December 2011
Forward Looking Statements Statements contained in this presentation that are not statements of historical fact may be deemed to be forward looking statements. Without limiting the generality of the foregoing, words such as may, will, expect, believe, anticipate, intend, could, estimate or continue are intended to identify forward-looking statements. Readers are cautioned, that certain important factors may affect the Company s actual results and could cause such results to differ materially from any forward looking statements which may be made in this release or which are otherwise made by or on behalf of the Company. Factors which may affect the Company s results include, but are not limited to, product demand, market acceptance, impact of competitive products and prices, product development, completion of an acquisition, commercialization or technological difficulties, the success or failure of negotiations and trade, legal, social and economic risks. Additional factors that could cause or contribute to differences between the Company s actual results and forward looking statements include but are not limited to, those discussed in the Company s filings with the Securities and Exchange Commission. 2
Company Overview Derma Sciences (Nasdaq: DSCI) is a medical technology company developing and delivering solutions for advanced wound care management Pharmaceutical Drug candidate DSC127 reported a successful Phase 2 study in Diabetic Foot Ulcer healing. Indications can span from chronic wounds to scar prevention to burn treatment Advanced Wound Care Proprietary dressings for chronic wounds and burns, growing at 60%+ annually Traditional Wound Care Includes both branded and privatelabel/oem dressings for basic wound care 3
Investment Highlights Game-changing upside from DSC127, an angiotensin analog for accelerated wound healing and scar reduction Positive Phase 2 data met primary and secondary endpoints Large addressable market opportunity for diabetic foot ulcers ( DFUs ) of ~$3.0 bln annually in the US Derma expects to initiate a Phase 3 trial in 1H12 Growing advanced wound care ( AWC ) business Five AWC products brought to market MEDIHONEY and XTRASORB are very early in their life cycles with plenty of room for growth US-based AWC sales force has doubled to 20 reps in mid-2011 and is expected to double again in the next 12 months to accelerate top-line growth Growing international presence bolstered by acquisition of exclusive global rights (excluding OTC) to MEDIHONEY Traditional wound-care business provides positive cash flow to help fund new technologies Recent $26.4 million (net) fundraise supports future development 4
Pharmaceutical Product Potential to Transform Derma Sciences
Overview of Diabetic Foot Ulcers Caused by neuropathic and vascular complications of diabetes Peripheral neuropathy Nerve damage causes altered or complete loss of feeling in feet/legs Patients are not warned of skin loss, blisters and ulcers Vascular disease Narrowed arteries cause abnormal pulses in the feet, leading to ulceration and stagnant wound healing After debriding the dead skin, health professionals apply a synthetic wound dressing to ensure a moist environment and promote healing Even with the best standard of care, a substantial number of DFUs remain nonhealing 6
Diabetic Foot Ulcer Market Overview Of the nearly 26 million people with diabetes in the US, 15% - 25% will develop DFU in their lifetime (1) DFU affects ~900,000 people in the US annually (2) Addressable market opportunity of ~$3 billion annually Median treatment cost of ~$40,000 in the first two years from diagnosis (3) ~$100 billion in total healthcare costs Of those patients who develop DFU, 14% to 24% require amputation (4) In the US, ~60% of all non-traumatic lower extremity amputations occur among persons with diabetes; of these amputations, ~85% are preceded by a foot ulcer (5) ~45% five year mortality rate, which is higher than that of many cancers (6) (1) Singh et al. Preventing foot ulcers in patients with diabetes. JAMA. 2005; pg 217 (2) Susquehanna Research (5/18/11); Gary Nachman (3) Rodman & Renshaw Research (11/11/10); Michael Higgins (4) National Institute of Diabetes and Digestive and Kidney Diseases. (5) Lower Extremity Foot Ulcers and Amputations in Diabetes; Gayle Reiber, MPH (6) Emerging Evidence on Advanced Wound Care for Diabetic Foot Ulcerations; Robert Frykberg, DPM, MPH; Lee Rogers, DPM 7
Approved DFU Treatment Options Company Advanced BioHealing/Shire Organogenesis Healthpoint Biotherapeutics Product Original Approval Date September 2001 June 2000 December 1997 Approval Indications DFU DFU & VLU DFU Sales (millions) 2008 2009 2010 $45 $85 $147 >$100 Peak sales were >$100 mm; June 2008 black box warning due to increased risk of cancer death Total Patients Served ~50,000 NA NA 8
