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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