Theragenics Corp. (TGX, Financial) filed Quarterly Report for the period ended 2010-06-30.
Theragenics Corp. has a market cap of $39.7 million; its shares were traded at around $1.18 with a P/E ratio of 13.1 and P/S ratio of 0.5. TGX is in the portfolios of Jim Simons of Renaissance Technologies LLC, Chuck Royce of Royce& Associates.
Sales to Bard by our brachytherapy segment represented 35% and 38% of brachytherapy seed product revenue for the three and six months ended June 30, 2010, respectively, and 46% and 45% for the three and six months ended July 5, 2009, respectively. Our surgical products segment also sells to Bard. Total consolidated sales to Bard, including sales in our brachytherapy seed segment and our surgical products segment, represented 12% and 13% of consolidated product revenue for the three and six months ended June 30, 2010, respectively, and 17% for both the three and six months ended July 5, 2009, respectively. Sales to Core by our brachytherapy segment represented approximately 13% of total brachytherapy seed product revenue for the three and six months ended June 30, 2010.
License fees in our brachytherapy segment increased 17% and 33% for the three and six months ended June 30, 2010 over the comparable 2009 periods. License fees include fees from the licensing of our TheraSphere® product, a medical device used for the treatment of liver cancer. Licensing fees also include fees related to the licensing of certain intellectual property related to an expandable brachytherapy delivery system that we developed. This agreement, which was executed in May 2008, provides for a minimal non-refundable initial license fee and non-refundable continuing royalties based upon sales subject to certain minimums.
Operating income in our surgical products segment decreased in both the second quarter of 2010 and first half of 2010 from the comparable 2009 periods. Affecting profitability in the 2010 periods was a decline in our gross profit margins on product sales. Our gross profit margins were 39% in the second quarter of 2010 and 36% for the first half of 2010 compared to 41% in the second quarter of 2009 and 40% in the first half of 2009. This decline was driven by two primary factors. The first primary factor was a spike in demand during the first quarter of 2010, increasing our backlog and putting pressure on certain facilities that were already at or near capacity. To address the spike in demand and backorders, we ran overtime, brought in temporary labor and implemented a third shift at one plant, among other things. These additional costs eroded gross margins. Amplifying the costs associated with these actions were changes in customer behavior. Recurring changes in order quantities and requested delivery dates of orders reduced the ability of our operations to efficiently address production requirements. Our specialty needle manufacturing plant was running at near capacity, putting a strain on operations. We were able to reduce our backlog during the second quarter of 2010 and reduce or eliminate some of the additional costs we were incurring to address the circumstances that existed during the first quarter. We also implemented certain measures to better control costs and margins on an ongoing basis. These factors led to improved gross margins in the second quarter of 2010 from the first quarter of 2010. The second primary factor causing lower gross margins in the 2010 periods was pricing pressure from customers and from the need to respond to aggressive pricing behavior of competitors. We believe the change in customer behavior, ordering and pricing pressures are at least in part being driven by the continued macroeconomic uncertainties prevalent in the U.S. economy. We expect continued pressure on our gross margins due to these and other factors at least until customer behavior becomes more predictable and consistent.
Operating income in our brachytherapy business decreased 22% in the second quarter of 2010 and 14% in the first half of 2010, from the comparable 2009 periods. This decrease is primarily a result of lower revenues. Manufacturing related expenses in our brachytherapy business tend to be fixed in nature. Accordingly, even modest declines in revenue can have a negative impact on operating income. Gross margins and operating income in our brachytherapy seed business are expected to continue to be highly dependent on sales levels due to this high fixed cost component. We were able to decrease some operating expenses during 2010 to offset a portion of the decline in revenue. Personnel related costs, advertising and professional fees in the 2010 periods decreased by approximately $461,000 and $787,000 in the second quarter and first half of the year, respectively, from the comparable 2009 periods. Looking forward, we may not be able to continue to reduce our operating costs to this extent or at all. Our brachytherapy business also absorbed fewer corporate overhead costs since we allocate corporate costs based upon the relative revenue of our business segments. Corporate overhead costs allocated to our brachytherapy business declined $68,000 in the second quarter of 2010, and $273,000 for the first half of 2010, from the comparable 2009 periods. Partially offsetting these declines in operating expenses was an increase of approximately $500,000 in our bad debt expense in the second quarter and first half of 2010, from the comparable 2009 periods. The increase in bad debt expense in the 2010 periods is reflective of adjustments to our allowance to reflect past due amounts related primarily to one customer.
