PRINCETON, N.J.--(BUSINESS WIRE)--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, 2013. Highlights of the third quarter of 2013 and recent weeks include:
- Advanced wound care (AWC) product sales of $9.1 million, up 33% over the prior-year third quarter
- AWC products represented 41% of total net sales, compared with 35% of total net sales in the third quarter of 2012
- Traditional wound care (TWC) product sales of $13.0 million, up 1% from the prior-year third quarter
- Net sales of $22.1 million, up 12% over the prior-year third quarter
- Gross margin of 36.4%, up 1.2 percentage points from the third quarter of 2012
- Net loss of $4.9 million, or $0.29 per share, compared with a net loss of $3.1 million, or $0.24 per share, in the prior-year third quarter
- Equity investment in Comvita Ltd. of $7.0 million to allow for better control of honey supply, processing and costs
- Shipped $1.0 million initial stocking order for over the counter (OTC) MEDIHONEY® and XTRASORB® products to a large U.S. retail pharmacy chain
Management Commentary
“Our third quarter results reflect our continued success with the strategy we put in place several years ago to focus on the AWC segment of the market by expanding our innovative product offering and building out our sales infrastructure,” said Edward J. Quilty, chairman and chief executive officer of Derma Sciences. “Net sales during the quarter were up 12%, with gains in AWC product sales within our stated expectations for 30% to 40% annual organic growth driven by our flagship AWC products MEDIHONEY and TCC-EZ®. Our momentum was also evident on a sequential-quarter basis, with net sales up 22% and AWC sales up 15%.”
Mr. Quilty added, “The global demand for medical-grade honey has been increasing rapidly, and during the quarter we made a $7.0 million equity investment in our partner Comvita to assist them with their purchase of additional apiaries and upgrade and expand their Manuka honey processing capabilities. These steps will help serve to improve the reliability of supply and better control the cost of the medical-grade honey we require for our MEDIHONEY line of products.
“During the quarter we shipped a large stocking order of private-label OTC MEDIHONEY and XTRASORB dressings to a leading U.S. retail pharmacy chain, offsetting lower sales in Canada, which contributed to TWC sales growth of 1% over the prior year. TWC sales in Canada, which were soft in recent quarters due in part to our exclusive distributor rebalancing its inventory, were up 56% over the second quarter of this year, which with the stocking order, contributed to a 27% increase over the second quarter of 2013. We continue to expect sales of our TWC products to be flat to up 2% for the full year.”
Mr. Quilty continued, “Regarding our Phase 3 trials with DSC127 for the treatment of diabetic foot ulcers, we now have 81 sites activated and screening patients. Management is focused on fully enrolling this trial and is pursuing all available options toward that objective. Adding a firm that specializes in assisting with patient enrollment has been considered for some time and we have decided to implement that program and have selected a vendor. We expect this portion of the program to be fully up and running in January and are confident it will benefit our enrollment rate.
“As we have related in the past, all current sites were planned for the U.S. and Canada. After thorough evaluation of capabilities, including the global expertise of the contract research organization we are working with, we are now planning to open several sites in the Republic of South Africa and possibly other targeted geographies, which we believe will also help enrollment. Due to the results of our pharmacokinetic study we are in the process of submitting waivers to the U.S. Food and Drug Administration (FDA), which we hope will allow us to cut out certain safety studies that would only be relevant if there were systemic exposure to the drug. Our current estimates for cost of the program up to the point of New Drug Application submission are between $45 and $55 million and for data readout to be in the third quarter of 2015. Our intention is to provide an update on patient enrollment when we reach the halfway point in the two trials,” Mr. Quilty added.
“DSC127 represents an important drug with peak sales estimates at $900 million globally should the drug be approved we expect it to be one of our key products directed to the diabetic foot ulcer space, which suffers from lack of a first-rate drug to treat this disease. We will not jeopardize the potential approval of our product by focusing on enrollment rates at the expense of not adhering to what we believe are critical aspects of our protocol,” Mr. Quilty concluded.
Financial Results
Net sales for the third quarter of 2013 were $22.1 million, up 12% from $19.6 million for the third quarter of 2012. This included AWC product sales of $9.1 million, up 33% from $6.8 million in the prior-year quarter, and TWC product sales of $13.0 million, up 1% from $12.8 million in the prior year. TWC results benefited from substantial increases in sales of private-label and first-aid products, with a large stocking order from a retail pharmacy chain offsetting lower sales in Canada.
