Derma Sciences Reports First Quarter 2013 Financial Results

Derma Sciences Reports First Quarter 2013 Financial Results

Net Sales up 23%; Advanced Wound Care Sales up 67% Including 33% Organic Growth

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 three months ended March 31, 2013. Highlights of the first quarter of 2013 and recent weeks include:

  • Net sales of $18.8 million, up 23% over the prior-year first quarter; up 12% excluding sales from the April 2012 Total Contact Cast (TCC) acquisition

  • Advanced wound care (AWC) product sales of $7.5 million, up 67% over the prior-year first quarter; up 33% excluding TCC sales

  • AWC products accounted for 40% of net sales, compared with 29% of net sales in the first quarter of 2012

  • Traditional wound care (TWC) product sales of $11.3 million, up 5% over the prior-year first quarter

  • Gross margin of 35.7%, up 3.8 percentage points from gross margin of 31.9% in the first quarter of 2012; excluding TCC, gross margin of 33.6%

  • Net loss of $6.2 million, or $0.38 per share, compared with a net loss of $2.5 million, or $0.24 per share, in the prior-year first quarter

  • Commenced patient enrollment in the second of two Phase 3 trials with DSC127 for the treatment of diabetic foot ulcers

  • Signed an agreement with Plexus Ventures to assist exploring strategic alternatives for DSC127 outside of the U.S.

Management Commentary

"We are pleased to report another quarter of strong sales and operational results in line with our internal forecast," said Edward J. Quilty, chairman and chief executive officer of Derma Sciences. "Sales of AWC products rose 67% over the prior year, with 33% organic growth, but declined slightly as expected on a sequential basis due to seasonality in the business. The TCC-EZ® total contact cast system continued to perform extremely well, growing 9% over the fourth quarter of 2012. TCC-EZ is becoming an anchor product in our AWC portfolio, yet with market penetration below 2%, there is plenty of room for growth. Our innovative, proprietary, AWC products now account for 40% of our total sales and are driving our gross margin expansion. We expect our organic AWC sales to grow between 30% and 40% in 2013, and our segment contribution to be near break-even in the fourth quarter."

Mr. Quilty continued, "The two Phase 3 trials with our drug candidate DSC127 for diabetic foot ulcer healing are underway with site initiations ongoing. The first trial, a two-arm study with 211 patients in each arm, commenced in February, and the second trial, a three-arm study with 211 patients in each arm, commenced in April. We expect data readout from both trials in the second quarter of 2015. We have also engaged a firm to explore partnering and/or out-licensing opportunities for DSC127 outside of the U.S., and expect this process to be ongoing through the year.

"Sales of our TWC products grew nicely over the prior year, with our first aid products doing well," he added. "Sales in Canada, however, have been impacted by the loss of TWC sales in a very competitive marketplace. In addition, first quarter sales tend to be the softest of all the quarters each year. We expect growth of our TWC products to be between 0 and 2% in 2013."

Financial Results

Net sales for the first quarter of 2013 were $18.8 million, compared with $15.3 million for the first quarter of 2012, an increase of 23%. This included 67% growth in sales of AWC products to $7.5 million from $4.5 million in the prior-year quarter. Excluding TCC sales from both periods, sales of AWC products increased 33%. Sales of TWC products were $11.3 million for the quarter, up 5% over $10.8 million in the prior year, driven by higher sales of first-aid and private-label products, partially offset by lower Canada sales.

Gross profit for the first quarter of 2013 was $6.7 million, or 35.7% of net sales, compared with gross profit for the first quarter of 2012 of $4.9 million, or 31.9% of net sales. The increase in gross margin reflected increased sales of higher-margin AWC products, which accounted for 40% of net sales in the quarter compared with 29% of net sales in the same period last year, and favorable TWC product mix and costs (principally cotton prices).

Selling, general and administrative expense for the first quarter of 2013 was $9.9 million, compared with $6.4 million for the first quarter of 2012. The increase was principally due to higher expenditures associated with advanced wound care growth initiatives, together with higher stock based compensation, TCC-related amortization expense and professional service expense.

Research and development expense for the first quarter of 2013 was $3.0 million, compared with $1.1 million in the first quarter of 2012, with the increase due to expenses associated with preparing for and initiating the DSC127 Phase 3 program.

