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Derma Sciences Reports Third Quarter 2012 Financial Results
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-Net Sales up 24%, Advanced Wound Care Sales up 67%, Traditional Wound Care Sales up 9%-

-DSC127 Drug Program on Track for Phase 3 Start by Year End-

Conference call begins at 11:00 a.m. Eastern time today

PRINCETON, N.J.--(BUSINESS WIRE)--Nov. 12, 2012-- Derma Sciences, Inc. (Nasdaq: DSCI), a medical device and pharmaceutical company focused on advanced wound care, today reported financial and operating results for the three and nine months ended September 30, 2012. Highlights of the third quarter of 2012 and recent weeks include:

  • Net sales were $19.6 million, up 24% over the prior-year third quarter and up 12% over the second quarter of 2012
  • Advanced wound care product sales were $6.8 million, up 67% over the prior-year third quarter and up 18% over the second quarter of 2012
  • Excluding $1.8 million of Total Contact Cast (TCC) direct sales resulting from the MedEfficiency acquisition, advanced wound care product sales were up 36% compared with the prior-year third quarter and up 15% over the second quarter of 2012
  • Advanced wound care products accounted for 35% of net sales, up from 26% of net sales a year ago
  • Traditional wound care product sales were $12.8 million, up 9% from the prior-year third quarter and up 9% over the second quarter of 2012
  • Gross margin was 35.2%, an increase of 5.2 percentage points over gross margin of 30.0% for the third quarter of 2011
  • Net loss was $3.1 million or $0.24 per share, compared with a net loss of $0.8 million or $0.08 per share in the prior-year third quarter, reflecting higher research and development expense and expenses related to advanced wound care growth
  • Held a positive and constructive End-of-Phase 2 meeting with the U.S. Food and Drug Administration (FDA)
  • Launched MEDIHONEY® HCS (Hydrogel Colloidal Sheet) in the U.S. and featured the product at a key medical conference
  • Reached the significant $10.0 million sales milestone for MEDIHONEY, triggering a $1.0 million payment to Comvita New Zealand Ltd.
  • Strengthened ownership of key brands with an exclusive global license to the NIMBUS® antimicrobial technology available in BIOGUARD® dressings

Management Commentary

“This was an outstanding quarter across our various business segments with our financial performance exceeding expectations,” said Edward J. Quilty, chief executive officer of Derma Sciences. “We are executing on our plan to make Derma Sciences into a leading provider of wound care solutions, especially for chronic conditions, and our revenue growth for the third quarter provides tangible evidence of the soundness of our plan and confirmation of our progress.

“Our 54-person domestic field sales organization is beginning to hit its stride and we are very pleased to report 17% sequential-quarter sales growth in advanced wound care products with the same number of sales reps in both periods. We continue to expect 30% to 40% advanced wound care sales growth in 2013, and as a result our operating business, excluding DSC127 development expenses, is expected to achieve positive cash flow. In addition, as a result of the increase in our higher-margined advanced wound care products, which now account for more than one-third of net sales, our gross margin increased by more than five percentage points to 35.2% in the third quarter versus the prior year.

“As promised, revenue from advanced wound care products other than TCC products grew 36% during the quarter and 30% year-to-date, in line with our expectations for organic growth. We are very pleased that following the integration of MedEfficiency, revenues for TCC products grew 14% in the current quarter over the second quarter. Our TCC products, along with the MEDIHONEY family of dressings, are anchoring our advanced wound care product portfolio. In fact, MEDIHONEY has performed so well, that we will make a $1.0 million milestone payment to Comvita on November 30th, based on reaching $10.0 million in MEDIHONEY sales.”

Mr. Quilty continued, “Last month we held a positive and constructive meeting with the FDA to discuss our drug candidate DSC127 and we expect to submit a final protocol for Phase 3 development to the FDA by the end of the month. We remain on track to begin studies with DSC127 for the treatment of diabetic foot ulcers by the end of the year.”

Mr. Quilty added, “Our traditional wound care products performed as expected during the quarter, with growth driven by first-aid products, and contributed positive cash flow to support our advanced wound care efforts. While this business will fluctuate from quarter to quarter, we are on track to meet our annual sales growth objective of 2% to 4%.”

