The company reported last week that gross margins in its nutraceutical business had increased to 68 per cent for the second quarter of 2005 compared to 60 per cent for the prior year's same quarter.
"This increase was caused primarily by lower costs of ascorbic acid resulting from lower-cost extended supply arrangements," said the firm in a statement.
Revenues from this business also increased, by 14 per cent to $9.8 million, thanks to increased spend on national TV and radio advertising to support the launch of its new vitamin E brand Ester-E and the start of the cold and flu season for Ester-C.
However these higher marketing and selling costs (up 45 per cent on the prior quarter to $6.1 million) ate into operating profit at the firm, which continues to remain in the red.
Zila has increased spending on marketing by 50 per cent during the first half of this year compared to 2004 and its loss from operations has more than doubled to $5.3 million. Net losses reached $2.7 million for the quarter compared with $961,000 in the prior year.
However Zila president and CEO Doug Burkett says the firm can continue to sustain this level of spending to increase long-term growth potential, and shore up development of its fledgling pharmaceutical business.
"We remain committed to our efforts to aggressively support Zila Nutraceuticals, our growth business of today, and Zila Pharmaceuticals and Biotechnology, our growth businesses of tomorrow, with the resources required to maximize long-term return," he said.
"Those costs have accelerated sharply over the last year, as we are launching new products at Nutraceuticals and Pharmaceuticals and advancing our OraTest regulatory effort [a cancer detection product]," he added.
"While that means that our bottom line is likely to remain under pressure for the near term, it's consistent with our strategy to generate future growth and become profitable following completion of the OraTest regulatory effort and eventual product launch."
The company is also continuing to evaluate its Swab Technologies unit, which contributed to a decline in overall group sales following the loss of a key customer. Sales for this subsidiary fell to $115,000 compared to $1.7 million last year.