BioForm Medical, Inc. (BFRM)

F4Q08 Earnings Call

September 4, 2008 5:00 pm ET

Executives

Steven L. Basta - Chief Executive Officer

Derek A. Bertocci - Chief Financial Officer

Analysts

Tom Gunderson - Piper Jaffray

Angela Woodall - Oppenheimer & Co.

[Josh Haines] - Jefferies & Co.

San Shaban - Maxim Group

Presentation

Operator

Welcome to the BioForm Medical Fourth Quarter and Fiscal Year 2008 Financial Results Conference Call hosted by Steve Basta, the CEO of BioForm Medical and Derek Bertocci, CFO of BioForm. [Operator Instructions]. This conference is being recorded today, Thursday, September 4^th, and now I would like to turn the conference over to Mr. Steve Basta.

Steven L. Basta

Good afternoon and thank you for joining us for our fourth quarter and year end earnings call. Before I begin my prepared remarks, I’d like to remind those attending that during this call we will make projections and may make other statements about the company’s business that are forward looking and are subject to many risks and uncertainties that could cause actual results to differ materially from expectations. A detailed discussion of the risks and uncertainties that affect our business is contained in the company’s periodic SEC filings, particularly under the heading Risk Factors. Copies of these filings are available online in the SEC or on the BioForm website.

The company’s projections and forward-looking statements are based on factors that are subject to change, and therefore, these statements speak only as of the date they are given. The company does not undertake to update any projections or forward-looking statements.

By now everyone should have access to the fourth quarter and fiscal year end financial results, which was distributed this afternoon after the market closed. Also released today are the excellent results from our pivotal clinical study or rather that of our partner, Kreussler, regarding Polidocanol our future sclerotherapy product. That release is also available on the investor relations section of the BioForm website, both releases are, and the financial release is available in the form of a 10-K filed with the SEC today. If you don’t have online access and you need to get either or both of these releases, you can do so by contacting 650-286-4025 and we will fax one to you.

Moving into the formal introductory portion of the call, let me describe for you in summary the business aspect of the fourth quarter and little bit of a recap on fiscal

’08. Derek will then take you through the financial results, and we’ll open up this call to questions thereafter.

Looking back on fiscal 2008 as a whole, this was a very significant year for BioForm. We grew RADIESSE market share over the past year to approximately 14%, we estimate, in the US market, and built a dedicated user base among some of the leading aesthetics providers in the country. We’ve expanded our worldwide commercial organization with direct sales organizations in the US and a direct sales organization in Europe. We’ve created an industry leading clinical education team that is starting to have real impacts on offices educating physicians, both current users and new users. We’ve really established ourselves as an emerging leader in minimally invasive aesthetics both through the success we’ve had with RADIESSE and through the acquisition and development of several novel portfolio products that have the potential to lead new categories or to grow existing categories of minimally invasive aesthetics.

We also completed our initial public offering, and overall, our success over the past year is obviously made possible by the support of many of our investors. We thank you. We understand it’s been a difficult year for investors in the aesthetics marketplace. It’s also really made possible by the dedication of so many of our employees that put in extra efforts and have made extraordinary contributions over the course of the past year, and I’m grateful to each of you for your contributions.

The backdrop of the environment in which we operate as many analysts and industry observers have noted is that the aesthetics dermal filler market has been weak in recent quarters due to the broader macroeconomic cycle. We’ve seen that impact our sales in the past few quarters. We started communicating this in our January call, but in mid January, we started hearing from physicians that their offices were slowing somewhat. In our May 1 call, we took down guidance. I’m certainly pleased when we talk about revenue that we have come in within the guidance range and actually put in the top end of the guidance range that was adjusted in the May 1 call, but we do recognize that the marketplace has been weak and the environment in which we’re operating was one in which the dermal filler market has been hit for a couple of quarters.

As we go into fiscal ’09, we’re cautious about the outlook for the coming year, but our instinct is based upon discussions with physicians, the sense of our sales representatives in the field, and other anecdotal signs that we’re seeing is that there is some strength emerging in this market and I’m optimistic about the future. We are projecting, and I’ll describe for you a little bit the basis of our guidance, we are projecting that the next couple of quarters will still be weak in this market and then we’re only going to see a modest uptick in terms of the restart of growth in the market and it won’t be at the robust levels that it has been historically until we see a more broad macroeconomic recovery, but we’re certainly encouraged by some of the more optimistic signs we’re seeing.

