Misonix's CEO Discusses F4Q 2013 Results - Earnings Call Transcript

Executives

Joe Dorame - IR, Lytham Partners

Michael A. McManus, Jr. - President and CEO

Richard Zaremba - Senior Vice President and CFO

Analysts

Joseph Munda - Sidoti & Company

Steve Kruger - Foresight Investing

Misonix Inc. (MSON) F4Q 2013 Results Earnings Call September 24, 2013 4:30 PM ET

Operator

Good afternoon and welcome to the Misonix fourth quarter fiscal year 2013 financial results conference call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. (Operator Instructions). Please note this event is being recorded.

I would now like to turn the conference over to Joe Dorame of Lytham Partners. Please go ahead.

Joe Dorame

Thank you, Amy, and thank all of you for joining us today to review the financial results of Misonix Inc. for the fourth quarter and fiscal year 2013, which ended on June 30, 2013.

As Amy indicated, my name is Joe Dorame, I'm with Lytham Partners, and we are the Investor Relations consulting firm for Misonix. With us on the call representing the company today are Mr. Michael A. McManus, Jr., President and Chief Executive Officer; and Mr. Richard Zaremba, Senior Vice President and Chief Financial Officer.

At the conclusion of today's prepared remarks, we will open the call for a question-and-answer session. If anyone participating on today's call does not have a full text copy of the release, you can retrieve it from the company's website at misonix.com or numerous financial websites.

Before we begin with prepared remarks, we submit for the record the following statement. Statements made by the management team of Misonix during the course of this conference call that are not historical facts are considered to be forward-looking statements subject to risks and uncertainties. The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for such forward-looking statements. The words believe, expect, anticipate, estimate, will and other similar statements of expectation identifying forward-looking statements. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances.

Investors are cautioned that forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the statements made. These factors include, but are not limited to: general economic conditions; risks associated with international sales and currency fluctuations; uncertainties as a result of research and development; acceptable results from clinical studies, including publication of results and patient procedure data with varying levels of statistical relevancy; risk involved in introducing and marketing new products; potential acquisitions; consumer and industry acceptance; litigation and/or court proceedings, including the timing and monetary requirements of such activities; regulatory risks, including approval pending and/or contemplated 510-K filings; the ability to achieve and maintain profitability; and other factors discussed in the company's annual reports on Form 10-K, subsequent quarterly reports on Form 10-Q and current reports on Form 8-K. The company disclaims any obligation to update any forward-looking statements.

With that said, let me turn the call over to Mr. Michael McManus, President and Chief Executive Officer of Misonix. Mike?

Michael A. McManus, Jr.

Thank you, Joe, and welcome to the call to all of you on. This was a year of good growth for Misonix in terms of sales of its BoneScalpel, SonicOne and SonaStar throughout the world, it was honestly not as fast as I like, but we're working on that. We also strengthened our distribution and clinical foundation. We've reduced orders from older products such as the AutoSonix that we’ve talked about before from Covidien and the Lysonix for liposuction which is with J&J resulted in lower sales of these products when compared to prior years.

This reduction was expected and we've been seeing that over the last several years. When you take out these older products revenue, our core medical devices increased by 13%, in what we have to say is a difficult selling environment.

Last year was also one of the continued investment in the marketing and sales of our products worldwide, if you think about it for a company with our revenue base to be in 49 countries around the world is a rather significant broad-based distribution. We added additional distributors of our products both domestically and internationally and provided them with training and necessary demo equipment.

We added line extensions in blades to participate in the production of six clinical studies, conducted an increasing number of cadaver training labs and also actively participated in professional shows and conferences worldwide.

We continue to develop scientific data to represent our products and to respond to the value assessment committees that continually look at all new products. We also continue to qualify and register with the GPOs, government purchasing organizations around the country that are gatekeepers for some hospital purchases. The present healthcare environment makes it more difficult for hospitals to spend funds on new products prior to an evaluation of need and benefit.

We have a well documented book for each of our products to help customers understand the benefits. With the BoneScalpel we can show increased safety, less bleeding, less bone fragmentation and better results for the patient, the doctor and the hospital. With the SonicOne we can show more consistent debridement, more viable tissue and the antibacterial effect of ultrasound and its sensitive affect on tissue regeneration.

As you know the present environment makes it more attractive for us to consign our products in the United States, together with a commitment to purchase a set number of disposables. This sales strategy results in not only lower early revenues but greater higher margin sales. As a result of the consignments, we look to unit growth as an indication of true growth for the company and both units of systems and blades increased in 2013.

In international markets, as we've talked about before we sell our products to our distributors including the systems and the disposables, which they then resell in their territory. Revenues and units grew in both systems and disposables internationally.

Sales of our SonaStar were down partially because of the rigorous approach in some foreign countries. This is a problem we are working on it, as is every other medical device manufacturer. The acceptance profile on growth of our BoneScalpel continues worldwide.

More doctors are asking for the product and our referrals from present customers are increasing. All of our customers have to experience using the BoneScalpel in the cadaver lab or on animal bone prior to an evaluation, it’s just a different way of practicing. During the evaluation we have one of our people present to assist with the first several cases.

With the surgeon support we then go to the value assessment committee review which depending on the schedule could take some time. This sales cycle is our greatest hurdle. Doctors love the product. We both hate the process. As you know the BoneScalpel is finally approved for sale in China and we are very excited about the potential for the product in that new market.

I just return from China on Friday. They have great enthusiasm for our products. I met with surgeons at several hospitals that are already using the BoneScalpel. One doctor who has already done 45 cases showed me a tape of procedure he has done using the BoneScalpel where he removed the large tumor from a man’s spinal column. He was anxious to point out to me the speed, the accuracy, the safety and the reduction in blood. He will be presenting at an upcoming Spine Meeting in Beijing.

I saw three or four doctors in the largest hospitals, several of them, leading doctors in there, associations for spine neurosurgery and we have a number of them that are going to be presenting at Chinese conferences in the very near future. Some of them will be coming here to the United States to talk about what they have been doing in China with doctors here in the U.S.

It’s exciting to see the importance of new technology to Chinese doctors and I am excited about the prospects and the opportunities to grow both the BoneScalpel and SonaStar business in China.

Line extensions will improve our SonaStar ability to compete better outside the United States and particularly in China. At the same time, we're very encouraged by the acceptance we are finding for the SonicOne for wound debridement in the operating room environment, where clear reimbursement allows for the sales of our disposables.

Surgeons are finding they prefer our product over the present market leader which is called Versajet. The benefits can show a surgeon - that we can show a surgeon are on cost, tissue selectivity, tissue regeneration and overall healing. The ability to use the shaver with the SonicOne is also a distinct advantage. The opportunity for growth of the SonicOne in the clinic will also continue to grow through our seasoned sales team and the rental fee per service model.

We will be doing clinicals this year to reinforce earlier work and to show the anti-bacterial effect of ultrasound as well as its effect on proteins and growth factors to cause a wound to heal faster.

Let me just turn the call over to Rich now to go through the financials and then we will come back to you for questions.

Richard Zaremba

Thanks, Mike. Revenues for the 12 months ended June 30, 2013 were $14.8 million, a 5% decrease when compared with revenues of $15.7 million for the same period in fiscal 2012. The BoneScalpel increased 33% to $6.3 million, SonicOne revenues increased 43% to $1.9 million and SonaStar revenue decreased 9.7% to $5.3 million as compared to the 12 months ended June 30, 2012. BoneScalpel, SonicOne and SonaStar revenues increased 13.1% for the 12 months ended June 30, 2013, compared to the same period of fiscal 2012.

Domestic sales excluding Lysonix and AutoSonix products to Covidien increased 11.2% to $7.2 million for the 12 months ended June 30, 2013 compared to the comparable period of fiscal 2012.

There are 38 BoneScalpel consigned units placed in fiscal 2013 and the company has a total of 51 units on consignment. BoneScalpel disposable revenue increased 65%, SonicOne disposable revenue increased 115% and SonaStar disposable revenue decreased 3% for the 12 months ended June 30, 2013.

Net royalty income increased 249% to $2.4 million for the 12 months ended June 30, 2013 compared to the same period of fiscal 2012. The company reported a net loss for the 12 months ended June 30, 2013 of $2.7 million or $0.38 loss per share including a $176,000 income from discontinued operations compared to net income of $366,000 or $0.05 earnings per share, which included $975,000 of income from discontinued operations as of June 30, 2012.

The 12 months ended June 30, 2013 also included inventory reserves for Soma and Anika Hyalomatrix of $850,000 and Soma minimum gross profit accrual of $440,000 for total charge against gross profit of [$1,290,000] [ph].

Revenue for the three months ended June 30, 2013 was $3.8 million, 17 BoneScalpel units were consigned for the quarter, which resulted in total BoneScalpel domestic disposable revenue increasing a 167% to $339,000 from the same period in the previous year. SonicOne disposals for the quarter increased 309% to $101,000 from the same period in the previous year. The company recorded inventory reserves for Soma and Anika Hyalomatrix of $850,000 and the Soma minimum gross profit accrual of $188,000 for a total charge against gross profit of [$1,038,000] [ph] for the quarter.

The company reported a loss for the three months ended June 30, 2013 of $1.5 million or $0.22 loss per share. The company’s cash position as of June 30, 2013 was $5.8 million, days sales outstanding at 73 days, inventory turnover is 1.8 times and the company has no long-term debt.

The company’s backlog of unfilled orders as of June 30, 2013 was 579,000 most current orders are shipped when received. I’d like to turn this back to Mike.