Interest expense increased by $66,000, or 42%, in the second quarter of 2010 from the second quarter of 2009 and by $254,000, or 89%, in the first half of 2010 from the first half of 2009. Interest expense in 2010 includes fair value adjustments related to our interest rate swaps, which were entered into in June 2009. Such fair value adjustments were unrealized losses and totaled $29,000 in the second quarter of 2010 and $132,000 in the first half of 2010, compared to a $10,000 unrealized gain for the quarter and the first half of 2009. The remaining increase in interest expense is a result of higher interest rates on the outstanding borrowings under our credit facility. Our weighted average effective rate was 3.06% at June 30, 2010.
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Theragenics Corp. has a market cap of $39.7 million; its shares were traded at around $1.18 with a P/E ratio of 13.1 and P/S ratio of 0.5. TGX is in the portfolios of Jim Simons of Renaissance Technologies LLC, Chuck Royce of Royce& Associates.
Highlight of Business Operations:
We sell our TheraSeed® palladium-103 device directly to healthcare providers and to third-party distributors. We also sell our I-Seed I-125 device, and other brachytherapy related products, directly to healthcare providers. Our brachytherapy product sales decreased 11% in the second quarter of 2010 and 14% for the first half of 2010, from the comparable 2009 periods. We believe that the industry-wide decline in prostate brachytherapy procedure volume in the United States experienced over the last few years has continued in 2010. Some newer forms of treatment have increased their market share, especially those with Medicare reimbursement levels that are higher than reimbursement levels for brachytherapy. These newer forms of alternative treatments include Intensity Modulated Radiation Therapy (“IMRT”) and robotic surgery. Sales to our largest distributor, C.R. Bard (“Bard”), declined 33% and 29% for the three and six months ended June 30, 2010, respectively, compared with the comparable 2009 periods, while revenue through our direct sales force declined 17% and 26%, respectively. These declines were primarily attributable to a decline in volume. In January 2010, we announced a new distribution agreement with Core Oncology (“Core”) under which we are the exclusive palladium-103 seed supplier for prostate cancer treatment to Core. Sales to Core, which represented 13% of our brachytherapy product sales in the second quarter and first half of 2010, partially offset the decline in sales to Bard and in our direct sales. In addition to treatment options that enjoy favorable reimbursement rates and reduce demand for brachytherapy procedures, we believe brachytherapy seed volume and revenue are also affected by disruptive pricing from other brachytherapy providers and uncertainties surrounding reimbursement.Sales to Bard by our brachytherapy segment represented 35% and 38% of brachytherapy seed product revenue for the three and six months ended June 30, 2010, respectively, and 46% and 45% for the three and six months ended July 5, 2009, respectively. Our surgical products segment also sells to Bard. Total consolidated sales to Bard, including sales in our brachytherapy seed segment and our surgical products segment, represented 12% and 13% of consolidated product revenue for the three and six months ended June 30, 2010, respectively, and 17% for both the three and six months ended July 5, 2009, respectively. Sales to Core by our brachytherapy segment represented approximately 13% of total brachytherapy seed product revenue for the three and six months ended June 30, 2010.
