Amendment to General Statement of Beneficial Ownership — Schedule 13D
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EXHIBIT 3
STATEMENT BY WILLIAM L. COLLINS TO THE BOARD OF DIRECTORS OF ULURU INC., ON
DECEMBER 5, 2008 AND ASSOCIATED NOTES.
WILLIAM L. COLLINS
CHAIRMAN & CEO
To: Board of Directors
Uluru, Inc.
4452 Beltway Drive
Addison, Texas 75001
December 5, 2008
Dear Members of the Board:
Thank you for serving on the Board of this public company. I am here today on
behalf of Brencourt Advisors, LLC and its investment funds and managed accounts
("Brencourt") as a concerned shareholder in Uluru, Inc. ("Uluru" or the
"Company"). As you know, we are amongst the largest shareholders of Uluru for
the past two years, during which time we have witnessed the consistent
managerial and operational failure of Uluru's CEO, Kerry Gray. Over the last two
years, Mr. Gray has failed to provide transparency ( BMS financing) to the
Company's shareholders, he has failed to meet the goals and milestones promised
by him, as CEO, and finally, and most importantly, Mr. Gray has shown staggering
incompetence in his ability to successfully manage the Company and make good
business decisions. Brencourt has been and continues to be highly concerned with
the direction the Company has taken under Mr. Gray. As independent directors to
the Company and fiduciaries to the Company's shareholders, it is incumbent upon
you to act in the best interest of the Company. You can no longer accept the
failed execution, lost time and market opportunity and destruction of value of
Uluru. We urge you to act in the best interest of all the shareholders and to
remove Kerry Gray as CEO of the Company.
The role of CEO is to manage the business of the Company successfully. The role
of the Company's Board of Directors (the "Board") is to provide governance and
protect the shareholders' assets. Having served on the board of an NYSE listed
company, I urge this Board to seek independent counsel, rather than counsel
retained by management, if there is any question of each director's right to
speak or listen to shareholders.
Brencourt wishes to make the following points and to discuss all of these issues
with the independent members of the Board, in accordance with their duties.
1. AS CEO, MR. GRAY HAS CONSISTENTLY MISMANAGED THE ULURU PRODUCT PIPELINE
AND DEMONSTRATED THAT HE IS UNQUALIFIED TO MAKE CORRECT MANAGEMENT
DECISIONS IN THE HEALTHCARE SPACE AS EVIDENCED BY THE FOLLOWING:
A. ALTRAZEAL
i. Investors were told by Mr. Gray in November during fundraising
in November 2006 (packet before you) that the Altrazeal trial
would start by the end of January 2007. We assumed that IRB
approval had already been obtained since Mr. Gray could not
make this statement otherwise. However, we later learned that
IRB approval had not been obtained and thus it was impossible
for this timeline to be accurate. THIS DEMONSTRATES, AT BEST,
A FUNDAMENTAL LACK OF UNDERSTANDING OF THE CLINICAL TRIAL
PROCESS AND, AT WORST, A DELIBERATE DISSEMINATION OF
MISINFORMATION TO THE COMPANY'S INVESTORS.
ii. In 2006, Mr. Gray placed [Person A] and [Person B] in charge
of the clinical trial process for Altrazeal. Neither employee
had ever designed, implemented or run a clinical trial. In
addition, Mr. Gray hired an outside consultant, [Person C], to
serve as the primary advisor for the clinical program at
Uluru, for only two days per month. This was inadequate, and
once again, [Person C] had never been a principal investigator
(PI) on a clinical trial. The investors were lead to believe
that these employees had practical knowledge of the clinical
trial process. Moreover, Mr. Gray chose to use only one site
for clinical trails against the advice of professionals in the
field and standard clinical practice. THESE DECISIONS CLEARLY
DEMONSTRATE MR. GRAY'S LACK OF EXPERIENCE AND JUDGMENT. A
TRIAL THAT SHOULD HAVE TAKEN A FEW MONTHS HAS STILL NOT BEEN
COMPLETED AFTER MORE THAN TWO YEARS.
iii. Officials at a well known and respected university renowned in
the biotechnology space [Name withheld] claim that Mr. Gray
clearly did not understand the IRB process at the University.
