Derma Sciences Reports Second Quarter Financial Results

Conference call begins at 11:00 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 six months ended June 30, 2015.

Financial highlights of the second quarter of 2015 include (all comparisons are with the second quarter of 2014):

• Advanced Wound Care (AWC) net product sales increased 16.8% to $10.3 million or 18.1% on a constant currency basis, with growth led by sales of TCC-EZ®, and AMNIOEXCEL® and AMNIOMATRIX® amniotic allografts
• Traditional Wound Care (TWC) net product sales increased 1.3% to $12.3 million, or increased 4.2% in constant currencies
• Total net sales increased 7.8% to $22.6 million, or increased 10.1% in constant currencies

Other highlights of the second quarter of 2015 and recent weeks include:

• Advances in Wound Care published a review of the aclerastide clinical development program for the treatment of diabetic foot ulcers, which highlighted the drug’s potential as an effective pharmaceutical treatment within a multibillion-dollar market
• The non-clinical aclerastide toxicology program was successfully concluded, which completes U.S. Food and Drug Administration (FDA) toxicology requirements
• 88 patients were enrolled in the aclerastide Phase 3 clinical trial in the second quarter, bringing total enrollment to 554 as of June 30, 2015
• On July 23rd, the Centers for Medicare and Medicaid Services (CMS) released a local coverage determination (LCD) that will allow AMNIOEXCEL® to receive coverage for venous leg ulcers and diabetic foot ulcers, beginning on September 6th, from First Coast Service Options, Inc., a Medicare Administrative Contractor (MAC) whose jurisdiction includes Florida
• Alan W. Dunton, M.D., an industry veteran with extensive clinical, regulatory and overall R&D leadership and consulting experience in large pharma and biotech will assume the role of interim chief medical officer, succeeding John Caminis, M.D.

Management Commentary

“Derma Sciences made excellent progress during the second quarter on a number of fronts, including commercial, preclinical, clinical and regulatory,” commented Edward J. Quilty, chairman and chief executive officer. “From a financial perspective, our second quarter results were highlighted by renewed sales momentum in both our AWC and TWC businesses.

“AWC net sales were up 16.8% during the quarter, led by a 50% increase in TCC-EZ total contact casting system sales. Our sales reps are doing an outstanding job leveraging the impressive 89% complete healing rates in six weeks demonstrated in clinical studies into product sales.

“Sales growth of our AMNIOEXCEL® and AMNIOMATRIX® amniotic allografts also was strong during the quarter, up 57% compared with the first quarter. As of September 6, 2015, we will have positive LCDs from four of the eight (MACs, and more than half of our sales territories are located within these geographies. We have completed certain of our post-marketing randomized clinical trials and are evaluating the data for potential publication.

“As expected, MEDIHONEY sales declined slightly as the result of the change in reimbursement status for Medicare Part B at the end of January. This continued to impact the business. As a result of our continued discussions with CMS administration and our lobbying efforts, in June we received notification from CMS of the reinstatement of coverage under miscellaneous billing codes for Medicare Part B. However, despite being assigned these codes, claims filed under Medicare Part B are being denied. Our efforts with CMS, our clinical advocates and our advocates on Capitol Hill are ongoing to rectify this situation.

“We are pleased with our TWC results, which posted strong sales of first-aid products this quarter. We made progress identifying additional avenues for TWC growth, and recently shipped a major order of private-label retail dressings to a major retail pharmacy chain. We continue to expect full-year sales of $44.3 million for the TWC business in 2015,” added Mr. Quilty.

Financial Results

Net sales for the second quarter of 2015 were $22.6 million, up 7.8% from $20.9 million for the second quarter of 2014. This included AWC product sales of $10.3 million, up 16.8% from $8.8 million in the prior-year quarter, and TWC product sales of $12.3 million, up 1.3% from $12.1 million in the prior year. Growth in AWC product sales was led by TCC-EZ, AMNIOEXCEL and AMNIOMATRIX while TWC results reflect improved U.S. first-aid product sales associated with the launch of new products to a major retail pharmacy chain. Adjusted for foreign currency exchange, total net sales were up 10.1%.

