Isolagen CEO Issues Letter to Shareholders
March 14 2006 - 4:24PM
PR Newswire (US)
EXTON, Pa., March 14 /PRNewswire-FirstCall/ -- The following was
released today by Isolagen, Inc. (AMEX:ILE): Dear Shareholders:
Last year was turbulent and disappointing in many respects for
Isolagen, Inc. and you, our shareholders. The results of our Phase
III pivotal trial were disappointing and we were unable to achieve
anticipated revenue growth. Together we watched our share price
decline from a high of nearly $8 per share to a low of
approximately $1 per share. Despite the fact that we increased
revenue 109.5% over the prior year, during 2005 we had two downward
adjustments to our revenue projections and we still fell slightly
short of the mark. We had three changes in the role of Chief
Executive Officer starting with the abrupt and unexpected departure
of one CEO in April and the requested departure of a second CEO in
September. Most significantly, with disappointing trial results, we
were unable to support the filing of our application for approval
of our dermal product and, as a result, the commercial launch of
our product has been significantly delayed. We will also have to
expend significant additional funds to conduct a further study (a
confirmatory study) to support a future application for approval.
Unfortunately, a number of class action and derivative lawsuits
were filed against the company and many of our officers and
directors. Our silence in the face of all of these events may have
been frustrating for our shareholders, but we needed to understand
the impact of all of these events on our business and our company
before we spoke. Indeed, as overwhelming as this convergence of
events may seem, it also allowed for, in fact mandated, a thorough
reassessment of the company's position and strategy. In making this
assessment, we focused on four key objectives: product approval,
positive margins, increased revenue and conservation of cash to
support us through the first three objectives. The unsuccessful
trial, although unwelcome, changed our overall timelines and
provided us with an opportunity to re-evaluate all of our major
strategic initiatives and timeframes associated with our
objectives. In many respects we are encouraged by what we have
learned. As we endeavor to move the company forward, much of what
we have learned from the past, we believe will help us achieve
success in the future. Undoubtedly, these events were challenging
and as unexpected to the current management team as they were to
our shareholders. These events were born of action that took place
long before this team was in place, yet our team has tirelessly
worked toward overcoming these hurdles with perseverance and
resolve to get the job done. Notwithstanding these challenges, we
have moved the company forward executing on a plan to achieve our
key objectives. We have assembled an experienced and hard-working
team over the last months and I am very grateful for the entire
team's fortitude and loyalty and I am also pleased with the results
of our efforts that followed. The construction of our Exton
facility was completed ahead of schedule and we are going to be
able to manufacture all of the clinical supplies for our
confirmatory study from Exton as well as product for our commercial
launch. We believe manufacturing the clinical supplies (our product
for the study subjects) from Exton will be beneficial because we
will be able to manufacture our product for our commercial launch
from the same place we manufactured the product for the study. This
should streamline the approval process since we will not have to
perform comparability studies between Exton and another site beyond
what is already required (comparability between Houston and Exton
facilities). We believe we have submitted a protocol for the
confirmatory study to the FDA that will address or eliminate the
issues we had with our previous study which impacted our results
and which are set forth in detail in our Annual Report on Form
10-K. We are proactively and currently addressing outstanding
clinical and manufacturing issues with the FDA in connection with
our confirmatory study to reduce the risk associated with
submitting this information at the time of applying for approval
(BLA filing). We are prepared to commence the confirmatory study
and will do so upon approval of our currently pending protocol. We
have identified, recruited and trained our investigators for our
confirmatory study, and we are very pleased to note that these
investigators are widely regarded as the top physicians in the
aesthetic industry. We are also very excited about commencing
clinical studies for the treatment of burn scarring and acute
burns. We expect that these studies will begin before the end of
the second quarter, and we are very hopeful that we will be able to
gain approval for the use of the Isolagen Process to address a
vitally important need. We are committed to pursuing a burn
indication for three reasons. First, we believe that our process
can be used successfully to help burn victims at least in improving
the elasticity and appearance of burn scars. We have hypothesized
and we hope that our process can be used in the treatment of acute
burns as well. Second, we believe that there is an unmet need in
this area and expect that an indication for burns would be well
received by regulatory agencies and the marketplace. Finally, we
all believe that if we can do something to help burn victims
improve their appearance and function, we should. We have also
commenced our Phase I Vocal Cord study. The clinical supplies for
the Vocal Cord will be manufactured from our Exton facility, as
well. Finally, we are very pleased to announce that we have passed
our 404 internal controls audit and received an unqualified opinion
from our auditors. This result is the culmination of considerable
and excellent work and effort on the part of our management team
and a tribute in particular to Todd Greenspan, our Controller and
Chief Accounting Officer. Todd has been promoted within the Company
and we expect him to take over the lead finance and accounting
function at the Company. All of these milestones were achieved
through diligence and hard work and we are pleased in the progress
we have made. We also remain committed to obtaining approval for
our dermal product which approval we believe we will obtain. The
long term results from our Phase III trial lend support to that
belief. Recently we received an initial report of the 9 and 12
month data from our Phase III study. We collected this data
pursuant to our protocol and for our internal assessment purposes.
