Due primarily to an increase in sales of its flagship tissue adhesive Dermabond, Closure Medical Corp. (Nasdaq: CLSR) reported revenues of $5.9 million for the quarter ended Sept. 30.

That figure is 21 percent higher than the $4.9 million reported for the third quarter of 2001, Closure says. The jump reflects increased sales of Dermabond, a wound closure product, and sales of the company’s liquid bandage product, it says. Both products are marketed worldwide by divisions of Johnson & Johnson (J&J).

The J&J initiative has had a major impact on Dermabond’s performance, says Shawn Fitz, an analyst with Stephens Inc. in Little Rock, AR, who covers Closure. Fitz says the product is even starting to make some waves at pharmaceutical giant J&J and its Ethicon division.

“In general, the initiative is getting a little bit of traction,” Fitz tells Local Tech Wire. “On a recent Johnson & Johnson conference call, they specifically mentioned Dermabond as one of the key components of the Ethicon division. That’s the first time that products (from Closure) have had anything attributed to them from Johnson & Johnson. That’s what drove the quarter.”

The positive results boosted Closure stock almost 10 percent for the day to close at $9.82, up 85 cents from the previous day’s close of $8.97. Still, the stock is just starting to climb out of a 52-week low of $7.55 that it hit earlier this month, after trading above $15 in September.

Fitz says the stock price has been under pressure since late September, when concerns were raised by “another investment bank” about the “lack of visibility” on the quarter for Closure. He says that report weighed heavy on the company’s stock, and compounded by the general market condition, pushed Closure’s stock down from the $15-range to the $8-range recently.

“It was not warranted, based on the fundamentals of this business,” Fitz says of the stock drop. “So the evaluation is much more attractive at under $10 a share, and the fundamentals have never been stronger. So it’s a pretty compelling story.”

‘A really solid quarter’

During the quarter, Daniel A. Pelak joined Closure from Minneapolis-based Medtronic as its new president and chief executive officer, replacing Robert V. Toni, who retired for personal reasons and is moving to Seattle. In connection with the transition, the company recorded a one-time general and administrative charge for recruitment and transition services that aggregated $800,000, or 6 cents per share.

Excluding the one-time charge, net income for the quarter ended Sept. 30 was $1.4 million, or 10 cents per share, an increase of 101 percent over the net income of $684,000, or 5 cents per share, reported for the third quarter 2001. Earnings for the third quarter 2002, including the CEO transition charge, were $580,000, or 4 cents per share.

“It was a really solid quarter in terms of overall operational trends, and then obviously in terms of financial performance,” Fitz says. “Digging further, and taking a look at product lines, they had an outstanding quarter. And accounting for most of that upside was because the operational gross margin was much higher than expected.”

Gross margins in 2003 are expected to be in the range of 70 percent to 74 percent, Closure says. General and administrative expenses are expected to increase slightly, but to decrease as a percentage of revenue versus 2002.

Closure says it expects full year 2002 revenues to be approximately $23.5 million to $24 million, compared to $19.2 million in 2001, and earnings per share (excluding the one-
time CEO charge) to be 33 cents to 34 cents, up from previous guidance of 27 cents to 32 cents per share.

2003: ‘Strategy for future growth’

Raleigh-based Closure says it anticipates continued growth in 2003 and provided financial guidance for its expected results. The company anticipates revenue of approximately $30 million to $32 million, which represents growth of between 25 percent and 35 percent for 2003, due to the continued acceptance of its technology.

In 2003, Closure says it expects to report earnings of approximately $3.9 million to $4.5 million, or between 28 cents and 32 cents per share. With its continued earnings growth, the company expects to generate net cash flows of approximately $3.0 million to $4.5 million during 2003.

Research and development and regulatory costs, including clinical trials for new products and product line extensions, are expected to be between $8.5 million and $10.0 million for 2003, Closure says, versus similar costs for 2002 of approximately $6.8 million.

“Our R&D efforts in 2003 will not only be focused on existing development projects but will also include leveraging Closure’s core technologies against other unmet medical needs,” Pelak said in a statement. “We believe that the opportunities for these technologies could be broad and are a key priority in our strategy for future growth.”

Closure Medical: www.closuremed.com