Longer-term, the dermal filler market as representative of the minimally invasive aesthetic market broadly, but even more specifically the dermal filler market, has enormous long-term strength, for several reasons. The long-term demographics are excellent and favor minimally-invasive aesthetics. More and more people want to do these procedures as baby boomers are aging. The social trends favor acceptance of minimally-invasive aesthetic procedures and dermal fillers provide extraordinary results. They address fundamental issues that arise as a patient ages and completely take years off someone’s face without surgery. That core premise we believe has long-term significant upside that far outweighs the short-term phenomenon, and that partly frames how we’re operating our business in the current environment.

The revenue update for the last quarter, and Derek will take you through this in more detail, was $16.7 million in line with our guidance, $67.5 million for full year fiscal year ’08 results. Our guidance range which was adjusted on May 1^st was $66 to $68 million; we’re certainly pleased that we’re near the top end of that range with a year-over-year increase from Q4 of ’07 to Q4 of ’08.

Guidance for the coming year of $74 to $78 million reflects assumptions about the economy remaining weak for at least a couple more quarters. We don’t see that it has turned yet; we’re not hearing from physicians that there is a flood of new patients coming in, but we’re certainly not seeing that it’s getting worse. We may in fact be starting to level off, and moving forward, we think that there may be a turnaround coming in the second half of the year where we may start to see a modest uptick in consumer sentiment post-election and a modest uptick of the dermal filler market. Obviously, if we get a robust recovery, that would provide significant upside in future years, but that’s not built into our projection of the $74 to $78 million.

Our loss for this year of $20 to $23 million that we’re guiding towards balances the need for vigilance and prudence in our expenses this year with the core investments that we’re making in new accounts conversions and training accounts to achieve excellent results with RADIESSE and preparation for the launch of multiple products. We’re trying to do all of that this year while remaining vigilant on expenses and that balancing process leads to our $20 to $23 million guidance for loss for fiscal ’09.

What we’re doing over the coming year and how we are, in principle, managing the business is based upon several key underlying beliefs. One is that the dermal filler market has excellent long-term potential. Winning physician confidence and converting new accounts is critical for us to become a major player in this market over the coming years. So, we’ve invested over the past months in growing our team of clinical specialists, we are finding that they are paying dividends in each office that they enter. We are delivering excellent training for our customers, both existing customers and our new customers.

We are also making investments in developing a pipeline of products that take us far beyond being a one-product company. We intend to have category leading products in our Polidocanol sclerotherapy product as well as in future products including RELAXED EXPRESSIONS which we acquired through the acquisition of the assets of ACI, that is our RF nerve inhibition product and other pipeline products that are outlined in our press release today.

We are being prudent with our spending but continuing to invest in driving account growth and driving account conversions as well as driving our pipeline forward.

Long-term what we believe wins is high physician satisfaction, high patient satisfaction. Ultimately, the reason that we have had success at winning share over the past year, the reason that we are able to compete with much larger companies in the dermal filler space is because RADIESSE is the best product in the category for much of what people do with dermal fillers. It delivers the best aesthetic outcomes. In the long run, great aesthetic outcomes win and showing physicians and showing patients the opportunity to achieve those is paying dividends and that is something we’re continuing to invest in.

There have been no issues or concerns regarding RADIESSE raised as the revenue decline over the last couple of quarters; the weakness broadly in the dermal filler market is what accounts for the weakness that we see in the adjustment and guidance down. The data regarding RADIESSE just gets better and better. If you’ve had an opportunity to look at the Journal of Dermatologic Surgery publication recently, one of the noteworthy articles in there from Tom Tzikas reflects a 1000 patients’ experience over 4 years with excellent long-term patient satisfaction and excellent long-term safety.

From a product pipeline perspective, we’re building a portfolio of aesthetics products that allows us to have category leaders in several key markets in minimally invasive aesthetics. Most noteworthy today, I’m just delighted with the results from the phase III clinical study with Polidocanol. The study met its primary endpoint demonstrating the effectiveness of Polidocanol as a treatment for sclerotherapy; also delivered an excellent safety profile where the study clearly demonstrated the safety and efficacy of the product; 95% success rate is a terrific result with patients clearly being improved after this treatment.

The very high satisfaction rate on the order of 88% of patients were satisfied with their Polidocanol treatment to begin we believe is going to be the basis for significant growth in the sclerotherapy market upon FDA approval of that product, and we were quite encouraged to see that what’s been described by physicians over many years which is that they prefer to use Polidocanol versus competing agents such as sodium tetradecyl sulfate because it has a lower AE profile that is better tolerated by patients and is easier for physicians to use was in fact borne out in the clinical study, and at the lower AE profile than on the leading competing product, and we believe that that’s going to be the benchmark for growth in this market and for success with this product when we launch it. This has got a very high success rate and very low AE profile, and the data from the clinical study reflects the reality that has been experienced by European physicians and international physicians around the world and reported on in numerous clinical publications over the last several decades.