We are approaching this data conservatively and we are, therefore,
asking our own statisticians to confirm the results. However, if
the results are as they have been initially presented to us, they
are very promising. We continued to observe the subjects who
participated in the Phase III study beyond the primary endpoint of
6 months; we collected data at 9 and 12 months, as well. What we
believe these results indicate is that a number of patients who did
not show a response when assessed at 6 months, showed a positive
response at 9 and 12 months. There were 99 subjects treated with
the Isolagen Process in both studies A and B in the acute trial; 82
of these subjects were assessed again at later intervals. The 12
month data indicates that 12 subjects who had not responded at 6
months became positive responders at 12 months. This data
translates into an increase in positive responders of approximately
29% in study B at 12 months (5 new responders) approximately 58% in
study A (7 new responders) and approximately 41% overall increase
in response for both studies (12 new responders). Overall, response
rates increased to 63% at 12 months in study B and to 43% response
in study A. We expect to release a full report on this data once
validated, but we are very encouraged about what this means for
Isolagen with regard to our first objective -- product approval.
However, even if we obtain the anticipated approval for our
product, we need to ensure that we can manufacture it in a
commercially viable way. Our second, third and fourth objectives --
to consistently achieve positive margins in the sale of our
product, increase revenue and have enough cash to get through the
approval process -- are inextricably bound. This is how we have
worked and are working to accomplish these objectives. With the
substantial need for cash associated with commercial launch thus
delayed in our new timelines, we took the opportunity to
reprioritize and optimize how and why we deployed our cash. We
shifted our focus from those activities that were pressing only
because of an imminent BLA filing and the anticipated commercial
launch to our longer term needs. At the same time, and in
recognition of the additional cash we expect we will need to
sustain operations through the new anticipated approval date, we
reconsidered what significant capital expenditures were vital to
the company and those capital outlays which could be delayed or
eliminated altogether. For example, the company had previously
committed several million dollars to a number of sophisticated
improvements in our manufacturing process. In consideration of
these planned expenditures, we looked at the existing manufacturing
costs in our commercial operation. We observed that the costs there
were highly variable and often produced negative margins. To
further understand this variability, we conducted a number of
thorough analyses of our manufacturing process, its inefficiencies
and its inadequacies. We have borrowed our disciplined and
experienced Swiss manufacturing team (who are familiar with our
manufacturing process) to replace those previously in charge of
manufacturing in the United Kingdom. With the benefit of the
results of a number of ongoing internal process development
initiatives and the advice of outside consultants and advisors, we
identified a number of relatively simple solutions which we believe
will eliminate many of the causes of variability pretty quickly. A
number of these simple improvements have been implemented already.
As a result, we believe we can achieve positive margins in the
manufacture of our product on an ongoing basis even with the
current pricing model. More significantly, if the ongoing process
development initiatives of our own science team bear fruit, and we
believe they will, we believe we can achieve the same or a greater
reduction in our cost of goods as we would have seen through other
more complicated, capital intensive and costly process improvement
initiatives without the need for expending large amounts of cash.
We are very encouraged by our team's progress and initial results.
We are being extremely prudent with our cash. We will not sacrifice
the work necessary to make our manufacturing process commercially
viable, but we are employing a conservative, rational approach to
achieve that goal. Under the guidance and vision of our current
science team, I believe that we will see a greater benefit from our
development dollars by recognizing that sometimes simpler is
better. The analyses of our manufacturing process highlighted
another key issue: negative margins. We were often manufacturing
our product at a negative margin due to the variability in our cost
of goods. Some of this variability was anticipated and unavoidable
as we implemented process improvements and experimented with
potentially cheaper alternatives. However, the degree to which we
experienced variability was unacceptable. We are working to reduce
and stabilize our costs through an optimized manufacturing process
and other efficiencies and we believe we are making significant
progress. However, the other part of the margin equation is price.
Our experience and justification for price was based largely on
anecdotal information. The variability in our costs often meant
that as revenue rose, so did our loss. This raised a serious and
inescapable question for current management: if we were often
manufacturing our product at negative margins, why were trying to
drive demand? Yes, we want to maintain and improve our place in the
market and we intend to do just that. But, at a time when our cash
position was and is all- important, driving demand often increased
our burn and that was not acceptable either. Therefore, we took a
step back and reconsidered our marketing strategy. We replaced our
head of sales and intend to restructure our sales and marketing
organization. During the last quarter of 2005 we initiated market
research utilizing well known outside market research consultants
and one-on-one meetings with our physician base in the United
Kingdom. Until a combination of a reduction in our cost of goods
and an increase in net revenue per treatment is attainable, we do
not think it makes sense to drive demand beyond what it is. We are
continuing to work with the physicians to provide our product and
maintain our presence in the UK market while also working to
improve delivery and scheduling efficiencies. We believe that we
have identified a program that will increase our net revenue per
treatment without affecting the cost to the consumer and we expect
to implement this program in the near term -- before the end of the
second quarter. After we have implemented this program successfully
and with the benefit of our market research and an optimized
process, we will then try to drive demand for our product beyond
current levels. The same discipline I have discussed throughout
this letter is applicable to our plans for our Swiss facility. We
have the same concerns with launching a commercial operation from
Switzerland as we have with our current commercial facility.
