Derma Sciences reports 69% increase in Advanced Wound Care sales for fourth-quarter 2009

Apr 1 2010

Derma Sciences, Inc. (Nasdaq: DSCI), a specialty medical device/pharmaceutical company focused on advanced wound care, reported financial and operating results today for the three months and fiscal year ended December 31, 2009.

Highlights for the three months ended December 31, 2009:

• Net sales increased 9% to $13,648,500 versus $12,558,067 in fourth quarter 2008.
• Advanced Wound Care sales increased 69% to $2,278,860 versus $1,348,734 in fourth quarter 2008.
• Net income of $35,706 (or $0.01 per share) versus a net loss of $580,042 (or $0.12 per share) in fourth quarter 2008.
• Continued cash flow improvement.

Derma Sciences Chairman and CEO Edward Quilty commented, "Derma Sciences' quarterly financial performance improved steadily in 2009 - culminating with net income in the third and fourth quarters after narrowing losses in the first and second quarters.  We experienced solid top-line growth in the fourth quarter of 2009 compared to both the prior quarter and prior year, driven by our Advanced Wound Care business."

Highlights for the twelve months ended December 31, 2009:

• Net sales declined 3% year-over-year to $48,526,158 versus $50,199,428 in 2008.
• Advanced Wound Care sales increased 63% to $7,616,518 versus $4,673,424 in 2008.
• Net loss was significantly reduced to $1,143,272 (or $0.23 per share) versus a net loss of $3,961,937 (or $0.82 per share) in 2008.
• Improving performance and working capital management served to significantly improve our cash flow in 2009 versus 2008.

Mr. Quilty continued, "Overall sales were down in 2009 compared to 2008; however, this was mainly due to a decline in sales in our First Aid Division (FAD), which we expected since it tends to be sensitive to conditions impacting the broader economy. This decline masked the excellent year we had in our key business, Advanced Wound Care. Each of our 10 direct US-based sales reps gained traction in their territories, helping to accelerate sales of our key proprietary growth products, including MEDIHONEY®, XTRASORB™ and BIOGUARD™.  In addition, we experienced a solid increase in private-label sales, due to improved demand from several of our core customers, coupled with some new business."

"Looking ahead, we see top-line sales accelerating in 2010, driven by the expansion of our MEDIHONEY® business.  In February 2010, we licensed the worldwide rights to MEDIHONEY® from our partner Comvita, to provide a catalyst for the expansion of our international business.  Next month, we will hire a Managing Director for Europe, and plans are already in place to establish Derma Sciences Europe and hire a direct sales force in the UK.  Also, we have set up a distributor model in several European and Middle Eastern countries.  Sales will be initiated to those distributors throughout 2010, and additional distributor relationships will be established to broaden our global reach.

"We plan to expand our investment in sales and marketing resources in support of our advanced wound care products.  Since the beginning of 2010, we have added 4 additional direct sales reps in the US, bringing our current total to 14.  We plan on having 20 sales representatives in place by July.  This is a reflection of the success we have had with our model, as well as the demand being generated in uncovered territories throughout the country. In addition, we are planning to launch several new products and product line extensions in our Advanced Wound Care business, which should help boost revenue.  Notably, we will be launching our novel super-absorbent polymer based XTRASORB™ Foam dressing this spring.  We expect this product to compete well in the foam-dressing category, which is the largest sub-category within moist wound dressings."

"The DSC127 Phase II trial is over two-thirds enrolled and continues to be on track for the announcement of clinical results during 2010.  The results of the Phase II trial will determine the efficacy and safety of the product and further refine its market potential."

Mr. Quilty concluded, "Consistent with our strategy, we will continue to prudently utilize our improving cash flow to fund our growth initiatives. The financing we concluded in February 2010 was to acquire the worldwide license for MEDIHONEY® and repay debt.  The expansion of our US and European sales and marketing efforts are being funded out of the cash flow from operations.  In the short term, this investment will have some impact on our profitability, but the strong top-line growth of our higher-margined advanced wound care products, the only focus of our sales team, will drive profitability and valuation."