MYOS RENS Technology Inc. (MYOS) Q4 2018 Earnings Conference Call March 28, 2019 11:00 AM ET
Michael Porter - President, Porter, LeVay & Rose, Inc.
Joseph DiPietro - Financial Controller
Joseph Mannello - Chief Executive Officer
Conference Call Participants
Brian Marckx - Zacks Investment Research
Greetings, and welcome to the MYOS RENS Technology Fourth Quarter and Year-End Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.
It is now my pleasure to turn the call over to Michael Porter from Porter LeVay & Rose. Please go ahead, sir.
Thank you, Kevin, and thank you all for joining us today, and welcome to the MYOS RENS Technology fourth quarter and fiscal year-end 2018 results. Joining us on the call today is Joseph Mannello, CEO and Joe DiPietro, Financial Controller.
I would like to remind our listeners that any statements on this call that are not historical facts are forward-looking statements. Actual results may differ materially from those projected or implied in any forward-looking statements. Such statements involve risks and uncertainties, including but not limited to those relating to product and customer demand, market acceptance of our products, the ability to create new products through research and development, the successful results of strategic initiatives, the successful launch of our products, including Qurr, Yolked, MYOS Enteral Nutrition Formula and MYOS Canine Muscle Formula products.
The success of our research and development, including the clinical studies described above, the results of the clinical evaluation of Fortetropin and its effects, the ability to enter into new partnership opportunities and the success of our existing partnerships, the ability to generate revenues and cash flow from sales of our products, the ability to increase our revenues and gross profit margins, the ability to achieve a sustainable, profitable business, the effect of economic conditions, the ability to protect our intellectual property rights, competition from other providers and products, continued listing of our securities on NASDAQ, risks in product development, our ability to raise capital to fund continuing operations and other factors discussed from time-to-time in our filings with the Securities and Exchange Commission.
We undertake no obligation to update or revise any forward-looking statement for events or circumstances after the date on which such statements are made as required by law. The statements made on today’s call have not been evaluated by the Food and Drug Administration. Our products are not intended to diagnose, treat, cure or prevent any disease.
With that, I would like to turn the call over to our first speaker, Joe DiPietro who will go over the financial results. Good morning, Joe.
Good morning, everyone. Thank you for joining us today. I am going to go over our fourth quarter and fiscal year 2018 financial highlights. For the fourth quarter of 2018, net sales were $149, a decrease of $8, or 5%, compared to $157 for the fourth quarter of 2017.
Cost of sales for the fourth quarter of 2018 increased 33% to $97, compared to cost of sales of $64 for the fourth quarter of 2017.
Gross profit for the fourth quarter ended December 31, 2018 decreased 45% to $51, compared to $93 for the fourth quarter ended December 31, 2017. Operating expenses were $1,224 in the fourth quarter of 2018, an increase of 5% compared to operating expenses of $1,173 in 2017.
Net loss decreased 96% to $62 for the fourth quarter ended December 31, 2018 compared to $1,082 for the fourth quarter ended December 31, 2017.
Our net sales for the year ended December 31, 2018 were $360, a decrease of $166, or 32%, compared to $526 for the year ended December 31, 2017 primarily due to net sales of $327 in 2017 of our previous product lines, offset by an increase in sales of $161 in all of our current product lines, including Yolked and MYOS Canine Muscle Formula.
Cost of sales for the year ended December 31, 2018 were $248, a decrease of $60 or 19%, compared to cost of sales of $308 for the year ended December 31, 2017, primarily due to lower costs associated with a decrease in direct sales to consumers.
Gross profit for the year ended December 31, 2018 decreased 49% to $112, compared to $218 for the year ended December 31, 2017.
Our operating expenses were $4,441 in fiscal year 2018, an increase of 4% compared to operating expenses of $4,286. This was due to a $72 increase in sales and marketing expenses, primarily for marketing and promotional costs associated with the development and launch of our new products in 2018, a $267 increase in personnel and benefits costs, primarily for the hiring of additional sales staff in support of the new product launch, and a $183 decrease in general and administrative expenses, due largely to a decrease in costs associated with legal proceedings.
