Derma Sciences Reports Third Quarter Net Sales Up 17%, Advanced Wound Care Sales Up 38%

Conference Call Begins at 11:00 a.m. Eastern Time Today

PRINCETON, N.J.--()--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, 2010. Highlights of the third quarter of 2010 and recent weeks include:

  • Net sales increased 17% to $15.1 million from $12.9 million in the third quarter of 2009
  • Advanced wound care product sales increased 38% to $3.1 million from $2.3 million in the prior year third quarter and increased 19% from $2.6 million in the second quarter of 2010
  • Core product sales (all other sales) increased 13% to $12.0 million from $10.6 million in the third quarter of 2009
  • Gross margin declined to 29.3% in the third quarter of 2010 from 31.4% in the third quarter of 2009, due principally to higher manufacturing costs
  • These cost issues, combined with incremental investment in sales, marketing and clinical support resulted in a net loss of $502,552, compared with net income of $139,603 in the prior year third quarter
  • Patient enrollment was completed in the Phase II trial with DSC127 in diabetic wound healing
  • Received a research and development grant of $244,479 from the U.S. government under HR: 3590 – Patient Protection and Affordable Care Act

Management Commentary

“We are successfully leveraging our investments in sales, marketing and clinical support, as evidenced by the growth in our novel key brands,” said Edward J. Quilty, Chairman and Chief Executive Officer of Derma Sciences. “We had the first commercial sales of new product offerings in our XTRASORB line during the quarter. We made progress with our two 510(k) submissions to the U.S. Food and Drug Administration for new MEDIHONEY line extensions and are looking forward to bringing those products to market in the near future.

“We remain focused on cost containment in order to improve gross margins going forward. We have been challenged by a well publicized significant increase in the price of cotton to all time record levels. In addition, our margin continues to be adversely impacted by efficiency issues associated with the startup of manufacturing in Mexico. We expect these issues to be resolved by the end of the year. We have taken and will continue to take, steps to manage this and other cost measures impacting our business.

“We are making important inroads into our international sales growth initiative, following the opening of an office in the U.K. earlier this year. Our team is in place and is responsible for growing direct sales in the U.K. and managing the network of distributors throughout Europe and the Middle East. Our expectation is for international sales to become a significant part of our business in the coming years.

“We were very pleased to complete patient enrollment at the end of September in our Phase II trial with DSC127 in diabetic wound healing. We anticipate reporting top-line efficacy data between late December and mid January. Should the trial be successful, we are evaluating several options, including bringing on a partner. The recent award of $244,479 from the U.S. government under the Patient Protection and Affordable Care Act related to the development of DSC127, was welcome validation of our work,” concluded Mr. Quilty.

Financial Results

Net sales for the third quarter of 2010 increased 17% to $15,096,134, compared with $12,882,425 in the third quarter of 2009. Gross profit increased 9.5% to $4,429,930 in the third quarter of 2010, compared with the same period in 2009. Selling, general and administrative expense was $4,690,054 in the third quarter of 2010, compared with $3,677,182 in the prior year quarter. The year-over-year increase was mainly attributable to the incremental selling expense associated with the planned expansion of the U.S. sales force and incremental international expenses. Higher G&A expense comprised of incremental amortization, legal and investor relations costs, also contributed. The net loss for the third quarter of 2010 was $502,552 or $0.08 per share, compared with net income of $139,603 or $0.03 per share in the third quarter of 2009.

Net sales for the nine months ended September 30, 2010 were $41,170,621, up 18% compared with net sales of $34,877,658 for the same period in 2009. Gross profit was $12,483,233 or 30.3% of sales, compared with gross profit of $10,825,674 or 31.0% of sales in the nine months ended September 30, 2009. The net loss in the first nine months of 2010 was $1,970,310 or $0.31 per share, compared with a net loss of $1,178,978 or $0.23 per share in the first nine months of 2009.

As of September 30, 2010, working capital was $9,587,806, and cash and cash equivalents were $409,505. Line of credit borrowing was $3,658,625 at quarter end with approximately $1,200,000 of additional availability.

Conference Call and Webcast

Derma Sciences management will hold a conference call to discuss these results and answer questions today beginning at 11:00 a.m. Eastern time. In addition, management will provide a business update and discuss recent and upcoming milestones.

To access the conference call, from the U.S. please dial (888) 563-6275 and from outside the U.S. please dial (706) 634-7417. All listeners should provide the following passcode: 23392989. Individuals interested in listening to the live conference call via the Internet may do so by logging on to the Company’s website, www.dermasciences.com.

Following the end of the conference call, a telephone replay will be available through August 16, 2010, and can be accessed by dialing (800) 642-1687 from the U.S. or (706) 645-9291 from outside of the U.S. All listeners should provide the following passcode: 23392989. 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, traditional dressings, advanced wound care dressings and pharmaceutical wound care products. 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 leg ulcer patients. Other novel products introduced into the $14 billion global wound care market include XTRASORB® for better management of wound exudates, and BIOGUARD® for infection prevention. Derma Sciences expects to complete the efficacy portion of its Phase II clinical study with DSC127, a novel pharmaceutical for accelerated wound healing and scar reduction, by the end of 2010.