Michael A. McManus, Jr.

Operator we will take some questions now.

Question-and-Answer Session

Operator

(Operator Instructions). And our first question comes from Joe Munda at Sidoti & Company.

Joseph Munda - Sidoti & Company

Real quick. Just a couple of housekeeping questions, just looking at the release here and we appreciate the breakout, it’s very helpful. So BoneScalpel revenue for the year was 6.3 and BoneScalpel disposable revenue was $4 million, so I am assuming $2.3 million of that was direct system sales, is that correct based on its placement model?

Richard Zaremba

It's systems, it could be accessories and it could be rentals.

Joseph Munda - Sidoti & Company

Okay. And I guess the same goes for SonicOne system sales, I'm looking at roughly $875,000, so it's the same type of situation?

Richard Zaremba

That is correct. Yeah.

Joseph Munda - Sidoti & Company

Okay. Rich on the gross margin, it took a dip here in the quarter, but I realize you took some reserves here on Anika and Soma. Can you give us a little bit more color on what exactly you are doing with Anika and Soma and what's going on and what we can expect going forward?

Michael A. McManus, Jr.

Yeah. So let me handle that if I could Joe please. So we had two agreements one with Anika Therapeutics to distribute their products called Hyalomatrix, which is a tissue regeneration product that is put on a wounds after they’ve been debrided. And they had a change in their 510(k) that took away some of the market rights that we had negotiated for that and a couple of the other product related reasons caused us to terminate that agreement. And we are in discussions with them about settling our dispute with them and resolving those issues. And the product that we have in the meantime, the date, the shelf life is running out. So we thought it was appropriate because of the status and because of the shelf life to take a reserve against the Anika inventory.

With Puricore we had a distribution agreement to distribute a product that is a wash for wound that was called Soma. They had a problem with their 510(k) with the FDA where the FDA changed the label and the product had some difficulties meeting the specifications and we terminated that agreement. They claim that we hadn’t or couldn’t. And we are in discussion with them. We think that matter will be resolved, but we did reserve for some of the inventory that we have there as well.

Joseph Munda - Sidoti & Company

Okay. So I mean are we expecting this, I guess did you included all in this fourth quarter or are we expecting further I guess reserve write-downs going forward?

Richard Zaremba

It is included in the fourth quarter and the full, as Mike had mentioned, the full Soma inventory is reserved and probably 90% of the Anika inventory is reserved.

Joseph Munda - Sidoti & Company

Okay. So if I back that out, I mean and add back let’s say that inventory, you guys would have been at roughly a 60% gross margin, is that correct?

Richard Zaremba

I would say that's fair.

Joseph Munda - Sidoti & Company

Okay. And is that a sustainable, and that leads to my next question, is that sustainable going into fiscal ’14, is that a type of margin that we should expect going forward?

Michael A. McManus, Jr.

I think the model is based, as we've said upon in the United States the consignment of the product and the margin on the blade, so long as the pricing of the blades maintains its present level, we should expect to be able to make something around that margin.

Joseph Munda - Sidoti & Company

Okay, okay. That's very helpful. And as far as just to go over one more time, the payback on the consignment what on BoneScalpel and SonicOne, what - I mean what are we talking as far as the timeframe, you consign it and then the disposables, I mean how long till you see your breakeven on that or the payback is on both of those machine?

Michael A. McManus, Jr.

So that depends upon exactly the formula we use for selling. And in the United States right now we will consign a unit and reach an agreement for X number of disposables per month for a year. And let’s say that agreement is for five disposables at $400 of disposable the payback is three months.

Joseph Munda - Sidoti & Company

Okay.

Michael A. McManus, Jr.

So it’s very quick.

Joseph Munda - Sidoti & Company

Okay.

Michael A. McManus, Jr.

Thanks to the margin in the blades.

Joseph Munda - Sidoti & Company

That’s helpful. As far as the regulatory approval, congratulations I know that’s a big deal. When can we expect you guys to start shipping product or have you shipped product and you were just waiting for the approval or your Chinese distributor was just waiting for approval. When can we start to see incremental revenue from that Chinese approval?

Michael A. McManus, Jr.

We have started shipping product to China, we shipped some product early for them to demo the product at a show. You might remember in Shanghai last year where they had something like 100 doctors that had the opportunity to use a couple of BoneScalpels and that's really helped to feed the interest that the Chinese are showing now. So we're shipping now and we would expect that to build over the year.

Joseph Munda - Sidoti & Company

Okay. Any words from the J&J and Covidien I guess lawsuit that’s going on and what that means to Misonix, any update?

Michael A. McManus, Jr.

The only thing we know Joe is that, J&J has noticed an appeal. I don't know that they filed the appeal papers, but they did over the summer notice the appeal. So I would expect that, that's a while before that will be heard and determined. In the meantime, the interest continues to grow.

Joseph Munda - Sidoti & Company

Okay. And then last one and then I’ll hop back in the queue. In your prepared comments you talked about investing roughly $1.7 million extra this year in SG&A, (a) is that a level that we should expect going forward or as a percentage of sales or what basically is that. What is being invested, I mean is it more reps, where is that money going?

Michael A. McManus, Jr.

Well, it was last year for a director of sales for spine, it was for a couple of regional reps, it was for a marketing person and we'll see some additions to our staff. But I don't see a lot of additional expenditures for people. Our level right now in terms of managing our distributors is where we wanted to be. We may be adding some more people on the marketing side and we may be doing some things that are marketing support kinds of things for shows and certainly we will be investing some more and supporting our science which continues to be important. So there will be some clinical expenses, but I don’t think you’ll see the expenses accelerate to the extent they did last year.

Joseph Munda - Sidoti & Company

Okay. So we are talking on selling expense line roughly $2 million a quarter then?

Michael A. McManus, Jr.

$2 million a quarter?

Joseph Munda - Sidoti & Company

Yeah.

Michael A. McManus, Jr.

No.

Joseph Munda - Sidoti & Company

No?

Richard Zaremba

Well, that's what the fourth quarter was.

Joseph Munda - Sidoti & Company

Yeah, that’s what the fourth quarter was.

Richard Zaremba

Yeah, I mean, some of the expenditures we’re timing when the expenditures came in and we expanded the effort, so I don’t think it’s going to be at that level.

Michael A. McManus, Jr.

I think it will be below that Joe.

Joseph Munda - Sidoti & Company

Okay. All right, that's helpful. Thank you, guys.

Operator

(Operator Instructions). Our next question comes from Steve Kruger at Foresight Investing.

Steve Kruger - Foresight Investing

In the press release, I see that you placed 165, sold or placed 165 BoneScalpel units in fiscal 2013. Later in the press release it says there were 17 BoneScalpel units placed during the fourth quarter that on the surface looks like huge deceleration in quarterly units placed. Am I reading that right or if not what am I missing?

Richard Zaremba

Well, first of all, the domestic consignments are in the U.S. The second is, it’s sold or placed so outside the United States. We had quite a few units that were sold. The consigned units were again just the domestic and 17 were in the quarter, 38 were in the year and the point on that is what is driving the disposable revenue.

Steve Kruger - Foresight Investing

So the 17 units placed in the fourth quarter, is only in the U.S.?

Richard Zaremba

That is correct.

Steve Kruger - Foresight Investing

Okay. Because the wording in the press release doesn’t make that clear right on thing, but anyway I might check that. All right so what were the total number of units sold or placed in the fourth quarter domestic and international?

Richard Zaremba

I have to work that number up, I don’t have right off hand.

Steve Kruger - Foresight Investing

Let me ask at this way then, are you seeing an acceleration in the rate of placement or say and/or sales in the BoneScalpel units?

Richard Zaremba

I mean we grow revenues by 33% year-over-year, so that indicate…

Steve Kruger - Foresight Investing

Throughout the year Rich, is the pace increasing?

Richard Zaremba

We’ll have to get to the numbers, but it should be there, a couple of factors there. One is how quickly the international distributor after they start pre-order and -- we because it's -- we don't have a firm history of that country by country, but it also depends upon when our funnel actually gets through this last gating period which of these valuable assessment committees, where we don't control the timing. So it could ebb and flow a little bit on the basis of that, but it should be in a positive upfront.

Steve Kruger - Foresight Investing

And what's the total number of active BoneScalpel units, either in place or in clinics around world right now?

Michael A. McManus, Jr.

Well, you mean that have been consigned or sold?

Steve Kruger - Foresight Investing

Yes.

Michael A. McManus, Jr.

Because there are some that have been evaluated and we don't talk about that number, but the total number of...

Steve Kruger - Foresight Investing

Yeah. The point that are either sold or placed and what's the installed base so of speak?

Michael A. McManus, Jr.

I think it is about 350 units sold or placed.

Steve Kruger - Foresight Investing

350, okay. And the total disposable revenue was $4 million for the year. And I know that you don't get a full year of disposables for the units placed this past year, that works out somewhere here in order of magnitude around $10,000 in disposable revenue per unit, installed (inaudible) right?

Michael A. McManus, Jr.

Well, remember the units that are sold outside the United States or sold to a distributor had a discount from the price that we sell them for in the United States. So the revenue to us from a BoneScalpel blade outside the United States is not the $400 we get in the United States.

Steve Kruger - Foresight Investing

Okay. But doing the arithmetic the average is also about $10,000.

Michael A. McManus, Jr.

On average, yes.

Steve Kruger - Foresight Investing

On average. And it’s a little bit higher in the U.S. a little bit lower internationally?

Michael A. McManus, Jr.

Yes.

