SeaSpine Q2 Revenue Falls 6 Percent

This is the way SeaSpine Holdings Corporation’s tenure with its parent company ended: Not with a bang, but a whimper.

In the final quarter before its July 1 spinoff from Integra LifeSciences Holdings Corporation, the spinal treatment device designer/developer reported a 6 percent decrease in total revenue ($33.5 million) and a 13 percent drop in spinal fusion hardware sales (to $16.5 million). SeaSpine executives attributed the decline in hardware fusion revenue to continued pricing pressure, less demand for the company’s existing products, and delays in new product launches. Foreign exchange rate volatility also reduced overall revenues by $300,000 compared with the second quarter of 2014.

Gross profit for the second quarter was 56.6 percent, a slight decrease over the same period last year. Operating expenses increased $9.5 million to $35 million, while SG&A expenses grew by $9.4 million to $31.7 million, according to the latest earnings report. Bigwigs traced the higher charges to the spinoff from Integra, though the expenses were slightly offset by lower depreciation on instruments sets and lower commission expenses.

“Following our spin-off from Integra LifeSciences last month, we are excited to move forward with our plans to reinvigorate SeaSpine as an independent public company,” said Keith Valentine, president/CEO. “We are now well positioned financially to make targeted investments that leverage our existing platform of orthobiologics and spinal implants to drive future growth. We are bringing together a highly qualified team of professionals that is committed to new and next-generation product innovation and generation of clinical data, as well as expanding our distribution opportunity. I am excited by our robust pipeline of a dozen new products that we anticipate delivering over the next 24 months and the opportunity to significantly expand relationships with distributors worldwide.”

Orthobiologics proceeds climbed 1 percent compared with Q2 2014 to $17 million. Research and development expenses were relatively flat at $2 million. “We intend to increase our R&D spending in order to drive revenue growth through new product sales. Our objective is to launch eight to 10 innovative, new or next generation products per year,” Valentine told analysts on his first conference call. “Also important to this strategy is how we deploy capital toward our development efforts both in accelerating innovation along with deploying implant and instrument sets into the marketplace.”

Net loss for the three months ended June 30 was $17.7 million, compared with net loss of $5.4 million for the same period in 2014. Pro forma loss per share, calculated based on the 11 million shares of SeaSpine common stock distributed to Integra shareholders on July 1 was $1.60 for the second quarter compared with 49 cents for Q2 2014.

“We have a established near, mid, and long term objectives for accelerating our top line growth. Our first objective over the near-term which we defined as the next four quarters is to reduce and then stop the year-over-year revenue decline. Activities we are undertaking to reach this goal include launching several new products, investing in instrument sets and implant trays, streamlining our processes, scaling manufacturing and strengthening the leadership team,” Valentine said. “Our second objective, over the midterm which we defined as the next five to eight quarters, is to drive revenue growth in the mid single digits and to start driving gross margin expansion. We expect to accomplish this by continuing our cadence of new product introductions while balancing new launches in support of recently added and existing products. Our third objective, over the long term which we defined as the next nine to 12 quarters is to accelerate our revenues to double digit growth with a solid cadence of new product supported by implant and instrument sets in the field, we expect to be in a position to gain market share, leverage our investments and R&D, expand manufacturing, and advance all levels of our customer service and support.

SeaSpine executives expect full year 2015 revenue to range between $133 million and $139 million, representing flat to 4 percent decline versus 2014.

The Vista, Calif.-based company most likely will continue incurring spinoff costs this year but executives said they do not anticipate those expenses lasting much beyond 2015.