Advancing Wound Care - Newswireextras.newswire.ca/canaccordgenuity/20111206/derma_sciences.pdf ·...

Advancing Wound Care December 2011

Advancing Wound Care

2

Forward Looking Statements

Statements contained in this presentation 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 which may be made in

this release or which are otherwise made by or on behalf of the Company.

Factors which 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 Securities and Exchange Commission.


3

Company Overview

Derma Sciences (Nasdaq: DSCI) is a medical technology company

developing and delivering solutions for advanced wound care

management

Pharmaceutical – Drug candidate DSC127 reported a successful

Phase 2 study in Diabetic Foot Ulcer healing. Indications can span

from chronic wounds to scar prevention to burn treatment

Advanced Wound Care – Proprietary dressings for chronic wounds

and burns, growing at 60%+ annually

Traditional Wound Care – Includes both branded and private-

label/OEM dressings for basic wound care


4

Investment Highlights

• Game-changing upside from DSC127, an angiotensin analog for accelerated wound healing

and scar reduction

– Positive Phase 2 data met primary and secondary endpoints

– Large addressable market opportunity for diabetic foot ulcers (“DFUs”) of ~$3.0 bln annually in

the US

– Derma expects to initiate a Phase 3 trial in 1H12

• Growing advanced wound care (“AWC”) business

• Five AWC products brought to market

• MEDIHONEY and XTRASORB are very early in their life cycles with plenty of room for growth

• US-based AWC sales force has doubled to 20 reps in mid-2011 and is expected to double

again in the next 12 months to accelerate top-line growth

• Growing international presence bolstered by acquisition of exclusive global rights (excluding

OTC) to MEDIHONEY®

• Traditional wound-care business provides positive cash flow to help fund new technologies

• Recent $26.4 million (net) fundraise supports future development

Pharmaceutical Product

Potential to Transform Derma Sciences


6

Overview of Diabetic Foot Ulcers

• Caused by neuropathic and vascular complications

of diabetes

Peripheral neuropathy

– Nerve damage causes altered or complete loss of feeling in feet/legs

– Patients are not warned of skin loss, blisters and ulcers

Vascular disease

– Narrowed arteries cause abnormal pulses in the feet, leading to ulceration and stagnant wound healing

• After debriding the dead skin, health professionals

apply a synthetic wound dressing to ensure a moist

environment and promote healing

• Even with the best standard of care, a substantial

number of DFUs remain nonhealing


7

Diabetic Foot Ulcer Market Overview

• Of the nearly 26 million people with diabetes in the US, 15% - 25% will

develop DFU in their lifetime(1)

– DFU affects ~900,000 people in the US annually(2)

– Addressable market opportunity of ~$3 billion annually

• Median treatment cost of ~$40,000 in the first two years from diagnosis(3)

– ~$100 billion in total healthcare costs

• Of those patients who develop DFU, 14% to 24% require amputation(4)

– In the US, ~60% of all non-traumatic lower extremity amputations occur among

persons with diabetes; of these amputations, ~85% are preceded by a foot ulcer(5)

• ~45% five year mortality rate, which is higher than that of many cancers(6)

(1) Singh et al. Preventing foot ulcers in patients with diabetes. JAMA. 2005; pg 217

(2) Susquehanna Research (5/18/11); Gary Nachman

(3) Rodman & Renshaw Research (11/11/10); Michael Higgins

(4) National Institute of Diabetes and Digestive and Kidney Diseases.

(5) Lower Extremity Foot Ulcers and Amputations in Diabetes; Gayle Reiber, MPH

(6) Emerging Evidence on Advanced Wound Care for Diabetic Foot Ulcerations; Robert Frykberg, DPM, MPH; Lee Rogers, DPM


8

Approved DFU Treatment Options

Company Advanced

BioHealing/Shire Organogenesis Healthpoint

Biotherapeutics

Product

Original Approval Date September 2001 June 2000 December 1997

Approval Indications DFU DFU & VLU DFU

Sales (millions)

2008

2009

2010

$45

$85

$147

>$100

Peak sales were >$100

mm; June 2008 black box

warning due to increased

risk of cancer death

Total Patients Served ~50,000 NA

NA


9

DSC127: Product Overview

• Patented, topically applied novel angiotensin analog licensed

from USC in 2007

• Targets receptors that are up-regulated upon injury to tissue

• Application of drug to wounded skin has been shown to improve

epitheliazation and granulation

- Accelerating wound healing in a variety of normal and diabetic

animal models

- Suggests that DSC127 produces different actions at the wound

site during various stages of healing

• Positive Phase 2 data recently announced

• Initial indication in Diabetic Foot Ulcer healing


10

Phase 2 Trial Design

• Patients enrolled into study and received 14 days of best-of-care:

– Debridement

– Cleansing

– Moist wound dressing

– Proper “Off-Loading” (removable cast walker)

– 80 Patients randomized to receive one of two dose strengths of DSC127 (0.03% and 0.01%) or

vehicle placebo control following 2-week run-in to include only non-healing wounds

