Orthovita, Inc. (NASDAQ:VITA), a spine and orthopedic biosurgery
company, reported financial results for the three and nine months ended
September 30, 2007. Product sales for the three months ended September
30, 2007 increased 31% to $14.5 million as compared to $11.0 million for
the same period in 2006. Product sales for the nine months ended
September 30, 2007 increased 29% to $42.5 million, as compared to $33.0
million for the same period in 2006. Excluding sales of our VITOMATRIX™
dental scaffold, which is not sold by our sales and distribution
channel, and our former ENDOSKELETON product, product sales for the
three and nine month periods ended September 30, 2007 increased 31% and
29%, respectively, as compared to the same periods in 2006. See "Non-GAAP
Disclosures and Reconciliation” below for a
detailed reconciliation between the non-GAAP and GAAP reported sales
results.
Sales growth for the reported periods in 2007 was primarily attributable
to increased sales volume of our VITOSS®
FOAM and VITAGEL®
product portfolios in the U.S. as we further develop our U.S. field
sales network. Approximately 62% and 61% of our product sales during the
three and nine months ended September 30, 2007, respectively, were from
products based upon our VITOSS FOAM platform co-developed with Kensey
Nash Corporation, as compared to approximately 60% of our product sales
during the same periods in 2006. VITAGEL, which was launched at the
start of 2005, contributed approximately 20% of our product sales during
the three and nine months ended September 30, 2007, respectively, as
compared to approximately 18% and 17% of our product sales during the
three and nine months ended September 30, 2006, respectively.
Gross profit for the three months ended September 30, 2007 and 2006 was
$9.6 million and $6.8 million, respectively. As a percentage of sales,
gross profit was 66% and 61% for the three months ended September 30,
2007 and 2006, respectively. Gross profit for the nine months ended
September 30, 2007 was $27.8 million in comparison to $20.9 million for
the same period in 2006. As a percentage of sales, gross profit was 66%
and 63% for the nine months ended September 30, 2007 and 2006,
respectively. The increase in the gross profit margins for the three and
nine months ended September 30, 2007, as compared to the gross profit
margins for the corresponding periods in 2006, reflects improved
manufacturing efficiencies, lower inventory adjustments and lower
VITAGEL royalty expense.
Operating expenses for the three months ended September 30, 2007 and
2006 were $11.9 million and $10.3 million, respectively, which represent
a 15% increase in operating expenses, as compared to a 31% increase in
product sales and a 42% increase in gross profit over the three months
ended September 30, 2006. Operating expenses for the three months ended
September 30, 2007 and 2006 include non-cash employee compensation
expense of $0.4 million and $0.5 million, respectively, related to stock
options and restricted stock units. In addition, operating expenses for
the three months ended September 30, 2007 and 2006 were reduced by a
non-cash fair value adjustment of $0.1 million and $0.7 million,
respectively, for our fully-vested non-employee consultant stock options
outstanding. For the nine months ended September 30, 2007 and 2006,
operating expenses were $36.3 million and $33.6 million, respectively,
which represent an 8% increase in operating expenses, as compared to a
29% increase in product sales and a 34% increase in gross profit over
the nine months ended September 30, 2006. Operating expenses for the
nine months ended September 30, 2007 and 2006 include executive
severance of $0.7 million and $0, and non-cash compensation expense of
$1.0 million and $1.3 million, respectively, related to stock options
and restricted stock units. In addition, operating expenses for the nine
months ended September 30, 2007 and 2006 were reduced by a non-cash fair
value adjustment of $0.7 million and $0.7 million, respectively, for our
fully-vested non-employee consultant stock options outstanding. The
increase in operating expenses for the three and nine months ended
September 30, 2007 was primarily due to higher selling & marketing
expense such as salary and benefit costs incurred by expanding our field
sales team in order to support the growth of U.S. product sales, as well
as higher commissions paid in the U.S. as a result of increased product
sales in 2007. The number of our direct sales representatives increased
from 70 at September 30, 2006 to 82 at September 30, 2007.
