PHOENIX--Dec. 8, 2005--Zila, Inc. (Nasdaq:ZILA) announced results for its first
quarter of fiscal 2006 that ended October 31, 2005. Highlights of
those results, compared with the first quarter of fiscal 2005 ended
October 31, 2004, are as follows:
- Net revenues were $9.7 million, a decrease of 2%, compared to
net revenues of $9.9 million.
- Zila Pharmaceuticals revenues increased $1.1 million, or 96%.
All of Pharmaceuticals' products contributed to this increase,
with ViziLite® generating $0.6 million in revenues, a
five-fold increase over the sales generated in the first
quarter of the prior year. Peridex® sales increased 25% to
$1.1 million and sales at IST were $0.6 million, a 191%
increase over the prior year. Zila Nutraceuticals revenue
decreased $1.3 million, or 15% in what continues to be a soft
market for Vitamin E products and a challenging retail
environment for other single supplement vitamin forms.
- Gross margin decreased to 58% in the first quarter of fiscal
2006 from 65% in the prior year period, driven primarily by
discounts offered in an effort to stimulate Ester-C® sales.
Gross profit dollars decreased by $0.7 million, or 12%, to
$5.7 million from $6.4 million.
- Marketing and selling expense in the first quarter of fiscal
2006 increased by approximately 12%, to $4.8 million, from
$4.3 million, driven largely by Zila Pharmaceuticals'
marketing efforts and increased spending in support of
ViziLite.
- Research and development spending, primarily in connection
with Zila's OraTest® program, temporarily decreased by
nearly 6%, to $1.8 million from $1.9 million.
- General and administrative costs increased 24% to $3.4 million
from $2.7 million due to increased professional and consulting
fees, the addition of key personnel, growth in support
functions for ViziLite and approximately $81,000 of stock
compensation expense recognized as we implemented SFAS 123R
(expensing of stock options.)
- The net impact of the items discussed above resulted in a net
loss for the quarter of $5.0 million, or eleven cents per
share, compared to a loss of $2.7 million, or six cents per
share.
Zila's Chairman, President and CEO, Doug Burkett, Ph.D., said, "We
are greatly encouraged by the results that were produced by our
Pharmaceuticals Unit during this quarter. ViziLite sales continue
their impressive growth, with a 20% increase compared to the fourth
quarter of fiscal 2005. Our Nutraceuticals Unit, however, was faced
with challenges that it has not seen in several years. Two of our
largest nutraceuticals customers have recently reported financial
results that show flat to negative revenue comparisons. Their public
comments reflect a domestic retail sales environment that is still
pressured by negative sales trends for Vitamin E and may be further
influenced by high gasoline prices and a reallocation of shelf space
away from supplements by some participants in the food, drug and mass
merchandiser trade channels. The impact of these issues on domestic
Ester-C sales was significant in the first quarter. Despite these
domestic challenges, we are encouraged by several new growth
opportunities including the addition of a potentially large new
customer during the quarter. We are also excited by the recently
announced agreement that we've signed with Asahi Godo, our trading
partner for entry into the Japanese market, and we look forward to the
commencement of that arrangement. Our Ester-E product continues to
experience growth at retail and our first human study designed to
support its superiority to regular vitamin E is nearly complete. We
look forward to announcing the results from that study. Several other
promising initiatives are underway to quickly return our Ester brand
business back to its three year history of double digit growth."
Zila Nutraceuticals
Net revenues for Zila Nutraceuticals for the three months ended
October 31, 2005 decreased 15% to $7.4 million compared to $8.7
million for the three months ended October 31, 2004. The revenue
decline was driven largely by slower retail sales of Ester-C that
resulted in lower factory orders by our customers. We believe that the
slower retail sales may be the result of higher gasoline prices,
inventory reductions and shelf space reallocations in certain retail
trade channels.
Gross margins for Zila Nutraceuticals decreased to 62% for the
three months ended October 31, 2005 compared to 68% for the three
months ended October 31, 2004. The reduction in our gross profit
percentage resulted from increased sales discounts offered to our
customers and start-up production costs for a new Ester-C customer's
product.
Zila Pharmaceuticals
Net revenues for Zila Pharmaceuticals for the three months ended
October 31, 2005 increased 96%, to $2.3 million, compared to $1.2
million in the prior year period.
The increase in net revenues in the Pharmaceuticals Business Unit
was driven by increases in all product lines, led by a nearly
five-fold increase in ViziLite sales. Additionally, sales for the IST
subsidiary (net of intercompany sales) were $568,000 compared to
$195,000 last year and Peridex sales increased 25% to $1.1 million.