DSC127: Product Overview Patented, topically applied novel angiotensin analog licensed from USC in 2007 Targets receptors that are up-regulated upon injury to tissue Application of drug to wounded skin has been shown to improve epitheliazation and granulation - Accelerating wound healing in a variety of normal and diabetic animal models - Suggests that DSC127 produces different actions at the wound site during various stages of healing Positive Phase 2 data recently announced Initial indication in Diabetic Foot Ulcer healing 9
Phase 2 Trial Design Patients enrolled into study and received 14 days of best-of-care: Debridement Cleansing Moist wound dressing Proper Off-Loading (removable cast walker) 80 Patients randomized to receive one of two dose strengths of DSC127 (0.03% and 0.01%) or vehicle placebo control following 2-week run-in to include only non-healing wounds 4 weeks of treatment with once daily application, followed by 8 weeks observation and assessment Goal was to hit or exceed 15 percentage point difference between active dose and vehicle placebo control Primary endpoint: Proportion of ulcers healed by 12 weeks (defined as 100% epithelialized with no drainage) Secondary endpoints: The proportion of subjects in each treatment group reporting adverse events, by severity and relationship to study medication Rate of re-epithelialization of the ulcer-site Differences among treatment groups in time-to-re-epithelialization and changes in DU mm and % depth and estimated ulcer site area 10
Phase 2 Top-line Results Treatment Group Difference from Odds Ratio Population 0.03% 0.01% Placebo Placebo Analysis (1) Intent to Treat (ITT) 12 weeks 54% 30% 33% 21 points 2.3x 24 weeks 73% 48% 46% 27 points 3.2x Per Protocol (PP) 12 weeks 65% 28% 38% 27 points 3.0x 24 weeks 85% 50% 52% 33 points 5.2x Safety Profile: No Serious Adverse Events (1) Odds ratio analysis represents the likelihood the high dose is to heal relative to the placebo gel. 11
Phase 2 Results (ITT Population) Percentage of Wounds 100% Closed 21 points 27 points 12
Competitive Comparison Chart 100% Wound Closure - 12 Weeks Regranex Achieved sales > $100M before black box warning Dermagraft Reported 2010 sales = $147M (1) ORA represents the odds ratio analysis, or the likelihood the high dose is to heal relative to the control group. (2) Diabetes Care 21:822 827, 1998. (3) Diabetes Care 26:1701 1705, 2003. ORA (1) 2.3x 3.0x N/A 1.7x 13
Proportion of Ulcers Healed 100% Wound Closure - 24 Weeks p = 0.053 p = 0.031 27 points 33 points 14
Time to Ulcer Healed Median Time to 100% Healing - 24 Weeks p = 0.088 13 Weeks p = 0.047 13.5 Weeks 15
Reduction in Ulcer Area Mean Reduction of Area from Baseline - 24 Weeks p = 0.001 p = 0.001 72 points 72 points 16
Reduction of Ulcer Depth Mean Reduction of Area of Depth from Baseline - 24 Weeks 46 points 49 points 17
DSC127: Milestones Complete durability studies, full data analysis May 2011 Submit Phase 2 Clinical Study Report to FDA 3Q11 Hold end-of-phase 2 meeting with FDA 1Q12 Prepare for Phase 3 study - CMC - Toxicology - Finalize protocol Begin Phase 3 1H12 Ongoing discussions with potential partners Evaluate other indications for DSC127 18
Advanced Wound Care A Newly Formed Strong Growth Business 19
About Advanced Wound Care Global Advanced Wound Care market is almost $5 billion of the total $15 billion wound care market Growth is being driven by multiple factors: Increased incidence of diseases such as diabetes and vascular insufficiency Increased life expectancy Introduction of technologically advanced products and therapies that are more clinically efficient and cost-effective than their conventional counterparts Increasing focus on infection prevention Derma Sciences currently marketed advanced wound healing products are directed to the $3 billion moist dressing segment of this fragmented marketplace Source: Global Industry Analysts, Inc. 20
Advanced Wound Care AWC revenues are growing rapidly $(000) Five new products grew 59% 9M11 over 9M10. AWC - ALL $2,947 $4,494 $7,617 $11,532 $8,255 $11,996 % Growth 52.5% 69.5% 51.4% 46.1% 45.3% 21
Advanced Wound Care ($ in thousands) 5 successful product launches Product Launched 2009 2010 9 Mos. YTD 10 9 Mos. YTD 11 Oct-06 $1,416 $1,306 $ 933 $1,132 Oct-07 2,746 5,380 3,577 5,941 Sep-08 390 769 530 1,071 Nov-08 439 997 709 1,197 Jun-09 635 1,250 898 1,250 Sub-Total New Products $5,626 $9,702 $6,647 $10,591 Note: product sales represent gross sales before trade rebates, distributor fees, sales incentives, returns and allowances and cash discounts. 22
Worldwide exclusive license to novel, patented dressings comprised of a high percentage of Active Leptospermum Medical-Grade Honey Multiple peer reviewed studies validate the superior efficacy of MEDIHONEY in chronic wounds by: Providing antimicrobial activity; effective against virulent bacteria such as MRSA while also promoting cellular regeneration of tissue Lowering ph on a wound s surface, which improves healing Providing anti-inflammatory activity by promoting cytokine production and reducing oxidative stress Significant potential for market expansion via line extensions and use in conjunction with negative pressure wound therapy 23