Our net loss decreased 7% to $3,223 for the year ended December 31, 2018 compared to $4,058 for the year ended December 31, 2017. As of December 31, 2018, the Company had cash of $15 and total assets of $4,455, and working capital of $1,269. Net cash used in operating activities for the year ended December 31, 2018 was $3,250, a decrease of 53%, compared to $3,783 for the year ended December 31, 2017.
Now I would like to turn the call over to our Chief Executive Officer, Joseph Mannello.
Thank you, Joe. Good morning, everyone, and thank you for being on the call today. I wanted to begin the call and read you a testimonial we received yesterday. This is from – we received it on our website from someone who is unique using MYOS Canine Muscle Formula for their rescue yellow Lab.
Hello, I had to send a message telling you what MYOS did for our dog. We have a rescue yellow Lab mix. We think he is about 12 to 13 years old. We've had him for 11 years. In 2014, he was diagnosed with Addison's disease, which we are treating. We were told he would not last long.
Last year, he started losing muscle tone and limping. In February, took a turn for the worst and would not really get up. Pain pills were no longer helping. I was so destroyed because he had been my comfort through my own health issues, so losing him was hard to grasp. I started looking for services to get him put down the last week of February ahead of an appointment set.
[Indiscernible] seeing how upset I was started to do research and found MYOS Canine Muscle Formula. I said I will try anything; so we did. It is now a month later, my dog regained muscle and he is walking and running again. People hear me and think I'm exaggerating. I am not. My dog is a puppy again and I've even had to cut down on his Addison meds.
You didn’t know what MYOS did for our dog in 30 days. I am a forever customer. Thank you. I wanted to read that to everyone, because it's not a one-off. We get stories like this, maybe not as gut-wrenching as that one, every other week, on just how effective MYOS Canine Muscle Formula has been to geriatric dogs and dogs with neurological disorders.
I understand it's anecdotal. But what's not anecdotal is what we did in – got the results of recently on our Kansas State study and I will go into that. But if you go on our website, MYOS Pet, and read the testimonials, and they're not from my aunts and uncles, they are real, and I want you to look at them because it really, really is amazing what this product can do.
2018 was a transformative year for the Company and it was because we decided to focus on two brands. This Company over the years has been all over the place with brands and now we think we have two powerful launch; Yolked, which is our NSF Certified for Sports nutrition brand and MYOS Canine Muscle Formula. And over the last couple of months, we've really expanded our sales opportunities for both brands, which we are going to deliver on in 2019.
Let's start with our Yolked brand. We expanded our marketing partnership with IMG Endeavor, which got launched in January. In 2018, we introduced Yolked to college athletic departments to see – we gave them the product to see what they thought of it.
Now we've expanded on that and we have Yolked as a prominent presence in college basketball via LED signages on nationally televised games, we've done that through January and February into the beginning of March.
So millions of people around the area, these nine or 10 schools have been able to see Yolked. And beyond the TV signage, it's featured on each athletic department's official website and official social media channels and has been a staple at these basketball games for the last couple of months. And this is all part of the process of creating a brand.
If you go to our website yolked.com, which we really launched over the last couple of months, you'll see our marketing partners, all the schools that are now marketing partners with the Yolked brand.
We also announced an endorsement partnership with NBA superstar Aaron Gordon of the Orlando Magic. He is going to serve as an endorser of Yolked to basketball fans, not only in the United States, but across the world as the NBA is now an international as well as national program.
We began rolling out some ads featuring Aaron and we over the next year, Aaron will be representing those key. We gave him the product. We gave his trainer the products. They took it first. They loved it and they decided to be part of the Yolked team. We have opportunities to pick lots of athletes, Aaron [indiscernible], serious about his health and his body and just a really, really great individual from a great family. And that fits for what we're trying to do with our Yolked brand.
In December, we signed a sales partnership with Vitamin Shoppe. Yolked is – the whole idea is they have so many proteins at Vitamin Shoppe and Yolked is not a protein. It compliments your protein. You take Yolked with your protein and you get much more out of your workout. And so in mid January, Vitamin Shoppe put the product in 775 of their stores, and using those social media and vitaminshoppe.com to move the product.
