Nephros Reports 2011 Fourth Quarter and Full Year Financial Results
RIVER EDGE, N.J., March 22, 2012 /PRNewswire/ -- Nephros, Inc. (OTC Bulletin Board: NEPH), a medical device company developing and marketing filtration products for therapeutic applications, infection control, and water purification, announced today financial results for the three months and full year ended December 31, 2011.
- Completed $3.2 million financing
- Increased ultrafiltration product revenues to approximately $618,000, an increase of 24% from prior year period
- Signed licensing agreement with Bellco S.r.l. for mid-dilution dialysis product and received initial euro 500,000 payment
- Received FDA 510k clearance to market additional ultrafiltration products in U.S.
- Received clearance to market ultrafiltration products in Canada
- Filed new 510k application for our hemodiafiltration system
- Engaged Joseph Cervia, M.D. as strategic consultant
- Engaged DHR international to recruit permanent CEO
"2011 was a pivotal year for Nephros in which we were active in monetizing value for shareholders and solidifying a platform for commercial momentum of our ultrafiltration products while continuing our efforts to obtain marketing clearance for our hemodiafiltration system in the U.S.," said Dr. Paul Mieyal, acting CEO of Nephros. "The licensing transaction with Bellco has provided near-term funding to support the commercialization of our ultrafiltration products, and we are excited to leverage the talents and experience of Shane Sullivan and Joseph Cervia toward an expanding sales and marketing effort that we expect to yield tangible revenue results."
Financial Performance for the Year Ended December 31, 2011
Revenues for the twelve months ended December 31, 2011 were approximately $2,214,000 compared to approximately $2,938,000 in the corresponding period of 2010, a decrease of approximately 25%. Revenues from sales of our MD filters in our Target European Market were reduced by approximately $749,000 due to no unit sales during the second half of 2011 as a result of the licensing agreement with Bellco. Licensing revenue of $365,000 was realized in 2011 which partially offset the reduced MD product revenue. Sales of DSU products increased by approximately $117,000, or 24%, to $618,000 compared to the corresponding period of 2010. The fixed licensing fees earned under the agreement are being amortized as revenue over the three and one-half years ending December 31, 2014. The Company's net loss was approximately $2,360,000 or $0.27 per basic and diluted loss per common share for the twelve months ended December 31, 2011 compared with approximately $1,933,000 or $0.93 per basic and diluted loss per common share for the corresponding period of 2010. Loss from operations for the twelve months ended December 31, 2011 was approximately $2,310,000 compared to approximately $1,889,000 in the corresponding period of 2010. The $421,000 increase in operating loss resulted from a decrease of approximately $254,000 in gross profit due to decreased revenue and a $200,000 provision for inventory charged to cost of goods sold. The $200,000 provision for inventory is a non-recurring, non-cash expense reflected in cost of goods sold which reduced the 2011 gross profit. The increase in operating loss was further impacted by: an increase in research and development expenses of approximately $89,000; an increase in selling, general and administrative expenses of approximately $116,000; all of which was partially offset by a reduction in depreciation expense of approximately $38,000.
As of December 31, 2011, Nephros had cash and cash equivalents of approximately $1,669,000. As previously announced, Nephros received a cash payment of euro 750,000 from Bellco S.r.l. on January 16, 2012 under the licensing agreement which became effective July 1, 2011.
Financial Performance for the Fourth Quarter Ended December 31, 2011
For the quarter ended December 31, 2011, Nephros recognized net product revenues of approximately $489,000 compared with approximately $517,000 in the corresponding period of 2010, a decrease of $28,000 or 5%. The $28,000 decrease in net product revenues is primarily due to a decrease from sales of our MD filters in our Target European Market of approximately $271,000 in the three months ended December 31, 2011 compared to the same period in 2010 however, this decrease was partially offset by additional licensing revenue of $178,000 and approximately $17,000 of increased billings related to our contract with the Office of Naval Research and increased revenue of approximately $81,000 in sales of our DSU products for the three months ended December 31, 2011. The license agreement with Bellco began in July 2011 and provides for a fixed amount of revenue through December 2014.
