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Profits Plunge At Biosensors

BiosensorsBiotechnology company Biosensors (SGX: B20) reported an 11% decline in first-quarter sales to US$76.7m. Profits fell some 63% to US$12.1m.

The company’s main business activity lies in the manufacture of various types of drug-eluting stents (DES), which are medical device used to unclog blocked arteries. The company splits its revenue into four segments, namely, Critical Care, Interventional Cardiology, Cardiac Diagnostic and Licensing & Royalties.

Biosensor’s top-line decline was mainly due to a drop in revenues from Interventional Cardiology and Licensing & Royalties, both of which are the main revenue drivers for the company. The former made up 79% of the company’s total sales while the latter accounted for 17%.

Interventional Cardiology’s sales for the quarter slid 7.3% to US$60.9m from a year ago mainly due to a slowdown in DES sales in China. That in turn, was the result of the company’s intentional reduction in the inventory levels of distributors in China because of “on-going and upcoming tender activities.”

The company’s other DES markets in the Europe, Middle East & Africa (EMEA) and Asia Pacific regions all saw “strong, double-digit sales growth.”

Licensing & Royalties revenue, where Biosensors licenses its DES technology to others, was down by 32.7% to US$11.6m. Critical Care brought in US$3.43m in sales, up a smidgen from US$3.34m in the previous year.

Finally, Cardiac Diagnostic had US$706,000 in sales for the quarter. It is a new segment for Biosensors, and is the result of a consolidation of Spectrum Dynamics’ business. Spectrum Dynamics is a company that does cardiac imaging systems and was acquired by Biosensors for US$51m in May this year.

Biosensor’s CEO, Dr Jack Wang, had this to say regarding the acquisition: “The integration process of our recently acquired business, [Spectrum Dynamics], is well on track. We are excited about the recent Japanese regulatory approval of its D-SPECT system and we remain confident of our ability to unlock the potential of this business.”

The company’s profits fell proportionately more than the decline in revenues which suggests a compression in net profit margins. There are three reasons for this.

Firstly, gross margins fell from 85% to 79%. Biosensors had entered into an agreement with Terumo Corporation in Japan to distribute Nobori DES last year and the distribution activity this quarter was one of the reasons for the fall in gross margins.

The consolidation of Spectrum Dyanmics’ businesses also ate into Biosensor’s gross profits as Cardiac Diagnostics carry inherently lower margins.

Secondly, Biosensor had spent US$26.6m on sales & marketing expenses for the quarter, an increase of 19.3% from a year ago.

Finally, there was a 121% year-on-year increase in interest expenses to US$3.4m. The increase was mainly due to US$240m worth of debt that Biosensors issued on Jan 2013. Those loans are due for repayment after four years and carry an interest rate of 4.875% per year.

The three reasons were the main causes for Biosensor’s lower net profit margins.

Biosensors’ balance sheet remains robust with a total debt load of US$273m and a cash hoard worth US$546m. The company is satisfied with the amount of cash on hand and with “continued improvement in [its] operating performance” in the horizon, there are no plans currently for future fund raising activities.

The company has forecast a 15% year-on-year growth in revenues for the year. It expects sales continuing to climb in the EMEA and Asia Pacific regions and it is confident that DES sales in China will pick up in rest of the year. In addition, Biosensors also expects the Spectrum Dynamics acquisition to provide new markets for the company.

Shares of Biosensors closed at S$0.975 on Wednesday, which represents a trailing price-to-earnings ratio of 14 and a dividend yield of 2.6% based on last year’s full-year pay-out.

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