CHATTANOOGA, Tenn.--(BUSINESS WIRE)--Chattem, Inc. (NASDAQ: CHTT - News), a leading marketer and manufacturer of branded consumer products, today announced that it has initiated a voluntary recall to the consumer level of its Icy Hot Heat Therapy product.
Icy Hot Heat Therapy, launched in December 2006, is an air-activated, self-heating disposable device for the temporary relief of muscular and joint pain. Since its introduction, the Company has received some consumer reports of first, second and third degree burns and skin irritation resulting from the use or possible misuse of the product. Based upon the Company’s review of these reports in consultation with a medical expert, Chattem believes the reported injuries are temporary or medically reversible. The number of adverse events reported to date represents less than 1/10th of one percent of the approximately 1.8 million units of product sold at retail.
In September 2007, Chattem began shipping product that included more information on the product’s label in order to clarify the directions for use and added expanded warnings and precautionary statements to further guide the consumer as to proper product usage and to prevent product misuse. After recent consultation with the FDA, in which the FDA suggested that further action was needed, the Company decided to initiate the voluntary recall of all Icy Hot Heat Therapy products. The recall is intended to eliminate the potential risk of the reported claims occurring to other consumers.
The recall does not affect Chattem’s other topical pain care products, including other Icy Hot products. The mechanism and purpose of the Company’s other Icy Hot products are fundamentally different from Icy Hot Heat Therapy. Because of these differences, the Company does not expect this recall to have a material effect on sales of its other topical pain care products. After further study, the Company may introduce a new Icy Hot Heat Therapy product, but it is not now known when or whether such product will be introduced.
Sales of Icy Hot Heat Therapy in fiscal 2007 represented 2.3% of the Company’s total revenues of $423 million and less than 1% of its total EBITDA. For fiscal 2008, Icy Hot Heat Therapy was forecasted to represent less than 2% of total revenues and less than 1% of EBITDA. In the first quarter of fiscal 2008, the Company expects to record a charge for the Icy Hot Heat Therapy recall related costs and expenses of approximately $6 million to $9 million, or $0.20 to $0.30 per share. The charge encompasses the return of products from the Company’s distributors, retail customers and end-user consumers, impairment of the affected in-house inventory and other recall-related costs.
As previously disclosed on the fourth quarter and fiscal year 2007 earnings conference call, Chattem’s portfolio of brands is performing well at retail and has continued its 2007 momentum with increases in A.C. Nielsen plus mass merchandiser point-of-sale data of 7% for the four-week period ending January 26, 2008 as compared to the same prior year period, excluding Icy Hot Heat Therapy and Icy Hot Pro-Therapy. Specifically, this retail sales data was highlighted by strong results from Chattem’s key brands, led by ACT®, up 37%, and Cortizone-10®, up 19%, driven by strong media support, Gold Bond® continuing its strong performance, up 25%, and Unisom, up 5%, all compared to the prior year four-week period. During this same period, Selsun Blue® A. C. Nielsen plus mass merchandiser point-of-sale data showed a decrease of 11% in advance of media support for Selsun Blue Naturals that started airing the last week of January.
Chattem believes that this retail sales momentum and strong year-to-date factory shipments to customers, combined with the strength of its broad portfolio of products, will enable it to achieve its previously forecasted earnings per share for fiscal 2008 of $4.00 to $4.20 and trend toward the upper end of this range, excluding the impact of the Icy Hot Heat Therapy recall charge, stock option expense under FAS 123R and any loss on debt extinguishment. In striving to achieve these results, we will maintain strong advertising and promotional support for its brands and remain focused on the growth and profitability of the brands in fiscal 2008.
FY2008 EPS Guidance
$4.00 - $4.20 Excluding recall costs and expenses, stock option expense under SFAS 123R and loss on debt extinguishment
$3.54 - $3.74 Including recall costs and expenses at the midpoint ($0.25) of the Company’s estimate and stock option expense under SFAS 123R ($0.21)
After consultation with the FDA as to content and timing, the Company has issued a separate release addressed primarily to consumers and retailers concerning the recall. The timing of this release for the Company’s shareholders and investors has thus been predicated on the timing of the separate release.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the federal securities laws. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements include statements preceded by, followed by or that include the words, “believes,” “expects,” “anticipates,” “plans,” “estimates” or similar expressions. Examples of forward-looking statements in this press release include the expected impact of the recall on sales of other topical pain care products, the introduction of a potential new product, the amount of the estimated recall charge and the fiscal 2008 guidance in this release. Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on beliefs and assumptions of management, which in turn are based on currently available information. The forward-looking statements also involve risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. Many of these factors are beyond our ability to control or predict. Important factors that could cause actual results to differ materially from those contained in any forward-looking statement include, but are not limited to the expected impact of the recall on sales of other topical analgesic products, the introduction of a potential new product and the amount of the estimated recall charge and the risk factors disclosed in our Annual Report on Form 10-K for the year ended November 30, 2007, under the caption “Risk Factors.” We believe these forward-looking statements are reasonable; however, undue reliance should not be placed on any forward-looking statements, which are based on current expectations. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly any of these in light of new information or future events.
About Chattem
Chattem, Inc. is a leading marketer and manufacturer of a broad portfolio of branded OTC healthcare products, toiletries and dietary supplements. The Company’s products target niche market segments and are among the market leaders in their respective categories across food, drug and mass merchandisers. The Company’s portfolio of products includes well-recognized brands such as Icy Hot, Gold Bond, Selsun Blue, ACT, Cortizone-10 and Unisom. Chattem conducts a portion of its global business through subsidiaries in the United Kingdom, Ireland and Canada. For more information, please visit the Company’s website: www.chattem.com.
Contact:
Chattem, Inc. Catherine Baker, Investor Relations, 423-822-3209
Source: Chattem, Inc.