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Derma Sciences Reports Third Quarter Net Sales Up 17%, Advanced Wound Care Sales Up 38% Conference Call Begins at 11:00 a.m. Eastern Time Today

PRINCETON, N.J., Nov 12, 2010 (BUSINESS WIRE) -- Derma Sciences, Inc. (Nasdaq: DSCI), a medical device and pharmaceutical company focused on advanced wound care, today reported financial and operating results for the three and nine months ended September 30, 2010. Highlights of the third quarter of 2010 and recent weeks include: Net sales increased 17% to $15.1 million from $12.9 million in the third quarter of 2009 Advanced wound care product sales increased 38% to $3.1 million from $2.3 million in the prior year third quarter and increased 19% from $2.6 million in the second quarter of 2010 Core product sales (all other sales) increased 13% to $12.0 million from $10.6 million in the third quarter of 2009 Gross margin declined to 29.3% in the third quarter of 2010 from 31.4% in the third quarter of 2009, due principally to higher manufacturing costs These cost issues, combined with incremental investment in sales, marketing and clinical support resulted in a net loss of $502,552, compared with net income of $139,603 in the prior year third quarter Patient enrollment was completed in the Phase II trial with DSC127 in diabetic wound healing Received a research and development grant of $244,479 from the U.S. government under HR: 3590 -- Patient Protection and Affordable Care Act Management Commentary "We are successfully leveraging our investments in sales, marketing and clinical support, as evidenced by the growth in our novel key brands," said Edward J.

Quilty, Chairman and Chief Executive Officer of Derma Sciences. "We had the first commercial sales of new product offerings in our XTRASORB line during the quarter. We made progress with our two 510(k) submissions to the U.S. Food and Drug Administration for new MEDIHONEY line extensions and are looking forward to bringing those products to market in the near future.

"We remain focused on cost containment in order to improve gross margins going forward. We have been challenged by a well publicized significant increase in the price of cotton to all time record levels. In addition, our margin continues to be adversely impacted by efficiency issues associated with the startup of manufacturing in Mexico. We expect these issues to be resolved by the end of the year. We have taken and will continue to take, steps to manage this and other cost measures impacting our business.

"We are making important inroads into our international sales growth initiative, following the opening of an office in the U.K. earlier this year. Our team is in place and is responsible for growing direct sales in the U.K. and managing the network of distributors throughout Europe and the Middle East. Our expectation is for international sales to become a significant part of our business in the coming years.

"We were very pleased to complete patient enrollment at the end of September in our Phase II trial with DSC127 in diabetic wound healing. We anticipate reporting top-line efficacy data between late December and mid January. Should the trial be successful, we are evaluating several options, including bringing on a partner. The recent award of $244,479 from the U.S. government under the Patient Protection and Affordable Care Act related to the development of DSC127, was welcome validation of our work," concluded Mr. Quilty.

Financial Results Net sales for the third quarter of 2010 increased 17% to $15,096,134, compared with $12,882,425 in the third quarter of 2009. Gross profit increased 9.5% to $4,429,930 in the third quarter of 2010, compared with the same period in 2009.

Selling, general and administrative expense was $4,690,054 in the third quarter of 2010, compared with $3,677,182 in the prior year quarter. The year-over-year increase was mainly attributable to the incremental selling expense associated with the planned expansion of the U.S. sales force and incremental international expenses. Higher G&A expense comprised of incremental amortization, legal and investor relations costs, also contributed. The net loss for the third quarter of 2010 was $502,552 or $0.08 per share, compared with net income of $139,603 or $0.03 per share in the third quarter of 2009.

Net sales for the nine months ended September 30, 2010 were $41,170,621, up 18% compared with net sales of $34,877,658 for the same period in 2009. Gross profit was $12,483,233 or 30.3% of sales, compared with gross profit of $10,825,674 or 31.0% of sales in the nine months ended September 30, 2009. The net loss in the first nine months of 2010 was $1,970,310 or $0.31 per share, compared with a net loss of $1,178,978 or $0.23 per share in the first nine months of 2009.

As of September 30, 2010, working capital was $9,587,806, and cash and cash equivalents were $409,505. Line of credit borrowing was $3,658,625 at quarter end with approximately $1,200,000 of additional availability.

Conference Call and Webcast Derma Sciences management will hold a conference call to discuss these results and answer questions today beginning at 11:00 a.m. Eastern time. In addition, management will provide a business update and discuss recent and upcoming milestones.

