Derma Sciences POST THE RECENT SECONDARY OFFERING

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Derma Sciences

DSCI : NASDAQ : US$10.42
BUY Target: US$16.50

COMPANY DESCRIPTION:
Derma Sciences is a specialty medical device/pharmaceutical company with a specific focus on wound and skin care. Derma Sciences has a complete portfolio of innovative wound and skin care products. Additionally, DSCI has licensed and clinically advanced a differentiated, novel pharmacological agent, DSC127. DSC127 has shown very promising results in a Phase II trial and is poised to enter pivotal Phase III trials in 2012

Investment recommendation
We maintain our BUY rating following the recent follow-on offering. Derma Sciences issued 3.5M shares of common stock (including the shoe), with net proceeds of approximately $34M, bringing total cash on hand to ~$49M. We had previously modeled for a financing of similar size and price in the H1/13. Therefore we view the financing positively as it fills the coffers to support the Phase III pivotal trials for DSC127.
Investment highlights
 3,521,300 shares were issued (including the shoe) at $10.34, with shares out post the deal standing at 16.5M.
 Net proceeds were approximately $34.1M.
 Cash balance post the offering is ~$49.4M.
Valuation
We are maintaining our price target of $16.50. Our price target is based on a sum-of-the-parts valuation of $6.53 per share for DSC127 combined with $10.01 per share for the base business. Our price target assumes cash of $49.4M, debt of $0.3M and 16.5M shares outstanding.

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