Fourth-quarter and fiscal year 2009 results announced by Somanetics

Fourth Quarter Highlights

• Net revenues of $14.5 million, up six percent.
• Including approximately $2 million in R&D expenses associated with up-front fees relating to the acquisition of two technology licenses, income before income taxes was $2.4 million and net income was $1.5 million; $0.12 per diluted share.

Fiscal 2009 Highlights

• Net revenues of $50.0 million, up five percent.
• Including up-front technology license fees, income before income taxes was $10.9 million and net income was $6.8 million; $0.53 per diluted share.
• Gross margin was 87 percent for fiscal 2009 and the fourth quarter.
• Received 510(k) clearance from the U.S. Food and Drug Administration to expand the labeling for the INVOS® Cerebral/Somatic Oximeter.  The new labeling includes three new marketing claims, including a claim of improved outcomes after cardiac or major general surgery when the INVOS System is used to manage therapies in patients weighing more than 2.5 kilograms.
• Extended exclusive distribution agreement with Covidien for Europe, the Middle East and South Africa for three years.
• Obtained rights to new cerebral autoregulation technology developed at The Johns Hopkins University.  Integration of this technology into Somanetics' INVOS Cerebral/Somatic Oximeter would yield the first noninvasive monitor providing cerebral autoregulation data for routine clinical use.  
• Signed an exclusive license agreement for a product under development related to the monitoring, detection and assessment of acute compartment syndrome in parts of the human body, such as the legs. As part of the license agreement with the inventor, Somanetics expects to receive approximately $2.1 million for product and prototype sales and research and development fees over a three-year period.

Somanetics Corporation (Nasdaq: SMTS) today reported financial results for the fourth fiscal quarter and year ended November 30, 2009.

Fourth Quarter Results

Net revenues for the fourth quarter of 2009 increased six percent to $14.5 million from $13.7 million in the same period of 2008. U.S. net revenues increased seven percent to $11.7 million from $11.0 million in the same period of 2008.  International net revenues increased four percent to $2.8 million compared to $2.7 million in the fourth quarter of 2008.  

Gross margin was 87 percent, the same as in the fourth quarter of 2008.

Fourth quarter income before income taxes was $2.4 million, compared to $5.1 million in the fourth quarter of 2008.  Net income in the fourth quarter of fiscal 2009 was $1.5 million, or $0.12 per diluted share, inclusive of approximately $2 million in R&D expenses associated with up-front fees relating to the acquisition of two technology licenses.  These up-front license fees reduced diluted earnings per share by $0.10.

Fiscal Year 2009 Results

Fiscal year 2009 net revenues increased five percent to $50.0 million from $47.5 million a year ago.  U.S. net revenues increased six percent to $40.2 million and international net revenues increased five percent to $9.9 million.  

Gross margin was 87 percent, the same as in 2008.  Income before income taxes was $10.9 million and net income was $6.8 million, or $0.53 per diluted share.  Somanetics recognized income taxes at an estimated effective tax rate of 37.6 percent for 2009. 

Somanetics ended fiscal 2009 with cash, marketable securities and long-term investments of $79.7 million and no borrowings.

"We are pleased to have achieved record revenues in 2009 in this difficult economic climate," said Bruce J. Barrett, Somanetics' president and chief executive officer.  "Unit sales of our disposable sensors, which is the best indicator of customer demand for the INVOS System, increased 22 percent in the fourth quarter and 18 percent for the year.  We also obtained two technology licenses during 2009.  Combined with the addition of the Vital Sync System to our portfolio, we believe that these additional technologies will enhance the value proposition for our INVOS System, increase the competitive barriers to entry, support future development of new markets for the INVOS System and potentially strengthen our intellectual property position," Barrett said.

Expanded FDA Labeling Claims

In April, Somanetics received a new 510(k) clearance from the U.S. Food and Drug Administration to expand the labeling for its INVOS Cerebral/Somatic Oximeter.  The new labeling allows a claim of improved patient outcomes after surgery when the INVOS System is used to manage therapies in patients above 2.5 kilograms at risk for reduced or absent blood flow.  Additionally, its indications for use now reflect the INVOS System's ability to generate accurate real-time measurements of blood oxygen saturation in this same patient population, as well as its previous clearance as a trend monitor in any individual.

International Sales and Marketing

During 2009 Somanetics established its European subsidiary and four branches and hired its first employees in Europe to support international sales and marketing efforts.  In addition, Somanetics extended its long-standing exclusive distribution agreement with Covidien to distribute Somanetics' products in Europe, the Middle East and South Africa for three years, with an optional two-year extension.  