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 fillings with the U.S. Securities and Exchange Commission.

 
DERMA SCIENCES, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
Three Months Ended

September 30,

      2010       2009  
Net Sales $ 15,096,134     $ 12,882,425  
Cost of sales     10,666,204       8,838,154  
Gross Profit     4,429,930       4,044,271  
Operating Expenses  
Selling, general and administrative   4,690,054       3,677,182  
Research and development     175,380       70,412  
Total operating expenses     4,865,434       3,747,594  
Operating (loss) income     (435,504 )     296,677  
Other expense, net:
Interest expense   119,521       220,839  
Other income     (75,530 )     (69,002 )
Total other expense     43,991       151,837  
(Loss) income before provision for income taxes   (479,495 )     144,840  
Provision for income taxes     23,057       5,237  
Net (Loss) Income   $ (502,552 )   $ 139,603  
Net (loss) income per common share- basic and diluted   $ (0.08 )   $ 0.03  
Shares used in computing net (loss) income per common share – basic     6,561,826       5,039,468  
Shares used in computing net (loss) income per common share – diluted     6,561,826       5,366,413  
 
 
Nine Months Ended

September 30,

      2010       2009  
Net Sales $ 41,170,621     $ 34,877,658  
Cost of sales     28,687,388       24,051,984  
Gross Profit     12,483,233       10,825,674  
Operating Expenses
Selling, general and administrative   13,603,071       11,244,347  
Research and development     415,232       288,338  
Total operating expenses     14,018,303       11,532,685  
Operating loss     (1,535,070 )     (707,011 )
Other expense, net:
Interest expense   414,120       631,909  
Loss on debt extinguishment   114,072       -  
Other income     (253,661 )     (112,791 )
Total other expense     274,531       519,118  
Loss before provision (benefit) for income taxes   (1,809,601 )     (1,226,129 )
Provision (benefit) for income taxes     160,709       (47,151 )
Net Loss   $ (1,970,310 )   $ (1,178,978 )
Net loss per common share – basic and diluted   $ (0.31 )   $ (0.23 )
Shares used in computing net loss per common share – basic and

diluted

    6,259,205       5,028,891  
 
 
DERMA SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
   

 

ASSETS

 

September 30,
2010
(Unaudited)

 

December 31,
2009

Current Assets
Cash and cash equivalents $ 409,505     $ 243,524  
Accounts receivable, net   5,361,264       3,372,712  
Inventories   13,579,298       11,489,724  
Prepaid expenses and other current assets     456,337       456,675  
Total current assets   19,806,404       15,562,635  
Cash – restricted   -       2,032,164  
Equipment and improvements, net   3,412,650       3,741,347  
Goodwill   7,119,726       7,119,726  
Other intangible assets, net   7,254,725       3,994,250  
Other assets, net     341,110       849,753  
Total Assets   $ 37,934,615     $ 33,299,875  
LIABILITIES AND SHAREHOLDERS’ EQUITY        
Current Liabilities
Line of credit borrowings   3,658,625       2,306,306  
Current maturities of long-term debt   14,503       1,759,185  
Accounts payable   4,240,277       3,363,096  
Accrued expenses and other current liabilities     2,305,193       1,342,467  
Total current liabilities   10,218,598       8,771,054  
Long-term debt   -       2,305,851  
Other long-term liabilities   69,671       96,564  
Deferred tax liability     321,323       355,349  
Total Liabilities     10,609,592       11,528,818  
Shareholders’ Equity

Convertible preferred stock, $.01 par value; 1,468,750 shares authorized; issued and outstanding: 284,844 shares (liquidation preference of $4,201,426 at September 30, 2010)

 

 

2,848

     

 

2,851

 

Common stock, $.01 par value; 18,750,000 authorized; issued and outstanding: 6,561,826 at September 30, 2010; 5,039,468 at December 31, 2009

 

65,618

     

50,395

 
Additional paid-in capital   48,620,586       41,221,613  
Accumulated other comprehensive income –

cumulative translation adjustments

 

1,413,377

     

1,303,293

 
Accumulated deficit     (22,777,406 )     (20,807,095 )
Total Shareholders’ Equity     27,325,023       21,771,057  
Total Liabilities and Shareholders’ Equity   $ 37,934,615     $ 33,299,875  

Contacts

Derma Sciences, Inc.
John E. Yetter
Vice President and CFO
jyetter@dermasciences.com
609-514- 4744
or
Lippert/Heilshorn & Associates
Investors
Kim Sutton Golodetz
kgolodetz@lhai.com
212-838-3777
or
Bruce Voss
bvoss@lhai.com
310-691-7100
or
Media
Megan Rusnack
mrusnack@lhai.com
212-838-3777

Contacts

Derma Sciences, Inc.
John E. Yetter
Vice President and CFO
jyetter@dermasciences.com
609-514- 4744
or
Lippert/Heilshorn & Associates
Investors
Kim Sutton Golodetz
kgolodetz@lhai.com
212-838-3777
or
Bruce Voss
bvoss@lhai.com
310-691-7100
or
Media
Megan Rusnack
mrusnack@lhai.com
212-838-3777