Financial Results

Net sales for the third quarter of 2012 were $19,649,773, compared with $15,845,934 for the third quarter of 2011, an increase of 24%. This reflects 67% growth in sales of advanced wound care products to $6,829,168 from $4,077,575 in the third quarter of 2011. Third quarter advanced wound care product sales include $1,787,396 from the operations of MedEfficiency, Inc. (MedEfficiency), which the Company acquired during the second quarter of 2012. Excluding sales of MedEfficiency products from both periods, sales of advanced wound care products grew 36%. Sales of traditional wound care products increased 9% to $12,820,605, compared with $11,768,359, driven by higher first-aid product sales and the replenishment of distributor inventories in Canada that were drawn down during the first half of 2012.

Gross profit for the third quarter of 2012 was $6,908,174 or 35.2% of net sales, up from $4,749,619, or 30.0% of net sales, for the third quarter of 2011. The increase in gross margin reflects increased sales of higher-margin advanced wound care products, which accounted for 35% of net sales for the quarter compared with 26% of net sales in the same period last year.

Selling, general and administrative expense for the third quarter of 2012 was $8,058,441, compared with $5,141,548 for the third quarter of 2011. The increase was principally due to higher sales, marketing and administrative expenditures associated with advanced wound care growth initiatives.

Research and development expense for the third quarter of 2012 was $1,923,670, compared with $200,541 in the third quarter of 2011, reflecting expenses associated with preparing for the DSC127 Phase 3 program.

The net loss for the third quarter of 2012 was $3,055,006 or $0.24 per share, compared with a net loss for the third quarter of 2011 of $789,257 or $0.08 per share. Higher compensation and benefit costs, incremental growth-related sales, marketing and administrative costs, and higher research and development expenses were principally responsible for the larger net loss.

For the nine months ended September 30, 2012, net sales were $52,536,938, compared with $46,096,813 in the comparable prior-year period, an increase of 14%. Advanced wound care sales were $17,126,374 for the nine months ended September 30, 2012, an increase of 49%. Excluding sales of MedEfficiency products from both periods, sales of advanced wound care products grew 30%. The Company reported a net loss of $8,385,956 or $0.69 per share for the nine months ended September 30, 2012, compared with a net loss of $1,887,615 or $0.23 per share in the prior-year period.

As of September 30, 2012, Derma Sciences had cash, cash equivalents and investments of $15,620,234, compared with cash, cash equivalents and investments of $22,584,350 at December 31, 2011.

Conference Call and Webcast

Derma Sciences management will host a conference call to discuss third quarter financial results and answer questions beginning at 11:00 a.m. Eastern time today. In addition, management will provide a business update and discuss recent and upcoming milestones.

To participate in the conference call, dial (888) 563-6275 (domestic) or (706) 634-7417 (international). All listeners should provide the following passcode: 59532587. Individuals interested in listening to the live conference call via the Internet may do so by logging onto the Company's website, www.dermasciences.com.

Following the end of the conference call, a replay will be available through November 18, 2012 and can be accessed by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international). All listeners should provide the following passcode: 59532587. The webcast will also be available for 30 days.

About Derma Sciences, Inc.

Derma Sciences is a medical technology company focused on three segments of the wound care marketplace: pharmaceutical wound care products, advanced wound care dressings and traditional dressings. Derma Sciences has successfully completed a Phase 2 clinical trial in diabetic foot ulcer healing with DSC127, an investigational pharmaceutical drug under development for accelerated wound healing and scar reduction, and is preparing to begin Phase 3 clinical trials. Its MEDIHONEY® product is the leading brand of honey-based dressings for the management of wounds and burns. The product has been shown to be effective in a variety of indications, and was the focus of a positive large-scale, randomized controlled trial involving 108 subjects with leg ulcers. Other novel products introduced into the $14 billion global wound care market include XTRASORB® for better management of wound exudate, BIOGUARD® for infection prevention and TCC-EZ™, a gold-standard treatment for diabetic foot ulcers.

For more information please visit www.dermasciences.com.

Forward-Looking Statements

Statements contained in this news release that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as "may," "will," "expect," "believe," "anticipate," "intend," "could," "estimate" or "continue" are intended to identify forward-looking statements. Readers are cautioned that certain important factors may affect the Company's actual results and could cause such results to differ materially from any forward-looking statements that may be made in this news release or that are otherwise made by or on behalf of the Company. Factors that may affect the Company's results include, but are not limited to, product demand, market acceptance, impact of competitive products and prices, product development, completion of an acquisition, commercialization or technological difficulties, the success or failure of negotiations and trade, legal, social and economic risks. Additional factors that could cause or contribute to differences between the Company's actual results and forward-looking statements include but are not limited to, those discussed in the Company's filings with the U.S. Securities and Exchange Commission.

