Derma Sciences Reports Third Quarter 2015 Financial Results
Net Sales Increase 10% and Advanced Wound Care Sales Increase 20%
Conference call begins at 10:00 a.m. Eastern time today
PRINCETON, N.J.--(BUSINESS WIRE)-- 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, 2015.
Financial highlights of the third quarter of 2015 include (all comparisons are with the third quarter of 2014):
- Advanced Wound Care (AWC) net sales increased 19.8% to $11.3 million, or 21.0% on a constant-currency basis, with growth led by sales of TCC-EZ®, AMNIOEXCEL® and AMNIOMATRIX® amniotic allografts
- Traditional Wound Care (TWC) net sales increased 1.2% to $10.8 million, or 5.0% on a constant currency basis
- Total net sales increased 9.9% to $22.2 million, or 12.6% on a constant currency basis
- Gross margin increased to 38.1% from 31.5% due to product mix, improved manufacturing performance and the non-recurrence of quality-related TCC-EZ write-offs
Other highlights of the third quarter of 2015 and recent weeks include:
- 62 patients were enrolled in the aclerastide Phase 3 clinical trials during the third quarter, bringing total enrollment to 616 as of September 30, 2015; an additional 40 patients were enrolled during October
- First Coast Service Options, Inc., a Medicare Administrative Contractor (MAC) whose jurisdiction includes Florida, began allowing AMNIOEXCEL® to receive payment coverage for venous leg ulcers and diabetic foot ulcers
- The value of our equity investment in Comvita increased $3.5 million to $12.0 million during the quarter
Management Commentary
“We are pleased with our performance during the third quarter and recent weeks, both financially and operationally,” commented Edward J. Quilty, chairman and chief executive officer. “We recorded solid growth in net revenue, with sales of our innovative AWC products once again accounting for more than half of the total. Importantly, our gross margin showed improvement."
“TCC-EZ total contact casting system sales growth continued, increasing by nearly 40% in the quarter, supported by the outstanding work of our sales team in leveraging the Journal of the American Podiatric Medical Association recommendation of total contact casting as the preferred method for off-loading diabetic plantar foot ulcers. Our sales reps continue to spread the word on the ease-of-use and excellent healing rates clinicians are obtaining with TCC-EZ. We are also pleased that MEDIHONEY net sales were up in the quarter, despite the change in U.S. Medicare Part B reimbursement as care providers continued to choose our medical grade honey dressing to heal chronic wounds. We received a miscellaneous code for all dressings in June, but they are not being reimbursed. We continue to work with the Centers for Medicare and Medicaid Services (CMS) to get the original codes reinstated."
“Our sales ramp of AMNIOEXCEL® and AMNIOMATRIX® amniotic allografts is performing to plan, with sales up 38% over the second quarter of 2015. We now have positive local coverage determinations from four of the eight MACs, with the latest issuing a determination on September 6th. We are preparing to publish data on our post-marketing randomized clinical trials of AMNIOEXCEL to treat chronic and complex wounds. Once these data are published, we believe they will support coverage from the remaining MACs. Our post-marketing studies have been clinically demanding, using the same stringent inclusion criteria as our aclerastide trials for diabetic foot ulcer healing. We believe this level of rigor will allow the results of our study to stand up well against those of our competitors. On October 28th, the U.S. Food and Drug Administration (FDA) issued draft guidance on the homologous use of amniotic allografts. We are carefully evaluating this draft, but do not anticipate any impact from it on our business for quite some time, if at all."
“Our TWC business continued to post good sales despite foreign exchange headwinds and we are pleased with the cash flow generated by this business. Our success with the sale of private-label OTC products to a leading pharmacy chain has the attention of other industry participants and we are exploring additional opportunities in this potentially lucrative market,” added Mr. Quilty.
Commenting on the aclerastide Phase 3 program for the treatment of diabetic foot ulcer healing, Mr. Quilty said, “The pace of enrollment during the summer months was largely as anticipated, with 62 patients enrolled into the trial during the third quarter. Enrollment during October was strong at 40 patients, mostly in the U.S. We have now opened a few sites in Eastern Europe and have plans for additional sites. We expect to announce top-line data in the first quarter of 2017. In addition, we are meeting with our data safety monitoring board this month and will provide additional information on our aclerastide trial after the board’s review.”
Financial Results
Net sales for the third quarter of 2015 were $22.2 million, up 9.9% from $20.2 million for the third quarter of 2014. This included AWC sales of $11.3 million, up 19.8% from $9.5 million in the prior-year quarter, and TWC sales of $10.8 million, up 1.2% from $10.7 million in the prior year. Growth in AWC sales was led by TCC-EZ, AMNIOEXCEL, and AMNIOMATRIX, while TWC results reflect incremental U.S. retail sales, subsequent to the initial launch of these OTC products earlier this year.
Gross profit for the third quarter of 2015 was $8.4 million, or 38.1% of net sales, compared with gross profit for the third quarter of 2014 of $6.4 million, or 31.5% of net sales. The higher gross margin percentage principally reflects lower manufacturing costs due to improved manufacturing operational performance, the non-recurrence of quality-related inventory write-offs and favorable product mix.