Gross margins for Zila Pharmaceuticals increased to 47% in the
first quarter of fiscal 2006 from 39% in the first quarter of fiscal
2005, due to improvements in gross margin across all product lines.
Gross margin for the core Pharmaceutical business, excluding IST, was
62%.
Zila Biotechnology
Total operating expenses for Zila Biotechnology were $2.2 million
for the three months ended October 31, 2005, a 7% decrease over the
$2.4 million for the three months ended October 31, 2004. Expenses
related to the OraTest® clinical program decreased 9%.
In a separate release, we also announced today that we have
received a Special Protocol Assessment (SPA) from the U.S. Food and
Drug Administration (FDA) for our Phase III clinical trial of OraTest,
our oral cancer detection drug. The SPA is a process that allows for
official FDA evaluation of a Phase III clinical trial and provides
trial sponsors with a binding written agreement that the design and
analysis of the study are adequate to support a license application
submission if the study is performed according to the SPA.
We intend to begin enrollment in the new Phase III trial during
our second quarter of fiscal 2006 and costs are expected to increase
throughout fiscal 2006 and early fiscal 2007. The cost of the new
trial is anticipated to be less than $10 million.
Conference Call
Zila, Inc. will host a conference call to discuss these results
today at 4:30 p.m. ET; 2:30 p.m. MT. This call is open to the public.
Domestic participants may dial 877-407-8031 up to ten minutes before
the scheduled start time and ask for the Zila conference call.
Participants calling from outside the United States should dial
201-689-8031. A tape replay of the call will be available beginning
two hours after the conclusion of the call through December 10, 2005,
by dialing 877-660-6853 and providing the pass code 286 and access
code ID#1181196. Participants calling from outside the United States
should dial 201-612-7415. In addition, the call will be broadcast over
the Internet and can be accessed at http://www.zila.com. Investors
should visit the website prior to the call to download any necessary
audio software.
About Zila
Zila, Inc., headquartered in Phoenix, is an innovator in
preventative healthcare technologies and products, focusing on
enhanced body defense and the detection of pre-disease states. Zila
has three business units:
- Zila Biotechnology, a research, development and licensing
business specializing in pre-cancer/cancer detection through
its patented Zila Tolonium Chloride and OraTest®
technologies.
- Zila Pharmaceuticals, a manufacturer and marketer of products
to promote oral health and prevent oral disease, including
ViziLite® Plus oral examination kits and Peridex®
prescription periodontal rinse.
- Zila Nutraceuticals, manufacturer and marketer of Ester-C®
and Ester-E®, branded, highly effective forms of vitamins C
and E for Whole Body Protection.
For more information about Zila, visit www.zila.com.
This press release contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. The words, "believe,"
"expect," "anticipate," "estimate," "will" and other similar
statements of expectation identify forward-looking statements. Forward
looking statements contained herein include, but are not limited to,
statements regarding the OraTest® regulatory effort. These
forward-looking statements speak only as of the date the statements
were made and are based upon management's current expectations and
beliefs and are subject to a number of risks and uncertainties, some
of which cannot be predicted or quantified. Furthermore, these
forward-looking statements are based largely on Zila's expectations or
forecasts of future events, can be affected by inaccurate assumptions
and are subject to various business risks and known and unknown
uncertainties, a number of which are beyond the Company's control.
Therefore, actual results could differ materially from the
forward-looking statements contained herein. A wide variety of factors
could cause or contribute to such differences and could adversely
impact revenues, margins, profitability, cash flows and capital needs,
the ability of the Company to maintain required cash flows and cash
availability to implement its business plan and appreciation in the
market value of Zila's common stock. Such factors include, but are not
limited to: increased competition from current competitors and new
market entrants; the Company's ability to maintain, expand, or in
certain cases, regain distribution within new or existing channels of
trade for its products; and the market acceptance of the ViziLite®
and Ester-E® products and the future gross margins for such
products. A wide variety of factors will impact the length, size and
expense of the OraTest® clinical program; the FDA's ultimate
decision regarding the OraTest® clinical program and product; the
limitations on the indicated uses for the OraTest® product; and the
ultimate market reception of the OraTest® product. There can be no
assurance that the forward-looking statements contained in this press
release will, in fact, transpire or prove to be accurate. For a more
detailed description of these and other cautionary factors that may
affect Zila's future results, please refer to Zila's Report on Form
10-K for its fiscal year ended July 31, 2005, filed with the
Securities and Exchange Commission. In light of those risks and
uncertainties you are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date stated, or
if no date is stated, as of the date of this release. We are under no
obligation, nor do we intend, to update the forward-looking statements
contained herein to reflect circumstances existing after the date of
this release.