Operating expenses for the three months ended December 31, 2011 were approximately $798,000 compared with approximately $751,000 in the corresponding period of 2010. The increase of approximately $47,000 is related, in part, to the reduction in depreciation expense of $11,000 or 35% in the fourth quarter of 2011 compared to the same period in 2010. Selling, general and administrative expenses were approximately $45,000 or 7% higher in the fourth quarter of 2011 compared to the same period in 2010. The increase is primarily due to increased stock compensation expense in the fourth quarter of 2011 compared to the same period in 2010.
Research and development expenses increased by approximately $13,000 in the fourth quarter of 2011 compared to the same period in 2010.
Nephros' net loss was approximately $638,000 or $0.07 per basic and diluted common share for the fourth quarter of 2011 versus a net loss of approximately $665,000 or $0.34 per basic and diluted common share in the fourth quarter of 2010. Nephros' net loss decreased $27,000 primarily due to an approximate $74,000 reduction in other expenses. Other expense of approximately $15,000 in interest expense and $50,000 of debt issuance costs were incurred during the three months ended December 31, 2010. These expenses were not incurred during the three months ended December 31, 2011.
Under the licensing agreement with Bellco, S.r.l., Nephros began 2012 with receipt of the second installment payment of euro 750,000 in January. The third and final installment payment of euro 600,000 is payable to Nephros on January 15, 2013. Beginning on January 1, 2015, Nephros will receive royalty payments from Bellco as part of the license agreement.
On August 11, 2011, Nephros filed a new 510(k) application with the FDA for clearance of the Company's hemodiafiltration (HDF) system for end-stage renal disease. On November 8, 2011 the Company received the initial FDA review of its new 510(k) application (K112314), which included a request for additional information. The Company provided answers to the FDA's request in early February 2012. The Company's response is subject to the FDA's standard review period of 90 days; however, the Company has no assurance that a response will be received within this time period. Nephros believes that, if approved, its technology would be the first FDA-approved on-line HDF therapy available in the U.S.
For 2011, Nephros recorded approximately $618,000 of sales related to its ultrafiltration products, a 23% increase over the prior year. With the recent additions of Shane Sullivan as Director of U.S. Sales and Dr. Joseph Cervia as our strategic consultant, Nephros is working to formalize its marketing approach to the hospital infection control market and other addressable markets for the ultrafiltration product line. These are the products Nephros has available for sale today, and we are looking to leverage the field studies we have performed which demonstrate the value of these products. Observational studies have shown a significant reduction in required erythropoietin dosing when the Nephros DSU is utilized during dialysis therapy. In a separate study involving two major U.S. hospitals, the Nephros DSU system was shown to be effective in reducing waterborne Legionella bacteria to undetectable levels, an effect which was sustained for the 3-month study period. We believe that market forces including more stringent standards for dialysis water purity from the Association for the Advancement of Medical Instruments (AAMI), bundling of dialysis reimbursement payments, and CMS initiatives which relate hospital reimbursement rates to infection control compliance can provide positive momentum for increased adoption Nephros ultrafiltration products.
During 2011, Nephros completed the initial milestones under the joint collaboration agreement with STERIS Corp. (NYSE: STE) and anticipates completion of the final milestones under the agreement during 2012. The remaining milestones, if met, would result in aggregate payments to Nephros of $60,000.
In response to a Request For Information (RFI) from the U.S. Army, Nephros submitted its UF-40 ultrafilter for consideration as part of the standard issue hydration pack for soldiers in the field. Nephros has been informed by the U.S. Army Public Health Command that its UF-40 filter has been validated to meet the military's NSF P248 standard for emergency military operations as a microbiological water purifier. Nephros believes that its UF-40 filter is the only stand-alone filter to date to have met the performance criteria of the NSF P248 standard without secondary disinfection steps. The Army has not to date issued a Request For Proposal (RFP), and Nephros has no information regarding when or if an RFP applicable to the UF-40 ultrafilter may be put forth by the U.S. Army.