• 4 weeks of treatment with once daily application, followed by 8 weeks observation and assessment

• Goal was to hit or exceed 15 percentage point difference between active dose and vehicle placebo

control

• Primary endpoint: Proportion of ulcers healed by 12 weeks (defined as 100% epithelialized with no

drainage)

• Secondary endpoints:

– The proportion of subjects in each treatment group reporting adverse events, by severity and

relationship to study medication

– Rate of re-epithelialization of the ulcer-site

– Differences among treatment groups in time-to-re-epithelialization and changes in DU mm and %

depth and estimated ulcer site area


11

Phase 2 Top-line Results

Treatment Group Difference

from

Odds

Ratio

Population 0.03% 0.01% Placebo Placebo Analysis(1)

Intent to Treat (ITT)

12 weeks 54% 30% 33% 21 points 2.3x

24 weeks 73% 48% 46% 27 points 3.2x

Per Protocol (PP)

12 weeks 65% 28% 38% 27 points 3.0x

24 weeks 85% 50% 52% 33 points 5.2x

(1) Odds ratio analysis represents the likelihood the high dose is to heal relative to the placebo gel.

Safety Profile: No Serious Adverse Events


12

Phase 2 Results (ITT Population) Percentage of Wounds 100% Closed

21 points

27 points


13

Competitive Comparison Chart

ORA(1) 2.3x 3.0x N/A 1.7x

(1) ORA represents the odds ratio

analysis, or the likelihood the high dose

is to heal relative to the control group.

(2) Diabetes Care 21:822–827, 1998.

(3) Diabetes Care 26:1701–1705,

2003.

100% Wound Closure - 12 Weeks Regranex

Achieved sales >

$100M before

black box warning

Dermagraft

Reported 2010

sales = $147M


14

Proportion of Ulcers Healed 100% Wound Closure - 24 Weeks

27 points

33 points

p = 0.053 p = 0.031


15

Time to Ulcer Healed Median Time to 100% Healing - 24 Weeks

13 Weeks 13.5 Weeks

p = 0.088 p = 0.047


16

Reduction in Ulcer Area Mean Reduction of Area from Baseline - 24 Weeks

72 points 72 points

p = 0.001 p = 0.001


17

Mean Reduction of Area of Depth from Baseline - 24 Weeks

Reduction of Ulcer Depth

46 points

49 points


18

Complete durability studies, full data analysis – May 2011

Submit Phase 2 Clinical Study Report to FDA – 3Q11

• Hold end-of-Phase 2 meeting with FDA – 1Q12

• Prepare for Phase 3 study

- CMC

- Toxicology

- Finalize protocol

• Begin Phase 3 – 1H12

• Ongoing discussions with potential partners

• Evaluate other indications for DSC127

DSC127: Milestones


19

Advanced Wound Care A Newly Formed Strong Growth Business


20

About Advanced Wound Care

Global Advanced Wound Care market is almost

$5 billion of the total $15 billion wound care market

Growth is being driven by multiple factors:

• Increased incidence of diseases such as diabetes and vascular insufficiency

• Increased life expectancy

• Introduction of technologically advanced products and therapies that are more

clinically efficient and cost-effective than their conventional counterparts

• Increasing focus on infection prevention

Derma Sciences’ currently marketed advanced wound healing products are

directed to the $3 billion moist dressing segment of this fragmented

marketplace

Source: Global Industry Analysts, Inc.


21

Advanced Wound Care AWC revenues are growing rapidly

AWC - ALL $2,947 $4,494 $7,617 $11,532 $8,255 $11,996

% Growth 52.5% 69.5% 51.4% 46.1% 45.3%

Five new

products

grew 59%

9M11 over

9M10.

$(000)


22

Advanced Wound Care ($ in thousands) 5 successful product launches

Note: product sales represent gross sales before trade rebates, distributor fees, sales

incentives, returns and allowances and cash discounts.

Product Launched 2009 2010

9 Mos.

YTD 10

9 Mos.

YTD 11

Oct-06 $1,416 $1,306 $ 933 $1,132

Oct-07 2,746 5,380 3,577 5,941

Sep-08 390 769 530 1,071

Nov-08 439 997 709 1,197

Jun-09 635 1,250 898 1,250

Sub-Total New Products $5,626 $9,702 $6,647 $10,591


23

Worldwide exclusive license to novel, patented

dressings comprised of a high percentage of Active

Leptospermum Medical-Grade Honey

Multiple peer reviewed studies – validate the superior

efficacy of MEDIHONEY® in chronic wounds by:

• Providing antimicrobial activity; effective against virulent

bacteria such as MRSA while also promoting cellular

regeneration of tissue

• Lowering pH on a wound’s surface, which

improves healing

• Providing anti-inflammatory activity by promoting

cytokine production and reducing oxidative stress

• Significant potential for market expansion via line

extensions and use in conjunction with negative

pressure wound therapy


24

Strategic Position

CURRENT POSITION

Leading global brand

1st mover advantage

Derma Sciences’

deepest product

offering & pipeline


25

Next Generation dressing for 6 million chronic wounds

Novel, proprietary dressings that utilize super absorbent polymer

technology for usage on dry-to-moderate, moderate-to-heavy,

and extra heavily exuding wounds.