Cerebral Autoregulation Technology

Somanetics signed a sublicense agreement with Raba Equity Partners II, LLC under which it obtained rights to new cerebral autoregulation technology that was developed at The Johns Hopkins University.  The technology is associated with two pending patents.  Cerebral autoregulation refers to the body's ability to maintain constant blood flow to the brain despite changes in blood pressure.  In many critical care situations, the brain's autoregulation can become impaired, making it vulnerable to changes in blood pressure and to potential brain injury.  For example, blood pressure below the patient's autoregulation threshold can result in cerebral ischemia, or stroke, while blood pressure above the patient's upper limit of autoregulation can result in cerebral bleeding.

Integration of the cerebral autoregulation technology into the INVOS Cerebral/Somatic Oximeter would yield the first noninvasive monitor providing cerebral autoregulation data for routine clinical use, guiding many treatment options used today without this information.  Somanetics plans to utilize this patent-pending method of combining blood pressure measurements and signals from the INVOS System to continuously monitor and display cerebral autoregulatory function information.  Somanetics expects to invest in developing the technology to support a product launch in the first half of 2011.  

Compartment Syndrome Technology

Somanetics signed a development and exclusive license agreement with an inventor to develop and market a product that uses the INVOS technology and methods and means described in the inventor's patent to monitor, detect and assess acute compartment syndrome in parts of the human body, such as the legs.  Compartment syndrome is a limb- and life-threatening condition that occurs as the pressure rises as a result of tissue injury or trauma in a leg, arm or hand, with the compression of nerves, blood vessels and muscle inside a closed space (compartment) within the body.  This leads to tissue death due to lack of oxygenation as the blood vessels are compressed by the raised pressure within the compartment, shutting off the circulation.  As part of the agreement, Somanetics will support clinical research, including studies among U.S. Army, U.S. Air Force and civilian subjects.  Soldiers sometimes suffer from compartment syndrome as a result of traumatic injuries to their legs.  The U.S. Department of Defense has provided a grant for the research and development of a monitor and sensors to monitor, detect and assess compartment syndrome.  As part of the license agreement, over a three-year period, Somanetics expects to receive approximately $2.1 million through the grant for product and prototype sales and R&D fees for its work to develop the compartment syndrome product.

Vital Sync System

During 2009 Somanetics continued its development and made the first sales of the Vital Sync™ System, Somanetics' data integration device that collects and organizes data from a broad array of hospital bedside devices and continuously displays them at the bedside.  To support the addition of the derived parameter features to the system, Somanetics filed an FDA 510(k) application in November to permit the calculation of derived parameters with the Vital Sync device.  

Derived parameters are parameters generated from calculations based on two or more discrete measurements and these can be displayed in real-time and reviewed.  Thus, a clinician can see many pieces of information displayed on the same screen to assist clinical decision making.

"Derived parameters give a clinician a view of the relationship among various vital signs or physiological parameters that may be dependent on each other for patient well being but are not identifiable by themselves," Barrett said.

Somanetics is investing in combining the Vital Sync System and the INVOS System into a single device, and targeting it for launch in mid-2011.

Neonatal ICU Market Entry

Somanetics' marketing initiatives related to the use of the INVOS System in the neonatal ICU were supported by a variety of research studies that were presented at medical conferences during the year.  For example, during the Pediatric Academic Societies annual conference, 25 posters and publications focused on early applications of the technology in the neonatal intensive care unit were presented.  These included investigations of how cerebral/somatic blood oxygen data may correlate to severe conditions that are traditionally difficult to diagnose, such as necrotizing enterocolitis and patent ductus arteriosis, as well as to the need for blood transfusions.

"Based on the interest in these studies and the variety of applications being researched, we believe this will be an important market opportunity for us," Barrett said.

Business Outlook

Somanetics' financial guidance for fiscal year 2010 is based on market and economic conditions, including the assumption that the recovery in capital spending at hospitals will be slow to develop.  Current estimates reflect management's plan to invest in the clinical research, medical education and research and development projects focused on the pediatric and neonatal ICU markets, the development of new technologies and the addition of employees in sales, research and development and administration.  Somanetics undertakes no obligation to update its estimates.  Somanetics is currently forecasting:

• Fiscal 2010 net revenues to grow approximately 12 percent over fiscal 2009 to $56 million.
• Gross margin to be approximately 87 percent and operating margin to be approximately 17 percent, excluding litigation expense.  

SOURCE Somanetics Corporation