We also revamped our website, yolked.com and we really started in full force sales and marketing initiatives in-house here. And I'm really excited about where the Yolked brand, how it's going to build in 2019. You will see it at college football games. You will see it throughout the country, really focusing on the 15, 18 to 30-year old market. That's where that brand resonates.
Let me talk a little bit about MYOS Canine. We launched that in June of 2018, the end of June, and just kept receiving positive testimonials just like I read you. And it's been growing since. We announced our first deal with a distributor, Miller Vet East, who is focused on veterinarians on the East Coast. We hope to build that and get into veterinarians throughout the country.
And we received positive results, which is more powerful than any of these things from our Kansas State University study. And I'd like to talk about that. We demonstrated in that study, the Fortetropin prevents muscle loss in dogs after surgery and enhances recovery.
We had 100 dogs and we studied the impact of Fortetropin on attenuating muscle loss in dogs during the weeks that follow a common vet surgery called TPLO, similar to what we know as ACL surgery. Because this affected limb is immobilized for several weeks, a significant degree of muscle loss typically takes place during the eight weeks that follow surgery.
The adage use it or lose it, very much applies to muscles in all mammals. When your muscle is not used, muscle is loss due to disuse. In our study, 50 dogs had Fortetropin on a daily basis, while 50 received a macronutrient-matched placebo. And the key findings of this study were that Fortetropin minimized muscle loss in both the affected and unaffected limbs of dogs.
Dogs that received Fortetropin had improved weight bearing capacity on their operated limb and Fortetropin prevented a rise in myostatin levels following surgery. Myostatin is a serum in your body that puts a lid on your muscle growth. So the dogs that didn't take Fortetropin had an increase in Myostatin, so a decrease in muscle, the dogs that had Fortetropin didn't experience the same increase in Myostatin.
Dr. Harkin, who is the lead investigator, presented that study at the North American Vet Conference down in Orlando. I was there, and they're basically speaking to the Vets at that conference. There was nothing out there in the pet market place like this. It's natural. It's one ingredient. And with these results, we feel confident now to move through a human clinical trial, and we're looking at total knee replacement surgery.
If we can show that this reduced the time for recovery and rehab, we think we have an incredibly powerful product. If it follows the dog study, and we do have seen anecdotal evidence to that effect, we think this is just adds to our portfolio of studies that it just shows the value proposition in Fortetropin.
So we currently have one clinical study going on. We have one preclinical trial going on, and we're looking to add additional ones over the next couple of months. Think of our clinical study as very powerful content. You can spend money on marketing and advertising as you know we are, but I believe and that these clinical trials give you the best content as well as our testimonials.
But if you can show the results that we've shown at Kansas State, if you could show that in humans, it's just incredibly powerful. And we will continue to do that if we see that there are commercial benefits to having these studies. We only go into a study that we think we're going to get a positive outcome. There's no guarantees. We're going to miss. I should say, we'll look at it and say, is there a real upside that maybe it's not, we're not as positive. We'll take a shot. But by and large, we go into it saying, what's going to be the benefit commercially to the shareholders of MYOS.
Moving on, I just want to say that – because I want to keep this brief and I want to open it up really to questions. We have launched two new brands. It's really transformative for MYOS.
Last year, we were able to do many things. As you know, we had Vitamin Shoppe, we launched the Yolked brand, we lost MYOS Canine Muscle Formula, we received our second patent to protect Fortetropin that was announced in January of this year.
We launched MYOS Pet Canine Muscle Formula, a website called MYOS Pet. We launched yolked.com and we've moved these products onto Amazon. And we are managing that website because it is such a powerful tool for us.
I expect 2019, it's already started out very eventful, but I expect it's going to even get more so. In order to ensure that all the various initiatives generate meaningful shareholder value, we continued to evaluate to increase our cash runway by controlling expenses and generating cash from increased sales opportunities, potential licensing or financing transactions.
I want you to know as a CEO, I understand it's not my money. It's your money. And if you know we just raised close to $2 million, I put another – I rolled ahead of $1 million unsecured loan with the firm that I gave to the company last year. I rolled $250,000 of that into this deal and I raised another [$1,850,000 million].
