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Derma Sciences Inc (NASDAQ:DSCI)

Q4 2012 Earnings Call

April 01, 2013 11:00 am ET

Executives

Kim Golodetz - Lippert/Heilshorn & Associates

Edward Quilty - Chairman of the Board, President, Chief Executive Officer

John Yetter - Chief Financial Officer, Executive Vice President - Finance

Barry Wolfenson - Group President of Advanced Wound Care and Pharmaceutical Development

Analysts

Scott Henry - ROTH Capital

David Amsellem - Piper Jaffray

Harvey Poppel - Poptech, LP

Operator

Welcome to the Derma Sciences' Fourth Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we'll hold a Q&A session. (Operator Instructions) As a reminder, this conference is being recorded today, April 1, 2013.

I would now like to turn the conference over to Ms. Kim Golodetz. Please go ahead, ma'am.

Kim Golodetz

Thank you. This is Kim Golodetz with LHA. Thank you all for participating in today's call. Joining me from Derma Sciences are Ed Quilty, President and Chief Executive Officer and Chairman, and John Yetter, Executive Vice President of Finance and Chief Financial Officer, Barry Wolfenson, the company's Group President Advanced Wound Care and Pharmaceutical Development, and Robert Cole, Group President of Traditional Wound Care and Corporate Accounts, will join us for the Q&A portion of the call.

Earlier today, Derma Sciences announced financial results for the fourth quarter of 2012. If you have not received this news release or if you would like to be added to the company's distribution list, please call LHA, New York, at 212-838-3777, and speak with Carolyn Curran.

Before we begin, I would like to caution that comments made during this conference call by management will contain forward-looking statements regarding the operations and future results of Derma Sciences. I encourage you to review the company's filings with the Securities and Exchange Commission, including without limitation, the company's form 10-K and 10-Q, which identify specific factors that may cause actual results or events to differ materially from those described in the forward looking statements.

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, commercialization or technological difficulties, the success or failure of negotiations and trade legal, social and economic risks.

Also, the content of this conference call contains time-sensitive information that is accurate only as of the date of the live call. Today, April 1, 2013. The company undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.

With that said, I would like to turn the call over to Ed Quilty. Ed?

Edward Quilty

Thank you, Kim. And, my many thanks to each of you for joining us this morning. We have a lot of things to cover with you today, so we will get started right away.

This morning, we announced the fourth quarter and not only the fourth quarter, but in recent weeks, we have finished of an exceptional and rewarding year marked by significant achievements in all of our business initiatives.

Excellent sales performance as well as the start of our Phase 3 trials with DSC127 in diabetic foot ulcer healing. Our financial results were right on plan with organic sales growth of advanced wound care products up 41% and sales growth of traditional wound care products up 3%, both compared with last year's fourth quarter. Including the TCC products, we acquired last April, our advanced wound care sales were up 73% and were up 13%, sequentially. The sequential revenue growth is even more impressive given that the third quarter of the year tends to be seasonally strong for all of our products.

Advanced wound care products now account for 38% of the company's total net sales, that's up from 27% a year ago and right in line with our expectations. This shift in product mix is benefitting our gross profit as well. We anticipated several years ago, when we identified advanced wound care as an important growing market, where more efficacious products would succeed. As a result, the gross margin was 35.6% in the fourth quarter of 2012, an increase of 7.7 percentage points, compared with gross margin of 27.9% in the fourth of 2011. So as you can see, as the total percent of net sales attributable to advanced wound care increase, and will continue to increase, you can expect to see those gross margin numbers which are very impressive only get better.

A topical drug candidate DSC127 for the treatment diabetic foot ulcer has begun the Phase 3 study as we reported to you and we are very excited about the potential of this drug as those trials get going.

I am going to go into a lot more detail about the quarter and our execution and then discuss some of the upcoming milestones that you can look for as we continue into 2013. But first, let me turn the call over to John Yetter, our Executive Vice President and Chief Financial Officer, who will give you a rundown of financial results. John?

