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Oculus Innovative Sciences Turnaround Positions Company in Lucrative Dermatology Market

New CEO, Reenergized Board, Lead Focused Strategy to Put Company on Solid Path for Growth

REDONDO BEACH, CA / ACCESSWIRE / September 9, 2014 / In mid-2014, the specialty pharmaceutical company, Oculus Innovative Sciences (OCLS), was struggling to define itself. Revenues were falling, expenses growing and the company was without a clear plan for growth.

Despite a versatile patented technology driving its skin and deep-tissue product lines, its market strategy lacked focus. As well, its partner in the animal health business dealt the company a major setback when it ended its licensing agreement and went on to become a competitor in that area. This underscored the fact that Oculus' reliance on partners to drive sales left it without control over its own success or failure.

​"We were a mile wide and an inch deep," says Jim Schutz, CEO of Oculus. "On one hand, by partnering all of our products, we didn't have the expenses of building our own large sales force. But conversely, the challenges were that we had no contact with our customers and no control over our own revenue, or even where our products were positioned in our partners' sales bags."

But with the spinout of its surgical products into the free-standing company Ruthigen, along with the addition of new management and an overhaul of its board of directors, Oculus has put into place a long-term strategic plan to focus on the dermatology market with its own direct sales force.

Now, about a year into the transformation, there's growing evidence that the strategy is working. Expenses are under control, revenue is increasing and Oculus has put into place a sustainable plan for growth. The Petaluma, California-based company has introduced several dermatology products under the banner of its newly created Intraderm Pharmaceuticals division; it's recruited a veteran sales team that's targeting the biggest prescribers of dermatology products, and it offers a compelling alternative and supplement to steroids, which can carry serious side effects.

Versatile technology

At the heart of Oculus' product offerings is its hypochlorous acid-based Microcyn(R) Technology. Hypochlorous acid is naturally produced by the body to fight infection. The hypochlorous acid in Microcyn(R) is similar to the natural hypochlorous acid produced by the body, but through the company's patented process it is able to produce a superior hypochlorous acid-based product that is consistent, safe, and highly stable, as well as effective.

This forms the basis for a range of products that reduce inflammation, itching, pain, scarring and even odor. Because it increases the delivery of oxygen to wounds, it accelerates the healing of tissue. The products also have a broad antimicrobial effect and have been shown effective against bacteria, certain viruses, fungi, and spores via unique mechanism of action.

In the past, the versatility of the Microcyn(R) Technology, to some extent, has worked against Oculus, leaving the company spread across multiple markets throughout the world and fostering its reliance on a strategy of partnering that has left its fate in the hands of others. Through its history, its products have been sold as hospital-grade disinfectant cleaner and medical device sanitizer, wound and skin care treatments in the animal health market, wound care for human health, as well as dermatology applications.

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The transformation starts

That began to change in March 2013 when the company decided to spin out its surgical rinse business as a free-standing company dubbed Ruthigen. As part of the plan, Ruthigen readied for an initial public offering and then Oculus CEO Hoji Alimi stepped down from his post to become CEO of the spinout. The spinout, eventual IPO, and subsequent acquisition of Ruthigen provided Oculus with $5.5 million in non-dilutive capital to help fund its dermatology growth plans.

Jim Schutz, then chief operating officer of Oculus, took the helm as CEO. As part of the spinout, Schutz was able to remake the board of directors for the company, bringing in needed expertise in sales, marketing, strategy, and execution. This included former Gilead Sciences and Cytokinetics CFO Sharon Barbari, The Leadership Group's Russell Harrison, who specializes in strategic change, and Jerry McLaughlin, a veteran medtech executive and entrepreneur with a strong sales and marketing background. The company retained boardmember Jay Birnbaum, a former vice president of global project management at Novartis/Sandoz Pharmaceuticals Corporation, where he had responsibility for strategic planning and development of the company's dermatology portfolio.

The new board gave management a clear directive: choose a therapeutic area to focus on and go all in. The management team, after considering the clinical strengths of its products, market opportunities and competitive pricing, focused on dermatology. That's not only because it played to its product strengths, but had several attractive characteristics including an affluent patient base accustomed to paying out of pocket, the ability to target a large segment of the market with a small sales force and a quick sales ramp for dermatology products that could help fund growth.

Central to that opportunity is the market for atopic dermatitis or eczema, a chronic condition that causes red, itchy skin and often expresses in periodic flare-ups. The global atopic dermatitis therapeutics market delivered revenues of $643 million in 2009, according to a study from GlobalData. It is expected to grow to $810 million at a compound annual growth rate of 3.4 percent by 2016. Globally, the United States remains the largest market for atopic dermatitis therapeutics, and generated revenue of $402 million in 2009. It is forecast to grow at a compounded annual growth rate of 3.8 percent over the next seven years to reach $582 million by 2016.