The IRB process which normally takes no more than 90 days,
took 1 year to complete because of the lack of knowledge. The
decision to place non-medically trained employees in charge of
the clinical trial process was inexcusable and ultimately
resulted in the waste of precious resources.
iv. To date, no publications or clinical data to substantiate the
use of the product has been published. While a few posters
have been presented at national meetings, nothing has been
peer-reviewed. This is a critical step in the substantiation
of the clinical value of Altrazeal. Where is there an
accounting for the money spent to date which is now a
write-off?
v. Mr. Gray has stated on many occasions that wound care
companies such as KCI launched the VAC system (a very
successful product) for wound care without a single comparator
study. While technically true, this lack of understanding
misses the point. Prior to the 1995 launch, more than 10
studies validating negative pressure for wound closure had
been published in peer-reviewed journals. Thus, the system was
extremely well validated at the time of launch.(1)
vi. Regardless of whether the Board agrees that data is required
for the launch (there is no ambiguity in the professional
medical community if you want a premium priced product), the
current trial has been so poorly managed that is can only
produce negative data which will likely result in the
destruction of the value of Altrazeal. IF MR. GRAY IS ALLOWED
TO CONTINUE THIS TRIAL AS IS, THE PRODUCT WILL FAIL NOT AS A
RESULT OF WELL CONTROLLED DATA, BUT BECAUSE OF THE FAILURE TO
PROFESSIONALLY MANAGE THE CLINICAL TRIAL PROCESS. We must
again state in the strongest possible language that the
current Altrazeal trial, which has been so mismanaged, should
be terminated. The lack of scientific rigor as applied to both
the presentation of data and expectations on clinical outcomes
are likely to produce "negative data". This statement comes
from many clinicians familiar with both Uluru trials and
general wound care trials and protocols. At this point, the
data from this trial would be completely unusable, and could
only hurt the Company. If the trial were run to completion,
the resulting negative data would have to be reported in the
public domain as a material event. I would add that Kerry
personally told me that clinical trials would be completed in
time for the launch of the product, which occurred in May
2008.
--------
(1) Ann Chir Plast Esthet. 1996 Oct; 41(5):583-9. Vacuum assisted closure. Wound
healing by negative pressure. See the Addendum attached hereto.
B. ORADISC - It has been FOUR plus years since OraDisc-A approval. Yet,
no royalties or revenues have been generated via sales and no launch
has occurred. Failure to execute on any OraDisc-A worldwide
agreements has cost Uluru greater than 2 years of revenues. This is
inexcusable.
C. DERMAL/FILLER BREAST IMPLANT - Trials to substantiate the
dermal/filler Breast Implant were never completed. The studies the
Company performed would be considered extremely inadequate. We
request a full accounting and disclosure of the amounts spent on
this failed effort.
2. MR. GRAY HAS BEEN UNDULY COMPENSATED FOR HIS POOR PERFORMANCE TO THE
DETRIMENT OF THE COMPANY AND ITS SHAREHOLDERS.
A. PAY SCALE - Mr. Gray is currently in the upper 1% for CEO
compensation in companies with less than $50 million in market cap.
His salary is in the upper 5% for companies in the $100 million
market cap range. In an era where the SEC is concerned about
executive compensation. Mr. Gray's compensation should be reviewed
and reduced significantly. This is a decision for which the Board
has direct responsibility.
B. SHARE COMPENSATION - It is clear that the Board has disclosed no
meaningful quantitative measure that Mr. Gray fulfilled in 2007 to
merit an obscene stock grant of 800,000 shares. In fact, Mr. Gray
has not invested any of his own funds in Uluru yet has been awarded
stock equal to 15% of the outstanding shares. What were the goals
addressed at the annual shareholder's meeting in May of 20071 Were
any of these met? We have to believe they were not, yet Mr. Gray was
generously compensated by the Board in 2007. Despite repeated
requests, the Board has not disclosed any justification for this
grant.
C. DIRECTOR SHARE OWNERSHIP - In addition, not one of the directors of
the Company has purchased meaningful shares.
3. MR. GRAY HAS NEGATIVELY AFFECTED THE REPUTATION OF THE COMPANY AND
DISENFRANCHISED ITS SHAREHOLDERS. Kerry Gray has been consistently
dishonest in his dealings with shareholders regarding the Company and as a
result investors no longer listen to or believe what he says. Furthermore,
existing and potential investors are unable to determine both progress and
business development prospects for Uluru. Some examples of Mr. Gray's
dishonesty and incompetence are as follows:
A. DISHONESTY - I AND OTHER INVESTORS VISITED THE COMPANY IN DALLAS IN
NOVEMBER, 2006 PURSUANT TO MR. GRAY'S EFFORTS TO RAISE MONEY. Here,
Mr. Gray told investors they were in the process of hiring qualified
management. I have made available to you copies of the presentation
book with the projections provided by Mr. Gray. Following that
visit, on approximately November 15, 2006, I sent an email to the
Company's placement agent for the 2006 capital raise. In the e-mail
I stated that Brencourt would invest $7.5 million in the Company's
offering if three conditions were met. The conditions were as
follows: (1) Mr. Gray would re-incorporate the Company in Delaware,
(2) Mr. Gray would hire an industry COO within 60 days, and (3) Mr.