John Yetter

Thank you, Ed. Good morning to our listeners. As Ed mentioned, we have had a very busy and productive 2012. As you know Derma's strategy is three-fold, invest in and grow our advanced wound care business, hold our traditional wound care business steady and progress the development of our promising pharmaceutical product DSC127 for diabetic foot ulcer.

Our fourth quarter and annual performance is reflective of the fact that Derma Sciences is meeting its objective today and positioning itself to continue meeting them going forward. I am happy to share with you that in the fourth quarter, as Ed mentioned, we continue to make excellent progress in advancing our DSC127, the diabetic foot ulcer program. We continue to meet our internal advanced wound care and traditional wound care sales objectives and we raised $33.7 million in December to ensure sufficient funds for the development of DSC127 for diabetic foot ulcers and general corporate purposes.

Now let's take a look at the numbers. For the fourth quarter, net sales increased $3.6 million, or 22%, $20 million versus 16.5 in 2011. Sales in the U.S. and EMEA experienced consistent growth of 30-plus percent each, while sales in Canada declined due to carryover of lost traditional wound care business in 2011.

On a segment basis, Advanced Wound Care segment sales increased 73%, while Traditional Wound Care sales increased 3% both, in line with expectation.

Gross profit increased $2.5 million or 55%, consistent with higher sales, favorable sales mix and improved manufacturing performance. Gross profit increased 35.6% from 27.9%, reflecting a favorable sales mix towards higher margin advanced wound care, sales and improving manufacturing performance both, the AWC and traditional wound care segments achieved significant gross profit dollar growth.

The TWC segment also experienced a significant margin percentage increase, while the Advanced Wound Care segment margin was up slightly due to incremental catch up amortization expense associated with the finalization of the valuations for TCC, our acquisition in April, and BIOGUARD, and fourth quarter, MEDIHONEY milestone payment. Direct and R&D expenses were up significantly as expected in line with our AWC growth and DSC127 development initiatives.

G&A expenses were up slightly due to higher compensation and benefits, insurance, legal, board, rent professional service costs. We also trued-up our one-time non-cash tax benefit related to the MedEfficiency acquisition and recorded an additional benefit of $700,000. All of the above resulted in a net loss for the quarter of $3.7 million versus $2.5 million in the prior year fourth quarter.

Now let's take a look at the year. Net sales increased $10 million or 16%, $72 million in 2012 versus $62 million in 2011. The U.S. and EMEA exhibited good growth year-over-year while I mentioned earlier, Canada experienced the 4% sales decline, due principally to the carryover effect lost business 2011. AWC sales grew $8.9 million 56%, $25 million 2012. Excluding TCC sales, AWC sales grew 33% in line with expectations. TWC sales grew $1.1 million, or 2.4%, $47.8 million, also in line with our expectations.

Gross profit increased $6.7 million or 37% to $25 million in 2012 driven by the higher sales, favorable sales mix, both higher margin advanced wound care sales and improved manufacturing performance. The gross profit percentage increased to 34.6% from 29.4%, reflecting a favorable sales mix especially the incremental impact of a higher margin TCC sales and improving manufacturing performance. Both, the AWC and TWC segments achieved significant gross profit dollar and percentage growth year-over-year.

Looking at a segment basis, AWC, Advanced Wound Care direct cost increased $8.7 million or 97% in 2012 as expected as a result of our global growth initiative. This figure included $1.2 million of MedEfficiency transaction's last integration related expenses and incremental MedEfficiency amortization expense of $0.5 million.

AWC product contribution loss increased $3.6 million to the loss of $5.2 in 2012. This loss increase is attributable to the growth initiatives implemented 2012, whereby the related expenses associated to the initiative to feed anticipated revenue. We began to see a leveling off of the expense increase towards year end 2012 as the growth related infrastructure for the most part has been put in place. We expect to begin to see improving advanced room care product contribution in 2013, as AWC revenue growth sees expense growth.

AWC direct costs were down slightly as expected due principally to lower amortization expense. R&D expenses related to development DSC127 increased $6 million or $7.2 million. This increase reflects planned escalation in activities associated getting ready for start of the DSC127 Phase 3 clinical trial, which actually commenced in early 2013. During the year, we set up our budget management team continue to move forward and make good progress on our toxicology and CMC initiatives and get our clinical trial program ready to go. All of the above resulted in a net loss of $12.1 million, or $0.97 per share in 2012 versus the net loss of 4.3 million or $0.49 per share in 2011.