The operating loss for the three months ended September 30, 2007
decreased to $2.3 million from $3.6 million for the three months ended
September 30, 2006. The operating loss for the nine months ended
September 30, 2007 and 2006 was $8.5 million and $12.8 million,
respectively. The decrease in operating loss for the three and nine
months ended September 30, 2007 as compared to the corresponding periods
in 2006 primarily resulted from increased product sales and gross
profit, partially offset by an increase in operating expenses.
The net loss for the three months ended September 30, 2007 increased to
$18.9 million from $3.7 million for the three months ended September 30,
2006. The net loss per common share for the three months ended September
30, 2007 and 2006 was $0.27 and $0.07, respectively, based upon
70,729,000 and 52,428,000 common shares outstanding, respectively. The
net loss for the nine months ended September 30, 2007 and 2006 was $25.0
million and $13.1 million, respectively. The net loss per common share
for the nine months ended September 30, 2007 and 2006 was $0.39 and
$0.25, respectively, based upon 64,507,000 and 52,375,000 common shares
outstanding, respectively. The net loss for the three and nine months
ended September 30, 2007 included a charge of $16.6 million for the
repurchase of our revenue interest obligation, partially offset by
increased product sales and gross profit. As a result of our repurchase
of the revenue interest obligation from Royalty Trust on July 30, 2007,
we are no longer obligated to pay royalties on our products subject to
the revenue interest obligation, including VITOSS and CORTOSS. The
repurchase price for the revenue interest obligation consisted of a
payment of $20 million in cash and 1,136,364 shares of our common stock
valued at $3.8 million. As a result of the repurchase, we recorded a
charge of $16.6 million in the third quarter of 2007 to account for the
difference between the repurchase price valued at $23.8 million and the
$7.2 million carrying value of the revenue interest liability on our
Consolidated Balance Sheet as of June 30, 2007.
Excluding the charge of $16.6 million for the repurchase of our revenue
interest obligation, the net loss for the three months ended September
30, 2007 decreased to $2.3 million from $3.7 million for the three
months ended September 30, 2006 and the net loss for the nine months
ended September 30, 2007 decreased to $8.4 million from $13.1 million
for the nine months ended September 30, 2006. The decrease in net loss
for the three and nine months ended September 30, 2007 as compared to
the corresponding periods in 2006 primarily resulted from increased
product sales and gross profit, partially offset by an increase in
operating expenses. See "Non-GAAP Disclosures
and Reconciliation” below for a detailed
reconciliation between the non-GAAP and GAAP reported net loss results.
Cash, cash equivalents, and investments were $53.2 million at September
30, 2007 in comparison to cash, cash equivalents and investments of
$28.3 million at December 31, 2006. For the nine months ended September
30, 2007, the net cash and cash equivalents used in operating activities
were $9.3 million, compared to $11.2 million for the nine months ended
September 30, 2006. Net cash and cash equivalents used in operating
activities for the nine months ended September 30, 2007 decreased as
compared with the nine months ended September 30, 2006 primarily due to
the reduction in operating loss and increase in accounts payable,
partially offset by an increase in inventory.
Non-GAAP Disclosures and Reconciliation
This press release includes non-GAAP financial information relating to
the Company's product sales for the three and nine months of 2007 and
2006. The non-GAAP financial information excludes sales of our
VITOMATRIX dental scaffold and former ENDOSKELETON product. The Company
sold the ENDOSKELETON product line in the first quarter of 2007.
Accordingly, the Company had no sales of ENDOSKELETON products during
2007. Sales of VITOMATRIX to BioMimetic Therapeutics, Inc., our sole
commercial purchaser of VITOMATRIX, are made pursuant to a corporate
supply agreement as a raw material for BioMimetic’s
GEM21S dental product, which is not sold by the Company.
Management believes that a presentation of the non-GAAP sales results
excluding the effect of VITOMATRIX and ENDOSKELETON sales will enhance
comparability of the Company's product sales results for the three and
nine month periods ended September 30, 2007 with those of the same
periods of the prior year by excluding product sales that we believe are
not indicative of our core operating results.
We have provided below for your reference supplemental financial
disclosure for the non-GAAP measure of sales described above, including
the most directly comparable GAAP measure and an associated
reconciliation.
