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PRINCETON, N.J.--([ BUSINESS WIRE ])--Derma Sciences, Inc. (Nasdaq: DSCI), a medical device and pharmaceutical company focused on advanced wound care, today reported financial and operating results for the three and 12 months ended December 31, 2011. Highlights of the fourth quarter of 2011 and recent weeks include:

"The past year and recent weeks have been filled with important achievements for Derma Sciences, culminating with a successful meeting with FDA officials last month where we received positive feedback on our preparations for Phase 3 studies with DSC127 in diabetic foot ulcers"

• Net sales were $16.5 million, up 8% over the prior-year fourth quarter, while net sales for the year were $62.6 million, up 11% over 2010
• Advanced wound care product sales were $4.5 million for the fourth quarter of 2011, up 23% and were $15.9 million for the year, up 37% over the prior year
• Advanced wound care products accounted for 27% of net sales, up from 24% in the prior-year quarter
• Traditional wound care product sales for the quarter were $12.1 million, up 4% from $11.7 million in the prior year quarter
• Hired 10 advanced wound care sales representatives during the first quarter of 2012 for a total of 36 as of March 26^th, well ahead of schedule
• Positive meeting with the U.S. Food and Drug Administration (FDA) regarding preparations to begin Phase 3 trials with DSC127 for the treatment of diabetic foot ulcers
• Fourth quarter 2011 net loss was $2.5 million, or $0.23 per share compared with $0.3 million, or $0.05 per share, in the prior year quarter as planned investments in sales force expansion and research and development added to expenses

Management Commentary

aThe past year and recent weeks have been filled with important achievements for Derma Sciences, culminating with a successful meeting with FDA officials last month where we received positive feedback on our preparations for Phase 3 studies with DSC127 in diabetic foot ulcers,a said Edward J. Quilty, chief executive officer of Derma Sciences. aOur Phase 2 trial results, announced in the first half of 2011, demonstrated a good safety profile and wound healing capabilities to support further product development. The Phase 3 trials will be powered to show statistical significance in complete healing and other key healing metrics in a larger patient population, and are being designed to support marketing approval. We are looking forward to finalizing the protocols and beginning the trials in the second half of this year.

Mr. Quilty continued,aWe have assembled an excellent team of scientific, medical and regulatory professionals with extensive drug development experience to drive our program through NDA submission. This group has done an outstanding job over the past nine months working to get DSC127 Phase 3 ready, having made significant progress in the Chemistry, Manufacturing, and Controls and non-clinical aspects of our program. We feel a profound responsibility for providing a safe and efficacious option for the 900,000 Americans with non-healing diabetic foot ulcers who are poorly served by current treatment options. Not only is the potential market for diabetic foot ulcer healing enormous, but development for other dermal applications for DSC127 a" such as scar prevention a" hold great promise as well.

aIn addition, we have invested in the expansion of our advanced wound care sales and clinical support staff to drive sales for our technologically advanced and higher-margin products, both in the U.S. and abroad. Our hiring efforts are ahead of schedule with 43 of 45 full-time sales personnel in the United States and an additional 10 full-time positions outside the United States.

aWith this greatly expanded infrastructure in place, we continue to work diligently to expand our product offering in order to fully leverage our organization. Towards this end, we plan to launch our patented MEDIHONEY HCS (hydrogel colloidal sheet) dressings in the second quarter of this year. This will be a significant launch, as it will help bring our products more deeply into the acute care segment and, for the first time, into the burn care segment. We will have a considerable presence next month at the spring Symposium on Advanced Wound Care, with a number of posters and presentations, and will also be at the annual American Burn Association meeting. From a product development standpoint, we are working on several short and long range projects to ensure a steady stream of novel, high-margin products will be added to our line.

aUltimately, our goal is to assemble a group of well-trained sales professionals and a first-rate clinical infrastructure with a growing portfolio of high-margin products, into which DSC127 can be rapidly added upon regulatory approval. We also plan further direct or distributor presence outside the U.S., as appropriate. Our objective is to scale up our organization to support the continued growth of our high growth advanced wound care product sales.

aAmong our corporate goals is nurturing our traditional wound care business, as it generates positive cash flow without extensive sales and marketing expense. With sales growth of 3.5% during the fourth quarter and 4.1% for the year, we have done an admirable job with this business. On the sales side, I am happy to report that our V.P. of Distributor Accounts, a new position, has already made an impact in his short time on the job, giving us confidence that we can maintain or improve last yearas level of growth for this part of our business. With regard to costs, our operations team has made excellent progress with their cost-reduction programs. We are extremely pleased with the progress of the past year and are looking forward to a busy and productive 2012,a Mr. Quilty added.

Financial Results

Net sales for the fourth quarter of 2011 were $16,533,434, compared with $15,303,435 in the fourth quarter of 2010, an increase of 8.0%. This reflects 22.5% growth in sales of advanced wound care products and 3.5% growth in sales of traditional wound care products. Gross profit for the fourth quarter of 2011 increased 7.0% to $4,607,133, or 27.9% of net sales, from $4,307,124, or 28.1% of net sales, for the fourth quarter of 2010. The slight decrease in gross margin reflects obsolescence associated with the transfer of adhesive bandages from Mexico to China and higher cotton costs, partially offset by favorable higher margined advanced wound care sales mix.

