RTIX

RTI Surgical, Inc. (RTIX)

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RTI Biologics Inc. (RTIX)

Q1 2013 Earnings Call

April 25, 2013 8:30 AM ET

Executives

Wendy Crites Wacker – Director, Corporate Communications

Brian Hutchison – President & CEO

Rob Jordheim – EVP and CFO

Roger Rose – EVP and Chief Commercial Officer

Analysts

Matt Hewitt – Craig-Hallum Capital Group

Matt Dolan – ROTH Capital Partners

Kyle Rose – Canaccord

John Gillings – JMP Securities

Michael Rich – Raymond James

Presentation

Operator

Good day ladies and gentlemen, and welcome to the RTI Biologics Q1 Earnings Conference Call. At this time all participants are in a listen-only mode. Later, we’ll conduct a question-and-answer session and instructions will follow at that time.

(Operator Instructions)

I would now like to introduce the host for today’s conference call, Ms. Wendy Crites Wacker. You may begin ma’ am.

Wendy Crites Wacker

Good morning, and thank you for joining RTI Biologics for our first quarter 2013 conference call. Today, we will hear from Brian Hutchison, President and Chief Executive Officer; and Rob Jordheim, Executive Vice President and Chief Financial Officer.

Also joining us this morning for Q&A are Tom Rose, Executive Vice President and Chief Operations Officer; Roger Rose, Executive Vice President and Chief Commercial Officer and President of RTI Donor Services and Carrie Hartill, Executive Vice President and Chief Scientific Officer.

Before we start, let me make the following disclosure about forward-looking statements. The earnings and other matters we will be discussing on this conference call will involve statements that are forward-looking. These statements are based on your management’s current expectations, but they are subject to various risks and uncertainties associated with our lines of business and with the economic environment in general.

Our actual results may vary from any statements concerning our expectations about future events that are made during the course of this meeting, and we make no guarantees as to the accuracy of these statements. Accordingly, we urge you to consider all information about the company and not to place undue reliance on these forward-looking statements.

Now, I’ll turn the call over to Brian Hutchison.

Brian Hutchison

Good morning, everyone. And thank you for joining us. On our call today, I’ll discuss our operating highlights and then Rob will review our financial results. As detailed in our press release issued this morning, we reported first quarter revenues of $40.4 million in line with our expectation and exceeding our first quarter guidance of $38 million to $39 million.

Turning to a review of our lines of business. Our direct sports medicine business had a quarterly revenues of $10.5 million a decrease of 22% compared to first quarter of 2012. The decline in this business in the first quarter was the result of continued customer reaction to the FDA warning letter received in October last year.

Our field personnel continued to work with our customers to clarify the content of the letter and to reiterate the fact that there is no safety issue at our implants. We will continue to actively communicate with our customers to keep them informed and to provide them with accurate information. We believe some customers are waiting for a formal close out letter from FDA.

As we mentioned last quarter we would expect after the FDA conducts a follow up inspection of our Alachua facility, we do believe that we’re starting to see recovery as we regain some accounts. We’ve also established new relationships adding more than 100 new accounts in the quarter. Based on results from the first quarter we are anticipating sports medicine will grow low single digits for the full-year of 2013. The majority of this growth will occur in the back half of the year.

First quarter spine revenues increased 18% compared to first quarter 2012. The increase was primarily related to the timing of orders from our commercial partners. Currently we’re experiencing favorable comparable year-over-year in the first half of 2013 that will balance out for the remainder of the year. Due to this, we feel that we will mirror the spine market for our full-year 2013 which continues to be flat to low single digit growth.

First quarter surgical specialties revenues decreased 11% compared to first quarter of 2012. The decrease in revenues was due to the decline in hernia revenue as our commercial distributor is focusing more on xenograft for hernia repair. The decrease was offset by growth in breast reconstruction and urology

Moving forward in surgical specialties, we are now co-exclusive with our distributor in human dermis for the hernia market. In the first quarter of 2013 we launched our direct distribution group for surgical specialties. We have the leadership in place and we have been hiring and training new biologics reps.

This team introduced our new biologics portfolio for hernia repair in March at the American Hernia Society Meeting. The portfolio includes the Cortiva human dermis implant and Tutomesh, Tutopatch bovine pericardium implants.

As of today surgeons have begun using both implants in the US. For porcine dermis. We are extremely pleased to have received 510(k) clearance in the first quarter of the year. The implant called Cortiva is intended for use in soft tissue repair procedures such as hernia repair. Stored hydrated and ready-to-use Cortiva is comprised of non-crosslinked porcine dermis designed to act as scaffold that allows for near vascularization and reincorporation of patient’s own tissue.

Cortiva will be made in various sizes and shapes and is sterilized through the Tutoplast process. The implants will be processed at RTI’s facility in Neunkirchen, Germany. The facility has completed all qualifications for processing and has begun production of the implant. Commercial distribution for the US will begin around our official launch which is planned for the abdominal wall reconstruction conference, the week of June 6 through June 8.

Read the rest of this transcript for free on seekingalpha.com