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Derma Sciences Inc (DSCI)

Q4 2012 Earnings Call

April 01, 2013 11:00 am ET


Kim Golodetz - Lippert/Heilshorn & Associates

Edward Quilty - Chairman of the Board, President, Chief Executive Officer

John Yetter - Chief Financial Officer, Executive Vice President - Finance

Barry Wolfenson - Group President of Advanced Wound Care and Pharmaceutical Development


Scott Henry - ROTH Capital

David Amsellem - Piper Jaffray

Harvey Poppel - Poptech, LP



Welcome to the Derma Sciences' Fourth Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we'll hold a Q&A session. (Operator Instructions) As a reminder, this conference is being recorded today, April 1, 2013.

I would now like to turn the conference over to Ms. Kim Golodetz. Please go ahead, ma'am.

Kim Golodetz

Thank you. This is Kim Golodetz with LHA. Thank you all for participating in today's call. Joining me from Derma Sciences are Ed Quilty, President and Chief Executive Officer and Chairman, and John Yetter, Executive Vice President of Finance and Chief Financial Officer, Barry Wolfenson, the company's Group President Advanced Wound Care and Pharmaceutical Development, and Robert Cole, Group President of Traditional Wound Care and Corporate Accounts, will join us for the Q&A portion of the call.

Earlier today, Derma Sciences announced financial results for the fourth quarter of 2012. If you have not received this news release or if you would like to be added to the company's distribution list, please call LHA, New York, at 212-838-3777, and speak with Carolyn Curran.

Before we begin, I would like to caution that comments made during this conference call by management will contain forward-looking statements regarding the operations and future results of Derma Sciences. I encourage you to review the company's filings with the Securities and Exchange Commission, including without limitation, the company's form 10-K and 10-Q, which identify specific factors that may cause actual results or events to differ materially from those described in the forward looking statements.

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, commercialization or technological difficulties, the success or failure of negotiations and trade legal, social and economic risks.

Also, the content of this conference call contains time-sensitive information that is accurate only as of the date of the live call. Today, April 1, 2013. The company undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.

With that said, I would like to turn the call over to Ed Quilty. Ed?

Edward Quilty

Thank you, Kim. And, my many thanks to each of you for joining us this morning. We have a lot of things to cover with you today, so we will get started right away.

This morning, we announced the fourth quarter and not only the fourth quarter, but in recent weeks, we have finished of an exceptional and rewarding year marked by significant achievements in all of our business initiatives.

Excellent sales performance as well as the start of our Phase 3 trials with DSC127 in diabetic foot ulcer healing. Our financial results were right on plan with organic sales growth of advanced wound care products up 41% and sales growth of traditional wound care products up 3%, both compared with last year's fourth quarter. Including the TCC products, we acquired last April, our advanced wound care sales were up 73% and were up 13%, sequentially. The sequential revenue growth is even more impressive given that the third quarter of the year tends to be seasonally strong for all of our products.

Advanced wound care products now account for 38% of the company's total net sales, that's up from 27% a year ago and right in line with our expectations. This shift in product mix is benefitting our gross profit as well. We anticipated several years ago, when we identified advanced wound care as an important growing market, where more efficacious products would succeed. As a result, the gross margin was 35.6% in the fourth quarter of 2012, an increase of 7.7 percentage points, compared with gross margin of 27.9% in the fourth of 2011. So as you can see, as the total percent of net sales attributable to advanced wound care increase, and will continue to increase, you can expect to see those gross margin numbers which are very impressive only get better.

A topical drug candidate DSC127 for the treatment diabetic foot ulcer has begun the Phase 3 study as we reported to you and we are very excited about the potential of this drug as those trials get going.

I am going to go into a lot more detail about the quarter and our execution and then discuss some of the upcoming milestones that you can look for as we continue into 2013. But first, let me turn the call over to John Yetter, our Executive Vice President and Chief Financial Officer, who will give you a rundown of financial results. John?

John Yetter

Thank you, Ed. Good morning to our listeners. As Ed mentioned, we have had a very busy and productive 2012. As you know Derma's strategy is three-fold, invest in and grow our advanced wound care business, hold our traditional wound care business steady and progress the development of our promising pharmaceutical product DSC127 for diabetic foot ulcer.

Our fourth quarter and annual performance is reflective of the fact that Derma Sciences is meeting its objective today and positioning itself to continue meeting them going forward. I am happy to share with you that in the fourth quarter, as Ed mentioned, we continue to make excellent progress in advancing our DSC127, the diabetic foot ulcer program. We continue to meet our internal advanced wound care and traditional wound care sales objectives and we raised $33.7 million in December to ensure sufficient funds for the development of DSC127 for diabetic foot ulcers and general corporate purposes.

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