The clinical report for Polidocanol is done and is submitted to the FDA. There is an active open NDA submission process ongoing with the completion of the NDA submission expected later this year when our partner Kreussler submits the final documentation on a newly expanded manufacturing facility. When we complete that we will have completed the NDA submission on schedule as we had indicated to people we would be filing in calendar 2008, and we are looking forward to our calendar 2009 approval obviously subject to the timeline of FDA review.

We also acquired in April the assets of ACI with a product that had been previously known as GFX. We have renamed that product RELAXED EXPRESSIONS, and that product is making significant progress through the regulatory process, we’ve submitted in IDE to initiate a glabellar fold clinical study. Currently, the product is commercialized with a broad RF nerve inhibition labeling. We want to get a specific label for glabellar furrows that allow us to market much more directly to patients, and to describe much more accurately the aesthetic outcomes that one can get with the product. It is available only on a limited basis today, but we think that that generates significant meaningful revenue impact as we get our glabellar folds clearance.

Both the Polidocanol product and the RELAXED EXPRESSIONS product we think are on track to making meaningful revenue contributions for us in fiscal 2010. So, the revenue from those products is not significant on the fiscal 2009 numbers, but much more meaningful in the 2010 number and provides two of the potential avenues for significant revenue growth for which we’re investing this year.

We’ve also for the first time in our press release today talked about some of our RADIESSE enhancements. As we’ve mentioned in the past, we certainly have an interest in advancing the RADIESSE technology. We are on an ongoing basis looking at second generation and third generation RADIESSE materials. We’re also looking at new uses of RADIESSE and how to broaden those uses. The excellent safety profile of RADIESSE in our long-term studies just continues to reinforce the performance of this product and we think we’re going to be able to take the next advance on that with RADIESSE with lidocaine product that has been in development for some time as we’re moving this product in the clinical trials. We believe we will have the product on the market in calendar 2009 again contributing to fiscal 2010 numbers, not built into our revenue projections for this year, but one of the investments we’re making driving towards what we think is going to be a very exciting revenue growth in our fiscal 2010 period.

RADIESSE is as we described earlier the best performing product in the category. Simply, it delivers the best nasolabial fold corrections, the best corrections in terms of patient satisfaction through multiple clinical studies. Our RADIESSE with lidocaine product is not just a competitive response to other fillers that are being introduced with lidocaine, but rather raising the bar and really advancing the gain to a new level with the best product now having a better patient experience, and we think that that’s going to be a meaningful step forward in this marketplace.

We also have made significant progress with our BioGlue program as the fourth element of our product, I find, BioGlue is probably a year or two further out calendar 2010 or 2011, likely approval timeline as we’ve discussed in the past. We’ve completed the feasibility study on 30 patients which showed 89% of the patients showing brow elevation at 6 months following fixation using BioGlue. The product works and the feasibility study works very nicely. We are working on how exactly do we define the primary endpoint of working through the design of the pivotal clinical study to be able to move that product forward. This was a program that is actively ongoing and in discussion with our clinical advisers to determine the best path of the pivotal trial with an excellent outcome in the feasibility study.

With that breadth of product pipeline, we are building reputation in this industry as one of the innovators in minimally invasive aesthetics and we believe that we will have a very strong position of minimally invasive aesthetic industry led by our work with RADIESSE with success in growth in the RADIESSE markets, but also with pipeline of products to be launched in the next couple of years that will significantly differentiate each of our sales call activities and significantly differentiate us at each office and we’re quite optimistic about where our business is headed.

I’d let Derek take a moment and take you through the financial results and some of the details therein and then with a couple of closing comments after Derek’s statements, we’ll open it up for questions.

Derek A. Bertocci

Worldwide revenue increased 8% in the fourth quarter of fiscal 2008 from the comparable quarter in the prior year. In the United States, sales of RADIESSE increased 9% in the fourth quarter from the prior year. Total growth in US revenue was only 4% because the fourth quarter of the prior year included revenue from a payment on a license for non-core technology.

We continue to experience good growth in the number of doctors using RADIESSE in the quarter plus the average number of units purchased per account was up over the prior year and the prior quarter. Our average selling price declined slightly due principally to customers increasing their average purchase volumes and qualifying for volume based price incentives.

We continue to win business with more doctors and patients who appreciate the performance benefits of RADIESSE. The decline in consumer confidence has significantly impacted the dermal filler market in the US, and we believe we’ll continue to do so for the next two quarters. Thereafter, we anticipate that the US dermal filler market will slowly begin to grow again, and in the long-term return to its historically strong rate of growth.