Now let's take a brief look at Q4 2012 versus Q3 to see how our business is trending. Net sales increased to $0.5 million or 2.3% to $20 million versus $19.6 million in Q3. As Ed mentioned, Q3 historically has been our big sales quarter. AWC sales grew 900,000 or 30%, 7.7 million, TWC sales were down slightly as expected due to first aid products seasonality and the lower [Canadian].

Gross profit increased $300,000, 4%. Gross profit margin increased slightly to 35.5 versus 35.2. AWC margins and percentage were adversely impacted quarter-to-quarter by the aforementioned amortization expense, where as TCC or TWC margins grew significantly. AWC product contribution loss increased slightly to $1.2 million from $900,000 due principally to the incremental amortization expense I mentioned earlier and higher direct costs.

TWC product contribution increased slightly due to improving margins and lower direct costs. All of the above resulted in a net loss of $3.7 or $0.27 in the fourth quarter versus $3.1 million or $0.23 in the prior year quarter.

What does this all mean? What should someone take away from these results? Let's take a moment to recap. AWC sales grew 50%, 33% excluding TCC, in line with expectation. TCC sequential sales have grown 14% Q3-over-Q2, and 9% Q4 over Q3 and acquisition in April. TWC sales grew 2.4%, in line with expectations. Our gross profit has improved to 34.6% from 29.4%.

We continue to invest heavily in our global advanced wound care sales and marketing 2012 with expense growth exceeding revenue growth as expected. We have started to see the trends for AWC growth leveling off towards the end of the year as the planned incremental resources have been put in place. We believe we now have the infrastructure in place to continue to rise sales while being in position to take advantage of any opportunity presents itself.

2012, we benefitted from a non-cash tax benefit of $2.4 million associated with the MedEfficiency acquisition. This benefit will not repeat itself going forward. Our stock price was $11.11 at the close of 2012 versus $7.58, 2011. Represents a 47% return on our stock value to our stockholders. Bottom line is from Derma management's perspective, we executed on our plan. 2012 was a good year for Derma Sciences and its stockholders.

Now, let's take a brief look at our liquidity. During 2012, we raised $52 million from two equity raises and various warrants and option exercises. We used $50.6 million of this money to purchase MedEfficiency in April and we used another $12.5 million to operate the business, resulting in a net increase in cash throughout the year of $25 million.

Of the $12.5 million used in the business, $6 million was used in operations, $3.4 million for working capital, $2.3 million for tangible asset purchases and $800,000 for capital expenditures. Keep in mind, our $7.2 million of R&D expense included in the $6 million used in operations figure, therefore I want to say that the business was cash flow positive from operations, including R&D of 2012. Another thing to keep in mind is that in 2012, we had approximately $5.5 million worth of non-cash charges in our P&L consisting depreciation and amortization in equity based compensation.

$3.4 million for working capital is mostly through inventory. Inventory increased for the most part in response to our sales growth and to improve our customer service. In 2012, we paid $1.3 million for the worldwide BIOGUARD and we made a second milestone payment of $1 million and trailing 12-month sales of MEDIHONEY exceeded $10 million. Majority of our capital expenditures were spent on upgrading our manufacturing capabilities.

At the end of the year, we had $45.8 million in cash and investments on hand and no debt. Our receivables were in excellent shape. Our inventory after growing in 2012, is properly positioned to support our continued business growth. There has not been any appreciable change in our other current assets and liabilities other than in response to normal business.

As I trust everyone can appreciate our Phase 3 clinical studies and programs of DSC127 for diabetic foot ulcer is an evolving process, we are constantly looking at responding to changes that have an impact on the overall plan operationally and financially. Assuming everything goes according to our current plan, the last patient scheduled to complete the trial in the second quarter 2015. We will continue to conduct our TOX and CMC works with this time period in parallel. Those take efforts of the year or more thereafter to finalize the study results if the required information to the FDA received approval for the product. Current estimated cost to get to this point is $45 million to $50 million. We have spent approximately $8 million on the program to-date.

