Rochester Medical Corporation (ROCM)

F3Q10 (Qtr End 06/30/10) Earnings Call Transcript

July 29, 2010 4:30 pm ET

Executives

Anthony Conway – Chairman, CEO and President

David Jonas – CFO, Treasurer and Secretary

Analysts

Tyson Bauer – Wealth Monitors Incorporated

Beth Lilly – Gabelli

Michael Boulgaris – Boulgaris Investments

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the third quarter 2010 Rochester Medical Corporation earnings call. At this time, all participants are in listen-only mode. (Operator instructions) We will accept your questions at the end of this conference. As a reminder, today's call is being recorded.

I would now turn the call over to Mr. Anthony J. Conway, President and CEO. Please proceed.

Anthony Conway

Thank you for joining our third quarter conference call today. I am Anthony Conway, the company's President and CEO, and with me is David Jonas, Rochester Medical's Chief Financial Officer.

To start, I will review the highlights of the quarter and then David will present detailed information on the financials and what they signify. And after that, we will be happy to take your questions.

As always, before starting, let me remind you that we will be making some forward-looking statements today. And I would refer you to the Safe Harbor statement found in today’s press release and also to the Risk Factors section in the company's Annual Report on Form 10-K for the year ended September 30th, 2009. These statements further clarify the risks and uncertainties that are associated with the forward-looking statements.

All right. First, let me review the results as reported in the press release. We reported record sales of $10,244,000 for the current quarter compared to $8,908,000 for the third quarter of last year. That's approximately a 17% increase in overall sales on a constant currency basis.

Rochester Medical branded sales rose 35% on a constant currency basis. The branded growth continues to be led by strong sales of our all-silicone MAGIC3 and Hydrosil layered hydrophilic intermittent catheters, and our new Strata brand Foley catheters. We have only a very small market share with these products and we expect excellent growth to continue going forward.

We feel very good about the FemSoft pilot activity, both here in the United States and in the United Kingdom. In the U.S., we have concluded that the clinical sell through urologists, urogynes, and gynecologists is the most effective approach to market and we plan to expand our domestic extended care sales force to take dual advantage of the MAGIC3 and FemSoft opportunity on combined sales calls. Clinicians react favorably to both product lines and we believe that the addition of FemSoft to the call will work very well for both products.

We said earlier in the year that we expected the U.S. FemSoft reimbursement rate to be finalized by the end of July. This is not yet the case. CMS has had several errors and mix-up regarding reimbursement procedures and processes for the device. We are working with them to get it resolved and we believe we will have final reimbursement established in the near term.

FemSoft introduction in the United Kingdom is off to a good start with some early adopting clinicians writing multiple prescriptions and speaking very highly of the device. As an example, we had one clinician over there that so far has written 29 prescriptions; that's just from a single clinician. That's not normal, that's the highest we've got, just to make clear, but we do have clinicians that are very, very excited about the device.

We believe that FemSoft is a natural fit for the U.K. health care system where conservative approaches to controlling incontinence are generally preferred to surgery. As we said in the press release, it is still too early to predict the market potential for the device, but we are far enough along to now have confidence in the FemSoft as a viable and integral addition to our product lines, both in the United States and the United Kingdom. We are also in discussion with interested potential distributors in other countries.

Now, let me turn it over to Dave and he will give you further insight into the numbers. Dave?

David Jonas

Thanks, Anthony. I'm going to spend a few minutes highlighting a few results reflected in our just-released third quarter fiscal 2010 earnings release.

First, our sales. For ease of discussion, unless otherwise noted, all sales information will be discussed in constant currency. I’m doing this to exclude the impact of foreign currency exchange, which will show a true reflection of our sales growth.

As Anthony has explained, our sales results for the third quarter showed very good overall growth, especially in our key branded markets in the U.S., U.K., and the rest of Europe. As we have discussed in the last couple of years, we are focused on and have increased our investments and activity in our worldwide branded sales. This has been done for many reasons, including better market access, changing reimbursement rules, and an increased clinical demand for infection reducing in all-silicone, non-latex, and non-PVC devices.

We call this our investment in growth strategy and the results have been positive. These investments and focus fueled the growth in our worldwide branded sales, which were a record $7.6 million this quarter versus $5.6 million last year, an increase of 35% for the third quarter. This 35% increase included 66% growth in worldwide intermittent sales, a 33% increase in worldwide Foley catheter sales, and a 16% increase in male external catheter sales. Our branded sales accounted for 74.2% of our total sales in the third quarter, also an all-time high for Rochester Medical.

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