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ZILA REPORTS HIGHER NET REVENUES FOR 3RD QTR FISCAL '02.

Zila, Inc. (Nasdaq:ZILA), Phoenix, Ariz., international provider of healthcare and biotechnology products and services for dental/medical professionals and consumers, has reported higher net revenues and a reduced net loss from continuing operations for its fiscal 2002 third quarter (ended April 30, 2002) compared to the quarter a year ago.

Fiscal 2002 third quarter revenue increased 52 percent to $8,353,000 compared to revenue of $5,478,000 in the quarter a year ago. The company cut its first quarter net loss from continuing operations before income taxes to $2,229,000 in fiscal 2002 from a loss of $4,880,000 in the same quarter a year ago; this represents a 54 percent improvement. During the third quarter of fiscal 2002, the company received a $277,000 tax benefit, reducing the after-tax loss to ($0.04) per share, compared to ($0.12) per share in the prior year quarter, which had no income tax benefit.

"There were several notable improvements in the third quarter compared to the same period last year," said Zila President Doug Burkett, Ph.D. Net revenues for Inter-Cal Nutraceuticals increased 84 percent to $4.6 million from $2.5 million due primarily to increased sales of Ester-C(R) products (resulting from more aggressive radio and TV advertising), higher sales of Palmettx(TM) saw palmetto products, and improved international sales. Net revenues for Zila Professional Pharmaceuticals increased 59 percent to $1.5 million from the year-ago quarter, due largely to a significant rise in Peridex(R) product sales. Zila Consumer Pharmaceuticals produced a seven percent increase in its net revenues, to $2.2 million. Innovative Swab Technologies sales (excluding $253,000 of inter-divisional sales) rose 26 percent to $301,000. Selling, general and administrative expenses for the entire company decreased to 67 percent of net revenues compared to 112 percent in the year-ago quarter.

Revenue for the nine months of fiscal 2002 rose 17 percent to $26,006,000 compared to $22,221,000 in the year-ago period. The company cut its nine month net loss from continuing operations before income taxes to $6,121,000 from a loss of $7,039,000 a year ago. On an after-tax basis, current year results for the nine month period include a net tax expense of $2,913,000, compared to a tax benefit of $335,000 included in the prior year results. The resulting nine month after-tax loss from continuing operations was $9,034,000, or ($0.20) per share, compared to a loss of $6,704,000, or ($0.16) per share in the prior year.

Zila sold substantially all of the assets and certain liabilities of its Zila Dental Supply division in two separate transactions. The division's full-service assets were sold to Henry Schein, Inc. (Nasdaq: HSIC) in November 2001 for approximately $5.8 million in cash. Zila Dental Supply's mail order business was sold to PracticeWares, Inc. in December 2001, but extensions, restructuring negotiations and other matters delayed consummation. In June 2002, Zila, PracticeWares and PracticeWorks, Inc. (AMEX: PRW), amended their agreement to provide that PracticeWares will pay Zila $4,000,000 plus a 19 percent ownership interest in PracticeWares (on a fully diluted basis) for the business. In addition, PracticeWares will pay Zila approximately $130,000 in accrued interest. The $4,000,000 payment is contingent upon the successful completion and funding of the public offering by PracticeWorks of 3,750,000 shares of its common stock made on June 7, 2002. Zila's management expects that such funding will be completed prior to June 30, 2002. Upon funding, PracticeWorks will make a cash infusion into PracticeWares, in return for equity and a note receivable. Five percent of the cash payment to Zila will be held in escrow for 60 days to offset certain indemnifications of Zila to PracticeWares.

During the third quarter of fiscal 2002, the company invested $1,018,000 in the OraTest(R)/Zila(R) Tolonium Chloride program, which encompasses the OraTest oral cancer detection product Phase III clinical trial, other OraTest research, and the broad Zila Tolonium Chloride research, development and manufacturing effort.

Based upon clinical data, the company has determined that completion of the OraTest clinical trial will require a significant number of additional patients; management is currently evaluating the number of patients that will be needed. The requirement for the larger number of patients is related to the tumor formation rate within the trial population, and not to the efficacy of the OraTest product. Due to the nature of clinical trials of this type, it is not feasible for the company to set a definitive completion date. By taking such measures as increasing the number of clinical research sites, increasing patient enrollment and obtaining sufficient funds, management believes that the period of time necessary to complete the clinical trial will not be significantly increased.

The cost of the clinical trial is dependent on many factors, including, but not limited to, the number of clinical sites, patient enrollment rates, compliance with the study protocol and related monitoring, and the level of funding throughout the study. The projected cost of the clinical trial has risen significantly over the original budget due to the additional patients required. Management is increasing the rate of funding and the number of clinical sites to support the larger number of patients needed to complete the trial.

The company believes that it will have sufficient funds for the clinical trial for the next fiscal year, provided that the closing of the sale of the Zila Dental Supply mail order business occurs as expected. The company will, however, require additional financing to support the OraTest clinical trial and regulatory, manufacturing and marketing costs extending beyond fiscal year 2003. Management is considering possible financing sources, such as strategic partners, venture capital and the equity markets, and is pursuing two funding strategies which, if completed, would provide significant funding for the clinical trial. There is no assurance that such funds will be available on terms acceptable to the company.

"We are implementing an intense effort to focus on our core objectives: building our pharmaceutical and nutraceutical business; improving efficiencies and cutting costs throughout the company; eliminating unprofitable projects; and ensuring funding for the OraTest program," Dr. Burkett said. "These efforts are part of a broader initiative to steer the company back towards positive cash flow and profitability, and to realize the full potential of Zila's tolonium chloride technology."

Dr. Burkett added, "We expect to begin seeing the results of our efforts in the fourth quarter, when we believe we will have break-even-to-positive EBITDA (earnings from continuing operations before interest, taxes, depreciation and amortization) and a significantly reduced loss from continuing operations compared to the third quarter. We expect to achieve this even as the company continues to increase the number of OraTest clinical trial sites and the rate of patient enrollment."

Headquartered in Phoenix, Arizona, Zila has four divisions: Zila Pharmaceuticals, marketer of Zilactin(R) oral healthcare products, Peridex(R) prescription mouthrinse, ViziLite(TM) oral examination kits, and OraTest(R) oral cancer detection products; Inter-Cal Nutraceuticals, manufacturer of patented Ester-C(R) branded products and Palmettx(TM) saw palmetto extract -- value-added ingredients for the global nutrition industry; Zila Technical Operations, manufacturer of pharmaceutical-grade Zila(R) Tolonium Chloride, and ViziLite(TM) Test Kits; and Innovative Swab Technologies, manufacturer of dry-handled pre-moistened swab products.

For more information, visit http://www.zila.com or call 602/266-6700.
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Publication:Biotech Financial Reports
Article Type:Brief Article
Geographic Code:1USA
Date:Aug 1, 2002
Words:1236
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