• Superior Absorption – Absorbs 200% to 400% more than

competitive conventional dressings

• Fluid Locking – Converts fluid to gel, locking the exudates into

the dressing (other dressings use open cell structure to retain

freely moving fluid)

• Reduces risk of wound deterioration – Holds fluids away from

wound, limiting maceration and harmful effects from bacteria

• Cost effective – Reduces nursing time and costs associated

with dressing changes


26

Novel, patented barrier dressings that contain an active

antimicrobial compound to help prevent the leading cause

of death in hospitals

• Extremely effective - Kills over 99.999% of virulent bacteria

including MRSA

• Competitive Edge - Only non-leaching antimicrobial dressing

cleared by FDA. Limits toxicity and negates resistance

• Strong IP - Protected by nine US patents and patents pending

and 24 foreign counterparts

• Cost Effective - Minimizes costs and risks related to hospital

acquired infections


27

Traditional Wound Care

• Fully-integrated manufacturer of wound care products with production

facilities in Canada, China, and Mexico

– 2nd largest global manufacturer of private label adhesive bandages

• Products have solid growth and margin profiles

• Customers include 3M, Covidien, Medline, Smith & Nephew, Rite-

Aid, Walgreen, first-aid kit manufacturers

• Broad distribution channels through the industry’s top players

(including McKesson, Cardinal Health, Owens & Minor)

• 45% market share in Canada’s traditional wound care market


28

Products Protected by Core IP

Use Patents

• Filed multiple patents protecting use for

tissue repair of angiotensin II

- Analogs

- Fragments and analogs thereof

- Type 2 receptor agonists

• Patents through 2020

Method and Composition Patents

• Method and composition patents filed for:

- Limiting scar or adhesion formation

- Promoting production of living tissue equivalents

- Accelerating wound healing in mammals

- Promoting healing in skin grafts


Use Patents

• US Patent for the use of honey in

medical dressings

- Filed December 2000

- Issued October 2005

Methods and Composition Patents

• Method and composition patents filed for:

Honey in wound dressings

Increasing viscosity of treatment composition

Honey + surfactant + at least one of a fatty ester, a

wax and a wax-like compound



29

Summary of Financial Results ($ in thousands)

2009 2010

9 Mos. YTD

2010

9 Mos. YTD

2011

Revenue $48,526.2 $56,474.1 $41,170.6 $46,096.8

Y-o-Y Growth (3.3%) 16.4% 18.0% 12.0%

Gross Profit $15,057.7 $16,527.3 $12,220.2 $13,804.8

Gross Margin % 31.0% 29.3% 29.7% 30.0%

Adj. EBITDA(1) $2,785.1 $1,940.8 $1,340.7 $1,505.7

Adj. EBITDA Margin % 5.7% 3.4% (21.5%) 12.3%

(1) Adjusts for depreciation and amortization, stock-based compensation and other income.


30

Balance Sheet Data ($ in thousands)

As of Sept. 30, 2011

Cash and cash equivalents(1) $18,063

Investments $4,730

Total debt $-0-

Total shareholders’ equity $52,464

Preferred Shares Outstanding 73,332

Common Shares Outstanding 10,557,632

Potentially Dilutive Shares

Outstanding 4,582,757

Use of Proceeds • Initiate Phase 3 trial for DSC127

• Hire salespeople for advanced

wound care products

• Repay debt

• General corporate purposes

(1) Includes gross raise of $29 million ($26.4 million net of offering expenses)

effected June 27 and the use of proceeds therefrom.


31

Experienced Management

Prior Experience Experience Title Officer

Edward J. Quilty Chairman and CEO

30+ years

MedChem

Life Medical

Sciences

American

Hospital Co.

John E. Yetter VP and CFO 30+ years

Frederic Eigner

EVP for Operations 30+ years

Barry J. Wolfenson EVP of Global Marketing &

Business Development 20+ years

Robert C. Cole EVP for Sales 30+ years


32

Investment Highlights

• Game-changing upside from DSC127, an angiotensin analog for accelerated wound healing

and scar reduction

– Positive Phase 2 data met primary and secondary endpoints

– Large addressable market opportunity for diabetic foot ulcers (“DFUs”) of ~$3.0 bln annually in

the US

– Derma expects to initiate a Phase 3 trial in 1H12

• Growing advanced wound care (“AWC”) business

• Five AWC products brought to market

• MEDIHONEY and XTRASORB are very early in their life cycles with plenty of room for growth

• US-based AWC sales force has doubled to 20 reps in mid-2011 and is expected to double

again in the next 12 months to accelerate top-line growth

• Growing international presence bolstered by acquisition of exclusive global rights (excluding

OTC) to MEDIHONEY®

• Traditional wound-care business provides positive cash flow to help fund new technologies

• Recent $26.4 million (net) fundraise supports future development

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