License fees in our brachytherapy segment increased 17% and 33% for the three and six months ended June 30, 2010 over the comparable 2009 periods. License fees include fees from the licensing of our TheraSphere® product, a medical device used for the treatment of liver cancer. Licensing fees also include fees related to the licensing of certain intellectual property related to an expandable brachytherapy delivery system that we developed. This agreement, which was executed in May 2008, provides for a minimal non-refundable initial license fee and non-refundable continuing royalties based upon sales subject to certain minimums.
Operating income in our surgical products segment decreased in both the second quarter of 2010 and first half of 2010 from the comparable 2009 periods. Affecting profitability in the 2010 periods was a decline in our gross profit margins on product sales. Our gross profit margins were 39% in the second quarter of 2010 and 36% for the first half of 2010 compared to 41% in the second quarter of 2009 and 40% in the first half of 2009. This decline was driven by two primary factors. The first primary factor was a spike in demand during the first quarter of 2010, increasing our backlog and putting pressure on certain facilities that were already at or near capacity. To address the spike in demand and backorders, we ran overtime, brought in temporary labor and implemented a third shift at one plant, among other things. These additional costs eroded gross margins. Amplifying the costs associated with these actions were changes in customer behavior. Recurring changes in order quantities and requested delivery dates of orders reduced the ability of our operations to efficiently address production requirements. Our specialty needle manufacturing plant was running at near capacity, putting a strain on operations. We were able to reduce our backlog during the second quarter of 2010 and reduce or eliminate some of the additional costs we were incurring to address the circumstances that existed during the first quarter. We also implemented certain measures to better control costs and margins on an ongoing basis. These factors led to improved gross margins in the second quarter of 2010 from the first quarter of 2010. The second primary factor causing lower gross margins in the 2010 periods was pricing pressure from customers and from the need to respond to aggressive pricing behavior of competitors. We believe the change in customer behavior, ordering and pricing pressures are at least in part being driven by the continued macroeconomic uncertainties prevalent in the U.S. economy. We expect continued pressure on our gross margins due to these and other factors at least until customer behavior becomes more predictable and consistent.
Operating income in our brachytherapy business decreased 22% in the second quarter of 2010 and 14% in the first half of 2010, from the comparable 2009 periods. This decrease is primarily a result of lower revenues. Manufacturing related expenses in our brachytherapy business tend to be fixed in nature. Accordingly, even modest declines in revenue can have a negative impact on operating income. Gross margins and operating income in our brachytherapy seed business are expected to continue to be highly dependent on sales levels due to this high fixed cost component. We were able to decrease some operating expenses during 2010 to offset a portion of the decline in revenue. Personnel related costs, advertising and professional fees in the 2010 periods decreased by approximately $461,000 and $787,000 in the second quarter and first half of the year, respectively, from the comparable 2009 periods. Looking forward, we may not be able to continue to reduce our operating costs to this extent or at all. Our brachytherapy business also absorbed fewer corporate overhead costs since we allocate corporate costs based upon the relative revenue of our business segments. Corporate overhead costs allocated to our brachytherapy business declined $68,000 in the second quarter of 2010, and $273,000 for the first half of 2010, from the comparable 2009 periods. Partially offsetting these declines in operating expenses was an increase of approximately $500,000 in our bad debt expense in the second quarter and first half of 2010, from the comparable 2009 periods. The increase in bad debt expense in the 2010 periods is reflective of adjustments to our allowance to reflect past due amounts related primarily to one customer.
Interest expense increased by $66,000, or 42%, in the second quarter of 2010 from the second quarter of 2009 and by $254,000, or 89%, in the first half of 2010 from the first half of 2009. Interest expense in 2010 includes fair value adjustments related to our interest rate swaps, which were entered into in June 2009. Such fair value adjustments were unrealized losses and totaled $29,000 in the second quarter of 2010 and $132,000 in the first half of 2010, compared to a $10,000 unrealized gain for the quarter and the first half of 2009. The remaining increase in interest expense is a result of higher interest rates on the outstanding borrowings under our credit facility. Our weighted average effective rate was 3.06% at June 30, 2010.
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