EATONTOWN, N.J., Nov. 8 /PRNewswire-FirstCall/ -- Osteotech, Inc.
(Nasdaq: OSTE) reported today that third quarter 2005 consolidated revenues
were $22,245,000 as compared to $22,132,000 in the third quarter of 2004.
Consolidated revenues for the nine months ended September 30, 2005 increased
5% to $71,383,000 from $68,134,000 for the nine months ended September 30,
2004, which included $1,718,000 of revenues from metal spinal implant products
that the Company ceased distributing in June, 2004. Third quarter 2005
revenues were negatively impacted by a decline in domestic customer ordering
patterns, which is believed to have resulted, in part, from the uncertainty
created in our domestic customer base and sales force from the Musculoskeletal
Transplant Foundation's ("MTF") unsolicited proposal to acquire the Company,
which MTF subsequently withdrew in October, 2005.
The Company incurred a net loss of $6,797,000, or $.40 diluted net loss
per share, in the third quarter of 2005 and a net loss of $9,507,000, or $.55
diluted net loss per share, for the nine months ended September 30, 2005. In
the third quarter of 2004, the Company reported net income of $1,022,000, or
$.06 diluted net income per share. The Company incurred a net loss of
$660,000, or $.04 diluted net loss per share, for the nine months ended
September 30, 2004.
Earnings for 2005 have been impacted by lower gross profit margins,
including reserves for excess, obsolete and expiring tissue inventories,
increased operating expenses, and translation losses on transactions
denominated in foreign currency due to the strengthening of the U.S. dollar
against the Euro. In addition, the Company has recognized an income tax
benefit on its losses at less than the statutory rates due to its assessment
of the recoverability of these tax benefits. The increases in operating
expenses were primarily associated with the costs related to implementation of
programs to turn around the domestic business, expenses associated with our
continuing investment in strengthening and diversifying our tissue sources,
and increased costs for professional fees, which in the third quarter included
the costs for legal and financial advisors associated with the unsolicited
proposal from MTF. The net loss for the nine months ended September 30, 2004
included pre-tax charges of $1,519,000, net of pre-tax gains, related to the
Company's exit from the metal spinal implant business and severance costs of
$650,000 related to the reorganization of the sales and marketing functions.
Richard W. Bauer, Osteotech's Chief Executive Officer, stated, "After
progressing so well with our domestic and international business through the
first half of 2005, third quarter's results are a major disappointment. MTF's
unsolicited proposal to acquire Osteotech, which was made public on August 29,
created significant uncertainty throughout our independent field sales agent
network. This resulted in September domestic revenues, a traditionally strong
month following the summer months, producing the same average daily sales
numbers as recorded in August. Because of the third quarter revenue
shortfall, lower than expected gross profit, the continued uncertainty of our
being able to quickly rebuild our domestic revenue base in fourth quarter and
the uncertainty related to the final resolution of our Grafton(R) DBM
submissions with the Food and Drug Administration ("FDA"), we are withdrawing
our 2005 guidance. After the Company's December 15 Board Meeting, when our
2006 budgets are reviewed and approved, we plan to conduct a web cast to
explain the specific steps we have taken and will be taking to return the
Company to profitability. During the web cast, we will also provide some
major new insights into our product and technology pipeline and the details of
our donor development initiatives to be independent from reliance on donors
supplied by MTF when our current contracts with them expire at the end of
December 2008."
Mr. Bauer continued, "Regarding our Grafton(R) DBM 510(k) submissions, we
want to assure you that the Company is working closely with the FDA to gain
clearance on all five 510(k)s submitted. Our submissions were all in the
review process prior to the September 16, 2005 enforcement letter sent by the
FDA to all manufacturers of DBM products that include an additive. In the
event the FDA does not complete its review process by the November 15, 2005
deadline outlined in their letter, the Company has officially requested an
extension in a letter to the Agency dated October 28, 2005, however, there can
be no assurance that an extension will be granted. Grafton(R) DBM has been
marketed since 1991 and its safety and effectiveness record is not in
question. The issue before the FDA is one of classification and not safety or
effectiveness. We will continue to work with the FDA to ensure that surgeons
and their patients will have the most recognized and accepted DBM available to
them without interruption. We recognize, however, that those efforts may not
be successful and we are preparing to defend Grafton(R) DBM in that event."