Gross profit for the third quarter of 2013 was $8.0 million, or 36.4% of net sales, compared with gross profit for the third quarter of 2012 of $6.9 million, or 35.2% of net sales. Gross margin expansion reflects increased sales of higher-margin AWC products, which accounted for 41% of net sales in the 2013 quarter compared with 35% of net sales in the 2012 quarter.
Selling, general and administrative expense for the third quarter of 2013 was $10.7 million, compared with $8.1 million for the third quarter of 2012. The increase was principally due to higher expenditures associated with AWC growth initiatives, together with higher stock-based compensation expense, TCC-related amortization expense and professional and legal service expenses.
Research and development expense for the third quarter of 2013 was $2.7 million, compared with $1.9 million in the third quarter of 2012, with the increase due to expenses associated with conducting the DSC127 Phase 3 program.
The net loss for the third quarter of 2013 was $4.9 million, or $0.29 per share, compared with a net loss for the third quarter of 2012 of $3.1 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, higher legal costs and amortization of intangible assets, principally related to the TCC acquisition.
For the nine months ended September 30, 2013, net sales were $59.0 million, up 12% from $52.5 million in the prior-year period. The Company reported a net loss for the first nine months of 2013 of $18.5 million, or $1.09 per share, compared with a net loss for the first nine months of 2012 of $8.4 million, or $0.69 per share.
As of September 30, 2013, Derma Sciences had cash, cash equivalents and investments of $27.4 million (excluding the $7.9 million investment in Comvita common stock), compared with $45.8 million as of December 31, 2012.
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 access the conference call, U.S. participants should dial 888-563-6275 and international participants should dial 706-634-7417. All participants should provide the following passcode: 95322247. 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 19, 2013 and can be accessed by dialing (855) 859-2056 from the U.S. or (404) 537-3406 from outside the U.S. All listeners should provide passcode 95322247. 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 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 in clinical studies to be effective in a variety of indications. 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 barrier protection against microbes and other contaminants.
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.
(Tables to follow)
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DERMA SCIENCES, INC. AND SUBSIDIARIES |
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS |
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(UNAUDITED) |
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| Three Months Ended | |||||||||||
| September 30, | |||||||||||
| 2013 | 2012 | ||||||||||
| Net Sales | $ | 22,080,434 | $ | 19,649,773 | |||||||
| Cost of sales | 14,046,660 | 12,741,599 | |||||||||
| Gross Profit | 8,033,774 | 6,908,174 | |||||||||
| Operating Expenses | |||||||||||
| Selling, general and administrative | 10,743,489 | 8,058,441 | |||||||||
| Research and development | 2,677,539 | 1,923,670 | |||||||||
| Total operating expenses | 13,421,028 | 9,982,111 | |||||||||
| Operating loss | (5,387,254 | ) | (3,073,937 | ) | |||||||
| Other income, net: | |||||||||||
| Interest income | (16,510 | ) | (2,454 | ) | |||||||
| Other income, net | (144,226 | ) | (66,781 | ) | |||||||
| Total other income, net | (160,736 | ) | (69,235 | ) | |||||||
| Loss before income taxes | (5,226,518 | ) | (3,004,702 | ) | |||||||
| Income tax (benefit) provision | (277,755 | ) | 50,304 | ||||||||
| Net Loss | (4,948,763 | ) | (3,055,006 | ) | |||||||
| Other Comprehensive Income | |||||||||||
| Foreign currency translation adjustment | (29,061 | ) | (156,283 | ) | |||||||
| Unrealized gain on equity securities, net of taxes | (579,711 | ) | - | ||||||||