To access the conference call, from the U.S. please dial (888) 563-6275 and from outside the U.S. please dial (706) 634-7417. All listeners should provide the following passcode: 23392989. Individuals interested in listening to the live conference call via the Internet may do so by logging on to the Company's website, www.dermasciences.com.

Following the end of the conference call, a telephone replay will be available through August 16, 2010, and can be accessed by dialing (800) 642-1687 from the U.S. or (706) 645-9291 from outside of the U.S. All listeners should provide the following passcode: 23392989. The webcast will be available for 30 days.

About Derma Sciences, Inc.

Derma Sciences is a medical technology company focused on three segments of the wound care marketplace, traditional dressings, advanced wound care dressings and pharmaceutical wound care products. Its MEDIHONEY(R) product is the leading brand of honey-based dressings for the management of wounds and burns. The product has been shown to be effective in a variety of indications, and was the focus of a positive large-scale, randomized controlled trial involving 108 leg ulcer patients. Other novel products introduced into the $14 billion global wound care market include XTRASORB(R) for better management of wound exudates, and BIOGUARD(R) for infection prevention. Derma Sciences expects to complete the efficacy portion of its Phase II clinical study with DSC127, a novel pharmaceutical for accelerated wound healing and scar reduction, by the end of 2010.

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, commercialization or technological difficulties, 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 fillings with the U.S. Securities and Exchange Commission.