The net loss for the first quarter of 2013 was $6.2 million, or $0.38 per share, compared with a net loss for the first quarter of 2012 of $2.5 million, or $0.24 per share. The increase in net loss was principally due to higher research and development expense, higher stock-based compensation expense of $1.0 million and $0.5 million of additional expense for amortization of intangible assets, principally related to the TCC acquisition.

As of March 31, 2013, Derma Sciences had cash, cash equivalents and investments of $43.7 million, compared with cash, cash equivalents and investments of $45.8 million as of December 31, 2012.

Conference Call and Webcast

Derma Sciences management will host a conference call to discuss first 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: 68814353. 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 May 22, 2013 and can be accessed by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international). All listeners should provide the following passcode: 68814353. 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 its Phase 3 clinical trial 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.

DERMA SCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(UNAUDITED)

Three Months Ended

March 31,

2013

2012

Net Sales

$

18,789,746

$

15,277,366

Cost of sales

12,085,281

10,401,206

Gross Profit

6,704,465

4,876,160

Operating Expenses

Selling, general and administrative

9,853,085

6,359,090

Research and development

2,993,166

1,114,698

Total operating expenses

12,846,251

7,473,788

Operating loss

(6,141,786

)

(2,597,628

)

Other expense (income), net:

Interest income

(6,023

)

(5,079

)

Other expense (income), net

94,827

(54,884

)

Total other expense (income), net

88,804

(59,963

)

Loss before income taxes

(6,230,590

)

(2,537,665

)

Income tax expense

14,188

1,236

Net Loss

(6,244,778

)

(2,538,901

)

Other Comprehensive (Loss) Income

Foreign currency translation adjustment

(49,685

)

79,340

Comprehensive Loss

$

(6,294,463

)

$

(2,459,561

)

Net loss per common share - basic and diluted

$

(0.38

)

$

(0.24

)

Shares used in computing net loss per common share - basic and diluted

16,593,677

10,610,111

DERMA SCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

March 31,

December 31,

2013

2012

ASSETS

Current Assets

Cash and cash equivalents

$

38,453,049

$

41,616,657

Short-term investments

3,720,000

3,730,000

Accounts receivable, net

6,933,383

7,085,713

Inventories

13,252,222

13,670,588

Prepaid expenses and other current assets

3,118,539

3,209,031

Total current assets

65,477,193

69,311,989

Long-term investments

1,494,000

498,000

Equipment and improvements, net

3,147,091

3,304,852

Identifiable intangible assets, net

16,486,847

17,128,883

Goodwill

13,457,693

13,457,693

Other assets

140,154

141,213

Total Assets

$

100,202,978

$

103,842,630

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities

Accounts payable

$

4,596,319

$

3,993,687

Accrued expenses and other current liabilities

3,196,972

4,132,934

Total current liabilities

7,793,291

8,126,621

Long-term liabilities

293,113

268,517

Deferred tax liability

1,678,093

1,736,299

Total Liabilities

9,764,497

10,131,437

Stockholders' Equity

Convertible preferred stock, $.01 par value; 1,468,750 shares

authorized; issued and outstanding 73,332 shares at March 31,

2013 and December 31, 2012 (liquidation preference of

$3,222,368 at March 31, 2013)

733

733

Common stock, $.01 par value; shares authorized 25,000,000;

issued and outstanding 16,765,347 at March 31, 2013 and

16,524,723 at December 31, 2012

167,653

165,247

Additional paid-in capital

135,182,428

132,163,083

Accumulated other comprehensive income -

cumulative translation adjustments

1,539,203

1,588,888

Accumulated deficit

(46,451,536

)

(40,206,758

)

Total Stockholders' Equity

90,438,481

93,711,193

Total Liabilities and Stockholders' Equity

$

100,202,978

$

103,842,630



Derma Sciences, Inc.
John E. Yetter, 609-514-4744
Executive Vice President of Finance, CFO
jyetter@dermasciences.com
or
LHA
Kim Sutton Golodetz, 212-838-3777
kgolodetz@lhai.com
or
Bruce Voss, 310-691-7100
bvoss@lhai.com

KEYWORDS: United States North America New Jersey

INDUSTRY KEYWORDS:

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