Nephros Reports 2010 Second Quarter Financial Results

RIVER EDGE, N.J., Aug. 16 /PRNewswire-FirstCall/ -- 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 ended June 30, 2010.

• Increased revenues by 54% to approximately $809,000 from prior year period.
• Reduced loss from operations by approximately $228,000 or 38% from prior year period.

"In the second quarter, Nephros continued to improve its operating efficiency by controlling expenses and expanding revenues," said Dr. Paul Mieyal, acting CEO of Nephros.  "We have made further progress on the company's military-funded development project and we continue to seek additional funding opportunities to support our business plan.  Recently, we were pleased to announce that AmeriWater Corporation adopted our FDA-approved DSU filters as a standard component of their water treatment systems for dialysis-related applications.  We believe that AmeriWater is at the leading edge of industry demand resulting from more stringent water purity standards."

"On June 30, 2010, Nephros received a rejection letter from the FDA in response to the company's 510(k) application for its hemodiafiltration system.  Nephros has engaged King & Spalding LLP as its regulatory counsel and has scheduled a meeting with the FDA on September 10, 2010, to discuss the issues raised in the FDA's letter as well as the process for moving forward.  As previously stated, based upon the meeting with the FDA reviewers, the company will determine the appropriate course of action, which could include filing a new 510(k) application with additional information or filing an appeal related to the current application," continued Dr. Mieyal.

Financial Performance for the Second Quarter Ended June 30, 2010 (Unaudited)

For the quarter ended June 30, 2010, Nephros recognized net product revenues of approximately $809,000 compared with approximately $527,000 in the corresponding period of 2009, an increase of $282,000 or 54%. The increase was due primarily to increased sales of the OLpur™ MD 190 and MD 220 products in Europe of approximately $237,000 or 103% in the second quarter of 2010 compared to the same period in 2009.  Unit sales increased by approximately 120% or $268,000 but were offset by a negative foreign currency exchange rate fluctuation of approximately $31,000.  Sales of Dual Stage Ultrafilters (DSUs) in the United States increased by approximately $62,000 or 93% in the second quarter of 2010 compared to the same period in 2009.  Revenue related to the contract with the Office of Naval Research recognized decreased by approximately $17,000 or 7% in the second quarter of 2010 compared to the same period in 2009.  

Operating expenses for the three months ended June 30, 2010 were approximately $648,000 compared with approximately $785,000 in the corresponding period of 2009. The decrease of approximately $137,000 is related, in part, to the reduction in depreciation expense of $33,000 or 51% in the second quarter of 2010 compared to the same period in 2009. Selling, general and administrative expenses were approximately $545,000 or 13% less in the second quarter of 2010 compared to the same period in 2009.  Reduced spending in marketing and travel expenses was partially offset by increased spending in legal, accounting and other expenses.  Research and development expenses decreased by approximately $21,000 in the second quarter of 2010 compared to the same period in 2009 because more research personnel's time was charged to cost of goods sold related to the contract with the Office of U.S. Naval Research.

Nephros' net loss was approximately $365,000 or $.01 per basic and diluted common share for the second quarter of 2010 versus a net loss of approximately $413,000 or $.01 per basic and diluted common share in the second quarter of 2009. Nephros' net loss decreased $48,000 in the current quarter primarily due to the approximately $228,000 or 38% reduction in loss from operations in the second quarter of 2010 compared to the same period in 2009.  This reduction in loss from operations was offset by a reduction in other income.  Other income of approximately $182,000, resulting from receipt of a tax credit refund, was recognized in the three months ended June 30, 2009 while there was no other income realized for the three months June 30, 2010.

End-Stage Renal Disease (ESRD) Products

Nephros markets its OLpur™ mid-dilution dialyzers in Canada and the European Union under regulatory approval in each of these markets, respectively.  In November 2008, Nephros submitted a 510(k) application for U.S. marketing approval of its OLpur™ H2H™ module and OLpur™ MD 220 filter.  On June 30, 2010, Nephros received a rejection letter from the FDA stating that the Nephros hemodiafiltration system was not substantially equivalent to approved hemodialysis treatments.  Nephros has engaged King & Spalding LLP as regulatory counsel and has scheduled a meeting with the FDA on September 10, 2010 to discuss the issues raised in the FDA's letter as well as the process for moving forward.  Based upon the in-person meeting with the FDA reviewers, the company will determine the appropriate course of action, which could include filing a new 510(k) application or filing an appeal related to the current application.  Nephros believes that, if approved, its technology would be the first FDA-approved on-line HDF therapy available in the U.S.

Water Ultrafiltration Products

In 2009, Nephros received FDA approval to market the DSU to be used to filter biological contaminants from water and bicarbonate concentrate used in hemodialysis procedures.  In March 2010, Nephros announced a product development agreement with STERIS Corporation to jointly develop filtration-based products for medical device applications.  Nephros is investigating a range of commercial, industrial and retail opportunities for its DSU technology.

Military Product Development

Nephros has contracted with the Office of Naval Research to develop an advanced water purification system for military field use. Nephros' proprietary dual stage cold sterilization ultrafilter will form the basis of the portable system. Nephros is continuing the development of its dual stage ultra reliable personal water filtration system under support from its U.S. Department of Defense appropriation and has completed initial concept development. Once work on this initial project was completed in August 2009, Nephros was awarded a new $1.8 million research contract from the Office of Naval Research for continued development of a portable dual-stage military water purifying filter.  Nephros has also introduced the DSU to various government agencies as a solution to providing potable water in certain emergency response situations.

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.  Nephros ESRD products are marketed under regulatory approval in Europe and Canada.

The Nephros Dual Stage Ultrafilter (DSU) is the basis for the Nephros line of water filtration products. 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. Nephros's DSUs are being evaluated at several major U.S. medical centers for infection control. The DSU 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 our website at http://www.nephros.com.

Forward-Looking Statements

Statements in this news release that are not historical facts constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "PSLRA"). Such statements may be preceded by words such as "may," "plans," "expects," "believes," "hopes," "potential" or similar words. For such statements, Nephros claims the protection of the PSLRA.

Forward-looking statements are not guarantees of future performance, are based on assumptions and are subject to various known and unknown risks and uncertainties, many of which are beyond Nephros' 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 Nephros may not be able: (i) to obtain appropriate or necessary governmental approvals to achieve its business plan or effectively market its products, including approval by the FDA of the Company's hemodiafiltration system; (ii) to obtain additional funding on favorable terms, if at all; (iii) to continue as a going concern; (iv) to have its technologies and products accepted in current or future target markets; (v) to demonstrate in pre-clinical or clinical trials the anticipated efficacy, safety or cost savings of products that appeared promising to Nephros in research or clinical trials; or (vi) to secure or enforce adequate legal protection, including patent protection, for its products. More detailed information about Nephros and the risk factors that may affect the realization of forward-looking statements is set forth in Nephros' filings with the SEC.  Investors and security holders are encouraged to read these documents on the SEC's website at http://www.sec.gov/. Nephros does not undertake to publicly update or revise its forward-looking statements as a result of new information, future events or otherwise except as required by law.

SOURCE Nephros, Inc.