Steve Kruger - Foresight Investing

Okay. And in terms of the number of reps, a feed on the street who are actively out marketing this in the U.S. Can you give us that number right now?

Michael A. McManus, Jr.

I think the number of distributors that we have that are managed by three regional reps of ours are our employees is 42 and the total number of feed on the street I believe is about 170 right now.

Steve Kruger - Foresight Investing

170 I thought it’s 42 (Inaudible)

Michael A. McManus, Jr.

Right.

Steve Kruger - Foresight Investing

And are you expecting that to continue to increase or.....

Michael A. McManus, Jr.

We've got pretty good penetration right now and that there are couple of holes we have to fill, but it’s, the difficulty is getting the right distributor and we think we’re getting to the point where we have better distributors than we had say a year ago. This requires a distributor that has a unique background in the spine market and has a unique relationship with the key doctor. The difficulty is that a lot of these distributors are spoiled and they are used to selling [bolts and screws] where you walk in and you can sell them pretty quickly. To sell a BoneScalpel you have to wait and spend some time with the doctor. And so we’re making sure that we have the right people with the quality relationships and with the ability to stick with it through a process that honestly have taken a little bit longer than we’d like. So we are starting through the distributors, but we think the number that we have right now is about right, we had about this time last year I think about 19.

Steve Kruger - Foresight Investing

Right. So you are reasonably comfortable that the distributor network is built out pretty much we wanted to be and then therefore increases in sales going forward are going to come from increasing productivity form the rep?

Michael A. McManus, Jr.

That’s right. And one of the keys to this is that the right distributors, the distributors that hunts and fishes and plays golf with a doctor that’s a high volume surgeon and can get us into see that doctor faster than any sales person that we could hire could ever do because the distributor in a lot of these cases is a guy that’s got a $15 million to $20 million business of his own and he has made his living over the last 20 years by selling quality products to his friend, a doctor who is probably making $1 million a year and does a lot of surgeries. That’s our kind of guy.

Steve Kruger - Foresight Investing

Yeah, okay. If I look at you have got about 170 or so that ballpark feet on the street selling this or placing it and your placements in the U.S. last year total were 38 that’s one for every four reps that leaves a whole lot of room for increases in productivity, does it not?

Michael A. McManus, Jr.

It does, but it also means that we didn’t have 41 reps for the whole year.

Steve Kruger - Foresight Investing

Okay. So that mean it’s if the product is as good as some of the doctors say as we should be saying a pretty steep ramp going forward?

Michael A. McManus, Jr.

Yes. As I said, I have yet to come across a doctor who didn't like and want to use the BoneScalpel. The difficulty for us right now is to get the right distributor, but also to get through this gaining process that our healthcare system has strangely and not only for the new best technology, if you are old technology, you don't have to go through this process. If you are new and better and unique, you have to go through a process and the process isn't determined by doctors, it's determined by not even just financial people, administrative people as well.

So, we're getting better at providing these [backs] as we call them with the kind of information they need to make a decision quickly based upon the doctor’s input, the science and the benefit that the product can have to the hospitals, the doctor and the patient.

Steve Kruger - Foresight Investing

Okay, very good. Thanks very much guys. Good luck

Michael A. McManus, Jr.

Sure. Thanks.

Operator

(Operator Instructions). Seeing no further questions, I would like to turn the conference back over to Mr. McManus for any closing remarks.

Michael A. McManus, Jr.

Thank you very much operator and thank you to everybody on the call. We appreciate your interest and involvement in the call. As I think you can see we're working very hard at not only introducing this unique technology to doctors, but also to build the important scientific support for what we do.

These efforts are ongoing around the world and will enable your company to realize continued strong growth we believe in fiscal 2014. Thank you again for being on the call. And have a good afternoon. Thank you.

Operator

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.

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Pro-Dex's CEO Discusses F4Q2013 Results - Earnings Call Transcript

Executives

Harold A. Hurwitz - Chief Executive Officer, President and Chief Financial Officer

Analysts

Tim Brady – D.A. Davidson

Pro-Dex, Inc. (PDEX) F4Q2013 Earnings Conference Call September 25, 2013 4:30 PM ET

Operator

Greetings and welcome to the Pro-Dex Fiscal 2013 Fourth Quarter and Full Year Conference Call. At this time all participants are in a listen-only mode. A brief 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 introduce your host, Mr. Hal Hurwitz, Chief Executive Officer. Thank you, Mr. Hurwitz. You may now begin.

Harold A. Hurwitz

Thank you, Manny, and thank you, all for joining us to review the results for the fourth fiscal quarter and full fiscal year of 2013.

On today's call I will provide a synopsis of our operating results as well as some comments. Then as Manny mentioned we will open up the call to your questions.

Before beginning however, I ask our participants and listeners to note that the comments made on this call may include statements that are forward-looking within the meaning of securities laws. These forward-looking statements may include, without limitation, statements related to anticipated industry trends and the company's plans, products, perspectives and strategies, both preliminary and projected.

Actual results or trends could differ materially. We undertake no obligation to revise or publicly revise the results of any revision to the forward-looking statements in light of new information or future events. For more information please refer to the risk factors discussed in the company's Form 10-K, as amended, for the year ended June 30, 2012, and the Form 10-Q related to fiscal 2012, all of which have filed with the SEC over the past year; the Form 10-K for the year-ended June 30, 2013, that we will be filing with the SEC in the next couple of days and the Form 8-K, filed with the SEC today, along with the attached press release issued today, all of which can be obtained from the SEC or by visiting our website at www.pro-dex.com.

My discussion of our results for the fiscal 2013 fourth quarter and the full fiscal year of 2013 will relate to our continuing operations, meaning that the results of our former Astromec motor product line, which was sold in February 2012 will be excluded.

First let's cover fourth quarter results. Sales for the quarter ended June 30, 2013 decreased 26% to $2.7 million from $3.7 million for the corresponding quarter in 2012. This decrease was due primarily to the previously disclosed reductions in purchases by the company's former largest customer and to a deferral in the timing of product orders from the company's current largest powered surgical instrument customer, both of which were partially offset by increases in surgical instrument sales to other customers.

Gross profit for the quarter ended June 30, 2013 decreased to $565,000, compared to gross profit of $858,000 for the year ago period, primarily as a result of the sales volume decrease between periods and the accrual in 2013 of anticipated losses from the development portion of certain contracts. Gross profit as a percentage of sales was 21% for the quarter ended June 30, 2013, as compared to 23% for the corresponding quarter in 2012. This decrease was due primarily to the effects of the accrual for estimated contract losses and to unfavorable variances consistent with the lower sales and manufacturing volume, partially offset by the effects of improved cost performance and lower warranty costs in 2013, relative to 2012.

Operating expenses, which include selling, general and administrative, and research and development expenses for the quarter ended June 30, 2013 decreased 24% to $1.3 million from $1.7 million in the prior year's corresponding quarter. Included in operating expenses for the quarter ended June 30, 2013 were severance costs amounting to $173,000, as compared to $36,000 of such costs in the corresponding 2012 quarter.

Loss from continuing operations for the quarter ended June 30, 2013 was $680,000, compared to a loss from continuing operations of $430,000 in the corresponding quarter of 2012. Net loss for the quarter ended June 30, 2013 was $673,000 or $0.20 per diluted share, compared to a net loss of $544,000, or $0.17 per diluted share for the corresponding quarter in 2012. Of note is that the fiscal 2012 fourth quarter results reflect a $276,000 benefit from the carry back of tax-basis net operating losses that offset taxable income from prior years. Because the 2012 carry back fully offset such prior years' taxable income, a comparable benefit was not available in 2013.

Now I will speak about the fiscal 2013 full year results. Sales for the year-ended June 30, 2013 decreased 29% to $12.2 million from $17.3 million in fiscal year 2012. Excluding product sales and repair services to the company's former largest customer, which represented a reduction of $6 million in fiscal 2013 from fiscal 2012, sales and repair services of surgical instruments increased $1.4 million, or 16%, in fiscal 2013 when compared to fiscal 2012.

For the year ended June 30, 2013, gross profit was $3.7 million, compared to $5.4 million in fiscal 2012. This decrease resulted primarily from the reduced sales and manufacturing volume in fiscal 2013 and from the accrual in fiscal 2013 of anticipated losses from the development portion of certain contracts, partially offset by a decrease in warranty costs from fiscal 2012 to fiscal 2013.

As a percentage of sales, gross margin was 30% for the year ended June 30, 2013, as compared to 31% in fiscal 2012. This decrease was due primarily to the accrual in fiscal 2013 of the anticipated contract losses, partially offset by favorable changes in warranty costs.

Operating expenses for the year ended June 30, 2013 decreased 17% to $5.6 million, from $6.8 million in fiscal 2012. Comprising this decrease were planned company-wide expense reductions, and the deployment of engineering resources, normally charged to research and development expense, to support revenue-producing development contracts with customers, the costs of which will be recorded as costs of sales when the development projects are completed.

Partially offsetting these expense decreases were costs of $190,000 incurred in fiscal 2013 that were associated with the contested election of Directors at our January annual meeting of shareholders.

For the year ended June 30, 2013 loss from continuing operations was $1.9 million compared to a loss from continuing operations of $960,000 in fiscal 2012. Net loss for the year ended June 30, 2013 was $1.8 million or $0.54 per diluted share as compared to a net loss of $876,000 or $0.27 per diluted share for fiscal 2012. As I previously described the fiscal 2012 results reflected $276,000 tax benefit not available in fiscal 2013.

