EATONTOWN, N.J., March 31 /PRNewswire-FirstCall/ -- Osteotech, Inc. reported today that consolidated revenues for the year ended December 31, 2005 increased 5% to $93.3 million as compared to 2004 consolidated revenues of $88.6 million. In 2005, domestic revenues increased 3% and international revenues increased 19%. The Company incurred a net loss in 2005 of $21.1 million or $1.23 diluted net loss per share as compared to a net loss in 2004 of $5.3 million or $.31 diluted net loss per share.
Sam Owusu-Akyaw, Osteotech’s President and Chief Executive Officer, stated, “We are very disappointed with our financial results in 2005. A number of events in the second half of the year made it difficult for us to achieve our anticipated revenue growth objectives. We had originally expected earnings to be negatively impacted by the productivity and other initiatives we had implemented. However, the second half events layered in incremental costs and expenses and the lower than anticipated revenue levels negatively impacted our gross margins.”
Mr. Owusu-Akyaw continued, “In 2005, we successfully rejuvenated our research and development activities by developing new technologies and products. We began marketing the Xpanse(TM) Bone Insert in late 2005 and the GraftCage(TM) TLX in the first quarter of 2006, and we have a number of additional new technologies and products being introduced in 2006, 2007 and 2008. We have made outstanding progress on our productivity initiatives to reduce inventory levels, lead times and costs, while increasing tissue yields.”
Mr. Owusu-Akyaw concluded, “I believe the progress necessary for Osteotech to return to profitability is well underway. We will continue to pursue our strategic initiatives in 2006 and I expect to see the benefits of these turnaround activities as we proceed through 2006 and into 2007 and 2008.”
Revenues for the fourth quarter of 2005 were $21.9 million, a 7% increase over fourth quarter 2004 revenues of $20.4 million. Domestic revenues increased 8% in the fourth quarter of 2005, while international revenues in the fourth quarter of 2005 were relatively flat with international revenues in the fourth quarter of 2004. The Company incurred a net loss of $11.6 million or $.67 diluted net loss per share in the fourth quarter of 2005 and a net loss of $4.6 million or $.27 diluted net loss per share in the fourth quarter of 2004.
Earnings in 2005 have been impacted by lower gross margins, as more fully discussed below, and an increase in operating expenses due to costs associated with strengthening and diversifying domestic tissue sources, retirement and severance costs associated with the retirement of the Company’s former Chief Executive Officer and Chief Financial Officer, the resignation of the Company’s former Chief Science Officer and certain other employees terminated in the fourth quarter of 2005, and increased professional fees, including the costs associated with an unsolicited proposal to acquire Osteotech. The Company also incurred translation losses on transactions denominated in foreign currency due to the strengthening of the U.S. dollar against the Euro and recognized an income tax benefit on its 2005 losses at less than the statutory rates due to its assessment of the recoverability of these tax benefits.
Consolidated gross margins were 34% and 19% for the year and fourth quarter ended December 31, 2005, respectively, as compared to 41% and 30% in the same respective periods in 2004. Gross margins in 2005 were constrained by unabsorbed fixed costs due to reduced unit production as compared to unit sales to allow the Company to consume existing tissue inventories and directly reduce overall tissue inventory levels. In addition, gross margins were constrained by write-offs and reserves for excess, obsolete and expiring tissue inventories, primarily in the Graftech(R) Bio-implant product line, as a result of standard inventory policies and procedures and to address the tissue inventory strategic initiatives.
DBM Segment revenues increased 14% and 10% to $52.1 million and $12.7 million for the year and fourth quarter ended December 31, 2005, respectively, as compared to $45.8 million and $11.5 million in the same respective periods in 2004. Domestic Grafton(R) DBM revenues increased 15% and 18% for the year and three months ended December 31, 2005, respectively, substantially related to the recognition 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 the Company recognizes a greater portion of the end user selling price. International Grafton(R) DBM revenues increased 16% for the year ended December 31, 2005, but declined 23% in the fourth quarter. The increase in international Grafton(R) DBM revenues for 2005 is primarily due to increased unit volume, while the Company experienced softness in its international markets in the fourth quarter of 2005. Private label DBM revenues declined 3% in 2005 and decreased 8% in the fourth quarter of 2005 primarily due to a reduction in orders from one of the Company’s partners as they adjusted their ordering patterns and inventory levels.
The DBM Segment generated an operating loss of $.3 million and $1.6 million for the year and fourth quarter ended December 31, 2005, respectively, compared to operating income of $4.4 million and $1.1 million in the same respective periods in 2004. The operating losses in 2005 are primarily a result of lower gross profit margins and increased operating costs.
Base Tissue Segment revenues increased 1% and 4% to $39.8 million and $8.9 million for the year and fourth quarter ended December 31, 2005, respectively, as compared to $39.3 million and $8.6 million in the corresponding periods in 2004. The increase in Base Tissue Segment revenues in both periods is primarily due to an increase in the world-wide distribution of traditional tissue of 86% and 32% for the year and three months ended December 31, 2005, mainly from increased unit sales volume as the Company continues to expand its world-wide presence in this market and, in the fourth quarter of 2005, from a 17% increase in revenues generated from processing donors for clients. Partially offsetting these increases in revenues is a decline in revenues from the distribution of Graftech(R) Bio-implants of 14% and 16% for the year and three months ended December 31, 2005, primarily due to lower demand and increased competition from non-allograft bone spinal implants, and a decline in service fees generated by processing allograft bone tissue for clients of 14% in 2005, primarily due to processing 916 fewer donors for clients, although the Company realized a 22% increase in the average processing fee per donor in 2005.
