Zila, Inc. (Nasdaq: ZILA) announced its financial results for the
quarter and fiscal year ended July 31, 2005. Highlights of those
results, compared with the comparable prior year periods, are as
follows: -- In June 2005, we completed the strategic sale of the
Zilactin(R) line of over-the-counter products to a third party at a
net gain of approximately $9.7 million. Proceeds of the sale, which
included a separate payment for inventories on hand at the date of
sale, totaled approximately $11.0 million. As a result of the sale,
all of the financial results for the Zilactin line prior to its
disposition are presented as discontinued operations and not in the
results of continuing operations. -- Net revenues for the fourth
quarter of fiscal 2005 were $11.5 million, an increase of 24%,
compared to net revenues of $9.3 million in the fourth quarter of
fiscal 2004. For the full fiscal year, net revenues increased 7% to
$44.3 million compared to $41.4 million for fiscal 2004. Excluding
sales of Zila Swab Technologies, Inc. ("IST") from both full fiscal
years, net revenues increased 19% to $43.5 million from $36.7
million. -- Zila Nutraceuticals revenues increased in the fourth
quarter by $1.2 million, or 14%, to $9.5 million due to increased
sales of Ester-C(R). Zila Pharmaceuticals revenues increased in the
fourth quarter by $1.1 million, or 120%, to $2.0 million. Sales of
ViziLite(R), Zila's product for the identification of oral mucosal
abnormalities in populations at increased risk for oral cancer,
were $0.5 million during the fourth quarter of fiscal 2005.
ViziLite sales increased more than four-fold over fiscal 2004's
fourth quarter and by approximately 29% over sales in the third
quarter of fiscal 2005. Sales of Peridex(R) increased by
approximately 79% in the fourth quarter of fiscal 2005 compared to
the fourth quarter of fiscal 2004, to $1.2 million, due to the
previously announced modification to the arrangement with our
largest Peridex customer which spread its annual purchase
commitment over all four quarters in 2005 rather than just the
first three quarters as had previously been the practice. -- Zila
completed the fiscal year with net income of $1.1 million, or $0.02
per diluted common share. This net result was comprised of a loss
from continuing operations of $9.0 million, or $0.20 cents per
diluted common share, and income from and gain on the disposal of
discontinued operations of $10.1 million, or $0.22 cents per
diluted common share. For fiscal 2004, Zila reported a loss of $4.4
million, or $0.10 per diluted common share. Investment spending in
support of new products at Zila Nutraceuticals for the launch of
Ester-E(R) and at Zila Pharmaceuticals for the continued launch of
ViziLite, as well as increased investment in OraTest at Zila
Biotechnology, all contributed to the increased loss in fiscal
2005. -- Cash and cash equivalents at July 31, 2005 totaled $12.9
million, compared to cash, cash equivalents and short term
investments of $11.7 million at July 31, 2004. In addition, we had
restricted cash of $0.5 million at both July 31, 2005 and 2004.
Zila's Chairman, President and CEO, Doug Burkett, Ph.D., said, "The
fourth quarter saw the continuation of strong revenue generation by
our core businesses. Our revenues grew by 24% and all of our
business units contributed to that result. Sales of our ViziLite
product continue to increase as this product becomes more widely
known and accepted by the dental community. We completed the
strategic divestiture of our Zilactin(R) product line and have a
stronger balance sheet as a result. We remain committed to our
efforts to aggressively support Zila Nutraceuticals, our growth
business of today, and Zila Pharmaceuticals and Zila Biotechnology,
our growth businesses of tomorrow, with the resources required to
maximize long-term return. Certain costs within those businesses
have accelerated sharply over the last year, as we are launching
new products at Nutraceuticals and Pharmaceuticals and advancing
our OraTest(R) regulatory effort. As a result of these efforts, our
bottom line came under pressure in fiscal 2005 and will remain so
in fiscal 2006; however, this is consistent with our strategy to
generate future growth and become profitable following completion
of the OraTest regulatory effort and eventual product launch. Zila
anticipates that the cost of the OraTest regulatory program is well
within its cash availability." Zila Nutraceuticals Net revenues for
Zila Nutraceuticals for the three months ended July 31, 2005
increased 14% to $9.5 million compared to $8.4 million for the
three months ended July 31, 2004. The revenue gain was driven
largely by increased national TV and radio advertising support for
our Ester-C(R) and Ester-E(R) products, as evidenced by an increase
of $1.0 million in marketing and selling expense during the fiscal
2005 fourth quarter compared to the fiscal 2004 fourth quarter.
