Contraception device maker, Conceptus Inc. (CPTS) reported net loss of 9 cents per share during the third quarter of fiscal 2011. However, after adjusting for certain one-time expenses, the adjusted net loss came in at 0.5 cents per share, worse than the year-ago quarter EPS of 3 cents and the Zacks Consensus Estimate of 2 cents.
Revenues in the reported quarter declined 2.4% year over year to $33.1 million, missing the Zacks Consensus Estimate of $35 million. The decline in sales was primarily attributed to macroeconomic headwinds, which in turn resulted in persistent unemployment, challenging insurance trends with loss of insurance coverage and competitive market.
Conceptus derives a major share of its revenues from Essure, which is a permanent birth control system. Domestic sales of Essure plunged 5.5% year over year to $25.8 million, mainly due to the on-going macroeconomic pressure that resulted in lower patient visits to OB/GYN offices and prior-year direct-to-consumer advertising campaign, which was not repeated in the reported quarter. However, sales of the product increased 4% sequentially reflecting successful growth initiatives including an expanded field sales presence and reduction in competitive trialing.
International sales rose 11.5% on a year-over-year basis to $6.6 million. The improvement was based on favorable currency exchange and higher average selling prices arising from channel mix. However, international sales declined 18.9% sequentially due to seasonality across Europe.
Sales of the Essure system depends on the number of physicians trained to perform the procedure. Conceptus is working to make the system available worldwide by raising consumer and physician awareness as well as imparting training to the physicians on performing the procedure.
During the reported quarter, the company expanded its physician penetration by enrolling 465 new physicians into preceptorship, certifying approximately 453 physicians and transitioning approximately 151 physicians to performing procedures in the office setting. Till date, around 14,018 physicians are fully equipped to perform the Essure procedure.
Conceptus reported gross profit of $27.3 million, flat on a year-over-year basis. However, continued reduction in product manufacturing cost during the quarter resulted in higher gross margin (up 200 basis points to 82.6%).
Operating expenses increased 5.2% to $25.9 million driven by a 33.2% rise in research and development expenses and 3.3% spike in selling, general and administrative expenses. This led to a 360 basis points contraction in operating margin to 4.5%.
Conceptus exited the quarter with cash, cash equivalents and short-term investments of $85.0 million compared with $77.8 million at the end of December 2010. During the quarter, the company generated $14.4 million in cash from operations.
Guidance
Conceptus updated its revenue guidance for fiscal 2011. For the full year, the company expects revenues of $132–$136 million (previous guidance was $135–$140 million).
Conceptus recently received a favorable ruling from a jury in the District Court of the Northern District of California in a patent litigation against Hologic (HOLX). The jury ruled that Hologic’s Adiana Permanent Contraception infringes two of Conceptus' patents related to the Essure procedure. As a result, Conceptus was awarded $18.8 million as compensation for damages.
Presently, we remain ‘Neutral’ on Conceptus over the long term.
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