Derma Sciences Reports 2015 Fourth Quarter and Full Year Financial Results

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 12 months ended December 31, 2015.

Financial highlights of the fourth quarter of 2015 include (all financial comparisons versus the prior year):

• Advanced Wound Care (AWC) net sales were $10.4 million, a decline of 9.6%
• Traditional Wound Care (TWC) net sales were $9.9 million, a decline of 13.3%
• Total net sales were $20.3 million, a decline of 11.5%, (down 9.5% on a constant-currency basis)
• Gross margin increased to 41.4% from 39.3% due to favorable product mix and improved manufacturing performance
• Implemented a restructuring plan designed to achieve $10 million in annual prospective savings
• The value of the Company’s equity investment in Comvita Limited increased $7.7 million in 2015 to $16.1 million as of December 31, 2015
• The Company ended 2015 with $40.8 million of cash, cash equivalents and short term investments on hand

Other highlights and items of note in the fourth quarter of 2015 and recent weeks include:

• Termination of the aclerastide Phase 3 clinical trials due to futility assessment
• Departure of the Company’s chief executive officer; an interim chief executive officer is in place and a search for a permanent leader is in process
• Change in the Company’s strategic direction to one of sustainable and profitable growth
• WPS Government Health Services, a Medicare Administrative Contractor (MAC) whose jurisdiction includes much of the Midwest, became the fifth MAC to allow payment coverage for AMNIOEXCEL^®
• The Company’s randomized, controlled, multicenter study showing the superiority with statistical significance of AMNIOEXCEL^® plus standard-of-care over standard-of-care alone in closing diabetic foot ulcers was published in the peer-reviewed journal WOUNDS

Management Commentary

“We initiated a number of steps in the fourth quarter to match expenses to planned sales growth, to achieve improved operational performance and to reach positive EBITDA in the second half of 2016. These actions included a reduction and realignment of our U.S.-based marketing and sales operations, in addition to reductions in other areas of our business. We expect that these actions will result in total operating expenses, excluding research and development, being approximately $10.0 million less in 2016 compared with 2015. While these measures were a necessary disruption to our organization in the fourth quarter, the business is now stabilized and we are firmly on track to accomplish our 2016 goals,” commented Stephen T. Wills, Interim Executive Chairman and Principal Executive Officer of Derma Sciences.

“Recent weeks have brought a number of positive events that support our AWC franchise, particularly AMNIOEXCEL^®,” Mr. Wills continued. “Another MAC is now permitting coverage, bringing the total to five. These five MACs cover 69% of Medicare Part B beneficiaries. Last week, data from our randomized, controlled, multicenter trial with AMNIOEXCEL^® plus standard-of-care versus standard-of-care alone for the closure of non-healing diabetic foot ulcers was published in the peer-reviewed journal WOUNDS. This Level 1 published evidence will support and enhance our efforts to receive positive coverage determinations from the three remaining MACs.

“We ended the year with approximately $41 million in cash, $16 million of marketable securities and no debt. We are pleased with the strength of our balance sheet, which is especially valuable in this volatile marketplace. With respect to our TWC business, we are looking at a number of options to enhance shareholder value and to expand gross margins going forward,” Mr. Wills added.

Further, Mr. Wills added, “In addition to taking steps to improve our existing AWC and TWC businesses, we will continue to evaluate accretive external opportunities to leverage our core competencies, capabilities and the use of our capital resources to increase shareholder value.”

“TCC-EZ^® sales growth continued at double-digits in the fourth quarter,” commented Barry Wolfenson, Group President, Advanced Wound Care. “Use of TCC-EZ^® and AMNIOEXCEL^® as part of a treatment program for patients holds promise to be an effective tool for the healing of diabetic foot ulcers, and given the increased MAC coverage we are able to bring this solution to more practitioners. Our sales reps are doing an excellent job in driving use of TCC-EZ^®, supported by the Journal of the American Podiatric Medical Association recommendation of total contact casting as the preferred method for off-loading diabetic plantar foot ulcers. We believe that as the business of healthcare continues to shift towards outcomes-based care as opposed to fee-for-services, TCC-EZ should benefit from increased adoption and utilization. We are looking forward to continued strong sales performance by TCC-EZ^® this year.”

Financial Results

To allow for a meaningful comparison of continuing operations, our former pharmaceutical wound care segment has been reported as Discontinued Operations in the Company’s Consolidated Financial Statements.