During the year ended June 30, 2013 the company used $1.3 million of cash in operating activities. This use of cash reflects primarily an increase in inventory amounting to $1 million resulting largely from the buildup of the company’s backup component with the objectives of shortening lead times with respect to certain of the company’s products.

In the fourth quarter of fiscal 2013 the company’s largest customer began deferring the timing of its product orders, thus prolonging the effect of his inventory buildup with respect to inventory that is unique to that customer's product.

In addition as announced previously in September 2012 the company repaid the entire outstanding balance on its term loan from Union Bank amounting to $685,000 and in June 2013 the company made its first investment amounting to $365,000 as part of its program to direct excess capital into opportunities identified by a capital allocation committee established by the company’s Board of Directors. As a result of the foregoing, cash on hand at June 30, 2013 was $1.7 million compared to $4.1 million at June 30, 2012.

So having covered the numbers at the surface let’s better understand them. As I stated in today’s press release Pro-Dex’s plan for fiscal year 2013 had a clear and challenging agenda to rebuild our revenue base and right size our cost footprints. A look beneath the surface of our reported results allows for an understanding about backdrop in both areas.

In fiscal 2013 we commenced engineering work on project in which we are developing a next generation platform for power surgical instruments, which if our work is successful are expected to begin generating manufacturing revenues from our customers in fiscal 2014 or 2015.

In addition we started development efforts on contract manufacturing projects related to a device to be used in a potentially disruptive new surgical system being developed by one of our customers, also with the expectations of manufacturing revenues commencing in fiscal 2014 or 2015.

Each project arose from business development efforts through which we initiated contact with these customers two years ago and we currently are in either discussion or in the proposal phase for additional next generation or contract manufacturing projects as a result of our continuing business development efforts. Our hard work to rebuild our revenue is starting to show results.

And one significant note regarded our reported revenues, the close of fiscal 2013 marks the end of the year-over-year comparisons that have been affected by the loss of our former largest customer. This disclosure has cast a shadow over our results in fiscal 2010. We are happy to close this chapter and I look forward to focusing our comments on the revenue rebuilding efforts which we believe is the true measure of our revenue performance.

With respect to rightsizing our cost footprint as pleased as we are with the 17% year-over-year reduction in operating expenses this comparison does not fully reflect our progress. Here are three examples.

First, during fiscal 2013 we reduced the composition of our senior management team from six to four members and our headcount from 74 to 67. As a result our annualized base compensation was reduced from $4.6 million at June 30, 2012 to $3.7 million at June 30, 2013, a 20% decrease. Certain of these reductions however, including those affecting our senior team, were not effective until the end of fiscal year 2013, as evidenced by the severance cost reported in the fiscal fourth quarter.

The second example has to do with the rental rate we renegotiated for the remainder of our lease term for our facility in Irvine, California that will result in a reduction of annualized expense of approximately $51,000. This new lease rate did not go into effect until this past July 1. Thus not yielding benefit to us until the current fiscal year 2014.

And the final example relates to non-employee Director compensation; as we have previously disclosed, as approved by the new Board of Directors, who were elected this past January, annualized compensation for non-employee members of our Board of Directors has been reduced by approximately $140,000. However we have derived the benefit of this reduced Director compensation for only the second half of fiscal year 2013.

In sum, we enjoyed at best only a portion of the benefits of these, among many other cost saving measures in fiscal 2013, and we are looking forward to realizing the full-year effect of our efforts in the current fiscal year 2014.

Obviously, we are not satisfied with the direction and magnitude of our fiscal 2013 loss from continuing operations and cash used in operations. While proxy contests and severance costs, aggregating $560,000 constituted 30% of the loss and 44% of the cash usage, the point remains that our goal is to restore Pro-Dex to profitability and positive cash flow from operations. Accomplishing this goal is neither easy nor assured. Nonetheless, the examples of rebuilding the revenue base and right-sizing our cost footprint discussed today are evidence of our best efforts to accomplish this goal in the context of our new operating structure.

Turning to the balance sheet, during fiscal 2013 we invested $1 million in inventory growth, principally to accommodate delivery commitments to our largest customer, based on its anticipated delivery requirements. In the fiscal 2013 fourth quarter we learned from this customer of its need to schedule deliveries for later dates than the customer originally anticipated. As a result conversion to cash of the inventory related to this customer likely will be weighted toward the second half of the current fiscal year 2014 and possibly the first half of fiscal 2015.

Even with this unanticipated prolonged investment in inventory we continue to maintain liquidity in excess of our anticipated short-term requirements. As a result, as of June 30, 2013, we had invested $365,000 in marketable equity securities under the investment framework approved by our Board, as we have previously described. And as we disclosed in today’s press release, our board has approved the share repurchase program authorizing us to repurchase up to 750,000 shares of our common stock.

The final note regarding the balance sheet is with respect to the previously announced completion this past July of the sale of the land and building we owned in Carson City, Nevada that it formally housed our Astromec motor horsepower motor business. We were very pleased not only to have completed the sale but to have done so for net sales proceeds in excess of the real estate carrying value on the June 30, 2013 balance sheet.

I’m now happy to invite any questions you might have with regard to the quarter, to the full fiscal year or our business operations. With that I’ll turn the call back over to Manny for Q&A.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Thank you. The first question is from Paul Andrews, a private investor. Please go ahead.

Unidentified Analyst

Hey guys. First let me just say congrats, the turnaround's looking pretty nice.

Harold A. Hurwitz

Thank you.

Unidentified Analyst

I’ve got a couple of questions. I’m guessing there aren’t too many people in the queue. First, the big build-up in inventory, so it’s contracted sales already, I mean it’s pretty clear that these sales are going to happen, you’re not going to be left holding the bag with all this inventory?

Harold A. Hurwitz

That’s correct.

Unidentified Analyst

Okay, great. And obviously you haven’t booked any of the inventory cost, or any of the revenue yet but it’s just kind of sitting on the balance sheet and we will see the results towards the end of this year?

Harold A. Hurwitz

Toward the end of this year and I think there is a possibility in the beginning of next year also. I think it will be weighted toward the end of this year and into next year.

Unidentified Analyst

Perfect, perfect, okay. So then digging a little deeper, I remember our Q2 of this year kind of the old management team said the breakeven point for the business was around $13 million to $14 million in run rate sales.

Given the kind of -- you guys have obviously done a great job of bringing operating expenses down even further. I mean would you think breakeven is even lower than that now. Like I would guess it's probably somewhere around where today’s level of sales is or maybe even a bit lower than that with all the cost cutting. But what do you think?

Harold A. Hurwitz

Yeah, I think that’s a reasonable conclusion to draw. Obviously I can’t get too specific at this moment and frankly our cost cutting efforts continue to be dynamic. But…

Unidentified Analyst

Yeah, yeah. I mean you’ve only been in place for six months so I am sure there is still little bit of fat left to trim.

Harold A. Hurwitz

And well yeah I certainly I don’t know at this stage it will be game, if I call it past, but there are certainly some cost cutting opportunities that we can still do without stunting our growth. I think that in Nick Swenson's quote he used the term prudent frugality and that's really the name of the game. We are frugal by culture now, but that's through this [number loss].

Unidentified Analyst

And Nick's not on the call is he?

Harold A. Hurwitz

No.

Unidentified Analyst

Okay, all right. So then I guess my next question would be Nick's obviously he’s got a hedge fund, the other member of the surplus capital committee has a hedge fund. Nick's the Chairman of another Board where he is also on the capital allocation committee. So how is he going to work with the allocation of ideas between you guys investing in security, the hedge funds investing in insecurity, all that sort of stuff?

Harold A. Hurwitz

Well, suffice it to say that the Board has approved the structure with appropriate control and since we haven’t probably disclosed those controls I don't know if it's appropriate for me to get into it here. So I guess so -- fair bit of controls surrounding the other mechanisms.

Unidentified Analyst

It’s not even the controls I guess I am wondering but he comes up -- the two of them have a great idea how do they decide which funds to buy first? If the fund buys it first, if you guys buy it first how is it kind of allocated in terms of that?

Harold A. Hurwitz

Yeah, that was then their decision making and my involvement is solely with respect to Pro-Dex.

Unidentified Analyst

Okay that’s completely fine. And just my last question I remember a long, long time back there was a discussion around, you guys you use to get contracted for products the customers with kind of own all of the IP. And there was a switch and you guys started earning all of the IP obviously the customers could use it all within their products.

But you guys actually own the IP in team and go out to market to cover other customers if you wanted to know that sort of sell. Is there any value in kind of licensing in that IPL or is there anything that can come of that or is it all of just kind of -- is it just not much?

Harold A. Hurwitz

Well I’ll answer the last part specifically, the not much part; in certain of our projects it certainly would not be not much. In other words it would be much, we think it would be a value. But how much that value is and who owns the IP is really on a deal-by-deal basis, depends on a product-by-product basis. Because as you might have gleaned from my press release and from my comments here, we have certain projects that involve new technologies and we have other projects that involve contract manufacturing. And so you can appreciate I hope that the value of IP would be different in the former than it would be in a later.

Unidentified Analyst

Yeah, great. Well I am going to hop back in the queue I just want to let you know I think you are doing a great job, keep up the great work.

Harold A. Hurwitz

Thank you Paul.

Operator

(Operator Instructions). Our next question is from Paul Andrews, a private investor. Please go ahead.

Unidentified Analyst

Hey, I have one follow up since apparently no one else is hopping on. The 365k in marketable securities, I don’t know if you can or will disclose this. Is that all one or two individual stocks that’s what I’m guessing, but…

Harold A. Hurwitz

Yeah. No, I’m not at liberty to disclose that unfortunately Paul.