I understand that you've put a lot of faith in us and in me, and I hope over time to show you that we understand again that is not our money. I think we can really, really turn this into some very, very powerful brands. And I think 2019 it's going to be a great year for the Company.
With that being said, I'd love to turn it over and please ask any questions you can.
Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question today is coming from Brian Marckx from Zacks Investment Research. Your line is now live.
Good morning, Joe.
Relative to the Kansas State TPLO study, when do you expect to have the full results and will that be something that you will announce publicly?
We have announced the full results publicly. The paper – what is happening now is Kansas State. This is really out of our hands, is going to publish it in a journal, a Veterinarian Journal. That's in the process that takes time, but that we hope will be published sometime this year. But that's really up to Kansas State. They're publishing the whole study in a prestigious Veterinarian Journal.
Okay. And then in terms of…
I mean we can walk you through all the results if you need that. Our scientists can.
And I can send you a PowerPoint that Harkin did down in Orlando for all the vets. He made a presentation there and to go over everything in the study.
Okay. Yes, I would appreciate that, if you would send that. Thank you.
In terms of the human study, so the human knee replacement surgery study. Can you help us with, what the plans are for that and what needs to happen, and then any timelines that you're thinking about as of now?
We are working on it. We're close to making an announcement. What I've learned not coming from the medical side of the business or the science side of the business is they take a lot longer than you think to get a protocol agreed on. But I hope we'll have something over the next couple of weeks to announce. I don't know if we will, but I'm hopeful we're close to getting everything finalized.
Okay. And then the next Kansas State dog study, that geriatric study. Do you have any insight in terms of kind of the same question timelines for when that might start?
It's starting. We've sent them material. They are auditioning dogs and working on getting the study up and running. Again whatever I've learned enough that if I say I think this thing will get up and ramped in the next month, it always take – it’s three months. But they are in the process of starting the study. So they're recruiting dogs to be in it, and then it will get going.
Okay. And then one on the design of that study, in terms of the end points that they're using in terms of the activity tracker for the activity assessment and then the Quality of Life via the Liverpool Osteoarthritis Questionnaire. Have those end points been used do you know in previous studies, and how well validated are those end points in terms of the veterinarian community?
So this is way above my pay grade, but I will get one of our scientists to call you back, Brian. I can only tell you that we've spoke to two veterinarian hospitals about doing this study and this was using that neck, that collar too, and all the protocol. The protocols that we're using was confirmed in both studies that this is what we needed to do to see the outcome we were looking for. So again, I will have Maghsoud and Neerav, give you a shot to break it down scientifically.
But that's all I can tell you. We didn't go into this – for anyone who knows, I mean your primary end points and your secondary end points are so key that you're making sure that everything done here has been done, either done before, going to be effective. So we didn't go into this without going through it and studying it and working with our investigator to make sure we have the right protocol. But I'd rather then get down and give you more detail on that.
Yes. I appreciate the comments, Joe.
Okay. So I'll get you a PowerPoint. I'll get you on the phone with our scientists, and…
And by the way, our scientists are always available to talk about these studies and to talk about what we're doing, what the end points. I mean, obviously some of its forward-looking, but they can go over everything with you.
Okay. Yes, I appreciate that. One more, in terms of the Vitamin Shoppe, I think you said that in your prepared remarks that you have your MYOS Formula Yolked in all of their stores already. Is that correct?
They got launched in mid-January, yes.
Okay, all right.
I mean, I haven't been to any stores in Mississippi to check it out, but we’re told there were in every store. Hopefully they're not in any. So they're going to order more, but we'll see.
All right. Thank you, Joe. That's all I had.
Thank you, Brian.
Thank you. [Operator Instructions] We reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further closing comments.
Great. I just want to close with this. Please give me a call. Give our scientists a call. Ask any questions you need to. I mean this is a rehearsed call and I'm reading a script and I'm trying to be as spontaneous and genuine as I can be. And I hope that comes across, but there's so many things I have to say about what we're doing in this Company.
So if you want to take the time, please, I'll always make time for our shareholders, potential shareholders. So you can reach me at the office. You can reach me on my cell. Please do that. And thank everyone for coming or getting on the call. I appreciate it and have a great day.
Thank you. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.