Selling, general and administrative expense for the fourth quarter of 2011 was $6,348,998, compared with $4,565,050 for the fourth quarter of 2010. The increase was principally due to higher sales and marketing expenditures associated with the expansion of the advanced wound care sales force and bonuses and equity based compensation principally based on the achievement of revenue growth and DSC127 development goals.

Research and development expense for the fourth quarter of 2011 was $562,159, compared with a gain of $122,572 for the fourth quarter of 2010 that included a research and development grant of $244,479 from the U.S. government under HR: 3590 Patient Protection and Affordable Care Act. Excluding the impact of the grant, expenses increased reflecting incremental expense associated with the ramp up of the DSC127 Phase 3 program.

The net loss for the fourth quarter of 2011 was $2,452,795, or $0.23 per share, compared with a net loss for the fourth quarter of 2010 of $347,198, or $0.05 per share. Incremental marketing and sales growth related-expenses, compensation expense and higher research and development expense were principally responsible for the net loss increase.

For the year ended December 31, 2011, net sales were $62,630,247, compared with $56,474,056 in 2010, an increase of 11%.

Gross profit increased $1,884,615, or 11% in 2011 versus 2010. Advanced wound care gross profit increased $2,623,543, or 56% while traditional wound care gross profit declined $738,928, or 6%. The overall gross profit margin was essentially unchanged in 2011 at 29.4% versus 29.3% in 2010 as the benefit of higher margined advanced would care sales was offset by declining traditional wound care margins due principally to higher cotton related product costs and incremental inventory write-offs associated with the decision to transfer the supply of certain adhesive bandages from Mexico to China to realize cost and operational efficiencies.

Selling, general and administrative expense for the year was $21,173,884 compared to $17,905,097 in 2010. The increase was driven by the planned expansion of our advanced wound care marketing and sales infrastructure in support of our growth initiatives. Higher performance related bonus and equity based compensation expense also contributed.

Research and development expense increased $764,434 to $1,057,094 in 2011 versus $292,660 in 2010. The increase reflects the ramp up of activity in support of starting our Phase 3 trial and curtailment of our Phase 2 trial activity in early 2011.

The Company reported a net loss for 2011 of $4,340,411, or $0.49 per share, compared with a net loss for 2010 of $2,448,864, or $0.39 per share.

As of December 31, 2011, the Company had cash and cash equivalents of $17,110,350 and investments of $5,474,000, compared with cash, and cash equivalents and investments of $404,216 as of December 31, 2010. This increase reflects financing activities, positive cash flow from operations, and funds received from warrant and stock option exercises.

Conference Call and Webcast

Derma Sciences management will host a conference call to discuss fourth quarter and full year financial results and answer questions beginning at 11:00 a.m. Eastern time today. In addition, management will provide a business update and discuss recent and upcoming milestones.

To access the conference call, dial (888) 563-6275 (domestic) or (706) 634-7417 (international). All listeners should provide the following passcode: 62828362. Individuals interested in listening to the live conference call via the Internet may do so by logging on to the Company's website, [ www.dermasciences.com ].

Following the end of the conference call, a replay will be available through April 4, 2012 and can be accessed by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international). All listeners should provide the following passcode: 62828362. The webcast will be available for 30 days at [ www.dermasciences.com ].

About Derma Sciences, Inc.

Derma Sciences is a medical technology company focused on three segments of the wound care marketplace: pharmaceutical wound care products, advanced wound care dressings and traditional dressings. Derma Sciences has successfully completed the Phase 2 clinical trial in diabetic foot ulcer healing with DSC127, an investigational pharmaceutical drug under development for accelerated wound healing and scar reduction, and is preparing to begin Phase 3 clinical trials. Its MEDIHONEY product is the leading brand of honey-based dressings for the management of wounds and burns. The product has been shown to be effective in a variety of indications, and was the focus of a positive large-scale, randomized controlled trial involving 108 subjects with leg ulcers. Other novel products introduced into the $14 billion global wound care market include XTRASORB for better management of wound exudate, and BIOGUARD for infection prevention.

For more information please visit [ www.dermasciences.com ].

Forward-Looking Statements

Statements contained in this news release that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as "may," "will," "expect," "believe," "anticipate," "intend," "could," "estimate" or "continue" are intended to identify forward-looking statements. Readers are cautioned that certain important factors may affect the Company's actual results and could cause such results to differ materially from any forward-looking statements that may be made in this news release or that are otherwise made by or on behalf of the Company. Factors that may affect the Company's results include, but are not limited to, product demand, market acceptance, impact of competitive products and prices, product development, completion of an acquisition, commercialization or technological difficulties, the success or failure of negotiations and trade, legal, social and economic risks. Additional factors that could cause or contribute to differences between the Company's actual results and forward-looking statements include but are not limited to, those discussed in the Company's filings with the U.S. Securities and Exchange Commission.