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Kensey Nash Corp. Reports Operating Results (10-Q)

February 09, 2012 | About:
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10qk

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Kensey Nash Corp. (KNSY) filed Quarterly Report for the period ended 2011-12-31.

Kensey Nash Corp. has a market cap of $209.6 million; its shares were traded at around $24.1 with a P/E ratio of 15.1 and P/S ratio of 2.9. The dividend yield of Kensey Nash Corp. stocks is 4.1%. Kensey Nash Corp. had an annual average earning growth of 4.6% over the past 10 years.

Highlight of Business Operations:

Orthopaedic sales of $11.9 million for the three months ended December 31, 2011 increased 148% from $4.8 million in the comparable period of the prior fiscal year. Excluding sales from our May 2011 acquisition of certain operational assets and certain liabilities relating to the business and product lines of Norian, orthopaedic sales of $7.4 million for the three months ended December 31, 2011 increased 53% from the prior year comparable quarter. Both sports medicine and spine product sales in the prior year second quarter were negatively impacted by an overall weakness in the markets and reductions in inventory levels by two of the Companys major customers. Sports medicine product sales of $3.2 million for the three months ended December 31, 2011 increased 20% from $2.6 million in the comparable period for the prior fiscal year. The increase from the prior year comparable quarter sales was primarily due to a recovery from the effect of prior year comparable quarter reductions in customer inventory levels and to a lesser degree an improvement in the overall market. Spine product sales of $5.0 million, including $1.0 million in product sales resulting from our Norian asset acquisition, for the three months ended December 31, 2011 increased 154% from $2.0 million in the comparable period of the prior fiscal year. The increase in spine product sales was primarily due to the impact of Strykers June 2011 acquisition of Orthovita, our strategic partner, as a result of Strykers significantly larger sales force and broader distribution channels relative to Orthovita. Sales of trauma and CMF products, consisting almost entirely of $3.6 million in sales resulting from the Norian asset acquisition, increased to $3.7 million in the quarter ended December 31, 2011 from $0.2 million in the prior year comparable quarter.

Royalty income of $3.5 million from St. Jude Medicals Angio-Seal net end-user sales in the quarter ended December 31, 2011 decreased 30% from $4.9 million in the same period of the prior fiscal year, due to the reduction in the rate at which St. Jude Medical is paying royalties from 6% to 2% for the U.S. and certain international end-user Angio-Seal sales. See Note 4 and its subsection St. Jude Medical Inc. to the Condensed Consolidated Financial Statements and Part II. Other Information, Item 1. Legal Proceedings included in this Form 10-Q for additional information regarding the proceedings related to royalty payments with respect to the Angio-Seal device. The decrease, we believe, is further attributable in part to increased competition and a reduction in the use of closure devices in the vascular closure device market, which we believe is a mature market. Royalty income of $1.4 million from Strykers net end-user sales of Vitoss Foam and Vitoss Bioactive Foam products in the three months ended December 31, 2011 increased 7% from $1.3 million in the same period of the prior fiscal year. This increase was offset by a $0.1 million decrease from the prior year comparable period in the royalty under the Assignment Agreement based upon VitossTM technology that expired in July 2011.

months ended December 31, 2011 increased 28% from $5.3 million in the comparable period for the prior fiscal year, primarily due to a recovery from the effect of reductions in customer inventory levels by our largest spine products customer in the comparable period of the prior year and to a lesser degree an improvement in the overall market. Spine product sales of $10.4 million, including $2.0 million in product sales resulting from our Norian asset acquisition, for the six months ended December 31, 2011, increased 131% from $4.5 million in the comparable period for the prior fiscal year. The increase in spine product sales was we believe primarily due to the impact of Strykers June 2011 acquisition of Orthovita, our strategic partner, as a result of Strykers significantly larger sales force and broader distribution channels relative to Orthovita. Sales of trauma and CMF products, consisting almost entirely of $7.2 million in sales resulting from the Norian asset acquisition, increased to $7.4 million in the six months ended December 31, 2011 from $0.3 million in the prior year comparable period.

Other product sales of $6.1 million for the six months ended December 31, 2011 increased 356% from $1.3 million in the comparable period of the prior fiscal year. As previously disclosed, in the quarter ended December 31, 2011, we achieved a $6.0 million cumulative sales milestone payment in connection with Spectranetics reaching cumulative $20.0 million in end-user sales of the product lines purchased by Spectranetics from us in May 2008. In the six months ended December 31, 2011, we recognized $5.0 million of cumulative sales milestone revenue. In each of the six months ended December 31, 2011 and 2010, we also recognized revenue of $0.3 million for two other milestones achieved in the fiscal year ended June 30, 2009 under our Development and Regulatory Service Agreement with Spectranetics. Offsetting the milestone revenue increase, was the decrease in product sales to Spectranetics as the manufacturing of endovascular products was assumed by Spectranetics in June 2011. Other product sales for the six months ended December 31, 2011 also included $0.2 million of grant revenue related to research and development programs with the U.S. government.

Cost of products sold was $16.1 million in the six months ended December 31, 2011, a $5.5 million, or 52%, increase from $10.6 million in the six months ended December 31, 2010. Gross margin on net sales was 50% for the six months ended December 31, 2011 and 52% for the same period of the prior fiscal year. Of our gross margin on net sales for the six months ended December 31, 2011, 10 percentage points were specifically attributable to our recognition of the $5.0 million of cumulative sales milestone revenue recorded in the six months ended December 31, 2011 related to the achievement of the total $6.0 million cumulative sales milestone payment in connection with Spectranetics reaching cumulative $20.0 million in end-user sales, as described above. This was partially offset by negative factors affecting our gross margin in the six months ended December 31, 2011, which included, product mix, primarily attributed to lower cardiology product sales, which have higher margins, and higher Norian product sales, which have lower margins, as well as the Norian inventory step-up charge of $1.0 million, as previously described above. Negatively affecting our gross margin in the prior comparable period were higher period costs related to reduced production levels due to lower sales.

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