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Obagi Medical Products, Inc. (OMPI)

Q4 2008 Earnings Call

March 5, 2009 8:30 am ET

Executives

Steven R. Carlson - Chief Executive Officer and President

Preston Romm - Chief Financial Officer and Executive Vice President of Finance, Operations, and Administration

Ina McGuinness - Investor Relations

Analysts

Katherine Lu - Oppenheimer & Co.

Scott Henry - Roth Capital Partners

Lawrence Neibor - Robert W. Baird & Co.

Unknown Analyst - Sidoti

Presentation

Operator

Good morning ladies and gentlemen and welcome to the Obagi Medical Products fourth quarter 2008 earnings conference call on March 5, 2009. (Operator instructions). I will now hand the conference over to Ina McGuinness.

Ina McGuinness

This is Ina McGuinness with ICR. Earlier this morning, Obagi Medical Products released financial results for the fourth quarter year ended December 31, 2008. If you have not received the press release, it is available on the Investor Relations section of the Obagi Medical Products website at www.obagi.com. This call is being webcast, and a replay will be available on the company’s website for 30 days.

Before we begin, we’d like to remind you that today’s remarks contain forward-looking statements within the meaning of Federal Securities Law. These statements do not guarantee future performance, and therefore, undue reliance should not be placed on them. We refer you to the risk factors contained in Obagi Medical Products’ SEC filings for more detailed discussions of the factors that could cause actual results to differ materially from those projected in any forward-looking statements. All information provided in today’s call is as of the date of the live broadcast, Thursday, March 5, 2009, and Obagi Medical Products assumes no obligation to update any such information.

Participating in today’s call from the company are President and Chief Executive Officer, Steve Carlson, and Chief Financial Officer and EVP of Finance, Operations, and Administration, Preston Romm.

And with that, I’d like to turn the call over to Steve Carlson.

Steven R. Carlson

Early good morning to everyone. When all businesses are certainly impacted by the US and world economy, we believe our overall performance in 2008 with revenues of $104.6 million, up 2% and especially our performance over the last two quarters with Q3 revenues at $26 million and Q4 revenues with a slight decline of $25.4 million shows that Obagi customers think about products and their efficacy as more a lifestyle decision than a discretionary cosmetic spend.

Supporting our resilience and overall stability, we continue to see strong new account growth with over 1300 new accounts for the year and a strong 343 new accounts in the fourth quarter. For 2008, our total number of active accounts increased 10% to more than 5700 accounts. Further, our physician-dispensed dermatology accounts group is 16% year-over-year. This continues to demonstrate that physicians are still pursuing ways to add additional revenues by incorporating the topical physician-dispensed business within their existing clinical practice.

We believe Obagi Medical Products consistence represents one of the easiest user-friendly yet still effective skin care therapies at a lower consumer spend versus alternative laser therapies, Botox, or Dermafiller injections.

Additionally, given the economy, we are exceptionally pleased with the recent launch of Rosaclear, the first cost effective prescription based physician-dispensed system for the treatment of the signs and symptoms of rosacea. Rosaclear has been widely and enthusiastically received in our first month of launch as it represents the fist highly effective treatment system for our dispensing physicians to successfully treat their patients who suffer from this socially disabling disease. In a recent clinical study, 90% of subjects shows at least one grade or 25% reduction in the severity of the signs and symptoms of rosacea after just two weeks of using the Rosaclear System. Investigators also reported an overall reduction in redness and continued improvement over the completed 4 weeks study period.

With an estimated 14 million people who suffer from the associated facial flushing and redness of rosacea, we believe this is unique opportunity for our company to treat a new patient population with a new non-cannibalizing Obagi system while leveraging our existing sales force and current account base.

Further, we continue to see progress from our investments to grow our international business. For the year and fourth quarter, revenues were nearly 12% and 17% up respectively. As we previously reported, we’re very pleased with the new and expanded relationship with Rohto Pharmaceuticals, our consumer distribution partner in Japan. We look forward to the near-term launch of our ELASTIderm product line in Rohto’s drug store distribution channel and the anticipated future launch of the more science and clinically based product line into the Prestige Department Store channel.

With the hiring of our three dedicated regional sales managers in Europe, Asia, and Latin America, we’re beginning to see some of the early benefits as we have now signed distribution agreements, received registration approvals, shipped initial orders, and have begun training physicians in China, Australia, and Russia. We’re now seeing the initial benefits of these initiatives to grow the international business and look forward to continued progress throughout 2009.

In terms of product line and segment performance, given the change in the economy and consumer spending trends in 2008 versus 2007, we are seeing corresponding shifts in our sales. In 2007, our new products of Condition and Enhance and ELASTIderm Décolletage were successfully positioned as synergistic and beneficial to improving overall patient outcomes and routinely use with an addition an existing Obagi product or system without an incremental cost to the patient and subsequent profit to the physician.

Read the rest of this transcript for free on seekingalpha.com