$14 Million Market Cap Company With Total Revenues Expected to Exceed $50 Million in 2009

Incredibly, 50% of all wounds “stall,” or remain stuck in an inflammatory phase, the body literally overwhelmed and unable to heal. When wounds fail to heal, patients run the risk of infection, or, in some cases, amputation. Whether intended for the elderly, or patients with diabetes, lupus, cancer, or burns, the importance of wound care products (clean and absorbent dressings, bandages, pads, gauze, and securement devices) that protect patients from infection and accelerate the healing process cannot be underestimated.

Neither can wound care revenues. Overall, the advanced wound care industry (which includes dressings, negative pressure devices, skin substitutes, and more) is a $4 billion annual U.S. market that is growing 10% per year. Of the thirty million operations performed annually in the U.S., nearly one million are complicated by surgical site infections resulting in costs of up to $10 billion. Considering diabetes alone, there are over 80,000 lower extremity amputations among diabetic patients annually, and the cost of hospitalizations associated with diabetic foot ulcerations reaches $2.5 billion annually. Underscoring all these statistics, the wound care market has been dominated by multinationals that have offered virtually the same product lines since the 1990s.

Based in Princeton, New Jersey, Derma Sciences Inc. (OTC Bulletin Board: DSCI) develops, manufactures, and markets wound care products that exhibit innovative technologies, empower caregivers, and focus on the unmet needs of patients. While it has a base business of $40+ million from a broad line of wound care products, the company is focused on six new advanced wound care technologies it has launched over the past two years, including advanced wound care dressings, total contact casting systems, and a compression therapy device. In addition to these lead products, Derma Sciences also has a novel angiotensin analog for accelerated healing and scar reduction, DSC127, currently in Phase II trials.

“Derma Sciences is an unusual company within the micro-cap space and a real value for investors, in my opinion,” says company Chairman, Chief Executive Officer, and President Edward J. Quilty. “It is not often you see a company within this sector with $50 million in overall revenue and $18 million in gross profit with a market cap around $14 million. Considering how well our newly launched product, MEDIHONEY, is doing in the marketplace, the fact that we have only just begun our marketing effort, and that we have an exciting a promising new drug, DSC 127, halfway through Phase II trials, we believe there is a great deal of unrecognized value in Derma Sciences and showing promising results.”

Regarding DSC 127’s potential valuation, Mr. Quilty added, “As an indication of this drug’s potentialwhat this drug could contribute to Derma, in June 2007, Shire Pharmaceuticals in-licensed JUVISTA from Renovo Ltd. Shire—paying up to $825M including $75M cash upfront for this late-stage Phase II product for the prevention and reduction of scarring. We have a comparable indication with DSC 127 and believe our product can be valued at similar levels. Given our very stable existing business combined with the ongoing development of exciting new products, we are very confident about our company and our prospects for the future.”

Derma Sciences’ leading brand, MEDIHONEY, is a unique line of products containing active Leptospermum species honey, a particular kind of honey indigenous to New Zealand and Australia. Leptospermum honey has been shown to possess unique plant derived components—such as novel antimicrobial and immuno-modulatory compounds—that make it an ideal wound care product for the management of chronic wounds and burns. In addition, the honey has several properties that also aid in wound healing. Among these properties are the honey’s low pH levels, its ability to help remove non-vital tissue from the wound area, the stimulation of new tissue growth, and reported reduction in scarring and pain levels. What is also key is that all these benefits exist without any toxicity to healthy tissue.

The patents around the MEDIHONEY dressings provide a moist, occlusive environment conducive to optimal wound healing and allow them to contain a high percentage of honey, enabling them to work effectively in the presence of wound fluid, blood, and tissue, promoting an optimal healing environment. Available in dressings and gel form, MEDIHONEY products are indicated for the management of lightly to heavily exuding wounds such as: diabetic foot ulcers, venous stasis leg ulcers, arterial leg ulcers, leg ulcers of mixed etiology, pressure ulcers (I-IV), first and second degree burns, donor sites, traumatic and surgical wounds.

Derma Sciences has a partnership with Comvita, a company located in New Zealand, which controls 75% of the Leptospermum honey harvested and has strong IP around the dressing configurations containing honey. Derma Sciences currently has exclusive rights for MEDIHONEY in the Americas and is working toward worldwide rights.

Company Overiew

• The company’s new advanced wound care products are at a current run rate exceeding $8.5 million in revenue, including annualized MEDIHONEYâ revenues in excess of $3.5 million with a gross margin of 70%. 
• Phase II results for the DSC127 diabetic ulcer trial are scheduled for release in early Q3 of 2010.
• Total revenues are expected to exceed $50 million in 2009 including revenues from the introduction of four new advanced wound care products since Q4 2008.
• Recent valuation of DSCI has been only 1/3 of revenues in a company with the leading recently launched wound dressing, a strong novel pharmaceutical candidate well into a Phase II trial, and $3.5 million dollars in core business EBITDA to help support growth initiatives.
   

Significant Opportunities

• There is only one FDA approved drug for accelerated wound healing, Regranex. While its clinical data is not very strong, it has a black box warning, Regranex has still achieved $100 million in annual sales. In pre-clinical studies, DSC127 was shown to be significantly more effective than Regranex.
• The aging population and growing incidence of obesity is driving numbers of all chronic wounds including diabetic ulcers, leg ulcers, and pressure ulcers. Up to 50% of these wounds do not heal with primary basic dressings. MEDIHONEY® is one of the only advanced wound care dressings shown in a 100+ patient randomized, controlled study to have improved healing rates compared to another advanced wound care product. (Over ten million wounds annually, average cost of therapy = $200)
• In the U.S., there are almost one million surgical site infections each year, and deaths as a result of MRSA infection have exceeded those due to AIDS. Derma is creating a leadership position in the $500 million global antimicrobial dressing market with MEDIHONEY®, BIOGUARD™, and its various antimicrobial silver products.

Product MEDIHONEY® Overview

• Patent protected line of products that contain active species of Leptospermum honey from the Manuka tree in New Zealand.
• Plant-derived antimicrobial and immuno-modulatory compounds, while also possessing other qualities making it effective for wounds and burns.

- non toxic, natural & safe
- maintaining activity in presence of wound fluid
- cleanses and debrides wounds
- lowers wound PH

• Growing evidence base of effectiveness in treating difficult to heal wounds including fifteen peer-review published journal articles and twenty-five clinical posters and abstracts presented at major wound care conferences since product launch.