Net sales for the fourth quarter of 2015 were $20.3 million, down 11.5% from $22.9 million for the fourth quarter of 2014. This included AWC sales of $10.4 million, down 9.6% from $11.5 million in the prior-year quarter, and TWC sales of $9.9 million, down 13.3% from $11.4 million in the prior year quarter. The decrease in AWC net sales was principally impacted by the reduction and realignment of the marketing and sales operations implemented during the quarter, and lower MEDIHONEY® sales due to the loss of U.S. reimbursement, partially offset by growth in TCC-EZ^®, AMNIOEXCEL^® and AMNIOMATRIX^®. The decrease in TWC net sales reflected the loss of a significant customer earlier in the year due to industry consolidation, inventory rationalization in Canada, and unfavorable foreign currency exchange, partially offset by new U.S. retail business.

Gross profit for the fourth quarter of 2015 was $8.4 million, or 41.4 % of net sales, compared with gross profit for the fourth quarter of 2014 of $9.0 million, or 39.3% of net sales. The lower gross profit reflected the lower sales, partially offset by the higher gross profit percent due to favorable product mix and lower manufacturing costs due to favorable operating performance.

Selling, general and administrative expense for the fourth quarter of 2015 was $11.7 million, compared with $12.2 million for the fourth quarter of 2014. The decrease was principally due to lower compensation and benefits, professional service, information technology and travel expense due principally to our cost reduction initiatives and timing.

The Company recognized restructuring charges of $2.5 million in the fourth quarter of 2015, reflecting a reduction of 39 positions and the departure of its chief executive officer.

The net loss from continuing operations for the fourth quarter of 2015 was $4.7 million, or $0.18 per share, compared with the net loss from continuing operations for the fourth quarter of 2014 of $3.5 million, or $0.14 per share. The increase was primarily due to incremental restructuring charges, lower gross profit, and principally unfavorable foreign exchange related other expense, partially offset by a favorable tax benefit related to our equity investment in Comvita Limited and lower operating expenses.

Net loss for the fourth quarter of 2015 was $9.2 million, or $0.36 per share, compared with net loss for the fourth quarter of 2014 of $9.6 million, or $0.38 per share.

Net sales for 2015 were $84.5 million, up 0.9% (up 3.1% on a constant-currency basis) from $83.7 million for 2014. AWC net sales were $41.8 million, up 9.6% (up 10.9% on a constant-currency basis) from $38.1 million in the prior year. TWC net sales were $42.7 million, down 6.4% (down 3.4% on a constant-currency basis) from $45.6 million in the prior year. The Company reported a net loss from continuing operations for 2015 of $20.4 million, or $0.79 per share, compared with a net loss from continuing operations for 2014 of $20.8 million, or $0.85 per share. Net loss for 2015 was $38.1 million, or $1.48 per share, compared with net loss for 2014 of $39.8 million, or $1.62 per share.

As of December 31, 2015, Derma Sciences had cash, cash equivalents and short-term investments of $40.8 million, compared with $75.4 million as of December 31, 2014. In addition, the Company had a $16.1 million investment in equity securities as of December 31, 2015, compared with $8.4 million as of December 31, 2014.

Financial Guidance

Derma Sciences affirms its previous financial guidance for 2016, as follows:

• Net sales are expected to be approximately $89.1 million, representing growth of 5.4% compared with 2015 net sales of $84.5 million. Net sales of AWC products are expected to be $47.2 million in 2016, representing growth of 13% compared with 2015 AWC net sales of $41.8 million. Net sales of TWC products are expected to be $41.9 million in 2016, representing a decline of 2% compared with 2015 TWC net sales of $42.7 million.
• Net sales are expected to increase as the year progresses, but quarterly sales will be impacted by ordering patterns and by delivery dates, particularly in the TWC business.
• Cash burn for the first half of 2016 is expected to be approximately $7.5 million; the Company expects positive EBITDA for the second half of 2016 of approximately $1.0 million.

Conference Call and Webcast

Derma Sciences management will host a conference call at 11:00 a.m. Eastern time today to discuss fourth quarter and year-end 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 passcode 65597757. 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 March 22, 2016 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 65597757. 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. TCC-EZ^® is a gold-standard total contact casting system for diabetic foot ulcers. 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. 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. 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 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.