Unidentified Analyst

Okay. That’s fine.

Operator

Thank you. The next question is from Tim Brady of D.A. Davidson. Please go ahead. Hello Tim…

Harold A. Hurwitz

Tim, are you there?

Tim Brady – D.A. Davidson

Hey, sorry guys, I was on mute. Just wonder if you could expand on Paul’s question with the investment purchases sector, any strategy, obviously kind of a black box at this point for investors.

Harold A. Hurwitz

I’ll try to make it a little bit [better]. I’m going to have to ask you to repeat that question.

Tim Brady – D.A. Davidson

Okay. Just in regards to the investments as a follow up to Paul’s question, any insights on sector, strategies, obviously it’s kind of a black box for investors right now, any insights at all you can provide?

Harold A. Hurwitz

Not at present, Tim. And I apologize for not being able to do that but we really can’t. What I can share is what I already shared in the interchange with Paul and that is that when the structure was set up it was set up with appropriate controls at the Board and management level. But to test that, we haven’t really gone into the details of the structure itself. So I really am not at liberty to talk a lot about it in detail right now.

Tim Brady – D.A. Davidson

Okay. And then just as I guess also related to surplus capital investment policy, that’s not public but does that encompass more than just purchase of marketable investments or does that include share buybacks, dividend policies, or is it just the purchase of marketable investments.

Harold A. Hurwitz

Well, again I can’t get into to those specifics regarding the plan because as you just noted it’s not a public document. With the exception of share buyback you might have noted that in the release and in my comments today, our Board has approved a share repurchase plan. That would be an alternate vehicle or a vehicle I should say that is available to the allocation committee.

Tim Brady – D.A. Davidson

Okay. That’s all I've got. I appreciate it.

Harold A. Hurwitz

Sure.

Operator

Thank you. Mr. Hurwitz we have no further questions in the queue at this time. So I will turn it back to you.

Harold A. Hurwitz

Okay. Well, thank you Manny and my thanks to all of you for joining us today. All of us at Pro-Dex appreciate your interest, your time and your support of the company. And we look forward to speaking with you in November when we report our first fiscal 2014 quarter financial results. Thank you very much.

Operator

Thank you. Ladies and gentlemen this concludes today’s teleconference. You may disconnect your lines at this time and thank you for your participation.

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pSivida Corp.'s CEO Discusses F4Q12 Results - Earnings Call Transcript

Executives

Lori Freedman - General Counsel and VP of Corporate Affairs

Dr. Paul Ashton - President and CEO

Len Ross - VP of Finance

Analysts

pSivida Corp. (PSDV) F4Q12 Earnings Call September 25, 2013 4:30 PM ET

Operator

Good day ladies and gentlemen, and welcome to the pSivida Corporation Fourth Quarter 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we’ll have a question-and-answer session, and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded for replay purposes.

I would now like to turn the conference over to your host for today's conference, Ms. Lori Freedman, General Counsel and Vice President of Corporate Affairs. Ma'am you may begin.

Lori Freedman

Thank you, Mary. Good afternoon everyone and thank you for joining us. After the market closed today, we released our third quarter financial results for fiscal 2013. A copy of the release is available in the Investor section of our website at www.psivida.com.

On the call today with me is Dr. Paul Ashton, President and Chief Executive Officer; and Len Ross, our Vice President, Finance. Before I hand the call over to Paul, I need to remind everyone that some of our prepared remarks are and answers to your questions may be forward-looking in nature.

Forward-looking statements are inherently subject to risks and uncertainties. All statements other than statements of historical facts are forward-looking statements, and we cannot guarantee that the results and other expectations expressed, anticipated, or implied will be realized. Actual results could differ materially from those anticipated, estimated or projected in the forward-looking statements. For a more detailed discussion of the risk factors that could impact our future results and financial condition, I refer you to our filings with the SEC including our annual report on Form 10-K for the fiscal year ended June 30, 2012. We undertake no obligation to update any forward-looking statement in order to reflect events or circumstances that may arise after this conference call.

With that, I’d like to turn the call over to Paul.

Paul Ashton

Thank you, Lori, and welcome everyone as we discuss the results of fiscal 2013 and fiscal 2013 fourth quarter. This was another good quarter for us as we continue our transition to a product based Specialty Pharma company, -- the one that still capitalizes on collaborations and licenses as appropriate. Here are some of the highlights; we have started our pivotal Phase III program for our own lead development product, Medidur for posterior uveitis. Second highlight, preliminary data from the Phase I/II investigator-sponsored study of Medidur was very encouraging. Third, our partner product ILUVIEN went on sale in Germany and the UK for the treatment of chronic Diabetic Macular Edema or DME. Four, following a re-filed NDA, ILUVIEN is under review by the FDA. Five, we're continuing to make progress with our Tethadur delivery system for peptides, proteins and antibodies. And six, after the close of quarter we completed a public offering of our common stock raising gross proceeds totaling $10.8 million; so, on the call today I'll provide you with some more details on these highlights before handling over to Len, who will take us through the financials.

Before I go into the details though let's talk about the strategic direction the company is heading in. Our goal is to make the transition from a technology-for-hire company that simply licenses out all of its technology to a specialty pharma company that develops and sells its own products. So far we've done a great job in working with partners to advance our technologies, while retaining the freedom to develop our own products. Cash received from partners has greatly reduced our cash money. Over the last five years, we've received approximately $50 million from partners, in contrast over the same period we've only raised approximately 27 million from equity financings and this includes the 10.8 raised this last July. Of course we still plan to partner technologies and products -- in our best interests.

Now the ILUVIEN Medidur program, it's a great example of the combination of these strategies. We partnered our micro insert based on our Durasert technology with Alimera Sciences; they have developed and are marketing it as ILUVIEN for the treatment of chronic Diabetic Macular Edema.

To date we have received over $30 million from Alimera for milestones, license fees and other payments, and going forward we'll be entitled to receive a share of any profits on the sales in the EU countries where ILUVIEN is being sold. Approval in the US would trigger a $25 million milestone and provide us with the opportunity for net profit participation from sales in the US. So this product has already provided us with significant cash with the opportunity for yet more to come, but we also have the opportunity to develop the exact same micro-insert ourselves for the treatment of posterior uveitis. This is expected to have low expenses because of the ILUVIEN experience and we have the benefit of all the work that's being done for ILUVIEN.

So let's talk about our own product for uveitis, Medidur. Posterior uveitis itself is a very unpleasant disease characterized by inflammation of the uvea one of the inner layers of eye. It affects approximately a 175000 people in the US, blinding some 30000. Medidur provides a great opportunity for us. As I mentioned, it's the same micro-insert that's used in the EU approved ILUVIEN. As a result the FDA has confirmed that we can reference Alimera's NDA filing for ILUVIEN for DME in support of our own application in posterior uveitis.

Medidur delivers the same drug fluocinolone acetonide as ILUVIEN; this is the exact same drug that's in our FDA approved Retisert device marketed by Bausch and Lomb. As a result we expect to see a similar efficacy for Medidur as Retisert. However, based on the Phase III DME data and the lowered drug dose than is in Retisert, we expect side effects for Medidur in posterior uveitis to be comparable to those seen in ILUVIEN and that's far fewer than we’re seeing in Retisert. So we believe this is a relatively low risk development program. And in a moment I'll discuss a very promising interim data, consistent with this hypothesis.

Turning to the regulatory program for Medidur for posterior uveitis, we met with the FDA earlier this year with respect to our proposed development plans and incorporated their suggestions. As it currently stands we're planning on two Phase III clinical trials, each with the primary endpoints of recurrence of disease at 12 months. To put this in English, posterior uveitis is a chronic recurrent disease that tends to ebb and flow and is generally managed with systemic steroids. In our trial design, patients must have [indiscernible] at the time of enrollment, we will look at the number of recurrences that each eye experiences over a 12 month period compared to untreated or controlled eyes. This is similar to the protocol used for approval of Retisert.

In the Retisert Phase III trials approximately 50% were untreated eyes and the recurrence of uveitis within 12 months, versus less than 10% of eyes receiving Retisert, a very big difference. The first of our two planned Phase III Medidur trials is now underway. We expect it will take approximately one year to recruit with a one year follow-up before the primary end point.

Now turning to the very encouraging interim data that I promised, in a 12 patient’s investigator-sponsored study of Medidur in posterior uveitis, an analysis was performed 12 months after recruitment began with a follow-up data available ranging from 12 months to one month. Here is good news; none of the eyes receiving Medidur an experience to recurrence of uveitis and in all cases inflammation decreased. In contrast, all control eyes, non-treated eyes, eyes that had a recurrence of disease or a worsening of inflammation. Furthermore, Medidur treated eyes had an average improvement in visual acuity of over nine letters on the eye chart while untreated eyes average to slightly decrease in vision of one letter.

Medidur was well tolerated in the study and only one patient developed a significant increase in intraocular pressure. This patient had a history of elevated IOP and was on topical drugs before enrolling in the study. This early observed safety profile from Medidur is consistent with the safety profile seen in the ILUVIEN for DME studies. Now, this is preliminary interim data and from a small study. Nevertheless, these data are very in line with our expectation. In the Phase III trial for Medidur, we will see efficacy in treating posterior uveitis that’s similar to Retisert but with side affects similar ILUVIEN.

