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Bradley Pharmaceuticals (BDY) 2007 Third Quarter Results


11/9/2007 9:53:59 AM

FAIRFIELD, N.J., Nov. 8 /PRNewswire-FirstCall/ -- Bradley Pharmaceuticals, Inc. announced today that it has filed with the Securities and Exchange Commission its Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.

Bradley reported that net sales for the quarter ended September 30, 2007 were approximately $33.6 million, a decrease of $1.6 million, or 5%, from net sales of $35.2 million for the quarter ended September 30, 2006. The Company had a net loss of $(1.2) million for the 2007 quarter, or $(0.07) per share on a fully diluted basis, based upon approximately 17.0 million shares outstanding, compared to net income of $3.8 million, or $0.23 per share on a fully diluted basis, based upon approximately 16.5 million shares outstanding for the same period last year.

In April 2007, the Company implemented a returns and inventory optimization plan designed to reduce future returns by decreasing customer inventory in the channel and to ship products with increased shelf-life to wholesalers by improving product production planning. The Company believes the increase in gross prescription sales in the Third Quarter of 2007 compared to the Second Quarter of 2007 indicates a greater portion of the current demand is being satisfied through current quarter sales rather than inventory in the channel and that the implementation of the plan contributed to lower gross prescription sales in the Second Quarter of 2007 compared to those in previous quarters. As outlined in the table below, gross prescription demand has outpaced sales in the most recent quarters, indicating a portion of the demand, particularly in the Second Quarter of 2007, was satisfied by inventory in the channel rather than through new sales. Pursuant to the returns and inventory optimization plan, the Company estimates it had reduced inventory of all products in the distribution channel from $36.4 million at December 31, 2006, to $33.2 million at March 31, 2007 and to $27.4 million at June 30, 2007. Although weeks of inventory on hand for the primary wholesale customers continued to decrease at September 30, 2007, the dollar value of inventory of all products in the distribution channel increased from the Second Quarter of 2007 to $29.3 million primarily due to sales of DECONAMINE(R) in the Third Quarter of 2007, which the Company previously had on backorder due to an inability to secure active ingredient. DECONAMINE(R) inventory in the channel was $2.3 million at September 30, 2007 compared to $.1 million at June 30, 2007. The following table is a comparison of the gross prescription demand, gross prescription sales, the returns provision and net sales for the last seven quarters ($ in millions):

With a balance sheet return reserve of $22.5 million, 77% of the inventory in the distribution channel is reserved for as of September 30, 2007.

Doak Dermatologics, led by its core branded products of ADOXA(R), KERALAC(R)/ KEROL(TM), SOLARAZE(R), ZODERM(R), LIDAMANTLE(R), and ROSULA(R), accounted for 77% of our net sales for the quarter ended September 30, 2007, while Kenwood Therapeutics, and its core branded products of PAMINE(R), ANAMANTLE HC(R), PERANEX(TM) HC, ELESTRIN(TM) and FLORA-Q(R), accounted for 19% of our net sales for the quarter ended September 30, 2007 and A. Aarons, our generic subsidiary, accounted for 4% of our net sales.

Our net sales for the quarter ended September 30, 2007 were adversely affected by generic competition, leading to declines in the acne/rosacea products, particularly in the ADOXA(R) product line, the gastrointestinal products, particularly in the ANAMANTLE HC(R) and PAMINE(R) product lines, and lower profit sharing revenues as reported to us by Par Pharmaceutical Companies, Inc. Partially offsetting the revenue declines were higher sales of the actinic keratosis product SOLARAZE(R), revenue from A. Aarons, higher sales of the respiratory product DECONAMINE(R) and sales of recently introduced products, including PERANEX(TM) HC CREAM (gastrointestinal product family), ROSULA(R) CLARIFYING WASH(TM) (acne/rosacea product family) and KEROL(TM) TOPICAL SUSPENSION (keratolytic product family). A. Aarons, which began shipping product in the Third Quarter of 2006, has shipped approximately $8.5 million of products through September 30, 2007. In the quarter ended September 30, 2007, the Company recorded revenues of $1.4 million from these sales based on prescription data and cash collections, while not recording $4.4 million, at gross sales value, for the estimated product remaining in the channel at September 30, 2007.