Three Months Ended September 30,
Nine months Ended September 30, 2007
2006
%Change 2007
2006
%Change
Product Sales (as reported)
$14,467,687
$11,023,407
31
%
$42,470,315
$33,020,763
29
%
Less: ENDOSKELETON product sales
---
(13,020
)
---
$(191,340
)
Less: VITOMATRIX product sales
---
---
$ (421,400
)
$ (207,680
)
Product Sales (excluding ENDOSKELETON and VITOMATRIX product sales)
$14,467,687
$11,010,387
31
%
$42,048,915
$32,621,743
29
%
We have also provided below for your reference supplemental financial
disclosure for the non-GAAP measure of net loss described above,
including the most directly comparable GAAP measure and an associated
reconciliation.
Three Months Ended September 30,
Nine months Ended September 30, 2007
2006
%Change 2007
2006
%Change
Net Loss (as reported)
$(18,917,573
)
$(3,734,468
)
407
%
$(25,031,962
)
$(13,122,740
)
91
%
Adjustments to Net Loss:
Add: Charge for Repurchase of Revenue Interest Obligation
$16,605,029
---
$16,605,029
---
Net Loss, as Adjusted
$(2,312,544
)
$(3,734,468
)
(38
%)
$(8,426,933
)
$(13,122,740
)
(36
%)
Conference Call
Antony Koblish, President and Chief Executive Officer, and Albert J.
Pavucek, Jr., Chief Financial Officer of Orthovita, will host a
conference call at 8:30 a.m. Eastern time on Tuesday November 6, 2007 to
review and discuss the third quarter 2007 financial results. The phone
number to join the conference call from within the U.S. is (888)
815-2919, and from outside the U.S. is (706) 643-3675. The conference
identification number is 21618688. Participants should dial in ten
minutes prior to the scheduled start time for the conference call. A
replay of the conference call will be available for one week beginning
November 6, 2007, at 11:30 a.m. Eastern Time, and ending November 13,
2007, at 11:59 p.m. Eastern Time. You may listen to the replay by
dialing within the U.S. (800) 642-1687 or by dialing from outside the
U.S. (706) 645-9291. The replay identification number is 21618688.
About the Company
Orthovita is a spine and orthopedic biosurgery company with proprietary
biomaterials and biologic technologies for the development and
commercialization of synthetic, biologically active, tissue engineering
products. We develop and market synthetic-based biomaterials products
for use in spine surgery, the repair of fractures and a broad range of
clinical needs in the trauma, joint reconstruction, revision and
extremities markets. Our near-term commercial business is based on our
VITOSS® Bone Graft
Substitute technology platforms, which are designed to address the
non-structural bone graft market by offering synthetic alternatives to
the use of autograft or cadaver-based bone material, and VITAGEL®
Surgical Hemostat, which is an adherent matrix and an impermeable
barrier to blood flow. Our longer-term U.S. clinical development program
is focused on our internally developed CORTOSS®
Bone Augmentation Material technology platform, which is primarily
designed for injections in osteoporotic spines to treat vertebral
compression fractures. We work jointly with Kensey Nash Corporation to
develop and commercialize synthetic-based biomaterial products, we
market VITAGEL under a license granted by Angiotech Pharmaceuticals,
Inc., and we continue to pursue similar relationships with other
biomaterials companies.
Disclosure Notice This press release may contain forward-looking statements regarding
Orthovita’s current expectations of future
events that involve risks and uncertainties, including, without
limitation, the development, regulatory clearance or approval, demand
and market acceptance of our products, including CORTOSS; the
development of our sales network; and other aspects of our business.