Gross margins for Zila Nutraceuticals decreased to 63% for the
three months ended July 31, 2005 compared to 66% for the three
months ended July 31, 2004. This decrease was caused primarily by
certain manufacturing inefficiencies that were incurred during the
quarter as our main Ester-C production room was briefly taken out
of service to complete some heavy maintenance. Net revenues for
Zila Nutraceuticals for the fiscal year ended July 31, 2005
increased 19% to $38.5 million compared to $32.4 million for the
fiscal year ended July 31, 2004. The revenue gain was driven
largely by increased national TV and radio advertising support for
our Ester-C(R) and Ester-E(R) products, as evidenced by an increase
of $4.9 million in marketing and selling expense during fiscal
2005. Gross margins for Zila Nutraceuticals increased to 68% for
the fiscal year ended July 31, 2005 compared to 63% for the fiscal
year ended July 31, 2004. This increase was caused primarily by our
obtaining reduced costs for ascorbic acid, the major raw material
in our Ester-C products. Zila Pharmaceuticals Net revenues for Zila
Pharmaceuticals for the three months ended July 31, 2005 increased
120%, to $2.0 million, compared to $0.9 million in the prior year
period. Sales of ViziLite were $0.5 million in the fiscal 2005
fourth quarter and were more than four times higher than sales in
the comparable prior year quarter. A change in the annualized
purchasing pattern by our largest Peridex(R) customer produced a
79% revenue increase for that product during the fourth quarter.
Fiscal 2005 fourth quarter sales for IST were $0.3 million compared
to $0.2 million in the fourth quarter of last year. Gross margins
for Zila Pharmaceuticals increased to 59% in the fourth quarter of
fiscal 2005 from 50% in the fourth quarter of fiscal 2004, due
primarily to improvements in the margins for ViziLite. Marketing
and selling costs increased approximately $0.4 million during the
quarter principally in support of ViziLite. Net revenues for Zila
Pharmaceuticals for the fiscal year ended July 31, 2005 decreased
35%, to $5.9 million, compared to $9.0 million in the prior year
period. Excluding the impact of IST, Zila Pharmaceuticals revenues
increased by 18% during fiscal 2005 to $5.0 million, compared to
$4.2 million in fiscal 2004. Sales of ViziLite were $1.2 million in
fiscal 2005 and were nearly six times higher than sales in the
prior year. Peridex(R) sales declined by 7% in fiscal 2005 due to
softer U.S. wholesaler demand. Fiscal 2005 sales for IST were $0.8
million compared to $4.7 million last year. Zila Biotechnology
Total operating expenses for Zila Biotechnology were $2.3 million
for the three months ended July 31, 2005, a 16% increase compared
to the $2.0 million incurred for the three months ended July 31,
2004. Research and development expenses related to the OraTest(R)
program increased 16% to $1.8 million. For the full fiscal year,
Zila Biotechnology's total operating expenses increased 21% to $8.8
million compared to $7.3 million in fiscal 2004. In our ongoing
effort to obtain FDA clearance to market the OraTest product, our
dialogue with the FDA has centered on significant modifications to
the OraTest phase III regulatory program aimed at substantial
reduction to its overall duration and total cost while enlarging
the post-approval target population and improving the marketable
claims for OraTest. Our discussions with FDA have progressed and we
have successfully resolved questions involving the primary
endpoints of our proposed OraTest clinical program, the appropriate
statistical measures to be used to evaluate the trial results and
other key clinical issues. We believe that an understanding has
been reached between Zila and the FDA regarding the clinical
protocol although no assurances can be given in this regard. We
anticipate that patient enrollment in the phase III regulatory
program will begin during calendar 2005. We further believe that we
can complete the study as early as twelve months from the beginning
of enrollment, although no assurances can be given in either
regard. The trial is expected to require less than 4,000 readily
available tobacco and/or alcohol consuming patients who will
generally undergo a single visit. This study size will be
evaluated, and possibly adjusted, based on the occurrence of cancer
and pre-cancer within the study population. Upon completion of the
clinical trial within the regulatory program, and assuming that the
clinical endpoints have been achieved, we estimate that it will
require approximately three months to prepare the new drug
application for submission to the FDA. It is difficult to predict
how long it may take the FDA to review and comment upon the
application, but we may be eligible for an accelerated review.
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. Domestic
participants may dial 800-291-8929 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
706-634-0478. A tape replay of the call will be available for 48
hours beginning at 5:30 p.m. MT on October 12, 2005, by dialing
800-642-1687 and providing the conference ID number 1218171.