In the international markets, revenue increased 34% in the fourth fiscal quarter of fiscal 2008 from the prior year. Virtually all of the growth came from our direct sales force in Western Europe which generated a 59% increase in revenue. Sales through our international distributors increased only very modestly.

We anticipate that we will generate revenues in the range of $74 to $78 million in fiscal 2009 which represents an increase of approximately 10% to 15% from the $67.5 million of revenue generated in fiscal 2008. Historically, we have experienced seasonal variations in our revenue within each year with revenue generally up nicely in our second and fourth fiscal quarters and down slightly in the first and third fiscal quarters of our year. We anticipate this general seasonal pattern to continue in fiscal 2009.

Our gross profit margin was 86.3% in the fourth quarter fiscal 2008, up from 81.1% in the same period of the prior year. The increase was due primarily to favorable overhead expense absorption as a result of higher production volumes plus lower royalty license expense. We anticipate that our gross margin will be in the range of 81% to 83% for fiscal 2009 though it may vary somewhat by quarter.

The most notable driver of our operating expenses is sales and marketing expenditures which were 50% higher in the fourth quarter of fiscal 2008 as compared to the same period in the prior year. In the first quarter of fiscal 2008, we increased our US direct sales personnel by 45%, growing from 56 to 80 territories. We also expanded our US clinical training team to approximately 30 clinical trainers currently. In Europe, we increased direct sales to our territories from 15 to approximately 25 over the first half of fiscal 2008.

We have built our direct sales and clinical training teams and marketing capabilities in the United States and Europe to compete effectively with leading companies in our industry. We believe that with these teams we have the resources we need to maximize the sales potential of RADIESSE as well as the products in our R&D pipeline.

The key to our transition to profitability in the future is that we expect to be able to grow revenue on existing products and launch new products while not adding significantly to our selling and marketing cost structure.

We recorded an $11.2 million charge for in-process research and development arising from our acquisition of substantially all the assets of ACI. It is our goal to bring to market the RELAXED EXPRESSIONS product for use in the treatment of frown lines.

Ongoing research and development expenses in the fourth quarter fiscal 2008 were down from the prior year due to the fact that we incurred $1.7 million expense in Q4 fiscal 2007 from milestone payments related to our Polidocanol sclerotherapy product. Excluding this item, R&D expenses were up reflecting additional product development in clinical trials activity.

General and administrative expenses increased due to overall growth in additional costs related to being a publicly owned company. We anticipate that overall operating expenses will be in the range of $84 to $86 million for fiscal 2009, which reflects maintaining costs below the level of ongoing operating expenses incurred in the fourth quarter of fiscal 2008. We have already taken measures toward that belt tightening in fiscal 2009.

Our operating loss in the fourth quarter fiscal 2008 was $20.3 million which included $11.2 million of charges for in-process research and development, income tax expense related to our European subsidiaries, and in the United States we had significant net operating loss carry forwards. We do not anticipate exhausting those for some time. Loss per share was $0.43 based on 46.3 million weighted average common shares outstanding for the quarter. I would like to remind you that as a result of our IPO on November 6, 2007, we sold 11.5 million new common shares and converted all outstanding preferred shares into common shares. This resulted in 46.2 million common shares and options to purchase 5.5 million shares outstanding immediately after the IPO. Accordingly, the weighted average number of shares used to calculate EPS after the IPO was significantly higher than the average before the IPO.

Now I’d like to turn the call back to Steve.

Steven L. Basta

So, looking forward to the coming years, we do understand and we share the overall concern about the economy that many of the investors and industry observers express. It is hard to predict the exact timing of return of consumer confidence, but we plan internally for multiple scenarios. Certainly in the downturn scenario that some people have talked about where there might be a 2 to 3-year downturn, due to the product strength of RADIESSE we believe we can be gaining share, gaining new accounts, continuing that business and we leverage our business through the introduction of new products; in the upside scenario of significant economic recovery, we think that there is an almost pent-up demand from consumers who have been putting off procedures, and we’re optimistic that when that returns, the filler market will do quite well.

We do consciously in our planning process consider balancing the multiple scenarios that we need to work through and we’re committed to growing share, converting new accounts, and growing usage among our existing accounts even through this weak economic cycle so that we are prepared for and participate in an even greater fashion in the recovery. We also see that we are going to be benefiting in the next couple of years from the leverage afforded by putting multiple products through our current existing full commercial infrastructure and that each of those products will benefit the others. As we launch our leading sclerotherapy product, which we believe Polidocanol will be, certainly reinforced by the data from the clinical trial, that will get us into offices we haven’t been able to get into with RADIESSE and will create the opportunity for us to grow RADIESSE business even further in addition to growing the Polidocanol business, and similarly our presence in offices with RADIESSE will accelerate the launch of that new sclerotherapy product.