DERMA SCIENCES, INC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended September 30, ------------------------------------ 2010 2009 ---------- ---------- Net Sales $ 15,096,134 $ 12,882,425 ---- ---------- ---- ---------- Cost of sales 10,666,204 8,838,154 --------------------------------------------------------------------- ---------- ---------- Gross Profit 4,429,930 4,044,271 --------------------------------------------------------------------- ---------- ---------- Operating Expenses Selling, general and administrative 4,690,054 3,677,182 ---------- ---------- Research and development 175,380 70,412 --------------------------------------------------------------------- ---------- ---------- Total operating expenses 4,865,434 3,747,594 --------------------------------------------------------------------- ---------- ---------- Operating (loss) income (435,504 ) 296,677 --------------------------------------------------------------------- ---------- ---- ---------- Other expense, net: Interest expense 119,521 220,839 ---------- ---------- Other income (75,530 ) (69,002 ) --------------------------------------------------------------------- ---------- ---- ---------- ---- Total other expense 43,991 151,837 --------------------------------------------------------------------- ---------- ---------- (Loss) income before provision for income taxes (479,495 ) 144,840 ---------- ---- ---------- Provision for income taxes 23,057 5,237 --------------------------------------------------------------------- ---------- ---------- Net (Loss) Income $ (502,552 ) $ 139,603 --------------------------------------------------------------------- ---- ---------- ---- ---- ---------- Net (loss) income per common share- basic and diluted $ (0.08 ) $ 0.03 --------------------------------------------------------------------- ---- ---------- ---- ---- ---------- Shares used in computing net (loss) income per common share - basic 6,561,826 5,039,468 --------------------------------------------------------------------- ---------- ---------- Shares used in computing net (loss) income per common share - diluted 6,561,826 5,366,413 --------------------------------------------------------------------- ---------- ---------- Nine Months Ended September 30, ------------------------------------ 2010 2009 ---------- ---------- Net Sales $ 41,170,621 $ 34,877,658 ---- ---------- ---- ---------- Cost of sales 28,687,388 24,051,984 --------------------------------------------------------------------- ---------- ---------- Gross Profit 12,483,233 10,825,674 --------------------------------------------------------------------- ---------- ---------- Operating Expenses Selling, general and administrative 13,603,071 11,244,347 ---------- ---------- Research and development 415,232 288,338 --------------------------------------------------------------------- ---------- ---------- Total operating expenses 14,018,303 11,532,685 --------------------------------------------------------------------- ---------- ---------- Operating loss (1,535,070 ) (707,011 ) --------------------------------------------------------------------- ---------- ---- ---------- ---- Other expense, net: Interest expense 414,120 631,909 ---------- ---------- Loss on debt extinguishment 114,072 - ---------- ---------- Other income (253,661 ) (112,791 ) --------------------------------------------------------------------- ---------- ---- ---------- ---- Total other expense 274,531 519,118 --------------------------------------------------------------------- ---------- ---------- Loss before provision (benefit) for income taxes (1,809,601 ) (1,226,129 ) ---------- ---- ---------- ---- Provision (benefit) for income taxes 160,709 (47,151 ) --------------------------------------------------------------------- ---------- ---------- ---- Net Loss $ (1,970,310 ) $ (1,178,978 ) --------------------------------------------------------------------- ---- ---------- ---- ---- ---------- ---- Net loss per common share - basic and diluted $ (0.31 ) $ (0.23 ) --------------------------------------------------------------------- ---- ---------- ---- ---- ---------- ---- Shares used in computing net loss per common share - basic and 6,259,205 5,028,891 diluted --------------------------------------------------------------------- ---------- ---------- DERMA SCIENCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS September 30, December 31, 2010 2009 (Unaudited) --------------------------------------------------------------- ------------------- ------------------- Current Assets Cash and cash equivalents $ 409,505 $ 243,524 ---- ----------- ---- ----------- Accounts receivable, net 5,361,264 3,372,712 ----------- ----------- Inventories 13,579,298 11,489,724 ----------- ----------- Prepaid expenses and other current assets 456,337 456,675 --------------------------------------------------------------- ----------- ----------- Total current assets 19,806,404 15,562,635 ----------- ----------- Cash - restricted - 2,032,164 ----------- ----------- Equipment and improvements, net 3,412,650 3,741,347 ----------- ----------- Goodwill 7,119,726 7,119,726 ----------- ----------- Other intangible assets, net 7,254,725 3,994,250 ----------- ----------- Other assets, net 341,110 849,753 --------------------------------------------------------------- ----------- ----------- Total Assets $ 37,934,615 $ 33,299,875 --------------------------------------------------------------- ---- ----------- ---- ----------- LIABILITIES AND SHAREHOLDERS' EQUITY --------------------------------------------------------------- Current Liabilities Line of credit borrowings 3,658,625 2,306,306 ----------- ----------- Current maturities of long-term debt 14,503 1,759,185 ----------- ----------- Accounts payable 4,240,277 3,363,096 ----------- ----------- Accrued expenses and other current liabilities 2,305,193 1,342,467 --------------------------------------------------------------- ----------- ----------- Total current liabilities 10,218,598 8,771,054 ----------- ----------- Long-term debt - 2,305,851 ----------- ----------- Other long-term liabilities 69,671 96,564 ----------- ----------- Deferred tax liability 321,323 355,349 --------------------------------------------------------------- ----------- ----------- Total Liabilities 10,609,592 11,528,818 --------------------------------------------------------------- ----------- ----------- Shareholders' Equity Convertible preferred stock, $.01 par value; 1,468,750 shares 2,848 2,851 authorized; issued and outstanding: 284,844 shares (liquidation preference of $4,201,426 at September 30, 2010) ----------- ----------- Common stock, $.01 par value; 18,750,000 authorized; issued and 65,618 50,395 outstanding: 6,561,826 at September 30, 2010; 5,039,468 at December 31, 2009 ----------- ----------- Additional paid-in capital 48,620,586 41,221,613 ----------- ----------- Accumulated other comprehensive income - 1,413,377 1,303,293 cumulative translation adjustments ----------- ----------- Accumulated deficit (22,777,406 ) (20,807,095 ) --------------------------------------------------------------- ----------- ---- ----------- ---- Total Shareholders' Equity 27,325,023 21,771,057 --------------------------------------------------------------- ----------- ----------- Total Liabilities and Shareholders' Equity $ 37,934,615 $ 33,299,875 --------------------------------------------------------------- ---- ----------- ---- ----------- SOURCE: Derma Sciences, Inc.

CONTACT: Derma Sciences, Inc. John E. Yetter Vice President and CFO jyetter@dermasciences.com 609-514- 4744 or Lippert/Heilshorn & Associates Investors Kim Sutton Golodetz kgolodetz@lhai.com 212-838-3777 or Bruce Voss bvoss@lhai.com 310-691-7100 or Media Megan Rusnack mrusnack@lhai.com 212-838-3777 Copyright Business Wire 2010 -0- KEYWORD: United States

North America

New Jersey INDUSTRY KEYWORD: Health

Biotechnology

Pharmaceutical

Medical Supplies SUBJECT CODE: Earnings

Conference Call

Webcast