Participants calling from outside the United States should dial
706-645-9291. In addition, the call will be broadcast over the
Internet and can be accessed at http://www.zila.com or
http://www.earnings.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(R) Tolonium
Chloride and OraTest(R) technologies. -- Zila Pharmaceuticals,
marketer of products to promote oral health and prevent oral
disease, including ViziLite(R) oral examination kits and Peridex(R)
prescription periodontal rinse. -- Zila Nutraceuticals,
manufacturer and marketer of Ester-C(R) and Ester-E(R), branded,
highly effective forms of Advanced Protection vitamins C and E. 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(R) and Ester-E(R) products and
the future gross margins for such products. A wide variety of
factors will impact the length, size and expense of the OraTest(R)
clinical program; the FDA's ultimate decision regarding the
OraTest(R) clinical program and product; the limitations on the
indicated uses for the OraTest(R) product; and the ultimate market
reception of the OraTest(R) 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. -0- *T ZILA, INC. AND
SUBSIDIARIES Income Statement (Unaudited) (in thousands - except
for per share data) Three months ended Fiscal Year ended July 31,
July 31, ---------------- ----------------- 2005 2004 2005 2004
-------- ------- -------- -------- Net revenues $11,498 $9,259
$44,325 $41,405 Cost of product sold 4,325 3,317 15,385 16,120
-------- ------- -------- -------- Gross Profit 7,173 5,942 28,940
25,285 Operating Costs and Expenses: Marketing and selling 2,197
705 15,939 9,552 General and administrative 3,132 2,673 11,538
11,149 Severance and related charges - - 192 350 Other operating
costs - - 296 - Research and Development 1,985 1,616 7,181 5,933
Impairment of assets - 289 - 289 Depreciation and Amortization 672
566 2,688 2,483 -------- ------- -------- -------- 7,986 5,849
37,834 29,756 -------- ------- -------- -------- Loss from
Operations (813) 93 (8,894) (4,471) -------- ------- --------
-------- Other Income (Expense): Interest income 59 32 188 109
Interest expense (52) (88) (196) (342) Gain (loss) on sale of
assets (2) (2) (6) 470 Other expense (40) (36) (114) (138) --------
------- -------- -------- (35) (94) (128) 99 -------- -------
-------- -------- Income (loss) from continuing operations before
tax (848) (1) (9,022) (4,372) Income tax expense (6) (2) (8) (2)
-------- ------- -------- -------- Income (loss) from continuing
operations (854) (3) (9,030) (4,374) Discontinued operations:
Income (loss) from operations (231) (237) 426 37 Net gain on
disposal of discontinued operations 9,781 - 9,781 - Income tax
expense (78) - (78) - -------- ------- -------- -------- Income
(loss) from discontinued operations 9,472 (237) 10,129 37 --------
------- -------- -------- Net income (loss) 8,618 (240) 1,099
(4,337) Preferred stock dividends (10) (10) (39) (39) --------
------- -------- -------- Net income (loss) attributable to common
shareholders $8,608 $(250) $1,060 $(4,376) ======== =======
======== ======== Basic and diluted net income (loss) per common
share: From continuing operations $(0.02) $- $(0.20) $(0.10) From
discontinued operations 0.21 (0.01) 0.22 - -------- -------
-------- -------- Net income (loss) $0.19 $(0.01) $0.02 $(0.10)
Weighted average shares outstanding - basic and diluted 45,606
45,444 45,565 45,334 EBITDA (a) $9,375 $400 $3,939 $(1,431) (a)
EBITDA is defined as earnings (loss) before net interest, taxes
(income), depreciation and amortization. EBITDA Reconciliation (in
thousands) Three months ended Fiscal Year ended July 31, July 31,
------------------- -------------------- 2005 2004 2005 2004
--------- --------- --------- ---------- EBITDA $9,375 $400 $3,939
$(1,431) Interest income 59 32 188 109 Interest expense (52) (88)
(196) (342) Depreciation and amortization (680) (582) (2,746)
(2,671) Income tax expense (84) (2) (86) (2) --------- ---------
--------- ---------- Net Income (Loss) $8,618 $(240) $1,099
$(4,337) ========= ========= ========= ========== Net Revenues by
Business Unit Unaudited (in thousands) Three months ended Fiscal
Year ended July 31, July 31, -------------------------
------------------------ % % 2005 2004 Change 2005 2004 Change
--------- -------- ------ -------- -------- ------ Nutraceuticals
$9,517 $8,359 14 $38,471 $32,432 19 Pharmaceuticals - including IST
(a) 1,981 900 120 5,854 8,973 (35) IST 304 156 95 836 4,723 (82)
--------- -------- -------- -------- Pharmaceuticals - excluding
IST (a) 1,677 744 125 5,018 4,250 18 Total Company 11,498 9,259 24
44,325 41,405 7 Total Company - excluding IST 11,194 9,103 23
43,489 36,682 19 Management believes that the exclusion of the
impact of IST's revenue decline is meaningful information to
provide to investors because it aids in evaluating the revenue
generated by the core units of the business and because management
continues to evaluate the long-term strategic fit of the IST unit
with respect to the rest of the business. (a) Includes nominal
revenues generated by the Biotechnology Unit in each period
presented. Balance Sheet Data Unaudited (in thousands) July 31,
2005 July 31, 2004 ----------------- ------------------ Current
assets $32,639 $30,123 Property - net 9,692 8,116 Intangibles - net
22,614 23,464 Other 473 406 ----------------- ------------------
Total Assets $65,418 $62,109 ================= ==================
Current liabilities $9,815 $7,581 Long-term liabilities 3,881 4,300
Shareholders Equity 51,722 50,228 -----------------
------------------ Total Liabilities and Equity $65,418 $62,109
================= ================== *T
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