Domestic revenues declined 3% to $18,800,000 in the third quarter of 2005
from $19,313,000 in the third quarter of 2004, while revenues from
international operations increased 22% in the third quarter of 2005 to
$3,445,000 from $2,819,000 in the same period in 2004. For the nine months
ended September 30, 2005 domestic revenues increased 2% to $60,819,000 from
$59,678,000 in the corresponding period in 2004, which included revenues of
$1,718,000 from metal spinal implant products. Revenues from international
operations increased 25% to $10,564,000 for the nine months ended September
30, 2005 from $8,456,000 for the nine months ended September 30, 2004.
Consolidated gross profit margins were 32% and 39% in the third quarter
and nine months ended September 30, 2005, respectively, as compared to 47% and
44% in the same respective periods in 2004. Gross profit margins in 2005 were
constrained by the underabsorption of processing costs, primarily due to the
following: continued planned reduction in unit production output as a result
of strategic initiatives to reduce inventory levels in the Graftech(R)
Bio-implant product line and a decline in the number of donors processed;
reserves and write-offs for excess, obsolete and expiring tissue inventories,
primarily in the Graftech(R) Bio-implant product line, of approximately
$1,800,000 and $4,142,000 in the third quarter and nine months ended September
30, 2005, respectively; the continued shift in revenue mix, including the
growth of international revenues, which have lower margins than domestic
revenues and represented 15% of consolidated revenue in the third quarter of
2005 compared to 13% in the third quarter of 2004; and the impact of more
aggressive sales discounting to offset domestic competitive pressures.
DBM Segment revenues increased 4% and 15% to $12,507,000 and $39,414,000
in the third quarter and nine months ended September 30, 2005, respectively,
as compared to $12,021,000 and $34,316,000 in the same respective periods in
2004. The Segment's revenues consist of:
DBM Segment Revenues
Third Quarter Nine Months
Ended September 30, Ended September 30,
2005 2004 2005 2004
(Dollars in Thousands)
Domestic:
Grafton(R) DBM $ 9,380 $8,708 $ 30,198 $ 26,445
Private Label 1,019 1,866 2,959 3,012
10,399 10,574 33,157 29,457
International:
Grafton(R) DBM 2,108 1,447 6,257 4,859
Total Segment Revenues $12,507 $ 12,021 $ 39,414 $ 34,316
Domestic Grafton(R) DBM revenues increased in both periods primarily
related to the realization of higher per unit selling prices as a result of
the continued implementation of the strategic initiative to distribute our
proprietary products directly to end users, for which we recognize a greater
portion of the end user selling price. International Grafton(R) DBM revenues
increased 46% and 29% in the three and nine months ended September 30, 2005,
respectively, primarily from increased unit volume. Private label DBM
revenues declined 45% in the third quarter of 2005, primarily due to a
reduction in orders from one of our partners as they adjusted their ordering
patterns and inventory levels. We began to ship product to this partner in
the third quarter of 2004.
The Company's 510(k) submissions to the FDA principally cover all
domestically distributed Grafton(R) DBM and private label tissue forms. The
Company believes that its DBM tissue forms will be eligible for 510(k)
clearance, but the FDA may not issue any clearance or approval prior to the
November 15th deadline outlined in the FDA's letter of September 16, 2005 or,
in the absence of clearance, the Company may not be able to obtain an
extension of the deadline. If the Company is unable to obtain clearance or
approval of its 510(k) submissions by the deadline, or the Company is
unsuccessful in obtaining an extension of the deadline, the Company may be
required to withdraw some or all of its DBM tissue forms from the domestic
market until such time as the Company's 510(k) submissions receive clearance
from the FDA. If this action were to happen, it will have a material adverse
effect on the Company's results of operations and financial position. The
Company is currently unable to predict if, or when, it will be successful in
obtaining clearance from the FDA for our 510(k) submissions, or if it will be
successful in obtaining an extension of the November 15th deadline.