We have forecasted the numbers through 2016. Based on our plan, we will have sufficient liquidity to sustain our planned growth through existing business and the development of DSC127, the diabetic foot ulcers without the need for further capital infusion. This will be achieved through the continued growth and improvement of our advanced wound care business, continued stabilization of the traditional wound care business and expected warrant and option exercises over the time period. Further this takes into consideration our DSC127 development cost of $45 million to $50 million. Growth related working capital requirements, anticipated capital expenditures to support the business and any license related milestone payment. Our long range forecast does not anticipate any significant product or business acquisitions at this time.

All of the above having said, management believes it has sufficient working capital on hand to be generated for foreseeable future to exercise on its objectives.

At this point, I'd like to turn the call back to Ed.

Edward Quilty

Thank you, John. That was an excellent report. We appreciate it. John and his team are working very hard and next year Derma will be an accelerated filer, so we won't be filing our year-end this late. Further get complicated last week was the pass over and Easter, falling around the time we were filing our 10-K, and we apologize for having to put off the conference call, so today we decided that that would allow for most people to be back from the holidays and be able to join us for this call.

So, as you can see, the numbers for Q4 show that our initiatives are working and very improved, and we believe we are making Derma Sciences a leader in advanced wound care solutions. I want to take a few minutes and talk about each of our business segments, which John winded out to you during his thought and let me start with advanced wound care which are our technologically innovative products, which as I mentioned in my opening remarks now account for more than 38% of net sales and we'll continue to grow as a percent of net sales.

Along with our flagship product, MEDIHONEY and TCC-EZ cast total contact casting system has established itself as an anchor product in our advanced wound care product portfolio. As you know, we gained the TCC products through an acquisition just about a year ago in early April and that transaction has proved to be an excellent one for us as the product line is growing and will continue to grow.

Over the past three years, we have invested a lot of money in our sales and marketing infrastructure. That infrastructure now includes 55 advanced wound care professionals in the United States and more than 20 distributors outside the United States. For the most part, we were fully staffed by the middle of 2012, but since then we have added a few more professionals to support our continued growth. A couple of our more recent hires were in additional clinical specialists, those our nurse clinician to support, build selling organization and we also recently added an additional marketing manager to support our five key brands.

Importantly, as our products become better known and more highly valued by wound care professionals, the sales process has become faster and more efficient, so we have to talk to you for years about the 18 or 19 months that it takes us to get a sales rep to start to produce a positive contribution of the company and now that Derma Sciences is more widely known, our products have become a bigger part of the wound care community and we believe that that number will start to come down with some of the people we've hired over the last year.

Beginning this month, we will be showcasing our products at several important conferences throughout the entire spring. The first meeting, April 4th, will be the American Professional Wound Care Associates Conference. And then in May, we will be at the Spring Symposium on Advanced Wound Care, also called the SAWC. This is one of the most important conferences for us.

With the addition of TCC-EZ, we are taking on even on greater exhibit space at SAWC to allow for product demonstrations in the booth. Additionally, we secured space right at the front of the exhibit hall, centered at the main entrance. This will be a greatest exposure that we have had at the national conference thus far allowing us to fully leverage our expanded selling organization.

At SAWC, we will once again have a strong clinical presence. We are sponsoring a satellite symposium on the role of ph in chronic would healing, a significant topic supporting one of the important aspects of MEDIHONEY. Notably, this symposium will be chaired by Marco Romanelli, the Immediate Past President of the European Wound Management Association along with Karen Zulkowski Associate Professor from Montana State University and former board member of the National Pressure Ulcer Advisory Panel.

There will also be a session regarding total contact casting, and this part of the conference, [Jim] his part of the conference's agenda will be opened to all attendees. Dr. Jeffrey Jensen, who as you recall is the inventor of our TCC-EZ will be the moderator, Dr. Jensen is by the way still a consultant to Derma Sciences. And this session will focus on casting techniques and offloading strategies including TCC-EZ. There will also be an additional workshop on casting techniques the following day.