Gray would lock up [Person B] for two years. Mr. Gray agreed to all
three conditions. The agreement to hire a COO was confirmed at the
Company's May 2007 Board meeting by David Reese in an email at the
request of Mr. Crouse. Mr. Gray took nine months to hire Renaat
Vander Hoof as COO despite admitting the Company was understaffed in
November of 2006. This delay in bringing on qualified management has
severely delayed the progress of the Company. Furthermore, it is
clear the Company has not been re-incorporated in Delaware. [Person
B] was put under contract.
B. FURTHER EVIDENCE OF KERRY'S INCOMPETENCE (THE BMS DEAL) - When Mr.
Gray approached Brencourt in 2008 to raise capital, we refused and
told Mr. Gray that his failure to successfully deliver on any of his
previous targets gave us no confidence in his ability to manage BMS
regardless of the alleged merits of the acquisition. Moreover, it
was clear that Mr. Gray was not qualified to determine the readiness
and/or availability of capital for this acquisition. Subsequently,
in our own offices, Mr. Crouse told us that "the financing for the
BMS acquisition is done". It is not clear to us whether this was a
misstatement, or whether the Chairman had been misinformed by Mr.
Gray. As evidenced by the publicly available SEC filings, financing
was not available for this transaction, despite the fact that the
filings indicate management felt this was a critical acquisition.
This BMS debacle should serve as a warning to the Board. Mr. Gray is
not able to understand or control the financing needs of the
Company. He has no credibility among existing investors to make
additional investments in the Company under his stewardship.
C. KERRY'S EFFECT ON THE REPUTATION OF ULURU - It is important to note
that in all of our due diligence checks, Mr. Gray's abilities and
approach are often called into question by industry practitioners
and leaders. Some examples include:
i. Healthcare professionals thought it was odd and "cheap
looking" for Mr. Gray to carry around pictures of wounds
treated with Altrazeal. Many felt this portrayed a lack of
quality of the product.
ii. Academic professionals complain that Mr. Gray wants to
"reinvent the wheel" rather than proceeding through more
standard channels.
iii. Mr. Gray's strategy for the launch, marketing and subsequent
reimbursement strategy for Altrazeal is clearly flawed, as
evidenced by the lack of any significant revenues 6 months
into the launch of Altrazeal.
D. KERRY'S CAPITAL RAISING EFFORTS - Numerous funds and banks have
approached Brencourt over the last few weeks suggesting that Mr.
Gray is trying to obtain funding. This funding, if taken in the form
to be offered, would effectively ruin the Company's capital
structure. This was a main reason for my reaching out to the Board.
Has the Board authorized Mr. Gray to approach venture capital type
investors to raise capital in a manner that would largely wipe out
the current equity holders? Has the Board retained a financial
advisor to assist in this process? Has the Board filed with the SEC
what is a significant material event? Does the Board realize that
this is a public company required to make these filings?
CLOSING SUMMARY
Mr. Gray's lack of knowledge and "ad-libbing" has severely degraded the value of
Uluru and its products and has now placed the Company in a cash-poor situation.
The current markets simply will not support this type of company and certainly
not this CEO with any type of acceptable financing. To be very clear, the
Company is in an extremely tenuous position. In this instance the failure to act
can be equally, if not more, devastating than it would be to act poorly. The
only way to preserve both the Company and any shareholder value is to remove Mr.
Gray and replace him with either Renaat Vander Hoof or a suitable replacement.
If Mr. Gray is allowed by the Board to continue with this reckless and
uneducated approach to running this Company, no shareholder value will remain.
It cannot be overstated the level to which shareholders have been patient with
this Board and Mr. Gray's clear lack of qualification for the position of CEO of
the Company. What has occurred over the last two years is a failure of
management and a series of poor decisions all as a result of Mr. Gray's actions.
