"The past few months have been a period of rapid growth in our
infrastructure as we built out and expanded our sales resources, added
support staff and completed a significant acquisition," said Edward J.
Quilty, chief executive officer of Derma Sciences. "Year-over-year
growth in advanced and traditional wound care products was in line with
our stated growth objectives and growth compared with the fourth quarter
of 2011 was consistent with our expectations. We expect to meet our
overall sales growth objectives for the full year."
Mr. Quilty added, "Our traditional wound care products performed as
expected during the first quarter. Although gross margins in this
segment of our business are lower than those of the advanced wound care
business, these products provide positive cash flow that we use to
support our advanced wound care growth initiatives. Our objective with
this business segment is to maintain it and grow it modestly as
circumstances dictate."
"We completed our acquisition of MedEfficiency last month and are in the
midst of the integration process. The TCC-EZ product is an important
component of our strategy to be the leading supplier of products for the
treatment of chronic wounds in general and diabetic foot ulcers in
particular. To date, we have integrated the former head of the
MedEfficiency sales team and four of its direct sales representatives
into our U.S. advanced wound care sales team. All members of the Derma
Sciences sales team have been trained on the MedEfficiency product line
and are actively selling the products. Work on integrating the former
MedEfficiency supply chain and administrative support resources into
Derma Sciences is underway. We believe this acquisition represents a
significant growth opportunity for Derma Sciences and that it will serve
to accelerate the timeline to profitability of our business, excluding
our Phase 3 R&D spending.
"As previously reported, we had a very constructive meeting with the FDA
in February concerning our progress to date with DSC127. Our toxicology
and Chemistry, Manufacturing and Control work started in the third
quarter of 2011 and led by a number of seasoned consultants, continues
on plan with significant progress being made on both fronts. During the
first quarter we evaluated a number of firms and selected a Clinical
Research Organization ("CRO") to oversee and conduct the Phase 3
clinical trials, along with a firm that will be responsible for the
trials' data management and statistical evaluation of its results. We
are presently finalizing contracts with these firms. Additionally, we
are pleased to announce that George Omburo, Ph.D. has joined Derma
Sciences as Vice President - Clinical and Product Development, a new
position, to oversee and manage our DSC127 development program. Dr.
Omburo has more than 13 years of clinical drug development experience
with several large multi-national pharmaceutical companies. Hiring Dr.
Omburo marks a significant step forward in the development of DSC127,"
he continued.
"Our next steps are to complete and submit packages to the FDA for our
planned pharmacokinetic study, request and hold an End-of-Phase 2
meeting with the FDA and commence the Phase 3 trials by year end."
Financial Results
Net sales for the first quarter of 2012 were $15,277,366, compared with
$14,371,271 for the first quarter of 2011, an increase of 6.3%. This
reflects 25.4% growth in sales of advanced wound care products to
$4,497,054 from $3,585,172 in the first quarter of 2011, and a 0.1%
decline in sales of traditional wound care products to $10,780,312 from
$10,786,099 in the same period last year. For the full year 2012, the
Company expects advanced wound care product sales growth to be between
30% and 40%, and traditional wound care product sales growth to be
approximately 2% to 4%.
Gross profit for the first quarter of 2012 increased 10.1% to
$4,876,160, or 31.9% of net sales, from $4,428,382, or 30.8% of net
sales, for the first quarter of 2011. The increase in gross margin
reflects increased sales of higher-margin advanced wound care products,
which accounted for 29.4% of net sales, compared with 25.0% of net sales
in the same period last year, and flat lower-margined traditional wound
care sales, partially offset by higher product costs.
Selling, general and administrative expense for the first quarter of
2012 was $6,359,090, compared with $4,738,019 for the first quarter of
2011. The increase was principally due to higher sales and marketing
expenditures associated with advanced wound care growth initiatives.
Research and development expense for the first quarter of 2012 was
$1,114,698, compared with $143,827 in the first quarter of 2011,
reflecting higher expenses associated with the ramp-up of the DSC127
Phase 3 program. The Company expects research and development expense to
be approximately $8.0 million to $10.0 million for the full year 2012.
The net loss for the first quarter of 2012 was $2,538,901 or $0.24 per
share, compared with a net loss for the first quarter of 2011 of
$547,032 or $0.08 per share. Incremental marketing and sales
growth-related expenses, and higher compensation expense and research
and development expenses were principally responsible for the larger net
loss.
As of March 31, 2012, the Company had cash and cash equivalents of
$15,680,749 and investments of $4,976,000, compared with cash and cash
equivalents of $17,110,350 and investments of $5,474,000 as of December
31, 2011. Subsequent to the close of the quarter the Company raised net
proceeds of $17,800,000 in an equity offering and acquired
MedEfficiency, Inc. for $14,500,000 in cash. The Company expects
transaction and transition costs associated with the acquisition to be
approximately $1,775,000, of which $113,675 was recorded in the first
quarter.
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