Derma Sciences Reports Third Quarter Financial Results
Derma Sciences, Inc. (Nasdaq:DSCI), a tissue regeneration company focused on advanced wound and burn care, today reported financial and operating results for the three and nine months ended September 30, 2014.
Highlights of the third quarter of 2014 and recent weeks include (all comparisons are with the third quarter of 2013):
- Advanced Wound Care (AWC) product sales increased 4.2% to $9.5 million, led by sales of MEDIHONEY(R) and TCC-EZ(R)
- AWC product sales increased 7.5% compared with the second quarter of 2014
- Traditional Wound Care (TWC) product sales were $10.7 million, a decrease of $2.3 million or 17.7%
- Total net sales decreased 8.7% to $20.2 million
- Gross margin was 31.5%, compared with 36.4%
- Enrollment in DSC127 Phase 3 program expected to reach halfway point during first quarter of 2015
- Positive data with AMNIOEXCEL(R) and TCC-EZ in healing chronic wounds and diabetic foot ulcers presented at the Fall 2014 Symposium on Advanced Wound Care (SAWC)
- Improved 2015 final reimbursement published by the Centers for Medicare and Medicaid Services (CMS) for AMNIOEXCEL and TCC-EZ
“We are pleased that our AWC business, the growth engine of Derma Sciences, rebounded from a slow start in 2014 with revenues for the third quarter increasing 7.5% over the second quarter. Based upon robust preliminary AWC sales in October, which were $4.4 million, an increase of 46% over the same month last year, we expect to report strong double-digit growth for the fourth quarter compared with the third quarter,” said Edward J Quilty, chairman and chief executive officer of Derma Sciences.
“Last week we reported that CMS significantly increased reimbursement for TCC-EZ effective January 1, 2015. Total contact casting is the gold standard for the treatment of diabetic foot ulcers and TCC-EZ is the leading brand in this category. We are pleased that CMS has recognized the appropriate value of using TCC-EZ and its improved healing rates. The new reimbursement rates should encourage utilization of this technology by clinicians.
“Gross margin for the quarter was adversely impacted by product mix and higher manufacturing costs primarily associated with adding staff in anticipation of increasing revenue, as well as by unfavorable foreign currency exchange and a one-time charge of $400,000 related to TCC-EZ quality issues. This issue has now been addressed to our satisfaction,” Mr. Quilty added.
“The TWC business continues to perform to our expectations and provides Derma Sciences with healthy, positive cash flow. A substantial portion of this business segment is comprised of private-label manufacturing, and ordering patterns for those products vary from quarter to quarter. We expect TWC will deliver product sales for full year 2014 of flat to low single digit percentage growth over 2013.
“Our decision to enter the placental tissue market with the licensing of AMNIOEXCEL and AMNIOMATRIX has been validated. As expected, 2014 has been a foundational year in which our team has diligently put into place all the building blocks necessary to be a key player in one of the fastest growing segments in advanced wound care. We are pleased with the final 2015 CMS reimbursement rate for AMNIOEXCEL and believe our pricing strategy and the performance of our product make it an excellent treatment option. We have implemented clinical studies to affirm the efficacy of our products and expect results to be available during 2015. We will use that data as part of our reimbursement efforts with commercial payers, as well as with Medicare Administrative Contractors,” Mr. Quilty concluded.
Commenting on the DSC127 Phase 3 program, Barry Wolfenson, Group President, Advanced Wound Care and Pharmaceutical Development, said, “A number of the activities we put in place earlier this year have continued to favorably impact enrollment. Our South African sites are beginning to positively affect enrollment and we have added productive sites in place of underperforming ones. We had our strongest monthly enrollment to date during October. We reaffirm our expectation to reach the 50% mark in enrollment during the first quarter of 2015, at which point we will provide an update.”
Net sales for the third quarter of 2014 were $20.2 million, compared with $22.1 million for the third quarter of 2013, a decline of 8.7%. This included AWC product sales of $9.5 million, up 4.2% from $9.1 million in the prior-year quarter. Growth in AWC product sales was led by MEDIHONEY and TCC-EZ.