IntraDerm is born

At the start of 2015, Oculus launched its new IntraDerm Pharmaceuticals division, which is developing and commercializing advanced dermatological products in the United States and internationally. The company was able to make some key hires for the new division thanks in part to a third-party acquisition of one of its former partners that has sold Oculus dermatology products. This gave Oculus access to an experienced team well versed in its product offerings and existing relationships with its customers.

IntraDerm launched with two initial U.S. products: Alevicyn Antipruritic Gel, which is used to manage pain, burning, and itching associated with various dermatoses, including atopic and radiation dermatitis; and Alevicyn Dermal Spray, which is used in the management of debridement of wounds, such as pressure ulcers, diabetic foot ulcers, post-surgical wounds, and first- and second-degree burns.

The company added to that with Celacyn Prescription Scar Management Gel. Celacyn has been clinically proven to soften and flatten raised scars while reducing redness and discoloration and relieved scar-associated itch and pain. And in August, the company introduced Alevicyn Antipruritics SG, a spray gel formulation that has the advantage of being administered as a spray, but adheres as a gel. The company has additional products in development including a prescription treatment for acne.

As the safety and effectiveness of Oculus' products gain recognition relative to steroids, there is an opportunity for doctors concerned about the side effects of prolonged steroidal use to limit steroids to treat flares and rely on the Oculus offerings for maintenance between flares.

"The vision is to become a big player in dermatology. We don't want to be small," says Tom Devine, vice president of Oculus’ Intraderm division. "Our vision is to become a mid-sized pharmaceutical company that has a range of solutions for the healthcare community."

Demonstrating growth and value

With the recent correction in the market, Oculus is selling at a modest market capitalization of less than $20 million. The company remains debt free and saw its cash position grow to $8.8 million in the first fiscal quarter of 2016 ending June 30. That compares to cash of $6.1 million for the same period a year ago.

Total revenue grew to $3.7 million for the first quarter of fiscal 2016, an 8 percent increase over the same period a year ago. Product revenues grew 37 percent compared to the first quarter of 2015. The net loss for the quarter increased to $2.3 million compared to $70,000 for the same period a year ago due to a change in the fair value of derivative liabilities and an increase in sales and marketing costs. Growth in the company's other divisions will provide a source of ready cash to fund expansion of its dermatology division.

"As we’re coming out of the turnaround and being led by the dermatology business and strong growth in the international area, we feel comfortable enough with the evidence in hand that we will continue to reallocate resources to our growing sales team," says Oculus' CEO Schutz. "Now our challenge is to regain the trust of our shareholders and prove that Oculus, with a solid launch of our own U.S. dermatology sales effort, is worthy of a higher multiple."

About the Author

Daniel S. Levine is an award-winning business journalist who has reported on the life sciences, economic development, and business policy issues throughout his 25-year career. He founded Levine Media Group in 2013 to provide strategic communications to life sciences companies.

Levine most recently served as managing director of publications for Burrill & Company, a global financial services firm focused exclusively on the life sciences. There he headed corporate communications, served as editor of The Burrill Report, a monthly digital publication focused on the business of the life sciences, and hosted the publication's weekly podcast. Since 2011, he's served as the lead editor and writer of Burrill & Company's acclaimed annual book on the biotech industry. His work with Burrill & Company began through the firm's joint venture magazine startup The Journal of Life Sciences, where he led the creation of the publication's website and served as web editor before advancing to editor.

Prior to joining Burrill & Company, Levine worked as special projects editor for the San Francisco Business Times where he won numerous awards for his coverage of the biotechnology industry. His work has appeared in The New York Times, The Industry Standard, TheStreet.com, and other national publications. He is also the founder of the online magazine Disgruntled: The Business Magazine for People who Work for a Living and author of Disgruntled: The Darker Side of the World of Work (Berkley/Boulevard). Prior to that, he served as the San Francisco bureau chief for Adweek magazine. His coverage of the biotechnology industry began at the start of his journalism career while a business reporter at The Oakland Tribune.

Before entering journalism, Levine spent five years in the investment banking industry and served as a vice president and general principal of Herbert Young Securities in Great Neck, New York. He holds a bachelor's in English from Vassar College and a master's in journalism from the University of California, Berkeley.

Mr. Levine does not have a position in either OCLS or OCLSW and received compensation to write this article.

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SOURCE: Emerging Growth LLC