Overall, we understand that the economic cycle has caused people to be cautious about aesthetics companies currently. We do recognize the weakness in the filler markets existed but that this will be transient, but the RADIESSE clinical benefits or performance are durable and physicians and patients see the difference with this product, and we believe they will see the difference with our future product as well, bringing forth innovative and significantly improved minimally-invasive aesthetic treatments over the coming years.

With that, we will open for questions.

Operator

[Operator Instructions]. We’ll go first to Tom Gunderson with Piper Jaffray.

Tom Gunderson - Piper Jaffray

Derek, maybe just a quick numbers question; you talked about better gross margin and higher sales and marketing expenses year-over-year, but they were also quite different that what we expected, COGs being significantly less sequentially and S&M being up. It’s not unusual to see sales and marketing up in a fourth quarter, so I’ll assume unless you tell me differently that that was sales compensation end-of-year type of things, but the cost of goods sold down on relatively similar revenue base, was there any switch in accounting, were discounts put into cost of goods instead of sales and marketing, anything like that going on?

Derek A. Bertocci

No, the issue is the fairly straight-forward kind of accounting issue, but bear with me while I give you the explanation as simply as I can without trying to get into too much detail. The inventory that we follow is one of the first-in-first-out inventory method. Production of inventory in the January to March period in preparation for our spring was unusually high production. At the same time, our manufacturing departments were particularly vigilant and good at controlling their costs, so they actually spent quite a bit less than we had anticipated that they would be spending in overhead. So, when you combine the two factors, increased production in terms of unit production combined with significantly lower than planned overhead spending, what we ended up with was a significantly lower overhead per unit produced. Now, the reason that that happened in the third quarter and affected the fourth quarter is because we have a first-in-first-out inventory method, the units that were sold in the third quarter were actually those that were produced in prior periods; the ones that we produced in the third quarter were largely the ones that we ended up from a cost accounting standpoint showing as sold in the fourth quarter, and that’s the biggest impact. We also do have the effect of the royalty license buy-out which also contributed to the improvement in the gross margin.

Tom Gunderson - Piper Jaffray

But that wasn’t sequential?

Derek A. Bertocci

That was not sequential, that would be year-over-year.

Tom Gunderson - Piper Jaffray

So, is that better utilization production sustainable or is it going to be lumpy as you have big production and then…

Derek A. Bertocci

Yeah, I think you ought to assume that it will not be something that we get again next quarter. We do believe that in the long run we’ll be back to our kind of more normal 81% to 83% range, and if you look back over time, there’ve been times when we’ve been a little bit above that range and times where we’ve been a little bit below it, but generally in that range, and that’s what we expect.

Tom Gunderson - Piper Jaffray

And then Steve, there’s been a lot of competitive activity since you last reported. I wondered if you could give us your views and some color on that, not only from the existing guys, and are you seeing anything new out in the field from a marketing standpoint, not a product standpoint, but a marketing standpoint from Allergan or Medisys, but also is the field sales force giving you any input even up through the beginning of September on new products out there, either from Mentor, or I don’t think Evolence is out yet, but Elevess, any of those?

Steven L. Basta

So, in terms of the pattern of activity from Allergan and Medisys, we’ve not seen a fundamental shift, I mean, they are still operating in the same phenomenon, Allergan has the same points program that they’ve had for a year or so now related to the multiple aesthetics product; Medisys is pursuing market share in the same fashion that they have been; we’ve not seen a fundamental change in the behavior of either of those competitors through the course of the recent period. It gets more aggressive for a month and less aggressive for a month, but it’s overall the same general pattern. The existing new players we’re just not seeing impact as RADIESSE does, and I don’t expect them to. What we have heard and learned about each of the competing products which are primarily Evolence coming from J&J, Elevess recently launched, and the Prevelle product that Mentor launched, those are more meaningful substitutes for Restylane and Juvederm than they would ever be substitutes for RADIESSE where there is a collagen product or a hyaluronic acid product, the durability of those best comparable to the Juvederm and the Restylane durability certainly doesn’t match the durability of RADIESSE, the kind of lift that you get, the kind of correction per unit volume is at best comparable to Juvederm and Restylane and in some cases not believed to be and certainly doesn’t match RADIESSE in any fashion. So, if there is going to be competitive pressure than any of those put on, I think it would be for substitution away from the hyaluronic acid players. I have just not heard anything, other than questions from my reps of what are these things because every once in a while people ask about them, we’ve not heard any physician switching the use of RADIESSE to any one of the new products.