Such statements are based on management’s
current expectations and are subject to a number of substantial risks
and uncertainties that could cause actual results or timeliness to
differ materially from those addressed in the forward-looking statements. Factors that may cause such a difference are listed from time to time
in reports filed by the Company with the U.S. Securities and Exchange
Commission (SEC), including but not limited to risks described in our
most recently filed Form 10-K under the caption "Risk Factors”. Further information about these and other relevant risks and
uncertainties may be found in Orthovita’s
filings with the SEC, all of which are available from the SEC as well as
other sources. Orthovita undertakes no obligation to publicly update any
forward-looking statements. ORTHOVITA, INC. AND SUBSIDIARIES Summary Financial Information (Unaudited)
Statements of Operations Data:
Three Months Ended September 30,
Nine months Ended September 30, 2007
2006
2007
2006
PRODUCT SALES
$14,467,687
100
%
$11,023,407
100
%
$42,470,316
100
%
$33,020,763
100
%
COST OF SALES
4,848,347
34 % 4,255,738
39 % 14,630,549
34 % 12,165,408
37 %
GROSS PROFIT
9,619,340
66 % 6,767,669
61 % 27,839,767
66 % 20,855,355
63 %
OPERATING EXPENSES:
General & administrative expenses
2,850,379
20
%
2,222,858
20
%
8,158,482
19
%
6,562,747
20
%
Selling & marketing expenses
7,906,123
55
%
6,370,893
58
%
23,632,746
56
%
20,374,089
62
%
Research & development expenses
1,127,365
8 % 1,751,927
16 % 4,539,093
11 % 6,676,910
20 %
Total operating expenses
11,883,867
82 % 10,345,678
94 % 36,330,321
86 % 33,613,746
102 %
OPERATING LOSS
(2,264,527
)
(16
%)
(3,578,009
)
(32
%)
(8,490,554
)
(20
%)
(12,758,391
)
(39
%)
INTEREST EXPENSE
(507,100
)
(4
%)
(68,537
)
(< 1
%)
(634,649
)
(1
%)
(177,243
)
(< 1
%)
REVENUE INTEREST EXPENSE
(85,209
)
(< 1
%)
(280,973
)
(3
%)
(756,703
)
(2
%)
(847,161
)
(3
%)
GAIN ON SALE OF ASSET
-
-
372,375
< 1
%
-
CHARGE FOR REPURCHASE OF REVENUE INTEREST OBLIGATION
(16,605,029
)
(115
%)
-
(16,605,029
)
(39
%)
-
INTEREST INCOME
544,292
4 % 193,051
2 % 1,082,598
3 % 660,055
2 %
NET LOSS
$(18,917,573 ) (131 %) $(3,734,468 ) (34 %) $(25,031,962 ) (59 %) $(13,122,740 ) (40 %)
NET LOSS PER SHARE, BASIC AND DILUTED
$ (0.27
)
$ (0.07
)
$ (0.39
)
$ (0.25
)
SHARES USED IN COMPUTING BASIC AND DILUTED NET LOSS PER COMMON
SHARE
70,728,955
52,427,696
64,507,337
52,375,425
ORTHOVITA, INC. AND SUBSIDIARIES Summary Financial Information
(Unaudited)
(Audited) Balance Sheet Data:
September 30, 2007 December 31, 2006
Cash and cash equivalents
$
16,865,592
$
16,402,379
Short-term investments
36,291,181
11,936,143
Accounts receivable, net
8,445,596
8,755,068
Inventories
14,250,531
9,444,483
Prepaid revenue interest expense
0
570,534
Other current assets
894,427
356,005
Total current assets
76,747,327
47,464,612
Property and equipment, net
6,725,661
5,294,880
License Right Intangible
8,362,206
9,000,000
Other assets
303,660
455,819
Total assets
$ 92,138,854 $ 62,215,311
Current liabilities
$
9,848,615
$
8,164,375
Derivative liability associated with non-employee stock options
1,059,548
1,819,761
Long-term liabilities, net of debt discount
23,996,916
8,969,653
Total liabilities
34,905,079
18,953,789
Total shareholders’ equity
57,233,775
43,261,522 $ 92,138,854 $ 62,215,311 Cash Flow Data:
Nine months Ended September 30, 2007
2006
Net cash used in operating activities
$(9,320,726 ) $(11,212,256 )
Net cash (used in) provided by investing activities
$(25,302,124 ) $ 10,233,598
Net cash provided by financing activities
$ 35,051,949
$ 619,364
Effect of exchange rate changes on cash and cash equivalents
$ 34,114
$ (345,860 )
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