TWC product sales were $10.7 million, down 17.7% from $13.0 million in the prior year, which decline reflects a $1.0 million stocking order for private-label dressings to a leading pharmacy chain in 2013 and the loss of a significant customer due to industry consolidation this year.
Gross profit for the third quarter of 2014 was $6.4 million, or 31.5% of net sales, compared with gross profit for the third quarter of 2013 of $8.0 million, or 36.4% of net sales. The lower gross margin principally reflects higher manufacturing costs, consisting of higher growth related personnel and infrastructure costs, inefficiencies, quality issues and foreign currency exchange.
Selling, general and administrative expense for the third quarter of 2014 was $13.0 million, compared with $10.7 million for the third quarter of 2013. The increase was principally due to higher personnel and operating expenses primarily associated with AWC growth initiatives.
Research and development expense for the third quarter of 2014 was $4.4 million, compared with $2.7 million in the third quarter of 2013. The increase was principally attributable to increased activity surrounding patient enrollment and recruitment for the DSC127 Phase 3 clinical trials, along with incremental preclinical work with DSC127 for scar prevention and AMNIO post-marketing clinical studies.
The net loss for the third quarter of 2014 was $11.2 million, or $0.45 per share, compared with a net loss for the third quarter of 2013 of $4.9 million, or $0.29 per share. The increase in net loss was principally due to the decrease in gross profit and higher operating expenses.
Net sales for the nine months ended September 30, 2014 were $60.9 million, up 3.1% from $59.0 million for the nine months ended September 30, 2013. AWC product sales were $26.6 million, up 8.8% compared with $24.5 million in the prior-year period. TWC product sales were $34.2 million, down slightly from $34.5 million in the prior-year period. The Company reported a net loss for the nine months ended September 30, 2014 of $30.2 million, or $1.24 per share, compared with a net loss for the comparable 2013 period of $18.5 million, or $1.09 per share.
As of September 30, 2014, Derma Sciences had cash, cash equivalents and investments of $84.5 million (excluding a $6.8 million investment in Comvita common stock held as a long-term investment), compared with $23.0 million as of December 31, 2013.
Financial and DSC127 Guidance
Derma Sciences now expects 2014 net sales will be approximately $85.0 million, representing growth of 6.6% compared with 2013 net sales with AWC growth of approximately 13%. This compares with previous guidance for net sales to be approximately $86.0 million and AWC growth to be approximately 20%. The Company now expects TWC growth to be 0% to 2%.
Based on increased enrollment expenses and the addition of new sites and the closure of underperforming sites, the Company now expects the total cost of the DSC127 Phase 3 program up to the filing of a New Drug Application with the U.S. Food and Drug Administration to be $62.5 million to $67.5 million, compared with previous estimate of $55.0 million to $60.0 million. The Company expects enrollment to reach the halfway point by the end of the first quarter of 2015, at which time an update on the trial timeline based on enrollment rates and other considerations will be provided.
Derma Sciences plans to introduce financial guidance for 2015 in early January 2015.
Conference Call and Webcast
Derma Sciences management will host a conference call at 11:00 a.m. Eastern time today to discuss third quarter financial results and answer questions. In addition, management will provide a business update and discuss recent and upcoming milestones.
To access the conference call, U.S.-based listeners should dial (888) 563-6275 and international listeners should dial (706) 634-7417. All listeners should provide the following passcode: 25747232. Individuals interested in listening to the live conference call via the Internet may do so by logging on to the Company’s website at www.dermasciences.com.
Following the conclusion of the conference call, a replay will be available through November 16, 2014 and can be accessed by dialing (855) 859-2056 from within the U.S. or (404) 537-3406 from outside the U.S. All listeners should provide passcode 25747232. The webcast will be available for 30 days.
About Derma Sciences, Inc.