Tom Gunderson - Piper Jaffray

You mentioned it is a tough market out there, we all recognize that you, put some good guidance out there and persevering through that; how is it impacting your sales force, has there been any unusual turnover or is it nose to the grindstone, get the job done?

Steven L. Basta

No, we’ve actually had very low turnover and remarkably positive morale. I just sat two days at a meeting of three of our sales regions, I had an opportunity to have dinner with some of our regional managers and dinner with many of the reps, and in small group conversations, got a first hand sense; Dennis and I have spent a significant amount of time talking about what he’s hearing in terms of feedback from the reps and the morale is just terrific. It’s terrific from the following perspective. They are not seeing physicians move away from their use of RADIESSE, they are core customers continuing to use the product with absolutely no erosion in that. There is no erosion in morale in terms of the enthusiasm for the product within any of the offices that they are going into. They are converting new accounts at a pretty healthy clip, and yeah, physicians that used to order 50 every so many months now might order 30 because they are not seeing as many patients, but there’s just no drop off in their utilization in terms of their enthusiasm or the share that we’ve got in those offices. It’s just that there are not as many patients. People are feeling really good about the performance of the product and are feeling really good about the feedback that they are getting from their customers and that puts us in a very good position as we move forward.

Operator

We will take our next question from Angela Woodall with Oppenheimer & Co.

Angela Woodall - Oppenheimer & Co.

I just have a couple of quick questions for you. First, can we talk a little bit about continuing this discussion on the competition, can we talk a little bit about how the pricing pressures are acting now that there are fewer new patients coming into the doctor’s office, and I guess there is less to fight over if you will, is it getting any more competitive on the pricing and have you seen any change in your ASP?

Steven L. Basta

We’ve not seen much move in our ASP. We see very slight movements up or down on a month to month basis associated with whether people are buying more 30 packs or 50 packs. As you many recall from some of our prior calls, we had tiered pricing structures where there is a list price and then there is a reduction in prices for physicians who buy 15 units, a further reduction if they buy 30 units, a further reduction if they buy 50 units, and so what we’re seeing over time is that there is still the gradual growth in usage among accounts, but tempered by the fact that they may not have quite as many patients coming in and so that has tended to impact our sales front over the last couple of quarters, but we’re just not seeing significant ASPs moves and one of the things we’ve not done is try to get really aggressive in competing with either Allergan or Medisys by kind of just slash price on our products. What we’re doing instead in the past quarter was actually kind of move some customers to customer loyalty programs where they get monthly order shifts and they are on a maintenance basis, that is still a relatively small percentage of our customers that are starting to move in that direction, but we’re trying to stabilize that process and we’re just not competing in an aggressive ASP process, and we’ve not seen ASP come down in a meaningful fashion. In fact, I think it may have been up just slightly for at least one or two of the months in the last quarter.

Derek A. Bertocci

Yeah. The prices were down slightly as I said in my remarks and as Steve pointed out it’s largely due to the customers increasing their average purchase volume so they qualify for higher purchase price discounts and we did implement a program to incentivize customers to establish regular recurring buying programs for which we do have an additional incentive.

Angela Woodall - Oppenheimer & Co.

My second question is on the new product launches that you are planning for next year, I guess, towards the end, it’s actually going to be in fiscal 2010, but how much do you think we’re going to see in terms of a ramp up on the sales and marketing line in the second half of 2009 in preparation of those launches.

Steven L. Basta

You will actually see a minimal or very modest ramp. You’re not going to see significant expenses. We anticipate that we’ve basically got the infrastructure that we want to have for launching the additional products. It might be a million-dollar campaign associated with launching a product, you might see that, but you are going to see a big ramp in infrastructure in any fashion. We basically built the commercial infrastructure that we think we need to win share with RADIESSE and to continue to drive successful new account conversion, but we can leverage those existing sales calls. When we got a rep who drives for 45 minutes to get to an office and then sits in the waiting room for 30 minutes until the doctor is free with a patient, and gets 10 minutes with him to talk about RADIESSE, having him spend an extra 10 minutes talking about the second product doesn’t take any extra time out of that whole schedule. So you basically got the same infrastructure through which you can put a second product and put a third product and create enormous leverage and that’s the core of our business model. So if we’re seeing revenue ramp, we expect to see it on a fairly steady sales and marketing line.

Operator

We’ll take our next question from [Josh Haines] with Jefferies & Co.

[Josh Haines] - Jefferies & Co.