Strategic Position CURRENT POSITION Leading global brand 1 st mover advantage Derma Sciences deepest product offering & pipeline 24
Next Generation dressing for 6 million chronic wounds Novel, proprietary dressings that utilize super absorbent polymer technology for usage on dry-to-moderate, moderate-to-heavy, and extra heavily exuding wounds. Superior Absorption Absorbs 200% to 400% more than competitive conventional dressings Fluid Locking Converts fluid to gel, locking the exudates into the dressing (other dressings use open cell structure to retain freely moving fluid) Reduces risk of wound deterioration Holds fluids away from wound, limiting maceration and harmful effects from bacteria Cost effective Reduces nursing time and costs associated with dressing changes 25
Novel, patented barrier dressings that contain an active antimicrobial compound to help prevent the leading cause of death in hospitals Extremely effective - Kills over 99.999% of virulent bacteria including MRSA Competitive Edge - Only non-leaching antimicrobial dressing cleared by FDA. Limits toxicity and negates resistance Strong IP - Protected by nine US patents and patents pending and 24 foreign counterparts Cost Effective - Minimizes costs and risks related to hospital acquired infections 26
Traditional Wound Care Fully-integrated manufacturer of wound care products with production facilities in Canada, China, and Mexico 2nd largest global manufacturer of private label adhesive bandages Products have solid growth and margin profiles Customers include 3M, Covidien, Medline, Smith & Nephew, Rite- Aid, Walgreen, first-aid kit manufacturers Broad distribution channels through the industry s top players (including McKesson, Cardinal Health, Owens & Minor) 45% market share in Canada s traditional wound care market 27
Products Protected by Core IP Use Patents Filed multiple patents protecting use for tissue repair of angiotensin II - Analogs - Fragments and analogs thereof - Type 2 receptor agonists Patents through 2020 Method and Composition Patents Method and composition patents filed for: - Limiting scar or adhesion formation - Promoting production of living tissue equivalents - Accelerating wound healing in mammals - Promoting healing in skin grafts Use Patents US Patent for the use of honey in medical dressings - Filed December 2000 - Issued October 2005 Methods and Composition Patents Method and composition patents filed for: Honey in wound dressings Increasing viscosity of treatment composition Honey + surfactant + at least one of a fatty ester, a wax and a wax-like compound Patents through 2028 Patents through 2020 28
Summary of Financial Results ($ in thousands) 2009 2010 9 Mos. YTD 2010 9 Mos. YTD 2011 Revenue $48,526.2 $56,474.1 $41,170.6 $46,096.8 Y-o-Y Growth (3.3%) 16.4% 18.0% 12.0% Gross Profit $15,057.7 $16,527.3 $12,220.2 $13,804.8 Gross Margin % 31.0% 29.3% 29.7% 30.0% Adj. EBITDA (1) $2,785.1 $1,940.8 $1,340.7 $1,505.7 Adj. EBITDA Margin % 5.7% 3.4% (21.5%) 12.3% (1) Adjusts for depreciation and amortization, stock-based compensation and other income. 29
Balance Sheet Data ($ in thousands) As of Sept. 30, 2011 Cash and cash equivalents(1) $18,063 Investments $4,730 Total debt $-0- Use of Proceeds Initiate Phase 3 trial for DSC127 Hire salespeople for advanced wound care products Repay debt General corporate purposes Total shareholders equity $52,464 Preferred Shares Outstanding 73,332 Common Shares Outstanding 10,557,632 Potentially Dilutive Shares Outstanding 4,582,757 (1) Includes gross raise of $29 million ($26.4 million net of offering expenses) effected June 27 and the use of proceeds therefrom. 30
Experienced Management Officer Title Experience Prior Experience MedChem Edward J. Quilty Chairman and CEO 30+ years Life Medical Sciences American Hospital Co. John E. Yetter VP and CFO 30+ years Frederic Eigner EVP for Operations 30+ years Barry J. Wolfenson EVP of Global Marketing & Business Development 20+ years Robert C. Cole EVP for Sales 30+ years 31
Investment Highlights Game-changing upside from DSC127, an angiotensin analog for accelerated wound healing and scar reduction Positive Phase 2 data met primary and secondary endpoints Large addressable market opportunity for diabetic foot ulcers ( DFUs ) of ~$3.0 bln annually in the US Derma expects to initiate a Phase 3 trial in 1H12 Growing advanced wound care ( AWC ) business Five AWC products brought to market MEDIHONEY and XTRASORB are very early in their life cycles with plenty of room for growth US-based AWC sales force has doubled to 20 reps in mid-2011 and is expected to double again in the next 12 months to accelerate top-line growth Growing international presence bolstered by acquisition of exclusive global rights (excluding OTC) to MEDIHONEY Traditional wound-care business provides positive cash flow to help fund new technologies Recent $26.4 million (net) fundraise supports future development 32