 
DERMA SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
         
  Three Months Ended
September 30,
    2012   2011
Net Sales $ 19,649,773     $ 15,845,934  
Cost of sales     12,741,599       11,096,315  
Gross Profit     6,908,174       4,749,619  
Operating Expenses      
Selling, general and administrative   8,058,441       5,141,548  
Research and development     1,923,670       200,541  
Total operating expenses     9,982,111       5,342,089  
Operating loss     (3,073,937 )     (592,470 )
Other (income) expense, net:      
Interest (income) expense   (2,454 )     44,470  
Loss on debt extinguishment   -       176,101  
Other (income) expense, net     (66,781 )     58,537  
Total other (income) expense, net     (69,235 )     279,108  
Loss before income taxes   (3,004,702 )     (871,578 )
Income tax expense (benefit)     50,304       (82,321 )
Net Loss   $ (3,055,006 )   $ (789,257 )
Net loss per common share - basic & diluted   $ (0.24 )   $ (0.08 )
Shares used in computing net loss per common share– basic & diluted     12,875,476       10,474,637  
 
 
         
Nine Months Ended
September 30,
    2012   2011
Net Sales $ 52,536,938     $ 46,096,813  
Cost of sales     34,554,029       32,291,998  
Gross Profit     17,982,909       13,804,815  
Operating Expenses      
Selling, general and administrative   23,646,715       14,824,887  
Research and development     4,553,697       494,935  
Total operating expenses     28,200,412       15,319,822  
Operating loss     (10,217,503 )     (1,515,007 )
Other (income) expense, net:      
Interest (income) expense   (13,304 )     259,899  
Loss on debt extinguishment   -       176,101  
Other income, net     (65,596 )     (56,213 )
Total other (income) expense, net     (78,900 )     379,787  
Loss before income taxes   (10,138,603 )     (1,894,794 )
Income tax benefit     (1,752,647 )     (7,179 )
Net Loss   $ (8,385,956 )   $ (1,887,615 )
Net loss per common share - basic & diluted   $ (0.69 )   $ (0.23 )
Shares used in computing net loss per common share– basic & diluted     12,068,520       8,175,516  
 
 
DERMA SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
         
September 30, December 31,
2012 2011
ASSETS        
Current Assets      
Cash and cash equivalents $ 10,895,234     $ 17,110,350  
Short-term investments   4,725,000       5,225,000  
Accounts receivable, net   6,933,992       6,267,839  
Inventories   14,482,733       10,530,721  
Prepaid expenses and other current assets     1,987,313       2,099,197  
Total current assets   39,024,272       41,233,107  
Long-term investments   -       249,000  
Equipment and improvements, net   3,378,765       3,489,194  
Identifiable intangible assets, net   15,525,240       6,403,044  
Goodwill   14,527,673       7,119,726  
Other assets     141,537       129,821  
Total Assets   $ 72,597,487     $ 58,623,892  
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current Liabilities      
Accounts payable $ 4,771,026     $ 3,999,993  
Accrued expenses and other current liabilities     2,901,545       2,377,634  
Total current liabilities   7,672,571       6,377,627  
Long-term liabilities   262,598       252,684  
Deferred tax liability     1,693,745       1,146,047  
Total Liabilities     9,628,914       7,776,358  
Stockholders’ Equity      
Convertible preferred stock, $.01 par value; 1,468,750 shares
authorized; issued and outstanding 73,332 shares at September 30,
2012 and December 31, 2011 (liquidation preference of
$3,222,368 at September 30, 2012)   733       733  
Common stock, $.01 par value; shares authorized 25,000,000;
issued and outstanding 12,957,923 at September 30, 2012
and 10,577,632 at December 31, 2011   129,579       105,776  
Additional paid-in capital   97,708,900       77,374,821  
Accumulated other comprehensive income –
cumulative translation adjustments   1,651,644       1,502,531  
Accumulated deficit     (36,522,283 )     (28,136,327 )
Total Stockholders’ Equity     62,968,573       50,847,534  
Total Liabilities and Stockholders’ Equity   $ 72,597,487     $ 58,623,892  

Source: Derma Sciences, Inc.

Derma Sciences, Inc.
John E. Yetter, 609-514-4744
Vice President and CFO
jyetter@dermasciences.com
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LHA
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