We have seen a "story stock" about a company with a new type of wound care
dressing, a drug delivery product with application in a variety of human and
animal products, and a dermal filler that could compete with current breast
implantation products, turn into a "show me" stock because of unending misses of
Mr. Gray's stated targets and milestones. It is clear to us that investors no
longer listen to or believe what Mr. Gray says. We invite this Board to listen
to the last earnings calls in which not a single investor asks a question after
Mr. Gray's presentation. From Brencourt's perspective, we do not ask questions
because we have no confidence in Mr. Gray or any statement he may make regarding
the Company. He is either incapable of running a public company (as evidenced by
his track record at Access Pharmaceuticals) or he is fraudulent in this
endeavor. In addition to all of the above, we request that pursuant to the
Bylaws of the Company, and the pursuant to the Company's incorporation in
Nevada, that at least two directors authorize the calling of a special meeting
of the shareholders of the Company as soon as possible.
Respectfully submitted,
/s/ William L. Collins
William L. Collins
Chairman & CEO
Brencourt Advisors, LLC
ADDENDUM
In 1995 the Food and Drug Administration was presented with and first approved
negative pressure equipment that was subsequently marketed as the VAC, by KCI
(Kinetic Concepts, Inc). In medical trials, the treatment was as safe, and more
effective, than moist treatment for diabetic ulcers.
: Ann Chir Plast Esthet. 1996 Oct;41 (5):583-9. Vacuum assisted closure. Wound
healing by negative pressure
Voinchet V, Magalon G.
Service de Chirurgle Plastique et Reconstructrice, Hopital de la Conception,
Marseille.
"Vacuum Assisted Closure" (VAC) is a noninvasive negative pressure healing
process indicated in the treatment of chronic wounds associated with unfavorable
local or systemic factors. It is indicated for the treatment of traumatic and/or
surgical skin defects in order to accelerate the healing process. VAC is based
on a simple technology of controlled depression of the lesion which healing
process. It exerts a mechanical force on the tissues and attracts the wound
edges centripetally. It induces an increased peripheral blood flow, improved
local oxygenation and promotes angiogenesis and proliferation of good quality
granulation tissue. Wound healing in a humid medium is complete or may require
secondary surgical management (skin graft, flaps). The preferential indications
for Vacuum Assisted Closure include pressure sores, leg ulcer, wounds with skin
defects, burns, complications of surgical wounds and delayed healing.
Additional Data:
Market cap at financing 60.8M
Avg NPV of DD by funds: 108M
Current Market Cap: 26M
COMPANY MILESTONE DELAY PROGRESSION:
STATEMENTS MADE BY KERRY GRAY TO BRENCOURT RESEARCH ANALYSTS ON VARIOUS DATES
1. LAUNCH OF ALTRAZEAL PRODUCT
o NOV 2006 Presentation - Q I/Q2 2007 launch
o MAY 1,2007 - "Confident will launch in 2007"
o NOV. 14, 2007 - launch in Q I 2008 in acute/burn selling
o FEB 25, 2008 - Expect to launch Q2 2008
2. ORADISC A (FDA APPROVED SINCE 04)
o NOV. 2006 Pres. - Revenues of $2.2M in 2007
o MAY 1, 2007 - Development moving forward to launch. Cardinal doing
manufacturing and well ahead of plan on prep. for launch.
o UBS Conference (Sept 25, 2007) - $5-6M in royalties/milestones in 07
o NOV. 14, 2007 - Factory acceptance tests underway. Had 3 month delay in
some of the manufacturing equipment
o FEB 25, 2008 - Expect to launch in 2Q 2008
3. CLINICAL DATA
o NOV. 2006: Discussion of military study and parkland study both about to
begin
o MAY 1, 2007: Parkland study about to begin enrollment. Had delays due to
focus on NIH grant work. Should take 60-75 days to enroll skin graft
study, 21 days for edpt, I mo for data - so Sept 2007 target. Military
study is less clear when will begin. Beginning conversations with Walter
Reed hospital
o UBS CONFERENCE (SEPT 25, 2007): Military study, 72 pts, 6-8 months to
data, Southwestern study, 42 patients, 3--+ months to data
o NOV. 14, 2007 -Parkland study enrollment has been below expectation. Had
thought would get data on 4Q07, now thinks Q108. I" Military site in
Germany has begun. Walter Reed study should initiate in next 30 days. Will
get veterinary data end of 2007, confidence is very high.
o FEB. 25, 2008: Parkland study continues to be challenging. Enrollment not
what we expected. Dr. Roerich interacting w/ Dean to address. Have gone to
5 other additional groups to run studies to get data pre launch. Should
begin additional studies by early March, smaller so should take only a few
weeks to complete. On military study I" patient will be enrolled in 70
days (mid May 2008) and perhaps will lower enrollment to 40 pts.