The Base Tissue Segment generated an operating loss of $20.1 million and $9.8 million for the year and fourth quarter ended December 31, 2005, respectively, compared to an operating loss of $9.3 million and $7.3 million in the same respective periods in 2004. The operating losses in 2005 are primarily a result of lower gross profit margins and increased operating costs.
Mr. Owusu-Akyaw will host a conference call on March 31, 2006 at 9:00 am Eastern Time to discuss full year and fourth quarter results. You are invited to listen to the conference call by dialing 706-634-5453. The conference 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, April 14, 2006, by dialing 706-645-9291 and indicating access code 7016143.
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, differences in anticipated and actual product and service introduction dates, the ultimate success of those products in the market place, the continued acceptance and growth of current products and services, 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 filed with the Securities and Exchange Commission. All information in this press release is as of March 31, 2006 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 CONSOLIDATED REVENUE DETAIL (dollars in thousands) Three Months Year Ended Ended December 31, December 31, 2005 2004 2005 2004 DBM Segment Domestic: Grafton(R) DBM $ 10,471 $8,837 $ 40,669 $ 35,282 Private Label 961 1,047 3,920 4,059 11,432 9,884 44,589 39,341 International: Grafton(R) DBM 1,220 1,590 7,477 6,449 Total DBM Segment 12,652 11,474 52,066 45,790 Base Tissue Segment Domestic: Traditional Tissue: Processing 1,864 1,593 11,057 12,972 Direct Distribution 1,850 1,518 6,645 2,851 Graftech(R) Bio- implants 3,785 4,531 16,949 19,820 7,499 7,642 34,651 35,643 International: Traditional Tissue: Processing 62 52 419 401 Direct Distribution 1,355 912 4,765 3,286 1,417 964 5,184 3,687 Total Base Tissue Segment 8,916 8,606 39,835 39,330 Other Product Lines 356 363 1,406 3,457 Net Revenues $ 21,924 $ 20,443 $ 93,307 $ 88,577 Three Months Year Ended Ended December 31, December 31, 2005 2004 2005 2004 Domestic $19,138 $17,639 $79,957 $77,317 International 2,786 2,804 13,350 11,260 $21,924 $20,443 $93,307 $88,577 OSTEOTECH, INC. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands, except per share data) Three Months Year Ended Ended December 31, December 31, 2005 2004 2005 2004 Net revenues: Service $21,568 $20,080 $91,901 $85,120 Product 356 363 1,406 3,457 21,924 20,443 93,307 88,577 Cost of services 17,665 14,860 60,945 49,686 Cost of products 103 (599) 500 2,816 17,768 14,261 61,445 52,502 Gross profit 4,156 6,182 31,862 36,075 Marketing, selling, general and administrative 13,729 10,259 46,909 38,127 Research and development 1,734 1,390 5,021 4,578 15,463 11,649 51,930 42,705 Operating loss (11,307) (5,467) (20,068) (6,630) Interest expense, net (228) (18) (774) (377) Gain on sale of patents 575 575 Other 56 292 (790) 302 Loss before income taxes (11,479) (4,618) (21,632) (6,130) Income tax provision (benefit) 132 5 (515) (847) Net loss $(11,611) $ (4,623) $(21,117) $(5,283) Loss per share: Basic $(.67) $(.27) $(1.23) $(.31) Diluted $(.67) $(.27) $(1.23) $(.31) Shares used in computing loss per share: Basic 17,219,856 17,165,606 17,195,868 17,146,127 Diluted 17,219,856 17,165,606 17,195,868 17,146,127 OSTEOTECH, INC. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEET (dollars in thousands) December 31 2005 2004 Assets Cash and cash equivalents $13,484 $13,391 Accounts receivable, net 14,879 14,795 Deferred processing costs 28,805 36,049 Inventories 1,278 1,202 Other current assets 3,438 5,595 Total current assets 61,884 71,032 Property, plant and equipment, net 39,962 37,447 Other assets 9,176 7,925 $111,022 $116,404 Liabilities and Stockholders’ Equity Accounts payable and accrued expense $16,320 $11,532 Current maturities of capital lease obligation 655 Current maturities of long-term debt 2,661 Total current liabilities 16,975 14,193 Capital lease obligation 15,603 Long-term debt 10,076 Other liabilities 7,689 740 Total liabilities 40,267 25,009 Stockholders’ equity 70,755 91,395 $111,022 $116,404
Osteotech, Inc.
CONTACT: Mark H. Burroughs, Osteotech, Inc., +1-732-542-2800
Web site: http://www.osteotech.com/
Company News On-Call: http://www.prnewswire.com/comp/668050.html/