Now, let’s move on to our partner product ILUVIEN, if you follow pSivida or our partner in this program Alimera Sciences, you will know that ILUVIEN is approved for the treatment of vision loss associated with chronic DME deemed insufficiently responsive to available therapies. It is approved in six EU countries with the seventh expected. We were very pleased therefore when Alimera announced that they have begun selling the product in Germany and the U.K. And they expect to come and sell in France in the first quarter of 2014 now also actively pursuing pricing and reimbursement. In the U.K., the ILUVIEN is currently available only on a private pay and privately insured basis.

However an appraisal committee of the U.K.’s NICE has recommended amending published guidance to recommend ILUVIEN for pseudophakic chronic DME patients i.e., those who already had cataract surgery and should this recommendation be expected. U.K.’s National Health Service is expected to fund ILUVIEN for the treatments of this generally large subject of the chronic DME population. In Germany, Alimera has been permitted to launch ILUVIEN without price restriction and if we can secure agreements for reimbursement with the German statutory insurance funds allowing patients to avoid submitting individual reimbursement claims.

In France, ILUVIEN for DME received a favorable opinion for the reimbursement and hospital listing by and 100% of the cost will be reimbursed under a program for severe chronic disease, such as diabetes. Although we don’t what this will mean for us in terms of our country by country net profits, as defined. Alimera has reported expect sales in Europe to increase overtime. In the U.S., Alimera submit of the NDA for ILUVIEN and received PDUFA date of October 17, 2013 and approval would entitle us to a $25 million milestone payment from Alimera. We also had been entitled to 20% of net profits, as defined, from the Alimera sales in the U.S. And this the same profit split that we have in Europe.

Now, in addition to our Durasert technology as you know we have our Tethadur technology platform for the sustained delivery of peptides, proteins and antibodies. Preclinical testing of this technology is continuing to show promising results. We have a funded technology assessment agreement with the global biopharmaceutical company evaluating seven applications of Tethadur. We believe, there is a huge and growing unmet need for a sustained delivery system with peptides and proteins. For example in ophthalmology, the two biggest drugs of proteins that need to be injected directly into the eye typically every four to eight weeks.

If these injections could be administered less frequently for example every six months, it would potentially be a big clinical advance and also a big competitive advantage. Looking at the potential opportunities for Tethadur beyond ophthalmology, the biotechnology revolution is now 30 plus years old and has been very successful. The base of scientific discovery on genetic and molecular biology space has continued to accelerate and a large number of the top selling drugs are not biologics. However, there has been relatively little innovation in the delivery of these new therapeutics, most of which is still injected. There is also an emerging patent cliff which is creating a Biosimilars market place. Biosimilars are in effect genetic versions of biologics.

Patent covering biologics with over $50 billion in annual sales on expanding over the next 5 to 10 years. Our Tethadur system, which we believe can control the release of biologics over time, offers a potential to develop new formulations of existing biologics with better efficacy or greater patient compliance from the original drugs. Our Tethadur technology might also be used either to develop life cycle management products top order by similar competition or by similar manufacturers to develop buyback.

Now turning to our results, we ended the year with $10.3 million in cash with no debt and after the close of the year we raised an additional 10.8 million in gross proceeds from a public offering in common stock.

I’ll turn the call over to Len to take you through the financials. Len?

Len Ross

Thank you, Paul and good afternoon everyone. I will briefly review our fourth quarter and fiscal year 2013 results, reported earlier today starting with our financial position. As Paul mentioned in June 30, 2013 we had cash, cash equivalents in marketable securities of 10.3 million, and net decrease of 4.3 million compared to 14.6 million at June 30, 2012.

In July 2013, we added to those capital resources with a $10.8 million public offering of our common stock. We anticipate that the combination of these capital resources, expected Royalty income from Retisert, and other expected cash inflows under existing collaboration and valuation agreements will enable us to fund our current and planned operations through calendar year 2014.

This includes expected cost through that year of Phase III clinical trials of the Medidur for posterior uveitis product. The first of which commenced in 2013 that excludes any potential milestone or net profit recites under the Alimera collaboration agreement.

Funding of our operations beyond calendar 2014 will depend on the amount and timing of payments we may receive under our collaboration agreement with Alimera as well as other existing and any future collaboration or valuation or other agreements and or any financing transactions in which we may engage.

Although Alimera has commenced sales of ILUVIEN for DME in Germany and the UK and announced its plan launch timing for France, we don’t know if or when Alimera will achieve net profits in any of these countries or the resulting amounts we might receive.

Turning out to our full year fiscal 2013 results; revenues decreased by 1.4 million to approximately 2.1 million for the year ended June 2013 compared to 3.5 million for the same period last year. Collaborative research and development revenue accounted for all the decrease which consisted primarily of 1.1 million recognized in the prior year period from the termination of a license for nutraceutical and food science applications of BioSilicon.

Royalty income from Bausch & Lomb was approximately 1.4 million for each of the years ended June 2013 and 2012. Increased Retisert royalty income in fiscal 2013 was offset by the discontinuation of royalty income following pattern exploration.

Research and development was 7 million for each of the years ended June 2013 and 2012. $1.3 million decrease in the amortization of intangibles resulting from last year’s intangible asset right down was substantially offset by initial costs in fiscal 2013 related to the commencement of the Medidur clinical trial and increased incentive compensation across.

General and administrative expense increased by 301,000 to 7.2 million for the year ended June 2013 from 6.9 million in the prior year period. This increase was primarily attributable to cash incentive compensation approvals actually offset by lower professional fees.

Operating expenses for the year ended June 2012 also included the 14.8 million impairment right down of our finite-lived intangible assets. Net loss for fiscal 2013 was 11.9 million or $0.52 per share compared to net loss of 24.8 million or $1.19 per share for fiscal 2012.

Turning to our results for the fourth quarter ended June 30, 2013. We reported revenues of 492,000 compared to 699,000 for the same period last year. Collaborative research and development decreased by 80,000 primarily as a result of lower amortization of differed revenue related to our Pfizer collaboration actually offset by increased revenues from technology evaluation agreements and the upfront license fee from Enigma Therapeutics.

Royalty income from Bausch & Lomb decreased by 126,000 as a result of lower Retisert sales and the discontinuation and the discontinuation Vitrasert sales.

Research and development expense totaled 2.3 million for the quarter ended June 2013 compared to 1.4 million in the prior year period with the increase primarily attributable to clinical development costs for the commencement of the first Medidur Phase III trial.

General and administrative expense totaled 2.2 million for the quarter ended June 2013 compared to 1.6 million last year, primarily attributable to increased incentive compensation accruals. Net loss for the three months ended June 2013 was 2.9 million or $0.17 per share compared to a net loss of 2.3 million or $0.11 per share for the prior year quarter.

I will now turn the call back over to Paul.

Paul Ashton

Thanks Len. So to sum up, it’s been an excellent year and quarter for us. Key points are: one, commencement of our Phase III program for Medidur for the treatments of posterior uveitis; two, we see a interim data from a Phase I/II investigator-sponsored study supportive of our hypothesis that Medidur will show similar efficacy to Retisert but with the improved side effect profile of ILUVIEN; three, the ILUVIEN product is now being marketed by Alimera in the EU. We look forward to the results of the FDA to view Alimera’s resubmission of the NDA due on October 17; and four, we continue to be pleased with our preclinical research on our Tethadur peptide protein delivery system and are working with a global biopharmaceutical company on ophthalmic applications of this platform technology.

At this point, we’d be happy to take your questions. Operator, would you please initiate the Q&A portion of the call?

Question-And-Answer Session

Operator

Certainly. [Operator Instructions] And we have a question from Greg [indiscernible]. Your line is open.

Unidentified Analyst

Good afternoon, everyone. Thanks for taking my question. Paul, congrats on a great quarter.

Paul Ashton

Thank you.

Unidentified Analyst

If you could remind me in terms of the profit share arrangement you have with Alimera and in terms of how we should model you’re being able to receive your share of the profits with regards to sales in Europe for 2014. Would you expect that at some point you might be able to receive a portion of the sales?

Paul Ashton

I would certainly hope so. With respect to how the precise details of how the profits works and we’ll do better than to answer your question I will pass you over to Lori Freedman who can provide furthermore granularity.

Lori Freedman

Hey Greg. So the way the profits work is obviously it’s a profit foot or net profits which is basically gross profits less sales and marketing. And it’s on a country by country basis. So the net profit our share’s net profit in Germany will not be offset by commercialization cost in any of the other countries. As to what those numbers are going to look like for 2014, we obviously don’t have that information yet in a way that we can pass along to other people. So Alimera keeps that nice and tight and we contractually are unable to give away any of that information.

Unidentified Analyst

Okay, great. Thank you very much. Maybe a follow up just on your uveitis program, congrats on getting that program started and the details on time lines when you do think it would be in terms of guiding when we might be able to see first data from that trial? Is there any quarter in 2014 or beyond that you think would be reasonable for us to expect to hear from pSivida?

Paul Ashton

We anticipate it will take one year to recruit, so that would be essentially a year from now to think will it finish recruiting. And then it’s a one year follow up before the primary end point. We are currently not planning to do an interim analysis although I guess we could certainly consider that. We don’t anticipate that we’re going to have too many problems with [p-values] so whenever you do an interim analysis it cost you something in terms of your statistical power in the study.

And as we believe that the study is already statically overpowered to show efficacy we probably have a bit of p-value as it were to spare. We are not currently anticipating that although we could certainly perform an interim analysis at some point should we deem it appropriate all the lines to do so.

Unidentified Analyst

Okay and maybe a follow up on that assuming you get an approval or Alimera gets an approval for ILUVIEN for diabetic macular edema does that change your thoughts around perhaps doing an interim analysis in Uveitis?