4. PARTNERSHIPS
o NOV 2006 - Will have product development agreements with 3 companies in
next 120 days. Novartis have 6 agreements pending.
o MAY 1,2007 - "absolutely convinced" will sec substantial business
development agreements before year end. Particularly in breast
augmentation application which is moving faster than expected. Hints that
there are some transaction nearing completion stage and would be announced
in coming months.
o FEB 25, 2008 - Breast partner had "hiccup" when new person came on and
raised questions, but now back on track. Novartis consumer prod.
relationship is "going well". Thinks can get relationship in 3-6 months,
milestone pmt in 6 mos. Thinks can get licensing deal for actives in wound
care in 2H08. Veterinary program data should have been available in March
6th, thinks could lead to agreement in 6 months for all animal
applications.
5. FINANCIALS
[Enlarge/Download Table]
ACTUAL ACTUAL PROJECTED VARIANCE
REVENUE 2006 2007 2007E %
-----------------------------------------------------------------------------------------------
License Fees 891,576 909,252 8,485,000 (89.3%)
Royalty Income 373,845 281,491 1,180,000 (79.6%)
Product Sales 155,208 0 3,000,000 (100.0%)
Other 113,824 275,000 1,060,000 (74.1%)
-----------------------------------------------------------------------------------------------
TOTAL REVENUE 1,534,453 1,465,743 13,025,000 (89.5%)
Cost of Goods Sold 181,546 0 330,000
Gross Profit 1,352,907 1,465,748 13,595,000 (89.2%)
Research and Development 1,950,376 2,211,698 3,928,475 (43.7%)
General & Administrative 1,878,067 3,045,065 4,493,905 (32.2%)
Depn & Amort 1,116,277 1,151,295 1,515,953 (24.1%)
-----------------------------------------------------------------------------------------------
OPERATING INCOME/(LOSS) (3,591,813) (4,942,313) 3,656,667 (235.2%)
COMPANY PLAN AS PRESENTED NOVEMBER 6, 2006
[Enlarge/Download Table]
2007 2008 2009 2010 2011
------------------------------------------------------------------------------------------------------------
License Fees 17,485,000 21,945,000 30,560,000 29,405,000 63,300,000
Royalty Income 1,380,000 6,835,000 13,990,000 27,930,000 52,880,000
Product Sales 3,000,000 10,000,000 20,000,000 50,000,000 100,000,000
Sponsored R&D 560,000 480,000 120,000 0 0
------------------------------------------------------------------------------------------------------------
TOTAL REVENUE 22,425,000 39,260,000 64,670,000 107,335,000 216,180,000
Cost of Sales 330,000 1,050,000 2,100,000 4,500,000 8,000,000
------------------------------------------------------------------------------------------------------------
Gross Profit 22,095,000 38,210,000 62,570,000 102,835,000 208,180,000
R&D 4,428,475 6,588,879 9,270,142 11,621,825 13,112,259
G&A 4,493,905 7,270,789 10,324,153 14,692,917 17,528,602
D&A 1,515,953 1,128,400 1,125,542 1,125,542 1,070,588
------------------------------------------------------------------------------------------------------------
OPER. INCOME 11,656,667 23,221,932 41,850,163 75,394,716 176,468,551
REVISED COMPANY MODEL - LATE NOV. 2006
[Enlarge/Download Table]
2007 2008 2009 2010 2011 2012
-----------------------------------------------------------------------------------------------------------------------------
License Fees 8,485,000 15,445,000 21,560,000 20,905,000 31,800,000 56,000,000
Royalty Income 1,380,000 5,635,000 11,690,000 19,130,000 33,180,000 57,250,000
Product Sales 3,000,000 10,000,000 20,000,000 50,000,000 100,000,000 130,000,000
Sponsored R&D 1,060,000 980,000 120,000 0 0 0
-----------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUE 13,925,000 32,060,000 53,370,000 90,035,000 164,980,000 243,250,000
Cost of Sales 330,000 1,050,000 2,100,000 4,500,000 8,000,000 10,000,000
-----------------------------------------------------------------------------------------------------------------------------
Gross Profit 13,595,000 31,010,000 51,270,000 85,535,000 156,980,000 233,250,000
R&D 3,928,475 6,588,879 9,270,142 11,221,825 12,712,259 14,825,000
G&A 4,493,905 7,270,789 10,324,153 14,692,917 17,528,602 19,400,000
D&A 1,515,953 1,128,400 1,125,500 1,125,500 1,070,600 1,070,600
-----------------------------------------------------------------------------------------------------------------------------
OPER. INCOME 3,656,667 16,021,932 30,550,205 58,494,758 125,668,539 197,954,400
Dates Referenced Herein and Documents Incorporated by Reference
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