botox's brand value and brand recognition.
With the number-one HA product in the market today and Botox as the benchmark and a substantially larger sales organization in the competitive landscape, the product performance of RADIESSE and the very hard work of our sales organization and strong relationships that we've built with physicians and credibility we've built with physicians has led to market share gains for us. I think that reflects the fact that we can win share in the face of significant bundling and in the face of stronger marketing competitors.
(Operator Instructions) It appears there are no further questions. Mr. Basta, I would like to turn the conference back over to you for any additional or closing remarks.
As we look forward, looking back first, over last year and then looking forward over the coming years, over the past year we've launched new product format and positioned our strategy that we believe is showing already early signs of winning meaningful market share. Now we're just one quarter into it.
It's going to take much more than a quarter and likely several for us to really see the impact of the new product positioning, and certainly not reflected at all in the last quarter is the new opportunity for us to promote mixing RADIESSE with lidocaine, but we believe that the repositioning of the product is already showing significant benefit in driving some market share gains and driving growth.
We've brought expenses significantly into line with the new market reality and we are making significant progress toward our future growth drivers associated with market share, Polidocanol and the NDA progress, and some of the other key aspects that we believe will help us to grow revenue in the future. That reflects our core focus on how do we get to profitability as an organization, but it even more importantly reflects significant, diligent and tireless work on the part of so many of our team members. I owe them all a debt of gratitude.
On the product development side, the regulatory and clinical team, to bring forward our new product formats, to bring forward the lidocaine mix and get that through regulatory approval, took significant product development efforts and expertise and on the commercial side, the execution of our 0.8cc, 1.5cc launch, the market share gains we've had in the US market, the market share gains we've had in international markets all reflect significant efforts and execution on the part of our organization. I'm very proud of the work that our team has been doing and grateful to all of our many employees, who have been putting in significant efforts to all of these activities.
I would also like to take this opportunity to thank the investment community for your continued support. It's been a difficult year in the aesthetics marketplace. We've had a number of investors, who have stuck with us through this process and new folks, who have come in as they have realized that we are having an impact, and we're certainly grateful for that support. Thank you very much for your time today.
Once again, this does conclude today's conference call. We thank you for your participation.