Bacterin Q1 revenue up 29%, revises 2012 guidance

Bacterin International Holdings (AMEX:BONE) said after markets closed Thursday that it increased first quarter revenue and decreased operating losses, despite short-term production issues.
The company, which makes bone graft material and antimicrobial coatings for medical applications, said that for the quarter that ended March 31, revenue increased 29 percent to $7.8 million, compared to $6.0 million in the same period a year ago.
Excluding a $1.4 million stocking order sale in the fourth quarter of 2011, the company said revenues increased slightly from $7.7 million to $7.8 million on a sequential basis, largely as a result of increased sales generated from Bacterin's direct sales force and independent distributors.
In the latest quarter, the company said hospital accounts increased to 756 facilities, an increase of 45 percent over 519 facilities in the first quarter of 2011.
Bacterin's technology optimizes the growth factors in human allografts to promote bone, subchondral repair and dermal growth. Its products are used in a variety of applications including enhanced 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.
The company reported a net loss of $1.0 million or three cents per share for the latest quarter, compared to net income of $4.9 million, or 13 cents per share, a year earlier.
Losses narrowed from the fourth quarter's net loss of $4.4 million, or 11 cents per basic share.
Operating loss in the most recent first quarter decreased by 34 percent year-over-year to $1.3 million, compared to an operating loss of $1.9 million in the first quarter of 2011.
Gross profit margin was 76 percent, as compared to 84 percent in the year-ago quarter.
"First quarter revenue was lower than anticipated, with six of our top 10 SKUs on backorder much of the first quarter," said chairman and CEO Guy Cook.
"We have substantially increased the receipt of donor inventory as well as production, but don't believe it will have a positive impact on revenues until the third quarter of 2012.
"We are confident we have overcome the short term production issues, however, when our sales force is faced with limited access to products, it slows surgeon uptake when the product finally does become available."
In the first quarter, Bacterin said a peer review article in Orthopedic Research and Reviews determined its flagship product OsteoSponge exhibited "ideal properties for bone regeneration" - similar to those of autograft, or the graft of patient's own bone - with a distinct advantage over autograft, in that there is "no risk of complications at the harvest site or donor pain postoperatively."
"A preclinical study recently completed at Hospital for Special Surgery on our OsteoSelect DBM putty is expected to be a significant driver of sales in the remainder of 2012 and 2013," said Cook.
"OsteoSelect DBM putty proved equivalent to autologous bone graft, which is the current gold standard for spinal fusion, in the posterolateral intertransverse rabbit model.
"We are also expecting data on our coatings in the second half of this year, as well as independent data on OsteoSponge SC," Cook added.
Bacterin said operating expenses for the quarter totaled $7.2 million, as compared to $6.9 million in the first quarter of 2011.
Looking ahead, the company said it has added a second production shift and, later in the year, will be expanding the number of clean rooms it devotes to high demand products to a total of 13.
"Our plan is to optimize production to process less SKUs with a higher concentration of our high demand products, and expect processing capacity to double from current levels by the end of the year," said Cook.
The company said it has secured a three-year agreement with a "leading health care supply chain expertise and contracting company", to provide OsteoSponge, OsteoSelect DBM Putty, OsteoWrap, OsteoLock, BacFast, hMatrix, Sports Medicine Allografts, and traditional allografts, to a nationwide network of hospitals and medical practices.
The company is also ramping up donor inventory levels to eventually support $100 million of annual revenue, though it noted that there is a lag time with processing throughput since it takes around two to nine months to clear a donor due to related paperwork and laboratory testing results.
"We believe that product constraints are a short term issue we have resolved and that the future and long term opportunity for Bacterin products, in multi-billion dollar addressable markets, remain very strong,” added Cook.
Bacterin said that because the industry sells product on a consignment basis, it has poor visibility on reportable revenues until a few weeks after the close of a month, making it difficult to provide revenue guidance on a quarterly basis.
"Based upon production challenges in the fourth quarter of 2011; feedback from the field with respect to second quarter sales; our decision not to pursue stocking order sales of slow moving inventory included in prior revenue guidance as well as delays in revenues generated from our hMatrix, we feel it is prudent to revise guidance from our previously stated expectation of 2012 revenues," Cook concluded.
The company, which had cash and equivalents of $9.0 million at quarter-end, said it now expects full year revenues of $35 to $40 million, down from its prior guidance of between $53 to $56 million.