Gross profit for the second quarter of 2015 was $8.4 million, or 37.1% of net sales, compared with gross profit for the second quarter of 2014 of $7.8 million, or 37.5% of net sales. The slightly lower gross margin percentage principally reflects price erosion and higher product costs, partially offset by favorable sales mix and manufacturing expenses.

Selling, general and administrative expense for the second quarter of 2015 was $13.7 million, compared with $12.6 million for the second quarter of 2014. The increase was principally due to increased levels of distribution, marketing and sales activities.

Research and development expense for the second quarter of 2015 was $4.5 million, compared with $4.4 million in the second quarter of 2014, principally related to the ongoing aclerastide Phase 3 clinical trial, as well as the aclerastide preclinical scar prevention program and AMNIOEXCEL post-marketing clinical studies.

The net loss for the second quarter of 2015 was $9.3 million, or $0.36 per share, compared with a net loss for the second quarter of 2014 of $8.7 million, or $0.34 per share. The increase in net loss was primarily due to higher selling, general and administrative expenses and income taxes, partially offset by higher gross profit and other income.

Net sales for the six months ended June 30, 2015 were $42.1 million, up 3.3% (5.5% on a constant currency basis) from $40.7 million for the six months ended June 30, 2014. AWC product sales were $20.1 million, up 16.9% (18.2% on a constant currency basis) from $17.2 million in the prior-year period. TWC product sales were $22.0 million, down 6.6% (3.7% on a constant currency basis) from $23.5 million in the prior-year period. The Company reported a net loss for the first half of 2015 of $19.9 million, or $0.78 per share, compared with a net loss for the first half of 2014 of $19.0 million, or $0.79 share.

As of June 30, 2015, Derma Sciences had cash, cash equivalents and short-term investments of $58.0 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 15% compared with 2014. Sales of TWC products are expected to decline 3% to $43.8 million, reflecting the loss of a significant customer in 2015. Net sales are expected to increase as the year progresses, with quarterly sales impacted by ordering patterns and delivery dates, particularly in the TWC business.

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 June 30, 2015, the Company has spent approximately $45.5 million on this program.

Chief Medical Officer Transition

“We are also announcing that John Caminis has resigned from his position as chief medical officer for personal reasons, effective immediately. We are fortunate that Alan Dunton, a long-time clinical and regulatory advisor to the Company, will assume the responsibilities of chief medical officer on an interim basis,” stated Mr. Quilty.

“In addition to overseeing our aclerastide Phase 3 trial, Dr. Dunton will lead the preclinical activities with aclerastide in scar reduction and supervise the remaining study work for AMNIOMATRIX and AMNIOEXCEL,” Mr. Quilty continued. “We expect all of our programs to continue as planned, adhering to the timelines previously established.”

Commenting on the aclerastide Phase 3 program, Dr. Dunton said, “As of today, we now have 576 patients enrolled in our Phase 3 trials. We have engaged a second contract research organization and are initiating sites in Eastern Europe, Germany and Israel, while enrollment continues as planned at sites in South Africa. Importantly, we announced that our two-year animal carcinogenicity study for aclerastide has produced ‘clean results’ related to safety findings and, in particular, carcinogenicity. This was the final study agreed to with the FDA for toxicological assessment. We are pleased that this important step towards the filing of a New Drug Application has now been completed. We continue to expect enrollment in the Phase 3 trials to be completed by mid-2016, with top-line data available in the first quarter of 2017.”

Conference Call and Webcast

Derma Sciences management will host a conference call at 11:00 a.m. Eastern time today to discuss second 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: 95870870. 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 August 16, 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 95870870. 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.