The DBM Segment generated an operating loss of $586,000 in third quarter
2005 from an operating income of $2,008,000 in the same period in 2004.
Operating income in the DBM Segment was $1,297,000 and $3,249,000 for the nine
months ended September 30, 2005 and 2004, respectively. The decline in third
quarter and nine months operating income is primarily a result of lower gross
profit margins and increased operating costs, including costs associated with
MTF's unsolicited proposal to acquire the Company, increased commission costs,
and costs associated with diversifying our tissue sources.
Base Tissue Segment revenues declined in the third quarter of 2005 to
$9,391,000 from $9,673,000 in the third quarter of 2004. Base Tissue Segment
revenues increased to $30,919,000 in the nine months ended September 30, 2005
from $30,724,000 in the nine months ended September 30, 2004. The Segment's
revenues consist of:
Base Tissue Segment Revenues
Third Quarter Nine Months
Ended September 30, Ended September 30,
2005 2004 2005 2004
(Dollars in Thousands)
Domestic:
Traditional Tissue Processing
And Direct Distribution $ 4,338 $ 4,055 $ 13,988 $ 12,712
Graftech(R) Bio-implants 3,893 4,474 13,164 15,289
8,231 8,529 27,152 28,001
International:
Traditional Tissue Processing
And Direct Distribution 1,160 1,144 3,767 2,723
Total Segment Revenues $ 9,391 $ 9,673 $ 30,919 $ 30,724
The decline in third quarter 2005 revenues is primarily due to a 13%
decrease in revenues from Graftech(R) Bio-implants due to lower demand and the
processing of 384 fewer donors for clients, partially offset by a 337%
increase in the distribution of traditional tissue domestically. The increase
in Base Tissue Segment revenues for the nine months ended September 30, 2005
resulted principally from a 260% increase in the domestic distribution of
traditional tissue and a 38% increase in international revenues, both as a
result of increased unit volumes, partially offset by a 14% decrease in
revenues from Graftech(R) Bio-implants and the processing of 706 fewer donors
for clients.
The Base Tissue Segment incurred operating losses of $5,352,000 and
$10,263,000 in the third quarter and nine months ended September 30, 2005,
respectively, as compared to operating losses of $929,000 and $1,993,000 in
the same respective periods of last year. The increases in the operating
losses are primarily attributed to the underabsorption of processing costs,
mainly due to the continued planned reduction in unit production output as a
result of strategic initiatives to reduce inventory levels in the Graftech(R)
Bio-implant product line and a decline in the number of donors processed and
reserves and write-offs for excess, obsolete and expiring tissue inventories,
primarily in the Graftech(R) Bio-implant product line, of approximately
$1,800,000 and $3,919,000 in the third quarter and nine months ended September
30, 2005. In addition, the operating losses were impacted by an increase in
operating expenses, including costs associated with MTF's unsolicited proposal
to acquire the Company, increased commission costs, and costs associated with
diversifying our tissue sources.
Mr. Bauer will host a conference call on November 8, 2005 at 9:00 AM
Eastern to discuss third quarter results. You are invited to listen to the
conference call by dialing (706) 634-5453. The conference call will also be
simultaneously Web Cast at http://www.osteotech.com. Automated playback will
be available two hours after completion of the live call through midnight,
November 22, 2005, by dialing (706) 645-9291 and indicating access code
9528078.