All in all, we will have 15 posters covering MEDIHONEY, TCC-EZ, XTRASORB and BIOGUARD. Of note, there will be two specifically focused on MEDIHONEY and its ability to assist with autolytic debridement. One of the combinations of MEDIHONEY and TCC are one on the combination of MEDIHONEY and TCC are non-healing diabetic foot-ulcers and one on the combination of MEDIHONEY and XTRASORB, and four on the TCC alone, including one on non-ambulatory patients.

During the conference, we will also have four speakers in our booth discussing research focus on our key product lines, including BIOGUARD and the potential impact of BIOGUARD on infection protection, XTRASORB, where we'll have a review of recently published materials on protease modulation capability of our XTRASORB dressings. Three, we'll have MEDIHONEY and the increasing utilization of MEDIHONEY for promoting autolytic debridement. And finally number four, TCC-EZ, here we'll be talking about the significance of TCC-EZ and proving an easier way to achieve the gold standard of offloading.

Needless to say, our group will be busy at these meetings and we are quite excited about the upcoming conferences. We expect our sales of advanced food care products to grow between 30% to 40% during 2013. This is the guidance that we've given to you over the last couple of years, and as John reported earlier, without the TCC acquisition, we achieved that goal in 2012. We continue to expect that our advanced wound care business segment will become cash flow positive by the end of this year. This is going to occur as our sales reps get closer start to have all of them make a positive contribution to Derma Sciences.

Let me turn for a minute and talk about Europe and other areas outside United States. As mentioned, we now have 20 distributors and six direct sales representatives in our office in the U.K. In addition to this group, our General Manager, Maeve Kelly, manages the EMEA, and is doing an excellent job. We also have four direct sales reps in Canada. We are just this month launching the new MEDIHONEY HCS product in Europe and the Middle East following the receipt of the CE Mark which we received at the end of last year. This product combines MEDIHONEY with our XTRASORB. It is a great treatment for first and second degree burns, in addition to various chronic and acute wounds.

Sales in the U.S. have made it the best launch of a MEDIHONEY line extension thus far and we expect the same from our international markets. As an aside, we are continuing to pursue MEDIHONEY HCS as an over-the-counter product in the United States and are optimistic that we will launch this product sometime later during 2013. We are now selling MEDIHONEY, XTRASORB and ALGICELL Ag in Europe and the Middle East. Following XTRASORB being placed on the U.K. tariff in the latter half of 2013, sales of these three products grew 21% in the fourth quarter and were up 27% in the EMEA.

Hopefully, all of you have had a chance to read our press release this morning regarding the work that we did last week in Korea to achieve long-term global executive rights for the casting element with TCC-EZ. Barry Wolfenson, our Group President for Pharmaceutical and Advanced Wound Care and I spent the week in Asia, and were able to visit with our partners on EZ cast and successfully negotiate this agreement.

We expect to begin sales activities as early as this summer in some European and Middle Eastern countries. Having this product and our sales reps and international distributors' hands, we'll go a long way towards filling out our line as it has in the United States, and this will help us to continue to drive sales outside of the United States.

The global rights acquisition of this important product further demonstrates our desire and commitment to become a global leader in advanced wound care. Lastly, with regard to our international sales efforts, today is the first day at Derma Sciences were [Mario], who has recently become our Vice President of International Business Development. Mario will be responsible for growth of our advanced wound care products outside of North America and the EMEA region. He is going to especially focused on Latin America, Far East and the Pacific Rim, and we are very pleased and proud to have Mario as a member of our team.

While the areas that Mario will be responsible for has grown over 30% along with the rest of our advanced wound therapist, we expect with his presence that going forward growth here should outpace the rest of the world given the opportunities that exist.

When Barry and I were in Korea last week, we were fortunate enough to attend the Korean Wound Care National Meeting, a yearly meeting. Where, by the way, one of our key components of our products Dr. David Armstrong was also there and was a speaker and we were able to launch MEDIHONEY into the first Asian market, which is South Korea, attend that meeting and Barry also spent a day there training our partner, our distributor, all of their sales reps on not only MEDIHONEY, but our other product lines.

