Osteotech net loss quadruples in 2005 on negligible revenue growth, lower margins

By Angela McDaniels

Seattle, March 31 - Osteotech Inc. said its net loss nearly quadrupled to $21.1 million, or $1.23 diluted per share, for the year ended Dec. 31 from $5.3 million, or $0.31 diluted per share, for the year ended Dec. 31, 2004.

Net loss increased to $11.6 million, or $0.67 per diluted share, in the fourth quarter ended Dec 31 from $4.6 million, or $0.27 per diluted share, for the fourth quarter of 2004.

Consolidated revenue increased by 5% to $93.3 million for 2005 from $88.6 million for 2004, according to a company news release.

And revenue for the fourth quarter increased by 7% to $21.9 million from $20.4 million for the fourth quarter of 2004.

"We are very disappointed with our financial results in 2005. A number of events in the second half of the year made it difficult for us to achieve our anticipated revenue growth objectives," president and chief executive officer Sam Owusu-Akyaw said in the release.

"We had originally expected earnings to be negatively impacted by the productivity and other initiatives we had implemented. However, the second-half events layered in incremental costs and expenses and the lower-than-anticipated revenue levels negatively impacted our gross margins."

Consolidated gross margins fell to 34% and 19% for the year and fourth quarter of 2005, respectively, compared with 41% and 30% in the same respective periods of 2004.

Osteotech said gross margins in 2005 were constrained by unabsorbed fixed costs due to reduced unit production as compared to unit sales to allow the company to consume existing tissue inventories and directly reduce overall tissue inventory levels.

According to the release, earnings were also affected by increased costs associated with strengthening and diversifying domestic tissue sources, retirement and severance costs associated with the departure of the company's former chief executive officer, chief financial officer and chief science officer and other employees in the fourth quarter of 2005 and increased professional fees, including the costs associated with an unsolicited proposal to acquire Osteotech.

More positively, the company has made "outstanding progress" on its productivity initiatives to reduce inventory levels, lead times and costs and increase tissue yields, CEO Owusu-Akyaw said in the release.

"I believe the progress necessary for Osteotech to return to profitability is well underway. We will continue to pursue our strategic initiatives in 2006 and I expect to see the benefits of these turnaround activities as we proceed through 2006 and into 2007 and 2008."

Osteotech is based in Eatontown, N.J., and provides human bone and bone connective tissue for transplantation.

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