Net sales of ELESTRIN(TM), which was launched late in the Second Quarter 2007 and are included in "other" under Kenwood Therapeutics in the table below, were $.1 million. ELESTRIN(TM) sales have been slower than originally anticipated due to the use of trade packaging as samples, filling part of the initial prescription demand, and the Company's process of building relationships with physicians in the women's health market. According to its prescription data reported by Wolters Kluwer, the Company has experienced an increase in weekly prescriptions for ELESTRIN(TM) in October 2007 and, although there can be no assurance, expects that sales of the product will increase in subsequent quarters.

At September 30, 2007, 100% of the ADOXA(R) 150mg tablets estimated in the wholesale and retail channel is reserved due to the generic competition that began late in the Second Quarter of 2007. Due to our efforts to reduce inventory in the channel, the estimated value of ADOXA(R) 150mg tablets in the channel of $2.1 million at September 30, 2007 represents a reduction of $1.8 million from the end of the prior quarter. In the Third Quarter of 2007, the Company launched a new line extension of ADOXA (R) 150mg capsules to help offset sales declines from generic competition for the ADOXA (R) 150mg tablets.

The following table sets forth certain net sales data for the quarters ended September 30, 2007 and September 30, 2006 by therapeutic category within Doak Dermatologics, Kenwood Therapeutics and A. Aarons:

Our Kenwood Therapeutics sales force began promoting ELESTRIN(TM) to physicians in June 2007 and we expect to launch VEREGEN(TM) at the end of 2007. VEREGEN(TM) will be promoted to physicians by both our Doak Dermatologics and Kenwood Therapeutics sales forces. In connection with the launch of these products, the Company has increased Kenwood's sales force to 63 representatives at October 31, 2007 and will incur a corresponding amount of additional sales, marketing and related expenses in subsequent periods.

During the quarter ended September 30, 2007, cost of sales were $6.3 million, an increase of $.6 million from the comparable year-ago period. A recording of an inventory reserve provision contributed to a decrease in the gross profit percentage for the three months ended September 30, 2007 to approximately 81% from 84% in the corresponding period of 2006. The inventory reserve provision of $1.1 million was due to the establishment of a reserve for ELESTRIN(TM) because current forecasts do not support current inventory levels, increased reserves for generic competition on certain products, particularly ADOXA(R), and increased reserves for A. Aarons products. In addition to the increased inventory reserve provision, lower profit sharing revenues from Par and lower margins on A. Aarons generic product sales contributed to the lower margin percentage in the Third Quarter of 2007.

Selling, general and administrative expenses for the three months ended September 30, 2007 were $21.4 million, representing an increase of $2.7 million, or 15%, compared to $18.7 million for the same period in the prior year. The increase in selling, general and administrative expenses reflects higher spending on salary and salary related expenses, primarily in the sales area, and higher advertising and promotion expenses, primarily related to ELESTRIN(TM).

In both periods the Company incurred a high level of professional fees. In the Third Quarter of 2007 the Company incurred $2.0 million in professional fees primarily related to the Company's ongoing legal matters, including costs associated with independent financial advisors and legal counsel retained by the Special Committee of the Board of Directors to assist it in its work. In the Third Quarter of 2006, the Company incurred legal and advisor fees and expenses of $2.0 million relating to the proxy contest, which included an accrual for a $1.2 million settlement fee to Costa Brava.

Research and development expenses for the three months ended September 30, 2007 were $1.7 million, representing an increase of $1.4 million compared to $.3 million for the same period in the prior year. The increased research and development costs were primarily due to work on developing ELESTRIN(TM) samples and potential line extensions of existing products.

The write-off of deferred financing costs for the three months ended September 30, 2007 of $3.3 million was due to the payment of the outstanding balance under the Company's old Credit Facility.

The Company had approximately $13.1 million in cash, cash equivalents and short term investments on September 30, 2007.