Nephros is evaluating a range of additional commercial, industrial, and military opportunities for its ultrafiltration technology.
The executive search being conducted by DHR International for a permanent CEO for Nephros is actively ongoing. Nephros anticipates to completion of the search within the first half of 2012.
About Nephros, Inc.
Nephros, Inc., headquartered in River Edge, New Jersey, is a medical device company developing and marketing filtration products for therapeutic applications, infection control, and water purification.
The Nephros hemodiafiltration (HDF) system is designed to improve the quality of life for the End-Stage Renal Disease (ESRD) patient while addressing the critical financial and clinical needs of the care provider. ESRD is a disease state characterized by the irreversible loss of kidney function. The Nephros HDF system removes a range of harmful substances more effectively, and with greater capacity, than existing ESRD treatment methods, particularly with respect to substances known collectively as "middle molecules." These molecules have been found to contribute to such conditions as dialysis-related amyloidosis, carpal tunnel syndrome, degenerative bone disease and, ultimately, mortality in the ESRD patient.
The Nephros Dual Stage Ultrafilter (DSU) is the basis for the Nephros line of water filtration products, which includes the MSU and SSU ultrafilters. The patented dual stage cold sterilization ultrafilter has the capability to filter out bacteria and, due to its exceptional filtration levels, filter out many viruses, parasites and biotoxins. The Nephros DSU, MSU, and SSU are FDA cleared for the filtration of biological contaminants from water and bicarbonate concentrate used in hemodialysis procedures. Nephros' DSU ultrafilters are being evaluated at several major U.S. medical centers for infection control. Nephros ultrafilter technology has also been selected for further development by the U.S. Marine Corps for purification of drinking water by soldiers in the field.
For more information about Nephros, please visit the company's website at www.nephros.com.
This press release contains certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Such statements include statements regarding the efficacy and intended use of our technologies under development, the timelines for bringing such products to market and the availability of funding sources for continued development of such products and other statements that are not historical facts, including statements which may be preceded by the words "intends," "may," "will," "plans," "expects," "anticipates," "projects," "predicts," "estimates," "aims," "believes," "hopes," "potential" or similar words. For such statements, we claim the protection of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of future performance, are based on certain assumptions and are subject to various known and unknown risks and uncertainties, many of which are beyond our control. Actual results may differ materially from the expectations contained in the forward-looking statements. Factors that may cause such differences include the risks that:
- we may not be able to continue as a going concern;
- we may not be able to obtain funding if and when needed or on terms favorable to us in order to continue operations;
- we may not obtain appropriate or necessary regulatory approvals to achieve our business plan or effectively market our products including, without limitation, FDA approval of our HDF system;
- products that appeared promising to us in research or clinical trials may not demonstrate anticipated efficacy, safety or cost savings in subsequent pre-clinical or clinical trials;
- we may encounter problems with our suppliers and manufacturers;
- we may encounter unanticipated internal control deficiencies or weaknesses or ineffective disclosure controls and procedures;
- HDF therapy may not be accepted in the United States and/or our technology and products may not be accepted in current or future target markets, which could lead to failure to achieve market penetration of our products;
- we may not be able to sell our ESRD therapy or water filtration products at competitive prices or profitably;
- we may not be able to secure or enforce adequate legal protection, including patent protection, for our products; and
- we may not be able to achieve sales growth in Europe and Canada or expand into other key geographic markets.
More detailed information about us and the risk factors that may affect the realization of forward-looking statements, including the forward-looking statements in this press release, is set forth in our filings with the SEC, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, as amended and our other periodic reports filed with the SEC. We urge investors and security holders to read those documents free of charge at the SEC's web site at www.sec.gov. We do not undertake to publicly update or revise our forward-looking statements as a result of new information, future events or otherwise, except as required by law.
SOURCE Nephros, Inc.