Selling, general and administrative expense for the third quarter of 2015 was $12.8 million, compared with $13.0 million for the third quarter of 2014. The decrease was principally due to decreased general and administrative expense due to lower due diligence and consulting fees, and lower marketing expense, partially offset by increased levels of distribution, sales and legal expenses.
Research and development expense for the third quarter of 2015 was $5.0 million, compared with $4.4 million in the third quarter of 2014, with the increase principally related to the ongoing aclerastide Phase 3 clinical trials, as well as the Aclerastide preclinical scar prevention program and AMNIOEXCEL post-marketing clinical studies.
The net loss for the third quarter of 2015 was $9.0 million, or $0.35 per share, compared with a net loss for the third quarter of 2014 of $11.2 million, or $0.45 per share. The decrease in net loss was primarily due to higher gross profit and an income tax benefit, partially offset by higher research and development expense.
Net sales for the nine months ended September 30, 2015 were $64.2 million, up 5.5% (7.9% on a constant-currency basis) from $60.9 million for the nine months ended September 30, 2014. AWC net sales were $31.4 million, up 17.9% (19.2% on a constant-currency basis) from $26.6 million in the prior-year period. TWC net sales were $32.8 million, down 4.2% (0.9% on a constant-currency basis) from $34.2 million in the prior-year period. The Company reported a net loss for the nine months ended September 30, 2015 of $28.9 million, or $1.12 per share, compared with a net loss of $30.2 million, or $1.24 per share, in the same period in 2014.
As of September 30, 2015, Derma Sciences had cash, cash equivalents and short-term investments of $49.4 million, compared with $75.4 million as of December 31, 2014.
Financial and Aclerastide Guidance
Derma Sciences affirms its previous financial guidance for 2015 net sales to be approximately $88.1 million, representing growth of 5% compared with 2014 net sales. Sales of AWC products are expected to be $44.3 million, up 16% compared with 2014. Sales of TWC products are expected to decline 4% to $43.8 million, reflecting the loss of a significant customer in 2015.
The Company affirms expectations for the total cost of the aclerastide Phase 3 program through the filing of a New Drug Application with the FDA to be $62.5 million to $67.5 million. As of September 30, 2015, the Company has spent approximately $50.0 million on this program.
Conference Call and Webcast
Derma Sciences management will host a conference call at 10:00 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: 69180487. 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 15, 2015 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 69180487. 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 sells AMNIOEXCEL® amniotic allograft membrane and AMNIOMATRIX® amniotic allograft suspension into the $500 million market for skin substitute products. Derma Sciences’ MEDIHONEY® product line 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 a 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. Its pharmaceutical product in development, aclerastide (a patented peptide analog of angiotensin), is currently in Phase 3 and 3b clinical trials for the closure of diabetic foot ulcers. Aclerastide is also in preclinical development for the prevention and reduction of scarring after surgical incision and wound closure. Aclerastide is also part of a BARDA grant program for the mitigation and treatment of skin damage associated with exposure to ionizing radiation. The Company also offers a full product line of traditional dressings.
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 development and commercialization of aclerastide (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.
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DERMA SCIENCES, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS(UNAUDITED) |
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| Three Months EndedSeptember 30, | ||||||||||||
| 2015 | 2014 | |||||||||||
| Net Sales | $ | 22,168,659 | $ | 20,169,129 | ||||||||
| Cost of sales | 13,732,417 | 13,809,872 | ||||||||||
| Gross Profit | 8,436,242 | 6,359,257 | ||||||||||
| Operating Expenses | ||||||||||||
| Selling, general and administrative | 12,778,336 | 13,012,520 | ||||||||||
| Research and development | 4,972,278 | 4,444,368 | ||||||||||
| Total operating expenses | 17,750,614 | 17,456,888 | ||||||||||
| Operating loss | (9,314,372 | ) | (11,097,631 | ) | ||||||||
| Other expense, net | 672,259 | 164,690 | ||||||||||
| Loss before income taxes | (9,986,631 | ) | (11,262,321 | ) | ||||||||
| Income tax benefit | (1,023,829 | ) | (14,573 | ) | ||||||||
| Net Loss | (8,962,802 | ) | (11,247,748 | ) | ||||||||
| Other Comprehensive Income (Loss) | ||||||||||||
| Foreign currency translation adjustment | (97,663 | ) | (100,998 | ) | ||||||||
