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Obagi Medical Products, Inc. (OMPI)

Q2 2008 Earnings Call

August 11, 2008 8:30 am ET


Ina McGuinness - Integrated Corporate Relations

Steven Carlson - President and Chief Executive Officer

Preston Romm - Chief Financial Officer


Katherine Lu - Oppenheimer

Larry Neibor - Robert W. Baird

Enrique Lribarne - Roth Capital Partners



Ladies and gentlemen welcome to the Obagi Medical Products Second Quarter 2008 Earnings Conference Call on Monday 11 of August 2008. Throughout the recorded presentation, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. (Operator Instructions).

I would now hand the conference to Ina McGuinness. Please go ahead.

Ina McGuinness - Integrated Corporate Relations

Thank you, operator. This is Ina McGuinness with ICR. Earlier this morning, Obagi Medical Products released financial results for the second quarter and six months ended June 30, 2008. Additionally, the company issued another press release announcing the launch of SoluCLENZ product line into the pharmacy Rx channel. If you have not received these press released they are available on the Investor Relations section of the Obagi Medical Products website at 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 of 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, Monday, August 11, 2008 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 Executive VP of Finance, Operations and Administration, Preston Romm.

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

Steven Carlson - President and Chief Executive Officer

Thank you, Ina and good morning everyone. We saw global sales in the second quarter rise approximately 7% to $27.8 million of net income increase 14% to $4.5 million or $0.20 per share. Domestically in spite of the impact economic conditions we are having on consumer spending, our business continue to demonstrate both stability across all our product lines, and growth will be at a modest 6.5%. It remains apparent that the macroeconomic factors continue to impact patient visits and the growth of the aesthetic procedures.

With that in mind, we are pleased to announce our investing in a new strategy initiative which we believe will drive significant future growth in our therapeutic business while reducing the impact of consumer discretionary spending. Today, based on our proprietary soluble benzoyl peroxide of BPO technology we launched our first product into the pharmacy dispensed channel branded as SoluCLENZ Rx Gel. SoluCLENZ Rx Gel is the same product that's found in the physicians dispense channel branding CLENZIderm M.D systems which is demonstrated to be as clinically effective without antibiotic exposure concerns as the leading BPO antibiotic combination drugs. Now, providing physicians with SoluCLENZ via the pharmacy channel simply gives physicians a flexibility and an option on a patient by patient basis and how they want to manage their patients acme therapy.

To the best of our knowledge we’re the first company to provide physicians with this flexibility in acme market. We believe this is the right strategy at the right time to further partnering with physicians to treat patients suffering for mild to moderate severe acne. In fact, Preston and I are speaking to you from our launch meeting where Obagi’s newly expanded sales force is being educated on the product, sales, and marketing strategies. Today, we have a total dedicated domestic sales team inclusive of a management of 130 people. We now have 45 sales reps in our therapeutic dermatology division as we have added 20 sales reps who would be focused on promoting SoluCLENZ to high prescribing therapeutic dermatologist who prefer to have their treatments dispensed by our pharmacy.

In comparison to our last call, this means we now have a 115 domestic sales people versus 93 at the end of Q1. As you know, the US market for prescription top class, I mean, treatments exceeds $1.5 billion in which BPO and BPO combinations account for nearly $500 million. We will continue to provide dermatologists with additional clinical proof in support of dispensing CLENZIderm M.D and now soluCLENZ Rx gel.

We believe in the current clinical database with 800 plus patients in over a dozen clinical studies, this compelling evidence of our Soluzyl BPO efficacy and safety. As a results we are extremely optimistic that it will be successful in partnering both the physician dispense, in this new pharmacy channel.

Further, I’m pleased to announce, we recently received notice from the United States Patent Trade Mark Office for the first patent issuance protecting our Soluzyl BPO technology and products.

Turning to our existing product lines and segment performance, for CLENZIderm second quarter sales (inaudible) million which is flat on a sequential basis yet up 38% on a year-over-year basis, account re-order rates remained strong at 79%. ELASTOderm which includes our Decolletage system and our eye cream and gel for sales increase of 14% over a year ago. Our ELASTIderm account penetration indicates that over 3,300 accounts had now purchased ELASTIderm with approximately 225 new accounts ordering in the past quarter. Reorder rates were impressive 84% for the eye cream and nearly 40% for Decolletage.

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