The advanced Wound Care segment is the growth engine of Derma Sciences. Make no mistake about it. By year end, if we meet our goals, sales of these important products will approach $35 million worldwide. While we at Derma Sciences don't have a crystal ball to look into regarding the future of DSC127, which I will discuss in a few minutes, we do know that MEDIHONEY and EZ cast in particular, have established themselves as leading brands and their continued growth will ensure Derma Sciences shareholders have a business even without DSC127, that is well beyond our current market valuation.

Our operating business outside of research and development expenses of DSC127, as John said, is moving toward positive cash flow and profitability. We cannot and we will not stop looking for new advanced care opportunities. Sit on our hands and bet our entire future on when drug would be a huge mistake. What makes special is our proprietary growing brands. If we run a successful DSC127 trial, we will no doubt be a leader in advanced wound care. Our plan is to be a leader with or without that one product.

Let me turn briefly to our Traditional Wound Care business. This continues to be an important source of positive cash flow for our operations. As John said, sales were $12.4 million in the fourth quarter of 2012. That's up 3% over the prior year fourth quarter and down 3%, sequentially, mostly due to seasonality and lower demand in Canada for our first-aid products. We expect sales of traditional wound care products for 2013 to be flat to up around 2%.

Let me take a minute and just update you on DSC127, our pharmaceutical product for the treatment of non-healing diabetic foot ulcer. As we have reported, we are very excited about the prospects of DSC127 in this large and growing market with few effective treatment options.

As reported in February, we began the first of two pivotal Phase 3 trials, which will enroll 422 patients in two arms. We expect patient screening to begin this month for the second trial, which is a three-arm study that will enroll 633 patients. In addition to that, we have begun enrolling patients in our chronic-use safety study and will continue to treat patients through the time of filing our New Drug Application, or NDA with the U.S. Food and Drug Administration. All-in, there will be more than 85 sites conducting these studies and so far we are highly encouraged by the level of investigator interest. We continue to be on track to complete both of these trials and report the results for you during the second quarter of 2015.

We estimate that the global market for DSC127 for the treatment of diabetic foot ulcers is approximately $900 million, more than $300 million of that which is in the United States. Should DSC127 be approved, it will fit seamlessly with our advanced wound care product portfolio being sold by our sales force. At that time, you could expect to see us increase the size of our sales staff to better provide coverage throughout the United States. Keep in mind that this is a pharmaceutical product and as should have gross margins upward of 90%, so this not only should be an extremely profitable product, but will make Derma Sciences extremely profitable.

Regarding our plans outside of the United States, we are in the final stages of selecting a business development partner to assist us with the process of looking at the possibility of out-licensing this drug. We expect that out-licensing process to commence in April and it will continue throughout 2013. Our cash position, as we mentioned earlier is $45.8 million. We are more than comfortable that this will be enough to fund the trial through its conclusion and to run the rest of our business.

In addition, given that we expect that our two segments of our business outside of R&D will be cash flow positive by the end of the year. I don't believe that Derma Sciences in its history has ever been in better financial condition. We continue to invest in research, products and talented people to make Derma Sciences leader in advanced wound care. Our financial results not only this past quarter, but throughout last year are providing the soundness of our strategy and our expectations are for continued growth in the years ahead. When you combine the value of DSC127, what is being built each quarter in our advanced wound care and the continued stability of our traditional wound care, future is very bring at Derma Sciences.

With that I'll open the call to your questions. Thank you.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question will come from the line of Scott Henry with ROTH Capital. Please go ahead with your question.

Scott Henry - ROTH Capital

Thank you and good afternoon. Question for you, you know just finished up the fourth quarter, looking out at 2013, could you give any guidance in terms of what you're looking for on the revenue and or expense side?

Edward Quilty

Well, in the past we haven't given total guidance on the complete business, but we have guidance on exactly where we expect our business to grow. And this year again, we expect the advanced wound care business to grow between 30% and 40%, and we expect the traditional wound care business to stay at least flat or grow 2%. So, if you work with those numbers, you can probably figure it out pretty easily, but somewhere in the low 80s, I would think would be a good number to use.