Derma Sciences is a tissue regeneration company focused on advanced wound and burn care. It offers a line of products with patented technologies to help better manage chronic and hard-to-heal wounds, many of which result from diabetes and poor vascular functioning. The company recently entered the $500 million market for skin substitute products with its licensing of AMNIOEXCEL(R) and AMNIOMATRIX(R) in the first quarter of 2014. AMNIOEXCEL has been launched to customers and the Veterans Administration recently has included the product in its Federal Supply Schedule V797P-2000D. Derma Sciences’ MEDIHONEY(R) product is the leading brand of honey-based dressings for the management of wounds and burns. The product has been shown in clinical studies to be effective in a variety of indications. TCC-EZ(R) 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(R) for better management of wound exudate, and BIOGUARD(R) for barrier protection against microbes and other contaminants. Its pharmaceutical wound care products include DSC127, a patented active pharmaceutical ingredient (API) which is currently in Phase 3 clinical trials for the healing of diabetic foot ulcers. DSC127 is also in preclinical testing for scar prevention/reduction and is part of a BARDA grant program for the healing/prevention of tissue damage due to ionizing radiation exposure. The Company also offers a full product line of traditional dressings.
For more information please visit www.dermasciences.com.
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 development and commercialization of DSC127, product demand, market acceptance, impact of competitive products and prices, product development, completion of an acquisition, 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
Three Months Ended
|Cost of sales||13,809,872||14,046,660|
|Selling, general and administrative||13,012,520||10,743,489|
|Research and development||4,444,368||2,677,539|
|Total operating expenses||17,456,888||13,421,028|
|Other expense (income), net||164,690||(160,736||)|
|Loss before income taxes||(11,262,321||)||(5,226,518||)|
|Income tax benefit||(14,573||)||(277,755||)|
|Other Comprehensive (Loss) Income|
|Foreign currency translation adjustment||(100,998||)||29,061|
|Unrealized (loss) gain on equity securities, net of taxes||(591,561||)||579,711|
|Total other comprehensive (loss) income||(692,559||)||608,772|
|Net loss per common share – basic and diluted||$||(0.45||)||$||(0.29||)|
|Shares used in computing net loss per common share – basic and diluted||25,247,565||17,262,688|
Nine Months Ended
|Cost of sales||39,755,989||37,605,841|
|Selling, general and administrative||38,693,665||31,419,944|
|Research and development||12,993,234||8,913,303|
|Total operating expenses||51,686,899||40,333,247|
|Other income, net||(107,611||)||(88,663||)|
|Loss before income taxes||(30,462,889||)||(18,832,184||)|
|Income tax benefit||(258,324||)||(293,969||)|
|Other Comprehensive (Loss) Income|
|Foreign currency translation adjustment||(185,860||)||(190,039||)|
|Unrealized (loss) gain on equity securities, net of taxes||(105,551||)||579,711|
|Total other comprehensive (loss) income||(291,411||)||389,672|
|Net loss per common share – basic and diluted||$||(1.24||)||$||(1.09||)|
|Shares used in computing net loss per common share – basic and diluted||24,347,155||16,977,524|
DERMA SCIENCES, INC. AND SUBSIDIARIES
|September 30,||December 31,|
|Cash and cash equivalents||$||43,264,398||$||6,501,586|
|Accounts receivable, net||7,490,238||7,332,756|
|Prepaid expenses and other current assets||3,161,291||3,746,753|
|Total current assets||110,130,393||49,531,735|
|Equipment and improvements, net||3,288,167||2,953,469|
|Identifiable intangible assets, net||13,778,674||14,635,998|
|LIABILITIES AND STOCKHOLDERS’ EQUITY|
|Accrued expenses and other current liabilities||5,468,467||4,969,225|
|Total current liabilities||11,350,311||9,491,733|
|Deferred tax liability||1,580,949||1,694,147|
|Convertible preferred stock, $.01 par value; shares authorized 1,468,750;|
|issued and outstanding 73,332 at September 30, 2014 and|
|December 31, 2013 (liquidation preference of|
|$3,222,368 at September 30, 2014)||733||733|
|Common stock, $.01 par value; shares authorized 50,000,000;|
|issued and outstanding 25,248,398 at September 30, 2014 and|
|17,347,071 at December 31, 2013||252,484||173,471|
|Additional paid-in capital||227,743,162||140,064,607|
|Accumulated other comprehensive income||788,737||1,080,148|
|Total Stockholders’ Equity||134,409,740||77,148,148|
|Total Liabilities and Stockholders’ Equity||$||147,556,854||$||88,576,353|
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