Paul Ashton

There is a few things that may affect our decision to do an interim analysis that is certainly one of them. There are some other factors I think you probably get a good view of likely data when the one year results that they investigate response and study announced and I would anticipate the results of that study will give into the (inaudible) meeting which is typically held in May 2014. Perhaps, likely to be the first data from 12-month follow-up of a certain number of patients.

(inaudible) was doing an interim analysis will be that you have a weighing follow-up time with your patients, so it can be a little difficult to interpret although having said that the [pSivida] sponsored data that we have just seen in terms of reduction in inflammation and improvement in innovation is, I was extremely pleased with that.

Unidentified Analyst

Maybe switching to financials; it will be my last question, is there any particular guidance around P&L items for 2014?

Paul Ashton

No we don’t typically give guidance. As you know -- at this, for companies of our type, there are events that can occur that can have a very significant impact. And if you do a licensing deal with someone then that can be a pretty damn big impact. But you never know that you have a deal until the wires clears in your account. So it’s very difficult to give guidance on those things they can evaporate just when you think you have a deal sometimes.

Unidentified Analyst

Maybe last question just on R&D spend you are seeing a pickup in R&D spend in the fourth quarter relative to your prior three quarters as you continue to conduct that first Phase III for a posterior uveitis directionally any comments around R&D spend as 2014 evolves?

Paul Ashton

Yes it’s going to o up; it’s not going to explode. The total cost of that trial and generally the total cost of these kinds of trials is about $100,000 per patient. And this is 120 patients, so that you can do the math yourself, it is about 12 million bucks plus or minus. And that cost is spread over the total duration of the trial including the follow-up periods although it is lumpy some quarters are obviously higher than others.

Now these trials although the primary endpoint is 12 months and we can submit for approval without 12 month primary endpoint data, the actually duration of the trial is 3 years. So that $12 million will be spread over a considerable period of time but not evenly. All of that is giving you information but perhaps not answering your question directly. So I apologize.

Operator

(Operator Instructions)

Lori Freedman

Okay well there being no more questions I would like to thank you all for joining us today. I look forward to speaking with you again next quarter. In the meantime, if you have any additional questions please feel free to contact us. And thank you.

Operator

Thank you for participation in today’s conference. This does conclude the program, and you may all disconnect at this time.

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Transition Therapeutics Management Discusses 2013 Results - Earnings Call Transcript

Executives

Tony F. Cruz - Chairman of the Board and Chief Executive Officer

Nicole Rusaw-George - Chief Financial Officer

Analysts

Dan Trang - Stonegate Securities Inc., Research Division

Philippa Flint - Bloom Burton & Co., Research Division

Transition Therapeutics (TTHI) 2013 Earnings Call September 11, 2013 4:30 PM ET

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Transition Therapeutics Full Year Fiscal 2013 Financial Results Conference Call.

I would like to begin by reviewing the Safe Harbor provisions. Certain statements made during this conference call about the company's future plans and intentions or other future events constitute forward-looking statements for purposes of Canadian securities legislation and the Safe Harbor provisions under the SEC's Private Securities Litigation Reform Act of 1995. These forward-looking statements are not based on historical facts but rather on management's current expectations regarding Transition's future growth, results of operations, performance, future capital and other expenditures, competitive advantages, business prospects and opportunities.

Forward-looking statements involve significant known and unknown risks, uncertainties and assumptions. These risks are described in the company's annual information form and the company's annual report on SEC Form 20-F for the fiscal year ended June 30, 2013, and other SEDAR/SEC filings. Forward-looking statements are made as of the date of this conference call, and Transition assumes no obligation to update or revise them to reflect new events or circumstances.

[Operator Instructions] As a reminder, this conference is being recorded today, Wednesday, September 11, 2013.

I would now like to turn conference call over to the host of today's call, Dr. Tony Cruz, Chairman and Chief Executive Officer of Transition. Please go ahead, sir.

Tony F. Cruz

Thank you. I am Tony Cruz, the Chairman and CEO of Transition. I'd like to welcome you to our conference call announcing Transition's fiscal 2013 year-end financial results. Nicole Rusaw, Transition's CFO, will begin by providing a summary of Transition's financial results for this past year. Then I'll provide a summary of our progress over the last year, particularly focusing on the last quarter. And finally, we will answer any questions that you may have. So I'll pass it over to Nicole now.

Nicole Rusaw-George

Thank you, Tony. I will start by providing an update on our cash position. At June 30, 2013, the company's cash, cash equivalents and short-term investments were $28.1 million compared to $19 million at June 30, 2012, resulting in an increase of $9.1 million. The company's working capital position increased $9.4 million from $16.1 million to $25.5 million at June 30, 2013. The increase in the company's cash, cash equivalents and short-term investments, as well as the increase in working capital, is primarily due to the $11 million milestone payment received from Elan upon commencement of the Bipolar Disorder trial in August 2012, as well as a $7 million milestone payment received in June from Lilly when Lilly exercised their option to assume all development and commercialization rights to type 2 diabetes drug candidate TT-401.

The increase in cash has been offset by the company's fiscal 2013 cash burn of approximately $9 million. Subsequent to year end, we announced the issuance of approximately 2.6 million units in a private placement, which resulted in gross proceeds of USD 11 million. In light of the private placement, the company currently has approximately $36 million in cash. Management projections indicate that the current cash resources should enable the company to execute its core business plan and meet its projected cash requirements well beyond the next 12 months.

I will now discuss significant variances in the results of operations from June 30, 2013, compared to June 30, 2012. During the year ended June 30, 2013, the company recorded net income of $23,000 or $0.00 income per common share compared to net loss of $12.3 million or $0.48 loss per common share for the year ended June 30, 2012. In fiscal 2013, the company recognized revenue of $17.9 million, which is comprised of the $11 million payment received from Elan and the $7 million payment received from Lilly. Revenue was 0 for the comparative period ended June 30, 2012.

R&D expenses increased $664,000 or 8% from $8.2 million for the fiscal year ended June 30, 2012, to $8.9 million for the fiscal year ended June 30, 2013. The increase in R&D expenses is primarily due to an increase in clinical development costs related to TT-401/402, which has been partially offset by a decrease in TT-301/302 clinical development costs.

G&A expenses decreased $849,000 or 19% from $4.4 million for the fiscal year ended June 30, 2012, to $3.6 million for the fiscal year ended June 30, 2013. The decrease in G&A during fiscal 2013 is due to decreases in legal consulting fees and business development expenses, as well as decreased salaries and related costs. The decrease has been partially offset by increased investor relation expenses.

During the fourth quarter of fiscal 2013, the company decided to no longer develop TT-301 and 302, the compound acquired from NeuroMedix. Accordingly, the company has recognized the impairment of intangible assets of $6.5 million for the year ended June 30, 2013. There was no impairment of intangible assets recognized during the comparative period.

That concludes the financial review for fiscal 2013. Tony?

Tony F. Cruz

Okay, thanks, Nicole. So I'll give a brief update. In the past quarter -- and I'll try to focus on the past quarter. This was highlighted by, again, the progress of development of our leading diabetes drug candidate, TT-401, that is now partnered with Eli Lilly and also the continuation in the advancement of our 2 -- our leading CNS drug, D5, which is currently in two 400-patient trials in Bipolar and also in agitation/aggression in moderate to severe Alzheimer's disease. And these studies are being performed by our licensing partner, Elan Pharmaceuticals.

I'd like to now first focus on our diabetes program, TT-401, which we have now licensed with a partnership with Eli Lilly. It's been an exciting and productive 6 months for this program and also for Transition. First, we completed our proof-of-concept trial with TT-401 in obese diabetics and obese patients and press released the top line data. TT-401, just to remind people, is a dual agonist with activity of the GLP-1 and the second target for the treatment of type 2 diabetes. This study enrolled 5 cohorts of obese diabetic subjects to evaluate 5 dosing levels. Each cohort received once weekly treatment with TT-401 or placebo for 5 weeks.

We were very pleased with the data and observed the following key findings that were important in Lilly's decision. One was that the 3 highest doses in all dose groups were considered tolerable and well tolerated. The 3 highest dose groups showed significant reduction in fasting blood glucose relative to placebo. And there was also significant body weight reduction from the baseline of the 3 highest dose groups. And a similar reduction in body weight was observed in non-diabetic obese subjects.

As I mentioned, it was -- had an acceptable safety and tolerability profile. The major common adverse event was a decrease in appetite. And so based on these findings that Lilly found to meet all their criteria for advancing the program to the next stage of development. We're part of the decision making for Lilly to take on the program back in-house.

In parallel, we also completed the Phase II enabling nonclinical studies, which also met all our expectations. And therefore, this also played a role in Lilly's decision. So taking everything combined, the proof-of-concept data and the supporting nonclinical data demonstrated that TT-401 could have broader therapeutic benefits for type 2 diabetes and provide a swift -- a pretty good path or a clear path to a larger Phase II efficacy study that will be performed by Lilly, where we will also be participating.

So Lilly reviewed the data, not only proof-of-concept data but the manufacturing and nonclinical data. And based on this review, Lilly made the decision to exercise the option to take the technology in-house and continue its development going forward. As per our agreement, Transition received a $7 million milestone. And based on our agreement going forward, Lilly will assume all costs and be responsible for future clinical development and commercialization. Transition will participate in the Phase II study by committing $14 million in funding during the 2014 calendar year. It's also based on patients being enrolled.

