Bacterin International posts record full year revenue, stands by 2012 sales forecast

Bacterin International Holdings (AMEX:BONE) said after markets closed Thursday that fourth quarter revenue increased sharply, while full year revenue almost doubled to record levels, with the company reaffirming its 2012 sales forecast.
The company, which makes bone graft material and antimicrobial coatings for medical applications, said that for the quarter that ended December 31, revenue increased 72 percent to $9.1 million, compared to $5.3 million in the same period a year ago.
The increase was primarily attributed to continued market penetration, the company said, combined with the continued expansion of its direct sales force.
Bacterin's technology optimizes the growth factors in human allografts to promote bone, subchondral repair and dermal growth. These products are used in a variety of applications including enhancing fusion in spine surgery, relief of back pain, bone growth in foot and ankle surgery, cranial healing following neurosurgery and subchondral repair in knee and other joint surgeries.
Net loss was $4.4 million or 11 cents per basic share for the quarter, compared to a loss of $6.7 million or 18 cents per basic share a year ago. Operating loss decreased 21 percent year-over-year to $2.7 million.
For the full year, revenue increased 96 percent to $30.1 million, while operating loss was down by 25 percent to $6.3 million, compared to fiscal 2010. Gross profit margin, however, was 70 percent, down from 78 percent in the previous year.
"We increased our revenue on a quarterly basis by 21% sequentially, 72% year over year, and 96% for the full year 2011 over the full year 2010, showing accelerating progress," said chairman and CEO Guy Cook.
"While our full year gross margin slid to 70% primarily due to increased discounting on stocking purchase orders and non recurring adjustments and increased reserves, we are poised for overall operating margins to expand considerably as we gain operating leverage from our sales force and largely established infrastructure."
In the fourth quarter, two-year study results showed the company's flagship product, OsteoSponge, was equivalent to rhBMP-2 in spinal fusion, an important feature at a time when surgeons are moving away from rhBMP-2 because of concerns over complications, the company said.
OsteoSponge has already been used in 100,000 procedures prior to the release of the data, and the company expects this study to help further increase its market share.
"We expect sales to grow even more rapidly on the back of this strong data set. We also signed a distribution agreement with Jeil Medical Corporation that will leverage our direct sales force, providing additional craniomaxillofacial (CMF) product, to sell into the same call points," continued Cook.
"Our products target markets that in aggregate amount to several billion dollars in annual revenue, which provides significant runway for us to capture share and grow quickly."
In the quarter, the company said it "materially increased" the number of medical facilities in which its products are used, and began the doubling of operating capacity through the installation of new equipment. Hospital accounts increased to 616 facilities, an increase of 27 percent over 484 facilities in the fourth quarter of 2010.
Bacterin said cost of sales in the fourth quarter included a $795,000 write off of a related party receivable from West Coast Tissue Services, one of Bacterin's donor agencies.
In December, Bacterin signed a four-year extension with West Coast Tissue, and in exchange for the extension and a related right of first refusal on donors, the company agreed to write off the receivable.
The quarter also included a non recurring write off $200,000 of scrap CMF medical device inventory during the quarter, among other items.
Gross profit margin for the quarter was 44 percent, versus 82 percent a year ago. Excluding items, fourth quarter gross margin would have been 58 percent of sales. The decline in margins was due to an increased sales discount on $1.4 million of stocking order sales during the quarter, as well as a rise in general and administrative expenses allocated to cost of sales.
Operating expenses for the quarter totaled $6.7 million, as compared to $7.8 million in the previous quarter, and $7.1 million in the fourth quarter of 2010. For the year, operating expenses rose to $27.5 million, up from $20.7 million in 2010.
The company saw several operational achievements during 2011, including the acquisition of Robinson MedSurg, a medical device distribution company focused primarily on maxillofacial and craniofacial surgery devices.
A third human acellular biological scaffold, hMatrix, was also launched, which Bacterin plans to initially market for homologous use indications, including abdominal wall repair, breast reconstruction, and wound covering - an addressable market the company estimates is greater than $2.5 billion annually in the U.S.
It also signed a national group purchasing organization contract for Bacterin Biologics and first for Elutia Wound Drains with ROi, a health care supply chain management company for hospitals and medical practices.
Net loss for the full year narrowed substantially to $3.0 million, or eight cents per basic share, down from a net loss of $19.5 million, or 61 cent loss per share, in 2010.
The company, with cash and equivalents of $7.8 million at year end, also joined the Russell 3000, Russell Microcap, and Russell Global Indexes during 2011, as well as achieved NYSE Amex listing status.
"The key driver of our revenue growth in 2012 will once again be the Osteo family of products, supported by the acceleration of hMatrix, medical device, and royalty revenue," continued Cook.
"With an increase in our sales force, the new data validation and distribution agreement adding even more product to sell, we remain comfortable with our previously stated expectation of $53 million to $56 million in revenue in 2012."