Nephros Reports 2010 Third Quarter Financial Results

RIVER EDGE, N.J., Nov. 12, 2010 /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 September 30, 2010.

• Increased gross margin by 22% to approximately $303,000 from prior year period.
• Reduced loss from operations by approximately $150,000 or 28% from prior year period.
• Announced that AmeriWater adopted the Nephros DSU as a standard component of its portable reverse osmosis water treatment systems for dialysis
• Received $40,000 Milestone payment from STERIS Corporation

Financial Performance for the Third Quarter Ended September 30, 2010 (Unaudited)

For the quarter ended September 30, 2010, Nephros recognized net product revenues of approximately $622,000 compared with approximately $711,000 in the corresponding period of 2009, a decrease of $89,000 or 13%.  The $89,000 decrease in net product revenues is primarily due to a decrease of approximately $136,000 in billings related to our contract with the Office of U.S. Naval Research during the three months ended September 30, 2010 compared to the three months ended September 30, 2009. Revenue from sales of our MD filters in our Target European Market was approximately $54,000 lower in the three months ended September 30, 2010 compared to the same period in 2009. Approximately $20,000 of the European revenue decrease was due to less units sold plus an additional decrease of approximately $34,000 due to foreign currency exchange rate fluctuation. Unit sales in Europe decreased approximately 6% for the three months ended September 30, 2010 compared to the same period in 2009.  These decreases were partially offset by increased revenue of approximately $101,000 in sales of our DSU in the United States for the three months ended September 30, 2010 compared to the same period in 2009.  Approximately $73,000 of the increased DSU sales was related to the development agreement with STERIS Corporation, of which approximately $33,000 is related to the recognition of revenue previously deferred and the remaining $40,000 is related to the achievement of a milestone during the three months ended September 30, 2010.

Operating expenses for the three months ended September 30, 2010 were approximately $696,000 compared with approximately $791,000 in the corresponding period of 2009. The decrease of approximately $95,000 is related, in part, to the reduction in depreciation expense of $23,000 or 43% in the third quarter of 2010 compared to the same period in 2009. Selling, general and administrative expenses were approximately $126,000 or 19% less in the third quarter of 2010 compared to the same period in 2009.  The decrease is primarily due to a decrease in personnel related expenses of approximately $146,000 during the three months ended September 30, 2010 compared to the three months ended September 30, 2009.  This decrease was partially offset by increased legal costs of approximately $20,000 during the three months ended September 30, 2010 compared to the three months ended September 30, 2009.  Research and development expenses increased by approximately $54,000 in the third quarter of 2010 compared to the same period in 2009.  Approximately $44,000 of the increase was wages primarily due to personnel working on research projects other than the contract with the Office of U.S. Naval Research.  The remaining $10,000 increase is due to increased spending on testing materials during the three months ended September 30, 2010 compared to the same period in 2009.  

Nephros' net loss was approximately $375,000 or $.01 per basic and diluted common share for the third quarter of 2010 versus a net loss of approximately $395,000 or $.01 per basic and diluted common share in the third quarter of 2009. Nephros' net loss decreased $20,000 in the current quarter primarily due to the approximately $150,000 or 28% reduction in loss from operations in the third 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 $148,000, resulting primarily from receipt of prior year tax credit refunds approximating $146,000, was recognized in the three months ended September 30, 2009. Other income realized for the three months September 30, 2010 was approximately $18,000 resulting from a reversal of a prior year accrual.

End-Stage Renal Disease (ESRD) Products

Nephros markets its OLpur™ mid-dilution dialyzers in the European Union and Canada 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 final decision letter from the FDA for the 510(k) submission which stated that the FDA could not reach a substantial equivalence determination for Nephros's hemodiafiltration (HDF) system.  An in-person meeting with the FDA took place on September 10, 2010 to discuss the issues raised in the FDA letter.  Based upon that meeting and ongoing communication, Nephros is evaluating the appropriate course of future action.  

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 funding on favorable terms, if at all;  (ii) to continue as a going concern; (iii) 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; (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.