DERMA SCIENCES, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
				Three Months Ended
				June 30,
				2015					2014
Net Sales				$	22,556,364				$	20,916,225
Cost of sales					14,185,116					13,071,408
Gross Profit					8,371,248					7,844,817
Operating Expenses
Selling, general and administrative					13,701,728					12,631,590
Research and development					4,490,888					4,365,267
Total operating expenses					18,192,616					16,996,857
Operating loss					(9,821,368	)				(9,152,040	)
Other income, net					(880,514	)				(233,050	)
Loss before income taxes					(8,940,854	)				(8,918,990	)
Income tax provision (benefit)					344,857					(232,188	)
Net Loss					(9,285,711	)				(8,686,802	)
Other Comprehensive (Loss) Income
Foreign currency translation adjustment					(102,652	)				117,750
Unrealized (loss) gain on equity securities, net of taxes					(4,347	)				862,685
Total other comprehensive (loss) income					(106,999	)				980,435
Comprehensive Loss				$	(9,392,710	)			$	(7,706,367	)
Net loss per common share- basic and diluted				$	(0.36	)			$	(0.34	)
Shares used in computing net loss per common share – basic and diluted					25,759,843					25,199,805
				Six Months Ended
				June 30,
				2015					2014
Net Sales				$	42,055,016				$	40,703,258
Cost of sales					26,148,642					25,946,117
Gross Profit					15,906,374					14,757,141
Operating Expenses
Selling, general and administrative					26,998,363					25,681,143
Research and development					8,963,117					8,548,868
Total operating expenses					35,961,480					34,230,011
Operating loss					(20,055,106	)				(19,472,870	)
Other income, net					(512,726	)				(272,300	)
Loss before income taxes					(19,542,380	)				(19,200,570	)
Income tax provision (benefit)					352,908					(243,753	)
Net Loss					(19,895,288	)				(18,956,817	)
Other Comprehensive (Loss) Income
Foreign currency translation adjustment					(258,463	)				(84,862	)
Unrealized gain on equity securities, net of taxes					4,458					486,010
Total other comprehensive (loss) income					(254,005	)				401,148
Comprehensive Loss				$	(20,149,293	)			$	(18,555,669	)
Net loss per common share – basic and diluted				$	(0.78	)			$	(0.79	)
Shares used in computing net loss per common share – basic and diluted					25,656,875					23,889,487

DERMA SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
				June 30,					December 31,
ASSETS				2015					2014
Current Assets
Cash and cash equivalents				$	13,005,695				$	19,396,845
Short-term investments					45,000,230					55,996,000
Accounts receivable, net of allowances of $713,962 and $531,205, respectively					9,143,916					8,758,034
Inventories					17,545,944					13,280,940
Prepaid expenses and other current assets					1,572,907					3,411,934
Total current assets					86,268,692					100,843,753
Long-term investments					8,430,034					8,422,790
Equipment and improvements, net of accumulated depreciation andamortization of $7,813,950 and $7,681,863, respectively					3,883,087					3,614,439
Identifiable intangible assets, net of accumulated amortization of $12,123,501and $10,631,372, respectively					11,323,375					12,815,504
Goodwill					13,457,693					13,457,693
Other assets					141,053					143,733
Total Assets				$	123,503,934				$	139,297,912
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable				$	6,282,664				$	5,058,892
Accrued expenses and other current liabilities					4,752,998					6,452,358
Total current liabilities					11,035,662					11,511,250
Long-term liabilities					471,060					521,358
Deferred tax liability					1,789,313					1,700,640
Total liabilities					13,296,035					13,733,248
Stockholders’ Equity
Convertible preferred stock, $.01 par value; shares authorized 1,468,750;
issued and outstanding 73,332 at June 30, 2015 and
December 31, 2014 (liquidation preference of $3,222,368
at June 30, 2015)					733					733
Common stock, $.01 par value; shares authorized 50,000,000;
issued and outstanding 25,806,549 at June 30, 2015 and
25,319,203 at December 31, 2014)					258,065					253,192
Additional paid-in capital					233,129,197					228,341,542
Accumulated other comprehensive income					657,558					911,563
Accumulated deficit					(123,837,654	)				(103,942,366	)
Total stockholders’ equity					110,207,899					125,564,664
Total liabilities and stockholders’ equity				$	123,503,934				$	139,297,912

View source version on businesswire.com: http://www.businesswire.com/news/home/20150810005347/en/

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]
or
Media
Spectrum Science Communications
Leticia Diaz, 202-955-6222
[email protected]

Source: Derma Sciences, Inc.

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