Zila, Inc.
Income Statement (Unaudited)
(in thousands - except per share data)
Three months ended
October 31,
---------------------
2005 2004
---------- ----------
Net revenues $ 9,681 $ 9,876
Cost of products sold 4,024 3,470
---------- ----------
Gross profit 5,657 6,406
Operating Costs and Expenses:
Marketing & selling 4,781 4,279
General & administrative 3,363 2,718
Research & development 1,817 1,930
Depreciation & amortization 709 658
---------- ----------
10,670 9,585
---------- ----------
Loss from operations (5,013) (3,179)
Other income (expense), net 18 (22)
---------- ----------
Loss before income taxes (4,995) (3,201)
Income tax expense (4) (2)
---------- ----------
Loss from continuing operations (4,999) (3,203)
Income (loss) from operations of discontinued
Zilactin product line (3) 491
---------- ----------
Net loss (5,002) (2,712)
Preferred stock dividends (10) (10)
---------- ----------
Net loss attributable to common shareholders $ (5,012) $ (2,722)
========== ==========
Basic and diluted net loss per common share:
Loss from continuing operations $ (0.11) $ (0.07)
Income from discontinued operations - 0.01
---------- ----------
Net Loss $ (0.11) $ (0.06)
========== ==========
Weighted average shares outstanding - basic and
diluted 45,660 45,501
EBITDA (a) $ (4,321) $ (2,038)
(a) EBITDA is defined as earnings (loss) before net interest, taxes
(income), depreciation and amortization.
EBITDA Reconciliation
(in thousands)
Three months ended
October 31,
---------------------
2005 2004
---------- ----------
EBITDA $ (4,321) $ (2,038)
Interest income 84 52
Interest expense (52) (48)
Income tax expense (4) (2)
Depreciation and amortization (709) (676)
---------- ----------
Net loss $ (5,002) $ (2,712)
========== ==========
We consider EBITDA to be a meaningful measure of our ongoing
operations that assists us in assessing our ability to fund our
regulatory program and debt service and to finance the growth of our
core businesses.
Although we use EBITDA as a financial measure to assess the
performance of our business, we do not use EBITDA alone because it
does not consider certain material costs, expenses and other items
necessary to operate our business. These items include debt service
costs and non-cash depreciation and amortization expense associated
with long-lived assets. Because EBITDA does not consider these items,
a user of our financial information should also consider net income as
an important measure of our financial performance in that it provides
a more complete measure of our performance.
Net Revenues by Business Unit
(in thousands)
Three months ended
October 31,
---------------------------------
2005 2004 % Change
---------- ---------- ---------
Nutraceuticals $ 7,414 $ 8,721 (15) %
Pharmaceuticals* 2,267 1,155 96 %
---------- ----------
Total company $ 9,681 $ 9,876 (2) %
========== ==========
* Includes nominal revenues generated by the Biotechnology Business
Unit in the three month period ended October 31, 2005.
Pharmaceuticals Unit Gross Profit
(in thousands)
Three months ended
October 31,
---------------------
Net Revenues: 2005 2004
---------- ----------
Pharmaceuticals $ 2,267 $ 1,155
IST 568 195
---------- ----------
Pharmaceuticals, excluding IST $ 1,699 960
========== ==========
Gross Profit:
Pharmaceuticals 1,060 455
IST 12 (97)
Pharmaceuticals, excluding IST 1,048 552
========== ==========
Gross margin, excluding IST 62% 58%
========== ==========
Management believes that it is helpful to investors to understand the
impact that IST's low margins have on the gross profit generated by
the Pharmaceutical Unit as a whole.
Balance Sheet (Unaudited)
(in thousands)
October 31, July 31,
2005 2005
-------------- --------------
Current assets $ 29,380 $ 32,639
Property - net 9,970 9,692
Intangibles - net 22,394 22,614
Other 460 473
-------------- --------------
Total assets $ 62,204 $ 65,418
============== ==============
Current liabilities $ 11,595 $ 9,815
Long-term debt 3,254 3,328
Other 499 553
Equity 46,856 51,722
-------------- --------------
Total liabilities and equity $ 62,204 $ 65,418
============== ==============