| Comprehensive Loss | $ | (4,339,991 | ) | $ | (2,898,723 | ) | |||||
| Net loss per common share - basic and diluted | $ | (0.29 | ) | $ | (0.24 | ) | |||||
| Shares used in computing net loss per common share – basic and diluted | 17,262,688 | 12,875,476 | |||||||||
| Nine Months Ended | |||||||||||
| September 30, | |||||||||||
| 2013 | 2012 | ||||||||||
| Net Sales | $ | 59,018,241 | $ | 52,536,938 | |||||||
| Cost of sales | 37,605,841 | 34,554,029 | |||||||||
| Gross Profit | 21,412,400 | 17,982,909 | |||||||||
| Operating Expenses | |||||||||||
| Selling, general and administrative | 31,419,944 | 23,646,715 | |||||||||
| Research and development | 8,913,303 | 4,553,697 | |||||||||
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Total operating expenses |
40,333,247 | 28,200,412 | |||||||||
| Operating loss | (18,920,847 | ) | (10,217,503 | ) | |||||||
| Other income, net: | |||||||||||
| Interest income | (30,561 | ) | (13,304 | ) | |||||||
| Other income, net | (58,102 | ) | (65,596 | ) | |||||||
| Total other income, net | (88,663 | ) | (78,900 | ) | |||||||
| Loss before income taxes | (18,832,184 | ) | (10,138,603 | ) | |||||||
| Income tax benefit | (293,969 | ) | (1,752,647 | ) | |||||||
| Net Loss | (18,538,215 | ) | (8,385,956 | ) | |||||||
| Other Comprehensive (Income) Loss | |||||||||||
| Foreign currency translation adjustment | 190,039 | (149,113 | ) | ||||||||
| Unrealized gain on equity securities, net of taxes | (579,711 | ) | - | ||||||||
| Comprehensive Loss | $ | (18,148,543 | ) | $ | (8,236,843 | ) | |||||
| Net loss per common share - basic and diluted | $ | (1.09 | ) | $ | (0.69 | ) | |||||
| Shares used in computing net loss per common share – basic and diluted | 16,977,524 | 12,068,520 | |||||||||
| DERMA SCIENCES, INC. AND SUBSIDIARIES | |||||||||||
| CONSOLIDATED BALANCE SHEETS | |||||||||||
| (UNAUDITED) | |||||||||||
| September 30, | December 31, | ||||||||||
| 2013 | 2012 | ||||||||||
| ASSETS | |||||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | $ | 5,393,788 | $ | 41,616,657 | |||||||
| Short-term investments | 20,726,000 | 3,730,000 | |||||||||
| Accounts receivable, net | 8,510,456 | 7,085,713 | |||||||||
| Inventories | 15,087,585 | 13,670,588 | |||||||||
| Prepaid expenses and other current assets | 3,342,859 | 3,209,031 | |||||||||
| Total current assets | 53,060,688 | 69,311,989 | |||||||||
| Long-term investments | 9,186,931 | 498,000 | |||||||||
| Equipment and improvements, net | 3,033,174 | 3,304,852 | |||||||||
| Identifiable intangible assets, net | 15,084,600 | 17,128,883 | |||||||||
| Goodwill | 13,457,693 | 13,457,693 | |||||||||
| Other assets | 140,303 | 141,213 | |||||||||
| Total Assets | $ | 93,963,389 | $ | 103,842,630 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current Liabilities | |||||||||||
| Accounts payable | $ | 5,338,091 | $ | 3,993,687 | |||||||
| Accrued expenses and other current liabilities | 4,226,018 | 4,132,934 | |||||||||
| Total current liabilities | 9,564,109 | 8,126,621 | |||||||||
| Long-term liabilities | 262,584 | 268,517 | |||||||||
| Deferred tax liability | 1,678,060 | 1,736,299 | |||||||||
| Total Liabilities | 11,504,753 | 10,131,437 | |||||||||
| Stockholders’ Equity | |||||||||||
| Convertible preferred stock, $.01 par value; shares authorized 1,468,750; | |||||||||||
| issued and outstanding 73,332 at September 30, 2013 and | |||||||||||
| December 31, 2012 (liquidation preference of | |||||||||||
| $3,222,368 at September 30, 2013) | 733 | 733 | |||||||||
| Common stock, $.01 par value; shares authorized 35,000,000; | |||||||||||
| issued and outstanding 17,268,486 at September 30, 2013 and | |||||||||||
| 16,524,723 at December 31, 2012 | 172,685 | 165,247 | |||||||||
| Additional paid-in capital | 139,051,638 | 132,163,083 | |||||||||
| Accumulated other comprehensive income | 1,978,560 | 1,588,888 | |||||||||
| Accumulated deficit | (58,744,980 | ) | (40,206,758 | ) | |||||||
| Total Stockholders’ Equity | 82,458,636 | 93,711,193 | |||||||||
| Total Liabilities and Stockholders’ Equity | $ | 93,963,389 | $ | 103,842,630 | |||||||