Mountain View birth control company less profitable than expected in 2010

Photo Courtesy of Conceptus, Inc.

Conceptus, Inc., (NASDAQ: CPTS) the developer of Essure, a non-surgical, permanent birth control procedure, announced fourth quarter and year-end earnings Feb. 24 that indicate the company has a lot of work to do if it’s going to meet projections for 2011.

The Mountain View, Calif. medical device company reported a net income of $83.7 million for the fourth quarter of 2010, or $2.66 per share, compared to $6.6 million, or 21 cents per share for the same period a year ago.

Results included a $79.2 million tax benefit carried forward on prior losses. Income before provision for income taxes was $4.5 million, or 14 cents per share, a total loss of over $2 million compared to the fourth quarter of 2009.

Analysts had expected fourth quarter earnings of 18 to 19 cents a share, according to Matt Dolan, an analyst who covers Conceptus for Roth Capital Partners, falling below the Street’s expectations.

“We were at 19 cents, and the street was at 18,” he explained.  “If you take out the giant tax benefit, the diluted price per share was a little light.”

For the fiscal year 2010, the company reported net income before the income tax credit of $3.3 million, compared to $8.3 million in 2009, a drop of 39.8 percent year over year.

Conceptus also announced a partnership with Ethicon, Inc., a medical device subsidiary of Johnson & Johnson, headquartered in Blue Ash, Ohio, which offers an endometrial ablation procedure called Gynecare Thermachoice that treats abnormal uterine bleeding.

Women who undergo this procedure are advised against having children, thereby making Conceptus’ permanent birth control procedure a logical partner.  Conceptus will receive a small commission when the two procedures are done at the same time, thereby helping both companies increase product awareness and sales.

This move comes about six weeks after the hiring of Sam Trujillo, a 30-year healthcare industry veteran, as Executive Vice president of Marketing.  Trujillo, 53, joined Conceptus from Bayer Healthcare Pharmaceuticals, Inc., where he was employed from 2006 to 2010.  For much of that time, Trujillo was the Director of Women’s Healthcare Consumer Marketing, and was responsible for contraceptive products such as the popular YAZ birth control pill.

The hiring of Trujillo is the latest in a series of moves Conceptus has made to boost sales and revenue, or “control the controllable” this year, according to statements made in the company’s third quarter earnings call by Mark Sieczkarek, Conceptus’ Chief Executive Officer.  In 2010 the company took hits from all sides, including reduced visits by women to their OB/GYNs due to the economy, currency fluctuations, an ongoing lawsuit over patents with a competitor, and a new French law that reduced physician reimbursement for procedures like (and including) Essure for women under the age of 40.

For these and other reasons the company revised guidance for its fourth quarter and fiscal year net sales in January.  Net sales for 2010 came in at $140.7 million, which is an increase of seven percent compared with net sales of $131.4 million for 2009.  These numbers met the expectations for preliminary net sales that the company issued in January, which revised guidance for Conceptus’ full year 2010 net sales from between $143 million and $145 million for the full year to $140.4 million and $140.7 million.

Net sales for the fourth quarter of 2010 came in at $36.6 million, a decrease of one percent compared with the fourth quarter 2009 net sales of $37 million.  Fourth quarter net sales were expected to be between $36.3 million and $36.6 million, below the company’s previous guidance of net sales between $39 million and $41 million.

“The fourth quarter was more challenging than expected as lower year-over-year OB/GYN office visits did not produce the typical year-end increase in non-urgent care procedures such as Essure [the company’s sole product],” Sieczkarek said in a press release.

However, Conceptus seems to be doing better than expected in the international markets, with 22 percent of the company’s net sales in the fourth quarter — $8 million out of $36.6 million — coming from international sales.  International sales also accounted for 35 percent of the units of Essure that Conceptus sold during the fourth quarter — 114,000 out of 324,000.

The still-recovering economy continues to hit Conceptus hard, though, as prospective patients defer non-essential procedures, Sieczkarek explained in the fourth quarter earnings call.  According to data provided by the Credit Suisse Healthcare Team, domestic OB/GYN office visits were down 14 percent from January to December 2010. “We expect these trends will have an ongoing unfavorable impact on our business, at least in the short term,” Sieczkarek said.

In order to combat the negative by-products of the current economy, Conceptus’ CEO has said the company hopes to grow the number of doctors who are trained to perform the procedure to implant Essure.

As of the end of the fourth quarter this past year, exactly 12,530 physicians have been trained to use the Essure procedure, up 3 percent from 12,117 at the end of the third quarter, and up almost 15 percent from 10,932 at the end of the fourth quarter in 2009.  Each physician does an average of one Essure procedure a month, according to Sieczkarek’s statements in the company’s fourth quarter earnings call.

Sieczkarek added that Conceptus’ partnership with Thermachoice Gynecare has the potential to double that monthly figure per physician, from one procedure to two.

“We still fundamentally believe in increasing the awareness of Essure,” Sieczkarek said in the fourth quarter earnings call.  “We strongly believe in our strategic plan going forward.”

Essure is currently the most effective permanent birth control procedure on the market, with 1.6 failures per 1000 women after three years — a 99.84 percent rate of effectiveness, according to an effectiveness report dated December 2004.  Tubal ligation, on the other hand, fails 9.9 times per 1000 women after three years, according to a 1996 study in the American Journal of Obstetrics and Gynecology.  Hologic, Inc.’s Adiana Permanent Contraception system, Essure’s only competition, fails 16 times per 1000 women after three years, according to that company’s instructions for use.

Conceptus is currently embroiled in a patent dispute Hologic.  A trial date on the patent claims is set for June 2011.

In the meantime, Conceptus will work on branding techniques such as online, digital, and viral marketing. “We remain 100 percent dedicated to innovate women’s healthcare,” Sieczkarek said during the fourth quarter earnings call.

Conceptus also released guidance for the 2011 fiscal year, which is a first in its history.  According to Greg Lichtwardt, the company’s Chief Financial Officer, sales are expected to be between $135 and $150 million, which could put the company either above or below this year’s net sales of $140.7 million.

“The street, and we, were at the high end of what ended up being their guidance range for the year,” Dolan said.  “I’m not surprised to see them take a cautious approach.”

Conceptus’ stock fell to $ $13.81 from 14.14 in after hours trading on the Nasdaq Stock Market after earnings were released on Feb. 24.  The stock is now trading near the lower end of its 52-week range, with a high of $21.67 and a low of $12.25.

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