The first question, RADIESSE has been launched over a year ago and you do have some good evidence that patients are more satisfied with the cosmetic results versus some of the competing products, and have you guys accumulated any empiric evidence that patients are coming back to the physician requesting RADIESSE specifically?

Steven L. Basta

We have anecdotal reports from physicians of that and certainly, I’ve got a number of physicians telling me that there is a qualitative difference in the reaction that their patients have, that when patients who have had RADIESSE before come back for future treatments they won’t accept switching to anything else which is fundamentally different from the experience that they have when they have had HA before in terms of coming back after a Restylane injection or Juvederm injection where the response is pretty good, but you can easily switch them to something if you claim that you’ve got something better. Physicians don’t switch them because they don’t have anything better. And in fact, the patients are delighted to a degree that they are not seeing with their HA patients.

That said, what we don’t have is really good quantitative data on what the retention rates are and what the return rates are and it’s certainly hard to calculate that within a 12-month period because in fact the effect you get from RADIESSE can last for 1 to 2 years, so for patients who don’t come in within 12 months doesn’t necessarily mean they are not satisfied, they might be just having the effecting that lasts for 18 months. Though we have spent some time thinking about how we try to capture that data we haven’t yet determined a very good methodology for determining the return rates.

[Josh Haines] - Jefferies & Co.

Great, and then are you getting any feedback from your sales force or physicians detailing especially in these issues with consumer discretionary spending; patient requests for the longer-acting dermal fillers rather than the shorter-acting?

Steven L. Basta

If I understand your question is it are patients asking for longer-acting dermal filler rather than the shorter-acting given that environment?

[Josh Haines] - Jefferies & Co.

Requesting this to space out of their visits.

Steven L. Basta

We certainly have reports from physicians that patients are in fact spacing out their visits. Typically, patients unless they are aware that there is a longer-lasting dermal filler won’t ask for it but rather the physician will offer it. So, our core premise and this is where our strategy differs from our competitors, certainly, one of competitors, Allergan, has built their business model on the concept of category growth through DTC advertising and they’ve done that very effectively. They are driving more patients into physicians’ offices, and in some cases, those patients are asking for Juvederm by name, our core business model is built upon the premise that physicians will switch patients to the superior product because it actually drives higher patient satisfaction, and so, much more often what we see is that it is the physician who is switching the patient rather than the patient specifically asking for the longer-lasting product. Most patients in most of these offices other than the patients who are very heavy users of cosmetic procedures, most patients coming in don’t know the differences between the products. It is the physician and the office staff that understand the differences that will drive the switch to the better product.

[Josh Haines] - Jefferies & Co.

Actually switching gears a little bit over to the Polidocanol product; in cosmetic derms and plastic surgeons in your customer base right now; any gauge how many of those are doing sclerotherapy, and you spoke just I think on another question previously that leveraging your sales force and having infrastructure there; is there going to be another market with vascular surgeons, etc., performing sclerotherapy where you have to sort of get your sales force introduced to and will require another sort of sales technique?

Steven L. Basta

Well, there are in fact some vein centers that don’t do aesthetics but do a significant amount of sclerotherapy, and we’re looking at how we best can direct that market although the awareness of Polidocanol in that community is so high, I’m not sure if we even have to have our reps call on those physicians; they already know about the product and they’re talking to us to get it. So I don’t think that there’s going to be a significant sales force expansion and we’re trying to figure out what the communication methodology is to get into vein centers where awareness of that product is high.

To your first part of your question, in terms of our existing customer base already doing this product, it is north of 60%; so, north of 60% in our recent customer survey that we did of our own customers for RADIESSE, north of 60% of our current accounts are due in sclerotherapy and doing a meaningful amount of it; that is interestingly weighted toward dermatologists rather than plastic surgeons. There’s a higher percentage we believe with cosmetic dermatologists who do sclerotherapy than there are plastic surgeons who do sclerotherapy, and that also creates one of the opportunities for us. We are somewhat stronger in the plastic surgery and facial plastic surgery community and we’ve made significant inroads into the cosmetic dermatology opportunity but there is more growth for us there, and one of the real synergies that we saw in found in grabbing the opportunity to get Polidocanol, Aethoxysklerol the trade name in Europe, although we will likely launch it under a different trade name in the US and we’re finalizing that, the Polidocanol product is going to appeal very strongly to cosmetic dermatologists that are a meaningful market force today, but there are still a significant number where Medisys and Allergan have more established and transpositioned, and there is significant growth opportunity for RADIESSE to come through the leverage afforded by getting into those offices with Polidocanol first. So, it’s 60% of our current customers or more are already doing sclerotherapy, and there’s a whole bunch of customers we haven’t yet converted that do a lot of sclerotherapy that we may be able to get into first with that product and accelerate RADIESSE uptake.