| Unrealized gain (loss) on equity securities, net of taxes | 2,154,280 | (591,561 | ) | |||||||||
| Total other comprehensive income (loss) | 2,056,617 | (692,559 | ) | |||||||||
| Comprehensive Loss | $ | (6,906,185 | ) | $ | (11,940,307 | ) | ||||||
| Net loss per common share- basic and diluted | $ | (0.35 | ) | $ | (0.45 | ) | ||||||
| Shares used in computing net loss per common share – basic and diluted | 25,806,549 | 25,247,565 | ||||||||||
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Nine Months Ended September 30, |
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| 2015 | 2014 | |||||||||||
| Net Sales | $ | 64,223,675 | $ | 60,872,388 | ||||||||
| Cost of sales | 39,881,059 | 39,755,989 | ||||||||||
| Gross Profit | 24,342,616 | 21,116,399 | ||||||||||
| Operating Expenses | ||||||||||||
| Selling, general and administrative | 39,776,699 | 38,693,665 | ||||||||||
| Research and development | 13,935,395 | 12,993,234 | ||||||||||
| Total operating expenses | 53,712,094 | 51,686,899 | ||||||||||
| Operating loss | (29,369,478 | ) | (30,570,500 | ) | ||||||||
| Other expense (income), net | 159,533 | (107,611 | ) | |||||||||
| Loss before income taxes | (29,529,011 | ) | (30,462,889 | ) | ||||||||
| Income tax benefit | (670,921 | ) | (258,324 | ) | ||||||||
| Net Loss | (28,858,090 | ) | (30,204,565 | ) | ||||||||
| Other Comprehensive Income (Loss) | ||||||||||||
| Foreign currency translation adjustment | (356,126 | ) | (185,860 | ) | ||||||||
| Unrealized gain (loss) on equity securities, net of taxes | 2,158,738 | (105,551 | ) | |||||||||
| Total other comprehensive income (loss) | 1,802,612 | (291,411 | ) | |||||||||
| Comprehensive Loss | $ | (27,055,478 | ) | $ | (30,495,976 | ) | ||||||
| Net loss per common share – basic and diluted | $ | (1.12 | ) | $ | (1.24 | ) | ||||||
| Shares used in computing net loss per common share – basic and diluted | 25,707,314 | 24,347,155 | ||||||||||
| DERMA SCIENCES, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(UNAUDITED) | ||||||||||||
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September 30,2015 |
December 31,2014 |
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| ASSETS | ||||||||||||
| Current Assets | ||||||||||||
| Cash and cash equivalents | $ | 14,431,513 | $ | 19,396,845 | ||||||||
| Short-term investments | 35,003,990 | 55,996,000 | ||||||||||
| Accounts receivable, net of allowances of $2,292,354 and $531,205, respectively | 8,726,344 | 8,758,034 | ||||||||||
| Inventories | 18,292,670 | 13,280,940 | ||||||||||
| Prepaid expenses and other current assets | 1,597,733 | 3,411,934 | ||||||||||
| Total current assets | 78,052,250 | 100,843,753 | ||||||||||
| Long-term investments | 11,977,212 | 8,422,790 | ||||||||||
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Equipment and improvements, net of accumulated depreciation and amortization of $7,702,994 and $7,681,863, respectively |
3,657,835 | 3,614,439 | ||||||||||
| Identifiable intangible assets, net of accumulated amortization of $12,869,566 and $10,631,372, respectively | 10,577,310 | 12,815,504 | ||||||||||
| Goodwill | 13,457,693 | 13,457,693 | ||||||||||
| Other assets | 149,537 | 143,733 | ||||||||||
| Total Assets | $ | 117,871,837 | $ | 139,297,912 | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
| Current Liabilities | ||||||||||||
| Accounts payable | $ | 4,530,493 | $ | 5,058,892 | ||||||||
| Accrued expenses and other current liabilities | 6,216,346 | 6,452,358 | ||||||||||
| Total current liabilities | 10,746,839 | 11,511,250 | ||||||||||
| Long-term liabilities | 447,857 | 521,358 | ||||||||||
| Deferred tax liability | 2,157,993 | 1,700,640 | ||||||||||
| Total liabilities | 13,352,689 | 13,733,248 | ||||||||||
| Stockholders’ Equity | ||||||||||||
| Convertible preferred stock, $.01 par value; shares authorized 1,468,750; | ||||||||||||
| issued and outstanding 73,332 at September 30, 2015 and | ||||||||||||
| December 31, 2014 (liquidation preference of $3,222,368 | ||||||||||||
| at September 30, 2015) | 733 | 733 | ||||||||||
| Common stock, $.01 par value; shares authorized 50,000,000; | ||||||||||||
| issued and outstanding 25,806,549 at September 30, 2015 and | ||||||||||||
| 25,319,203 at December 31, 2014 | 258,065 | 253,192 | ||||||||||
| Additional paid-in capital | 234,346,631 | 228,341,542 | ||||||||||
| Accumulated other comprehensive income | 2,714,175 | 911,563 | ||||||||||
| Accumulated deficit | (132,800,456 | ) | (103,942,366 | ) | ||||||||
| Total stockholders’ equity | 104,519,148 | 125,564,664 | ||||||||||
| Total liabilities and stockholders’ equity | $ | 117,871,837 | $ | 139,297,912 | ||||||||
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Derma Sciences, Inc.
John
Yetter, 609-514-4744
Chief Financial Officer
[email protected]
or
Investors
LHA
Kim
Sutton Golodetz, 212-838-3777
[email protected]
or
Bruce
Voss, 310-691-7100
[email protected]
Source: Derma Sciences, Inc.