Certain statements made throughout this press release that are not
historical facts contain forward-looking statements (as such are defined in
the Private Securities Litigation Reform Act of 1995) regarding the Company's
future plans, objectives and expected performance. Any such forward-looking
statements are based on assumptions that the Company believes are reasonable,
but are subject to a wide range of risks and uncertainties and, therefore,
there can be no assurance that actual results may not differ materially from
those expressed or implied by such forward-looking statements. Factors that
could cause actual results to differ materially include, but are not limited
to, the failure of the FDA to clear the Company's 510(k) submissions for its
Grafton(R) DBM and private label product lines by the November 15, 2005
deadline or to extend such deadline, which would have a material impact on the
Company's financial condition and results of operations if the Company is
required to withdraw its DBM products from the market, the continued
acceptance and growth of current products and services, differences in
anticipated and actual product and service introduction dates, the ultimate
success of those products in the marketplace, the impact of competitive
products and services, the availability of sufficient quantities of suitable
donated tissue and the success of cost control and margin improvement efforts.
Certain of these factors are detailed from time to time in the Company's
periodic reports (including the Annual Report on Form 10-K for the year ended
December 31, 2004 and the Form 10-Q for the first and second quarters of 2005)
filed with the Securities and Exchange Commission. All information in this
press release is as of November 8, 2005 and the Company undertakes no duty to
update this information.
Osteotech, Inc, headquartered in Eatontown, New Jersey, is a leading
provider of human bone and bone connective tissue for transplantation and an
innovator in the development and marketing of biomaterial and implant products
for musculoskeletal surgery. For further information regarding Osteotech,
this press release or the conference call, please go to Osteotech's website
homepage at http://www.osteotech.com and to Osteotech's Financial Information
Request Form website page at http://www.osteotech.com/finrequest.htm.
OSTEOTECH, INC. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
Three Months Nine Months
Ended September 30, Ended September 30,
2005 2004 2005 2004
Net revenues:
Service $ 21,898 $ 21,694 $ 70,333 $ 65,040
Product 347 438 1,050 3,094
22,245 22,132 71,383 68,134
Cost of services 15,107 12,129 43,280 34,826
Cost of products 132 (295) 397 3,415
15,239 11,834 43,677 38,241
Gross profit 7,006 10,298 27,706 29,893
Marketing, selling,
general and
administrative 11,607 7,684 33,180 27,868
Research and development 1,101 1,145 3,287 3,188
12,708 8,829 36,467 31,056
Operating income (loss) (5,702) 1,469 (8,761) (1,163)
Interest expense and
other, net (419) (4) (1,393) (349)
Income (loss) before
income tax provision
(benefit) (6,121) 1,465 (10,154) (1,512)
Income tax provision
(benefit) 676 443 (647) (852)
Net income (loss) $(6,797) $1,022 $(9,507) $(660)
Earnings per share:
Basic $(.40) $.06 $(.55) $(.04)
Diluted $(.40) $.06 $(.55) $(.04)
Shares used in computing
earnings per share:
Basic 17,199,004 17,154,119 17,187,865 17,139,620
Diluted 17,199,004 17,208,069 17,187,625 17,139,620
OSTEOTECH, INC. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
(dollars in thousands)
September 30, December 31,
2005 2004
Assets
Cash and cash equivalents $18,345 $13,391
Accounts receivable, net 16,668 14,795
Deferred processing costs 34,589 36,049
Inventories 1,356 1,202
Other current assets 3,012 5,595
Total current assets 73,970 71,032
Property, plant and equipment, net 39,585 37,447
Other assets 7,197 7,925
$120,752 $116,404
Liabilities and Stockholders' Equity
Accounts payable and accrued liabilities $17,185 $11,532
Current portion of capital lease
obligation/long-term debt 638 2,661
Total current liabilities 17,823 14,193
Capital lease obligation 15,773 --
Long-term debt -- 10,076
Other liabilities 5,106 740
Total liabilities 38,702 25,009
Stockholders' equity 82,050 91,395
$120,752 $116,404
SOURCE Osteotech, Inc.
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Related links:
http://www.osteotech.com
http://www.osteotech.com/finrequest.htm
Company News On-Call:
http://www.prnewswire.com/comp/668050.html
CONTACT:
Michael J. Jeffries, Osteotech, Inc.,
+1-732-542-2800
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