Scott Henry - ROTH Capital

Okay. So, when you say 30% to 40% advanced, is that the organic growth rate?

Edward Quilty

Yes. That's the organic growth rate on the products that we currently are selling.

Scott Henry - ROTH Capital

Okay. Great. Thank you. That's very helpful. And then when we think about SG&A and R&D, I guess to some extent, how should we think about fourth quarter and the levels during fourth quarter as sort of a go forward rate?

Edward Quilty

The R&D budget for, you know, this is all based on the number of patients that we expect to enroll and the other work that we are doing on the CMC work. You know, John has reported that the full program will cost between 45 and 50 of which we spend 8. I think you can look for us during 2013 to spend if we hit our patient enrollments around $20 million.

Scott Henry - ROTH Capital

Okay. And then SG&A, were you at full scale in Q4 in terms of the number of reps or would you expect to add any reps in 2013?

Edward Quilty

We don't expect to add any reps in 2013. As I said a little bit earlier, we did add [Mario Netto] [ph], who became today our Head of International Business Development. We have added a Director of Private Label, Sales, and that person's responsibility is to go out and find us additional private label business which has been a very good source of cash flow for us, and it will also help us get more absorption in our manufacturing facility in Toronto, so it's very important for Fred Eigner, who is our Head of Operations to fill that plant up and the best way for us to do it is advanced wound care products and private label, so we have added that position.

We've added some support in the marketing organization, because you have to have that to support the bigger sales team and to keep these brands growing and we also have added some support in our clinical area, where it's very important that we have our nurse clinicians out supporting our field selling organization and supporting the customers as they begin trialing our products, so that's where we made the additions. Not much in the rest of G&A other than your normal cost of living increases.

Scott Henry - ROTH Capital

Okay. That's all very helpful. I just want to confirm the total cost of DSC127. What is that estimated at again?

Edward Quilty

$45 million to $50 million, and at the end of 2012, we had spent about $8 million. Now, I will point out to you that that total figure includes about $5 million or post having the data on DSC127 or getting the NDA filed. So, that's money that we wouldn't spend if the product isn't successful in the trial, but the total number is around $45 million.

Scott Henry - ROTH Capital

Okay. Great. Thank you for taking the questions.

Operator

Your next question will come from the line of David Amsellem with Piper Jaffray. Please state your question.

David Amsellem - Piper Jaffray

Thanks. Just a couple. First, can you talk about how MEDIHONEY has been trending in January and February and even March if you have the data? And, how we should think about the growth of that product for the year compared to 2012? Also, same question around TCC-EZ, and wanted to drill down on its growth trajectory there as well. Thanks.

Edward Quilty

So, we did $25 million in advanced wound care sales in 2012. As you know, David, on purpose we haven't broken down what the growth in each of the specific brands is. I can tell you that MEDIHONEY and EZ cast make up the biggest chunk of those revenues and are growing the fastest and we expect revenues to grow between 30% and 40%, so that should bring us during 2013, that should get us up to almost $35 million as I said in my remarks. And again, MEDIHONEY and EZ cast will be the fastest growing products in that advanced wound care segment. Just from a competitive standpoint, we haven't wanted to breakout exactly what each of those brands were doing, but you can probably figure that out from the numbers that we've given you.

David Amsellem - Piper Jaffray

Okay. And then how should we think about pricing and margins for TCC-EZ overseas as you begin to ramp that ex-U.S. compared to the kind of pricing and margins that you had in the U.S.?

Edward Quilty

Yes. Certainly, I'll let Barry jump in here on this one as that's his responsibility, but in my answer would be it's really too early to tell how it's going to go. You want to add to that?

Barry Wolfenson

Yes. I agree with that. It's a little bit on the early side. We still have some work to do ahead of us with regard to regulatory clearances and then of course reimbursement applications. Having said that, generally your margin is going to be lower when you are working through international distributors, because they are the ones that are fielding sales organizations, so there will be hair-cut, which there has been with our current international business versus our MEDIHONEY sales, and our BIOGUARD and XTRASORB sales.

