Contraception device maker
) reported break-even EPS during the second quarter of fiscal 2012,
a penny short of the year-ago quarter. However, the reported EPS
surpassed the Zacks Consensus Estimate of loss of 1 cent per
Revenues in the reported quarter were up 5% year over year to
$35.5 million, marginally ahead of the Zacks Consensus Estimate of
$35 million. Sales from the domestic and international market
recorded respective growth of 5.2% to $26.7 million and 4.4% (16%
at constant exchange rate or CER) to $9.4 million during the
quarter. International sales were significantly affected by
unfavorable currency movement.
Even amid several macroeconomic headwinds in the form of
persistent unemployment and limited consumer spending, the
improvement in the reported quarter primarily came on the back of
the recent exit of the company's direct peer
) Adiana from the permanent birth control market. Moreover, the
company's gradual progress in improving commercial execution is
gradually accelerating its growth.
Conceptus derives a major share of its revenues from Essure
permanent birth control system. The domestic sales for Essure
during the quarter were up 6.5% year over year.
Sales of the Essure system depends on the number of physicians
trained to perform the procedure. Conceptus is striving towards
making the system available worldwide by raising consumer and
physician awareness as well as training physicians to perform the
During the reported quarter, the company expanded its U.S.
physician penetration by enrolling 377 new physicians into
preceptorship, certifying approximately 273 physicians and
transitioning approximately 88 physicians to performing procedures
in the office setting. To date, around 15,200 physicians are fully
equipped to perform the Essure procedure.
Conceptus reported gross profit of $29.1 million, up 5.1% from
$27.7 million in the second quarter of 2011. Gross margin during
the quarter expanded 10 basis points (bps) to 82.0%.
Operating expenses increased 2.3% to $26.4 million, driven by
the company's DTC advertising campaign, product development cost of
the next-generation Essure device and clinical trials for the
Essure Transvaginal Ultrasound confirmation study partially offset
by reduced expenses attributable to lower headcount in the domestic
market. However, operating margin of the company during the
reported quarter expanded 187 bps to 7.53%.
The company's bottom line was, however, affected by an income
tax provision of $1.5 million on pre-tax income of $1.6 million
compared to benefit of $0.17 million on pre-tax income of $0.29
million in the year-ago quarter. The significant jump in tax rate
in the reported quarter was due to certain adjustments in tax
deductions for equity-based compensation expense.
Conceptus exited the quarter with cash, cash equivalents and
short-term investments of $60.1 million compared with $101.4
million at the end of fiscal 2011. In the second quarter, the
company's cash flow from operations was $0.7 million.
In February 2012, Conceptus redeemed its 2027 senior convertible
notes for $36.6 million. In December, 2011, $50.0 million of the
original 2027 notes were refinanced and are now due in 2031.
Conceptus reiterated its revenue guidance of $140-$144 for fiscal
The recent exit of Adiana from the permanent birth control
market should be highly beneficial for Conceptus. Notably, on April
30, Conceptus announced the settlement of its patent infringement
litigation related to Hologic's competing product Adiana permanent
contraception system. As per the agreement, Hologic agreed to
withdraw its Adiana system from the market.
The Supreme Court's decision on June 28, 2012 to uphold the
Patient Protection and Affordable Care Act of 2010 ("PPACA") (also
known as Obamacare) is another positive development, since it
provides a huge impetus to Conceptus' business. The company is
upbeat regarding the fact that under the PPACA, the entire list of
contraceptive methods approved by the U.S. Food and Drug
Administration ("FDA"), including the Essure procedure, will be
covered by all private insurance plans.
We believe that the Supreme Court ruling will emerge as a
landmark development for women's health care. We also believe that
the recent tailwinds will largely benefit Conceptus' sales
performance as it will increase access and affordability of the
Essure procedure worldwide.
CONCEPTUS INC (CPTS): Free Stock Analysis
HOLOGIC INC (HOLX): Free Stock Analysis Report
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However, we remain concerned about the limited growth visibility
arising from difficult macro-economic conditions resulting in a
weak hysteroscopic sterilization market. Currently, Conceptus
retains a short-term Zacks #3 Rank (Hold).