Nine months ended September 30, 2007

For the nine months ended September 30, 2007, net sales were $103.5 million, a decrease of $3.6 million from $107.1 million for the nine months ended September 30, 2006. The Company had a net loss of $(.4) million for the nine months ended September 30, 2007, or $(0.02) per share on a fully diluted basis, based upon approximately 16.8 million shares outstanding, compared to net income of $8.6 million, or $0.52 per share on a fully diluted basis, based upon approximately 16.5 million shares outstanding for the same period last year.

Doak Dermatologics, Kenwood Therapeutics and A. Aarons accounted for 76%, 21% and 3%, respectively, of our net sales for the nine months ended September 30, 2007.

The decrease in net sales was primarily due to declines from generic competition in the acne/rosacea products, led by the ADOXA(R) product family, gastrointestinal product lines, led by the PAMINE(R) product family and lower profit sharing revenues as reported to us by Par. These decreases were partially offset by higher sales of SOLARAZE(R) and DECONAMINE(R), sales of recently introduced products and revenue from A. Aarons.

The following table sets forth certain net sales data for the nine months ended September 30, 2007 and September 30, 2006 by therapeutic category within Doak Dermatologics, Kenwood Therapeutics and A. Aarons:

Cost of sales for the nine months ended September 30, 2007 were $19.6 million, an increase of $3.1 million, or 19% from $16.5 million last year. The gross profit percentage for the current period was 81% compared to 85% for the comparable 2006 period. A recording of an inventory reserve provision contributed to the increased costs and lower gross margin percentage. The inventory reserve provision of $3.5 million was primarily due to generic competition on certain products, implementation of the Company's returns and inventory optimization initiatives, including shipping products with increased shelf-life to its customers, the establishment of a reserve for ELESTRIN(TM) and increased reserves for A. Aarons products.

Selling, general and administrative expenses for the nine months ended September 30, 2007 were $65.7 million, representing an increase of $8.1 million, or 14%, compared to $57.6 million for the nine months ended September 30, 2006. The increase in selling, general and administrative expenses reflects higher spending on salary and salary related expenses, primarily in the sales area, and higher professional fees related to the Company's ongoing legal matters, a review of matters set forth in a resignation letter from a former employee of the Company and independent financial advisors and legal counsel retained by the Special Committee to assist it in its work. In addition, the Company increased spending on advertising and promotion, primarily related to the launch of ELESTRIN(TM) late in the Second Quarter of 2007.

Research and development expenses for the nine months ended September 30, 2007 were $3.3 million, representing a decrease of $2.8 million, or 46%, compared to $6.1 million for the nine months ended September 30, 2006. The decrease in research and development expenses relates to a $5.0 million payment made to MediGene in 2006 under the MediGene Agreement for VEREGEN(TM) in consideration for development and registration activities undertaken prior to the date of the Agreement. The Company expensed the $5.0 million as a research and development payment during the First Quarter of 2006 since there was no FDA approval at the time of the payment. The lower research and development costs were partially offset by increased work done on potential line extensions of existing products and the cost of developing ELESTRIN(TM) samples in the current year.

Additional Information About the Proposed Merger Transaction and Where You Can Find It

In connection with the proposed merger with Nycomed US Inc and its wholly owned subsidiary, Phase Merger Sub Inc., the Company intends to file a proxy statement and other relevant materials with the Securities and Exchange Commission ("SEC"). BEFORE MAKING ANY VOTING DECISION WITH RESPECT TO THE PROPOSED MERGER TRANSACTION, STOCKHOLDERS OF BRADLEY PHARMACEUTICALS ARE URGED TO READ THE PROXY STATEMENT, WHEN IT BECOMES AVAILABLE, AND THE OTHER RELEVANT MATERIALS FILED BY THE COMPANY WITH THE SEC BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. The proxy statement and other relevant materials, when available, and any other documents filed by the Company with the SEC, may be obtained free of charge at the SEC's website at www.sec.gov. In addition, Company stockholders may obtain free copies of the documents filed with the SEC on the Company's website (www.bradpharm.com) or by contacting the Company at Bradley Pharmaceuticals, Inc., Investor Relations at 383 Route 46 West, Fairfield, NJ 07004, Telephone: (973) 882-1505, ext 252. You may also read and copy any reports, statements and other information filed by the Company with the SEC at the SEC public reference room at 100 F Street, N.E. Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 or visit the SEC's website for further information on its public reference room.