The one thing that could be interesting from an international market perspective is that the reimbursement category that we happen to fall in the U.S. is an existing sort of old category that one can say doesn't fully compensate for the benefit of total contact casting i.e. 89% wounds healed at six to seven weeks. And when we go to these new markets that have not done total contact casting, but were creating something from scratch, it's within the realm of possibility that in certain markets certainly we can get higher in-market price points to the customers which could help out our margins from sales prices to distributors, so work to do yet, but I would expect for the margins to be less than what they are in the U.S.

David Amsellem - Piper Jaffray

Okay. Then one last one if I may. You've talked in the past about business development and bolt-on acquisitions, and to the extent that that's still on the radar, any color on what kind of additional opportunities you are looking at?

Edward Quilty

Obviously, the ones that we are looking at are things that we can leverage our selling organization, where we can leverage our selling organization. We really want to look at this very closely, because the products they have now take up all of their time and we don't want to add something on there that would detract from products like MEDIHONEY and EZ cast that are still very early in their lifecycle and have a lot of years of growth opportunity and we still haven't really touched the tip of the iceberg on XTRASORB, MEDIHONEY or EZ cast, so we want to be careful, but something that ideally could have some positive cash flow coming right out of the shoe that we could build on, things that fit in line with our strategy of looking at technologically at advanced products, things with intellection property so we've got a list.

Derma Sciences is kind of fortunate. There really isn't another Derma Sciences out there and I think if you look, now we are smaller for sure than some of our bigger competitors, but we certainly are growing faster than any of our competitors in the marketplace. And as such, we do get a lot of people coming to us on a monthly basis with things that they like us to look at and we have been very selective as you can see from the success of the things that we brought into the company and we'll continue to be very selective as to how we move forward.

David Amsellem - Piper Jaffray

Okay. Thanks.

Operator

(Operator Instructions) Our next question will come from the line of Harvey Poppel with Poptech, LP. Please state your question.

Harvey Poppel - Poptech, LP

Yes. Ed very hearty congratulations on an absolutely fabulous year. The question I had was, you briefly mentioned that we should expect later this month, April, some sort of an announcement about international rights. It was unclear to me what the scope of that statement was and what you were referring to.

Edward Quilty

Yes. Thank you, Harvey. Good to talk to you. If you look this morning, we made two press releases, first at 7 o'clock on our year end and quarterly results. A few minutes later, we announced that while we were in Asia last week, we had negotiated rights using the patent held by our partner in Korea to use that patent around TCC-EZ for sales outside of the U.S., so we now have global rights to those patents and we'll start those activities immediately, so that was what we were referring to.

Harvey Poppel - Poptech, LP

I see. Okay. So, you've already announced?

Edward Quilty

Yes. We did this morning.

Harvey Poppel - Poptech, LP

Okay. Good. Thank you.

Edward Quilty

Thank you.

Operator

(Operator Instructions). There are no further questions at this time. Please proceed with your presentation or any closing remark.

Edward Quilty

All right. Thank you. We appreciate your questions. We'll be back here about six weeks from now to talk about the first quarter and we are very excited to do that. I'd just like to express my thanks for all of our investors taking the time today and those that are listening on the webcast.

Just as a note, we will be presenting at the 12th Annual Needham Healthcare Conference on April, which is taking place in New York on April 30th and the May the 1st, and then week later we'll also be presenting at the Taglich Brothers Annual Conference, which is at the New York, Athletic Club on May, the 7th. And, I hope to see you there and they should be both, good conferences.

So, again, I want to thank everybody for your participation. We're off to a good start at Derma Sciences in 2013. I want to thank my executive team, Barry, Bob, John and Eigner and also all of our employees who are working very hard to make Derma Sciences a success to improve shareholder value, which we talk about everyday with our employees, so we are doing our best to behave in the best interest of shareholders and we thank our board of directors for their continued support of Derma Sciences as well.

So, with that, we'll say good bye and we'll look forward to talking to you in about six weeks, so thank you very much.

Operator

Ladies and gentlemen, that concludes your conference call for today. We thank you for your participation and ask that you please disconnect your lines.

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