Derma Sciences Reports 2012 Fourth Quarter and Full Year Financial Results

Derma Sciences Reports 2012 Fourth Quarter and Full Year Financial Results

-Fourth Quarter Net Sales up 22%, Led by a 73% Increase in Sales of Advanced Wound Care Products-

-First Patients Enrolled in DSC127 Phase 3 Trials-

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

PRINCETON, N.J.--(BUSINESS WIRE)-- Derma Sciences, Inc. (NAS: DSCI) , a medical device and pharmaceutical company focused on advanced wound care, today reported financial and operating results for the fourth quarter and year ended December 31, 2012. Highlights of the fourth quarter of 2012 and recent weeks include:

• Net sales were $20.1 million in the fourth quarter of 2012, up 22% over the prior-year fourth quarter and up 2% sequentially; net sales for the year were $72.6 million, up 16% over 2011

• Advanced wound care product sales were $7.7 million in the fourth quarter of 2012, up 73% over the prior-year fourth quarter and up 13% sequentially

• Excluding $2.0 million of Total Contact Cast (TCC) sales resulting from the April 2012 MedEfficiency acquisition, advanced wound care product sales in the fourth quarter of 2012 were up 41% compared with the prior-year fourth quarter and up 14% sequentially

• Advanced wound care products accounted for 38% of net sales in the fourth quarter of 2012, compared with 27% of net sales in the fourth quarter of 2011

• Traditional wound care product sales were $12.4 million in the fourth quarter of 2012, up 3% over the prior-year fourth quarter and down 3% sequentially due to the seasonality of first aid products and lower demand in Canada

• Gross margin was 35.6% in the fourth quarter of 2012, 7.7 percentage points higher compared with gross margin of 27.9% in the fourth quarter of 2011

• Net loss was $3.7 million, or $0.27 per share in the fourth quarter of 2012, compared with a net loss of $2.5 million, or $0.23 per share in the prior-year fourth quarter, reflecting incremental research and development expense of $2.0 million

• Commenced patient enrollment in the first of two Phase 3 studies with DSC127 for the treatment of diabetic foot ulcers with data readout from both studies on track for the second quarter of 2015

• Raised net proceeds of $33.8 million principally to support the further development of DSC127

Management Commentary

"The fourth quarter and recent weeks capped off an exceptional and rewarding year that was marked by significant achievements in all our business initiatives, with excellent sales performance and the start of our Phase 3 trials with DSC127 in diabetic foot ulcer healing," said Edward J. Quilty, chairman and chief executive officer of Derma Sciences. "Our financial results were on plan with organic sales growth of advanced wound care products excluding TCC products of 41% and sales growth of traditional wound care products of 3%, both compared with last year's fourth quarter. In addition, the TCC-EZ® total contact casting system has become an anchor product in our advanced wound care product portfolio, along with MEDIHONEY. Advanced wound care products' sales growth, on a sequential basis of 13%, shows the traction of our 67-person global sales force, an impressive figure in light of the fact that the third quarter typically tends to reflect the strongest seasonal sales for all our products."

Mr. Quilty added, "Gains in gross margin reflect the increasing contribution to our top line of higher-margin, technologically innovative advanced wound care products, which now account for more than 38% of net sales, up from 27% a year ago. We expect this trend to continue in 2013. Importantly, as our products become better known and more highly valued by wound care professionals, the sales process has become faster and more efficient. We expect our advanced wound care sales to continue to grow between 30% and 40% during 2013, and also expect this business segment to become cash flow positive by the end of the year.

"We are very excited about the prospects for DSC127 in the healing of diabetic foot ulcers as this is a large and growing market with few effective treatment options," Mr. Quilty continued. "In February, we began the first of the two Phase 3 trials, which will enroll 422 patients in two arms. We expect patient screening to begin in April for the second trial, which is a three-arm study that will enroll 633 patients. In addition, we have begun enrolling patients in our chronic-use safety study and will continue to treat patients through the time of filing our New Drug Application with the U.S. Food and Drug Administration. There will be more than 85 sites conducting these studies and we are highly encouraged by the level of investigator interest. We continue to be on track to complete both trials and report results in the second quarter of 2015.

"We estimate that the global market for DSC127 for the treatment of diabetic foot ulcers is approximately $900 million annually, more than $300 million of which is in the U.S. Should DSC127 be approved, it will fit seamlessly with our advanced wound care product portfolio being sold by our sales force. With respect to plans outside the U.S., we are in the final stages of selecting our business development partner to assist with the process of out-licensing the drug and expect the out-licensing process to commence in April and continue through 2013.

Mr. Quilty concluded, "Our traditional wound care products performed as expected during the quarter with growth driven by first-aid and private-label products, and contributed positive cash flow to support our advanced wound care efforts. We expect continued positive cash contribution during 2013, with expectations of flat to 2% sales growth."

Financial Results

Net sales for the fourth quarter of 2012 were $20.1 million, compared with $16.5 million for the fourth quarter of 2011, an increase of 22%. This reflects 73% growth in sales of advanced wound care products to $7.7 million from $4.5 million in the prior-year quarter. Fourth quarter advanced wound care product sales include $2.0 million in TCC gross sales. Excluding sales of TCC products from both periods, sales of advanced wound care products grew 41%. Sales of traditional wound care products were $12.4 million, up 3% over $12.1 million in the prior year, driven by higher sales of first-aid and private-label products.

Gross profit for the fourth quarter of 2012 was $7.2 million or 35.6% of net sales, up from $4.6 million or 27.9% of net sales for the fourth quarter of 2011. The increase in gross margin reflected increased sales of higher-margin advanced wound care products, which accounted for 38% of net sales in the quarter compared with 27% of net sales in the same period last year.

Selling, general and administrative expense for the fourth quarter of 2012 was $8.8 million, compared with $6.3 million for the fourth quarter of 2011. The increase was principally due to higher expenditures associated with advanced wound care growth initiatives.

Research and development expense for the fourth quarter of 2012 was $2.6 million, compared with $0.6 million in the fourth quarter of 2011, with the increase largely due to expenses associated with preparing for the DSC127 Phase 3 program.

The net loss for the fourth quarter of 2012 was $3.7 million, or $0.27 per share, compared with a net loss for the fourth quarter of 2011 of $2.5 million, or $0.23 per share. Higher research and development expenses were principally responsible for the larger net loss.

For the full year, net sales in 2012 were $72.6 million, compared with $62.6 million in 2011, an increase of 16%. Advanced wound care sales were $24.8 million in 2012, an increase of 56%. Excluding sales of TCC products from both years, sales of advanced wound care products grew 33%. The Company reported a net loss for 2012 of $12.1 million, or $0.97 per share, compared with a net loss for 2011 of $4.3 million, or $0.49 per share.

As of December 31, 2012, Derma Sciences had cash, cash equivalents and investments of $45.8 million, compared with cash, cash equivalents and investments of $22.6 million as of December 31, 2011.

Conference Call and Webcast

Derma Sciences management will host a conference call to discuss fourth 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: 24248661. 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 April 6, 2013 and can be accessed by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international). All listeners should provide the following passcode: 24248661. The webcast will 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 to address chronic wounds including diabetic ulcers; and traditional dressings. The Company has begun Phase 3 clinical trials in diabetic foot ulcer healing with DSC127, based on excellent Phase 2 data. 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. TCC-EZ® is its gold-standard total contact casting system for diabetic foot ulcers. Other novel products introduced into the $14 billion global wound care market include XTRASORB® for better management of wound exudate, and BIOGUARD® for infection prevention.

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.