In return, Transition was able to increase its economics where now Transition will receive up to $240 million in milestone payments, double-digit royalties and potentially low single-digit royalties on future related molecules that may be developed by Lilly. Since this deal was finalized, Lilly has taken this technology in-house and began preparation for a Phase II study. We feel that TT-401 is a very exciting GLP-1 dual agonist with the potential to provide superior glucose control and weight loss for the treatment of type 2 diabetes.

Subsequent to the news that Lilly was exercising TT-401, Transition announced the exclusive licensing of world rights to a novel small molecule transcription regulator, TT-601, from Lilly for the treatment of osteoarthritic pain. This is a selective and potent inhibitor of a novel nuclear receptor target that modulates inflammatory pathways that may be involved in pain or that is thought to be involved in pain.

This molecule is targeted to treat patients who do not respond to NSAIDs or cannot take NSAIDs due to potential additional GI risks. We anticipate that TT-601 will enter Phase I studies in the first half of 2014. And similar to our previous deal with Lilly, following a proof-of-concept trial, Lilly will have the option to acquire the technology and continue its development. If this was to occur at that time, Transition will receive a $6 million milestone and up to $140 million in milestones and a high single-digit royalty. So obviously, as part of our strategic moving forward is to bring in those molecules, move them forward and continue to find either the partner that we -- where we got the molecule or someone else to continue with further development and pay for those costs going forward.

I would like to talk about advances in the development of the D5 program for the treatment of Alzheimer's disease and also its other applications in neuropsychiatric indications. Our partner, Elan, has, as I mentioned, two 400-patient studies ongoing with enrollment in North America and Europe. One is investigating the effects of D5 for the treatment of agitation/aggression in moderate to severe Alzheimer's patients, and the other is for the treatment of mood changes in Bipolar Disorder patients.

In addition, Elan just announced recently that it has initiated a small Phase IIa trial in Down Syndrome. This new development would suggest not only Elan's commitment to this technology but also its potential application across a number of different disease -- D5's application across a number of different disease indications.

Agitation and aggression in Alzheimer's patients is considered a major problem for caregivers and a very high cost to health care system. It is the major reason why AD patients are institutionalized. The 400-patient agitation/aggression trial is placebo-controlled safety and efficacy study with the primary endpoints being severity of aggression following a 12-week treatment with D5. Although we don't have specific dates from Elan, we do expect that this trial will be completed sometime during 2014.

Bipolar is also a significant mental illness and affects nearly 3.5 million people in the U.S. and Europe. The 400-patient trial is also a placebo-controlled efficacy trial involving treatment with D5 for up to 48 weeks or time to a first mood episode during that period of treatment. According to clinicaltrials.gov, we do expect that this trial will be completed around the end of 2014, but we do not have specific dates from Elan as well. These trials represent a major commitment by Elan, and if any of them were to be successful, which we hope they will, it would be a transforming milestone for Transition.

Finally, as you all may know, Elan will be acquired by Perrigo, or at least one expects to be -- that to occur over the next little while. From the comments by Perrigo's CEO, as well as the increasing ongoing activities on D5 by Elan, we believe that Perrigo is fully committed to continue the development of D5 that I described above.

So we have a lot of things going in the company, and we continue to build our pipeline, and we expect to actually build our pipeline further over the next 6 to 12 months. So in order to strengthen our cash position, Transition recently raised $11 million with the potential to bring that up to $21 million over the next 2 years. This financing was performed at a premium to market, and it was done mostly with our leading shareholders, Jack Schuler, Larry Feinberg and Oracle, as well as participation by some of our management and Board of Directors. As of today, Nicole indicated that there's $36 million in cash. Based on the company's projected burn rate of $8 million to $10 million per year, we are in a good cash position to fund the development of our existing programs and perhaps even bring in an additional program.

So we would like now to answer any of your questions that you may have, and thank you very much.

Question-and-Answer Session

Operator

[Operator Instructions] And Doctor, there are no questions in queue at present time. [Operator Instructions] And Doctor, there are no questions in queue at present time. I'll turn the conference back to yourself -- oh, one moment, please. I believe we are getting our first question queued up. It comes from the line of Dan Trang, Stonegate Securities.

Dan Trang - Stonegate Securities Inc., Research Division

Kind of wondering if you could provide some color in regards to any other indications you might be exploring for the -- with the partnership with Eli Lilly?

Tony F. Cruz

Is this related to TT-401 or TT-601?

Dan Trang - Stonegate Securities Inc., Research Division

Yes, TT-401.

Tony F. Cruz

TT-401, sorry?

Dan Trang - Stonegate Securities Inc., Research Division

Yes, TT-401.

Tony F. Cruz

Yes, TT-401. Well, Lilly just took the molecule in-house, and so the process has already occurred of transferring the technology over. Going forward, the next plan is to initiate or plan to initiate a Phase II trial. And Lilly is now taking over that process of organizing both manufacturing the product and initiation of the Phase II. We are going to be participating with them with our contribution of $14 million, and Lilly will be responsible for all additional costs and any additional activities apart from the Phase II that are ongoing during this time. The -- we expect at some point that Lilly will have some -- an idea of how this program is going to be moving, and we will be finding out more from Lilly as time goes on. But at this time, it's still a little bit too early to know exactly when they're going to initiate the study.

Dan Trang - Stonegate Securities Inc., Research Division

Okay. And a follow-up question regarding product pipeline. Can you provide any color in regards to anything you're working on currently, any other compounds or...

Tony F. Cruz

Well, we just brought in TT-601 from Lilly under a similar format or a similar platform where we would take this molecule from the lead molecule to proof of concept. That molecule is for osteoarthritic pain. We have the tox data that's ready, 1 month tox data that will allow us to do Phase I study. So we're basically manufacturing the compound, looking at stability formulation, and we expect to have an IND submitted sometime in February, March. And we expect that, that program could move into the clinic sometime around April, May at the latest, around that time. So our focus really is on that molecule, to take it forward as quickly as possible. As part of that development plan, we'd like to really investigate the molecule's therapeutic window, and so we are doing additional work on it's tox, longer-term tox, so that we can better understand the therapeutic window, and that's ongoing. So our focus is really in that molecule. In addition to that, the company does plan to increase its pipeline over the next 6 months and maybe 12 months. And so our -- a lot of our work right now is to look at potential leading molecules that we can get our hands on from Big Pharma to see if we can find ones that meet our criteria to move forward and then get into some sort of agreement and move those molecules forward. So that's our next goal.

Dan Trang - Stonegate Securities Inc., Research Division

Okay. And is there any type of ideal as far as mix of molecules, I mean, number-wise, I mean, that you can put out there or...

Tony F. Cruz

Well, there's certain criteria that we use. One is that it has to have the sound science. It has to have the therapeutic window. In other words, the tox profile has to look appropriate for the disease indication, at least that's available at the time of licensing it in. Thirdly, it also has to have an indication where you think that molecule has a position in the marketplace. Once you get proof-of-concept data, people would -- or whoever would partner that from us would believe that they could take it forward and be reimbursed at some point because there's a major medical need that isn't currently provided with the drug. And finally, it has to ensure that we can reach that proof-of-concept study perhaps in no more than, say, $6 million to $10 million. And so there are -- there is a series of criteria that we use to try and select these molecules because we still are under constriction in terms of how much we can spend on any of these molecules before it becomes unacceptable to us. So those are the main criteria that we use. But in terms of disease indication, it applies to a lot of disease indications. Perhaps the only one that we have not looked at when we go through these molecules that are provided to us by other companies is cancer just because there is a uniqueness there. But other than that, we pretty well look at most molecules and see if we can find a way to move them forward.

Operator

[Operator Instructions] Our next question comes from the line of Philippa Flint with Bloom Burton.

Philippa Flint - Bloom Burton & Co., Research Division

Just following up on your conversation with the previous caller. You talked about your plans for 601 and additional work you want to do to explore the therapeutic window. Are those -- is that working in partnership with Lilly? Do you have a team where you work on what's the best strategy to develop it or are you doing it by yourself?

Tony F. Cruz

Well, the work we have -- when we license these molecules, we have the final say in what we do. We can also add additional work that we want to do. In other words, we control development during the period that we have this molecule with -- but we do have to achieve what we've put down contractually at the end of the day so that Lilly can have that data to analyze at that time. But we tend to do more than is down contractually just because we feel that it's in both of our best interests to have more data to be able to derisk the molecule when you get to decision time at proof-of-concept data. So part of our derisking of this program is to really add additional data. And we think it's -- it allows 2 things. One is it allows us to feel more secure as we spend more money as we move this program forward and we get into preclinical -- into clinical studies, which are more expensive, particularly the proof-of-concept studies. So the more data we have, the more secure we feel that it's worthwhile moving into those studies. The second is when we do provide that data, if there's additional data available on tox, longer-term data, it also feels like our partner has a better decision-making ability at that time to decide what is the risk of the molecule. So it acts -- and finally, the final thing that it does is by doing these additional studies, which we do, it also allows us to very quickly move forward into Phase IIs or Phase IIbs once the proof of concept or Phase IIas are done, so there's no delay time. So it's to our advantage. It doesn't cost a lot, and so we try to add as much derisking to the program as possible as we go along, which I believe as to the process at the end to make those decisions that are necessary, either for us to spend money or for our partners to invest into this program and take it over.

Operator

And Doctor, there are no further questions at present time. I'll turn the call back to you. Please continue with your presentation or closing remarks.

Tony F. Cruz

Okay, well, thanks, everyone, for attending the conference call. And if you have any questions, please, you can contact either Nicole or myself, and we'll get back to you. Thanks very much, everyone.

Operator

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.

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THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

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