The Company and its directors, executive officers and other members of its management may be deemed to be soliciting proxies from the Company's stockholders in favor of the merger. Investors and stockholders may obtain more detailed information regarding the direct and indirect interests in the merger of persons who may, under the rules of the SEC, be considered participants in the solicitation of the Company's stockholders in connection with the merger by reading the preliminary and definitive proxy statements regarding the merger, which will be filed with the SEC. Information about the Company's directors and executive officers may be found in the Company's definitive proxy statement filed with the SEC on May 17, 2007. These documents will be available free of charge once available at the SEC's web site at www.sec.gov or by directing a request to the Company as provided above.

Other Information:

For more detailed information, please see Bradley's SEC filings, including its recently filed Quarterly Report on Form 10-Q for the quarter ended September 30, 2007, by visiting www.bradpharm.com and clicking on the Investor Relations link, then on SEC Filings.

The Company will not be hosting an investor conference call to discuss the Third Quarter of 2007 results.

Please visit the Bradley Pharmaceuticals web site at: www.bradpharm.com.

About Bradley Pharmaceuticals, Inc.

Bradley Pharmaceuticals, Inc. was founded in 1985 as a specialty pharmaceutical company and markets to niche physician specialties in the U.S. and international markets. Bradley's success is based upon its core strengths in marketing and sales, which enable the company to Commercialize brands that fill unmet patient and physician needs; Develop new products through life cycle management; and In-License phase II and phase III drugs with long-term intellectual property protection that upon approval leverage Bradley's marketing and sales expertise to increase shareholder value. Bradley Pharmaceuticals is comprised of Doak Dermatologics, specializing in therapies for dermatology and podiatry; Kenwood Therapeutics, providing gastroenterology, OB/GYN, respiratory and other internal medicine brands; and A. Aarons, which markets authorized generic versions of Doak and Kenwood therapies.

Safe Harbor for Forward-Looking Statements:

This release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements that address activities, events or developments that Bradley expects, believes or anticipates will or may occur in the future, such as the proposed merger with Nycomed US Inc., Bradley's plans to in- license, develop and launch new and enhanced products with long-term intellectual property protection or other significant barriers to market entry, sales and earnings estimates, other predictions of financial performance, launches by Bradley of new products, market acceptance of Bradley's products, and the achievement of initiatives to enhance corporate governance and long-term shareholder value. Forward-looking statements are based on Bradley's experience and perception of current conditions, trends, expected future developments and other factors it believes are appropriate under the circumstances and are subject to numerous risks and uncertainties, many of which are beyond Bradley's control. These risks and uncertainties include Bradley's ability to: launch VEREGEN(TM) at the end of 2007; predict the safety and efficacy of ELESTRIN(TM) and VEREGEN(TM) in a commercial setting; estimate sales; maintain adequate inventory levels; complete the returns and inventory optimization plan timely; reduce product returns; comply with the covenants under its new credit facility; access the capital markets on attractive terms or at all; favorably resolve the pending SEC informal inquiry; maintain or increase sales of its products; or effectively react to other risks and uncertainties described from time to time in Bradley's SEC filings, such as fluctuation of quarterly financial results, estimation of product returns, chargebacks, rebates and allowances, concentration of customers, reliance on third party manufacturers and suppliers, litigation or other proceedings (including the pending class action and shareholder derivative lawsuits), government regulation and stock price volatility. Further, Bradley cannot accurately predict the impact on its business of the approval, introduction, or expansion by competitors of generic or therapeutically equivalent or comparable versions of Bradley's products or of any other competing products. Actual results may differ materially from those projected. Bradley undertakes no obligation to publicly update any forward- looking statement, whether as a result of new information, future events or otherwise.

CONTACT: Cecelia C. Heer, Investor-Public Relations, Bradley
Pharmaceuticals, Inc., +1-973-882-1505, ext. 252 or cheer@bradpharm.com

Web site: http://www.bradpharm.com/



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