"The beginning of the third quarter was marked by the highly significant news that CMS has agreed to cover AutoloGel through the CED program. The coverage approval has important implications for the size of the commercial opportunity. We will soon be in a position to provide Medicare patients with access to an effective advanced wound care option and to demonstrate the clinical and financial benefits of AutoloGel across multiple wound types and different sites of care. Our interactions with CMS on the required protocol for collecting evidence have been very constructive; we have submitted the draft protocols and expect to have a response in the near future. We believe Medicare coverage under CED and our demonstrated regulatory achievements position AutoloGel favorably for substantive strategic conversations concerning distribution opportunities."
"The enthusiasm for the RECOVER-Stroke trial continues to build among healthcare providers and neurology experts. With nine sites actively screening patients, and a queue of interested sites, we have confidence that we will have more than fifteen sites screening and enrolling patients soon, allowing us to achieve our enrollment forecast in 2013. In the third quarter, we also announced the initiation of a clinical study, funded by Duke University's Robertson Clinical and Translational Cell Therapy Program, to treat cognitive disorders in patients that have been treated for malignant glioma. The initiation of this study further demonstrates the potential value of Bright Cells in regenerative medicine."
Third Quarter Financial Results
Total revenue for the third quarter of 2012 was $1.76 million, a 15% increase compared to $1.53 million in the third quarter of 2011. The increase was largely attributable to higher sales across all product lines.
Product sales in the quarter were $1.70 million, up 11% from the third quarter in 2011. Angel sales were $1.58 million, up 10% year over year. AutoloGel sales were $108,000, up 9% compared with the third quarter in 2011.
Gross margin on product sales declined from 53% to 42% year over year, primarily due to higher raw material related costs and a mix shift to lower margin products as more Angel machines were sold to international distributors. Going forward, these machine placements are expected to drive additional sales of disposables and, over time, this is expected to result in higher margin revenue. Increased depreciation expense charged to cost of sales also contributed to the reduction in gross margin.
Third quarter cash margins on product sales, excluding $168,000 in depreciation and patent amortization expense, were 52%. Cash margins on disposable products in the quarter were 56%, modestly behind historical norms. Cash margin is a non-GAAP financial measure, most directly comparable to gross margin, and should not be considered as an alternative thereto. Cytomedix defines cash margin as gross margin exclusive of patent amortization and depreciation expense, and it is a significant performance metric used by management to indicate cash profitability on product sales.
Operating expenses in the third quarter were $4.97 million, compared with $1.85 million in the third quarter of 2011. This increase was mainly due to operating expenses associated with the Aldagen business which was acquired in February of this year, higher bonus expenses as none were recorded in the 2011 period, increased stock-based compensation, professional fees, additional headcount, and increased costs related to reimbursement, regulatory and marketing activities.
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