Further build-out of the Swiss facility would be capital intensive
and is based on a sophisticated manufacturing process which may
prove not to be the most cost efficient process at the time of
commercial launch. In the short-term, we have minimized our capital
commitment to this facility and we are seriously considering our
plans with respect to our presence in Switzerland. In the meantime,
as I said, we are allocating some of the highly skilled management,
quality and scientific personnel in Switzerland to the United
Kingdom with the objective of improving the manufacturing process
and reducing the cost of goods. We have consolidated many of the
activities (especially in research and process development) of our
four facilities and greatly reduced the resulting superfluous and
redundant headcount and overhead. As a result of the process
improvement initiatives we have underway, we have been able to
eliminate significant capital expenditures from our budget relating
to sophisticated process improvements which we believe will be
surpassed by less expensive alternatives. We intend to further
restructure the UK operations to eliminate a very costly sales
infrastructure and we expect to partner with our key physicians in
the United Kingdom in a program that will increase our net revenue
per treatment without affecting the cost to the consumer in the
very near term. We believe that with these measures we can conserve
our cash at an appropriate level and still accomplish our other
objectives. It has been an arduous path for the company and
management over the last months and we could not have made the
progress we made without the support and dedication of everyone at
Isolagen. There are many people who deserve our thanks. I am
grateful to Dr. Marie Lindner for her expertise and loyalty even in
the face of so many of these events happening literally within
weeks of her joining Isolagen. In addition, I am grateful to our
Chief Financial Officer, Martin Schmieg, who took over many of the
operations' functions in the United Kingdom and the United States
over the last many months even at the expense of pursuing his own
goal of running his own company. It is with poignant pleasure I
report that after helping us find the right course for Isolagen,
Martin is pursuing a course of his own. Martin intends to leave
Isolagen in the near future to become the Chief Executive Officer
of a small private company. We extend him our greatest thanks for
his support and wish him happiness and success. Finally, I want to
acknowledge your patience and thank you for your continued support
of Isolagen even in the face of our difficulties. Sincerely, Susan
Ciallella President & Chief Executive Officer Isolagen, Inc.
About Isolagen, Inc. Isolagen specializes in the development and
commercialization of autologous cellular therapies for soft and
hard tissue regeneration. The company's product candidates are
based on its proprietary Isolagen Process. Based on the accumulated
experience of the company through its retrospective study, clinical
trials and treatment of patients in the United Kingdom, the company
believes that the Isolagen Process utilizes the patient's own cells
to create safe and effective therapies to treat the underlying
cause of the patient's condition. Autologous cellular therapy is
the process whereby a patient's own cells are extracted, allowed to
multiply and then injected into the patient. Isolagen's product
candidates are designed to be minimally invasive and non-surgical.
For additional information, please visit: http://www.isolagen.com/
. All statements in this news release that are not based on
historical fact are "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995 and the
provisions of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. While management has based any forward-looking statements
contained herein on its current expectations, the information on
which such expectations were based may change. These
forward-looking statements rely on a number of assumptions
concerning future events and are subject to a number of risks,
uncertainties, and other factors, many of which are outside of
Isolagen's control, that could cause actual results to materially
differ from such statements. Such risks, uncertainties, and other
factors include, but are not necessarily limited to, those set
forth under the caption "Item 1A. Risk Factors" in the Company's
most recent Form 10-K filings. In addition, Isolagen operates in a
highly competitive and rapidly changing environment, and new risks
may arise. Accordingly, investors should not place any reliance on
forward-looking statements as a prediction of actual results.
Isolagen disclaims any intention to, and undertakes no obligation
to, update or revise any forward-looking statement. Readers are
also urged to carefully review and consider the various disclosures
in Isolagen's annual report on Form 10-K, filed with the SEC on
March 14, 2006, as well as other public filings with the SEC.
DATASOURCE: Isolagen, Inc. CONTACT: Lee M. Stern of The Trout
Group, +1-212-477-9007, ext. 22, for Isolagen, Inc. Web site:
http://www.isolagen.com/
Copyright
Isolagen (AMEX:ILE)
Historical Stock Chart
From Jun 2024 to Jul 2024
Isolagen (AMEX:ILE)
Historical Stock Chart
From Jul 2023 to Jul 2024