[Josh Haines] - Jefferies & Co.

And then just the last question on the Polidocanol; in terms of formulating that once FDA approval is achieved, is there any concern that customers will be able to formulate on their own and sort of avoid some of the premium pricing that may be incurred?

Steven L. Basta

Well, there are compounded pharmacies that also offer Polidocanol solutions. They are typically not of the pharmaceutical quality, they are in some cases industrial grade Polidocanol, is not produced to manufacture in such occasions associated with pharmaceutical manufacturing processes and we think that there is a strong physician preference for real pharmaceutical products. In addition, we will be able to provide a substantial amount of marketing support in these offices that will have the future US trade name for the product attached to it, so the patients become familiar in the waiting room with the trade name associated with our core product; but certainly, the existence of compounded pharmacy materials is one of the things we’re thinking about in our launch and how we capture share and hold share and prevent it from switching to the less expensive alternatives is one of the things that we have factored in substantially in our planning process, but I have a high degree of confidence that with the product performance of this material and with the brand reputation that exists from Kreussler’s 30 to 40 years of experience now, with this product internationally we’re going to have a significant launch.

[Josh Haines] - Jefferies & Co.

Thanks for answering the question and congratulations on the phase III data.

Steven L. Basta

We’re really quite delighted with the results, and I wish I could take credit for it, thank you for the congratulations; it’s really our partners that ran a terrific study that demonstrated what we already knew the product does, but it’s really nice when the phase III study shows you exactly what you expected.

Operator

[Operator Instructions]. We’ll go next to San Shaban with Maxim Group.

San Shaban - Maxim Group

I just have a couple questions; I’d like to focus on the expense side if you can. Specifically, the ACI acquisition, it seems that you charged the entire acquisition on your fourth quarter results, substantially all of it, is that correct?

Derek A. Bertocci

Yes, most of it was charged to in-process R&D.

San Shaban - Maxim Group

We really shouldn’t see material effect on the P&L going forward as far as…

Derek A. Bertocci

Though there’s a modest amount of intangibles that will be amortized into the future, but relatively modest.

San Shaban - Maxim Group

I believe you mentioned that there were 30 clinical specialists now, that’s an increase of 6 from last quarter, is that correct?

Steven L. Basta

Yes, we continue to see expansion into our fourth fiscal quarter, and will be in the range of 30 clinical specialists for the US training on RADIESSE going forward. We’ve completed our expansion.

San Shaban - Maxim Group

Okay, so that’s completed and I’m assuming that the sales force is staying intact as well.

Steven L. Basta

That’s right, we’ve had 80 territories which we expanded in the fall of ’07 to 80 US territories, and that organization has remained static in terms of size through the course of that process, though not static in terms of customer base, but we’re continuing to drive new accounts dramatically.

San Shaban - Maxim Group

And as far as your guidance for operating expenses for next year, it seems that the sales side of the equation is going to remain relatively consistent, I’m not exactly sure if you are going to achieve any more leverage there; I’m wondering where you’re expecting to “tighten the belt,” is it going to be in G&A or… I’m just trying to get a little bit more color on that.

Steven L. Basta

We don’t give guidance in terms of how operating expenses break down in terms of each of the specific numbers and I’d be reticent to go into that level of detail. I think it’s a modest level of reduction versus our Q4 operating spend rate, and we are internally vigilant in a number of areas including the sales and marketing; there are discretionary spend items, you can certainly look at travel budgets, you could certainly look at other things in terms of managing expenses; we’re not changing headcount; we’re going to maintain the strength of our clinical specialists group, we’re going to maintain the strength of our sales organization, but we’re going to be vigilant about expenses across the board of the organization, and it’s really across the board that we get a little bit of savings to bring us into the 84 to 86 number.

Operator

[Operator Instructions]. There appear to be no further questions at this time. I’d like to turn the conference back to Mr. Basta for any additional or closing comments.

Steven L. Basta

In closing let me just again reiterate my thanks to our investors for the confidence in the organization and my thanks to our many employees for the extraordinary work. It was a tough year for us in fiscal 2008 in terms of our experiencing the economic turn that took place mid year. We are delighted with the success that we’ve had in numerous physician offices in the US market and in the European market, and with some of the growth that we’re experiencing in terms of physician adoption of RADIESSE and we’re delighted with the success we’re having in our product pipeline. That reflects the hard work of numerous individuals and I’m grateful for all of those efforts, and thank you to each of you who took the time to join us today.

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